The International Energy Agency warned yesterday that the world will face an oil crunch in five years. Crunches are just the thing that oil is supposed to prevent... the black goo, after all, is a lubricant. But something must be going wrong. The International Energy Agency says supplies are falling faster than expected. Instead of growing at 2% per year; it's now thought that oil consumption will grow at 2.2% per year.
Even that seems as though it might be on the low side... if the global Crack Up Boom continues, that is. Which is what makes our job of reckoning so difficult lately. There are so many phony and precarious trends to reckon with. The dollar is a fraud. More dollars bring forth more yen, more yuan, more euros... and so forth... which, in turn, bring forth more production, more sales, more investment, more consumption, and more energy use!
More "money" - even fraudulent money - begets more economic activity, which begets more use of raw materials, especially oil. New houses in America are about 15% larger than they were just six years ago. They need to be heated and cooled. On a really hot day, Phoenix - one of the fastest-growing metropolises in North America - can use more electricity than New York City.
Half of the new houses and apartments in China are equipped with air-conditioning. Millions of people who, only 10 years ago could barely afford to buy bicycles, are now driving around in automobiles. And now even the poor in America fly on airplanes... use air-conditioning... and keep their TVs running day and night.
Thanks to the worldwide Crack Up Boom, people all over the planet are building new cities and new lifestyles. But they are all basing their plans on yesterday's oil prices! And yesterday, there was still plenty of oil. Oil from Britain's North Sea is now in decline... and by 2015, Dubai's oil boom will be over. And many geologists believe that the entire world supply of oil has peaked out.
On the one hand, it looks to us as if the oil market has underestimated this huge new demand and subsequent crunch the International Energy Agency is warning us of. On the other, it looks to us as if this huge new demand cannot continue to grow at the same pace - because a Crack-Up Boom must crack up. And when it does, demand for oil... art... stocks... and many other things... will go down in a hurry.
There. Is that helpful? Probably not. But that is the state of our reckoning with the oil market. We think oil is probably under-appreciated. But we suspect it will be appreciated even less when the credit bubble starts to go flat.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
