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Thursday, March 1, 2012

It's all about Oil

As I have posted before, I am a believer of peak oil.  Whether the peak has past or will past soon is immaterial.  In the scheme of 100+ years of oil use, we are about to hit the peak, and afterwards we will experience continued rising costs for energy.

Governments can and have been promoting green energy.  But the adoption rate is slow, but hopefully will accelerate with technology efficiency advancements.

The growth for energy in India and China is staggering.  The consumption monster drives all energy sources higher.  China has done much with nuclear and coal to relieve pressure off oil.  

So when resource costs are going higher, what can governments do?  Why a stronger currency helps offset these pressures.  Think of it this way, if the USD was worth 10x more than other currencies, oil to US Citizens would cost less than people pay in their countries.  The irony is governments are publicly advocating cheapening of the currency to make them more competitive (and help pay down debt cheaper, but that part they don't announce).  The act of lowering money's value is a tax on every single citizen, in higher expenses.

We may be seeing another round of deflation to start, to help kick resources down a few notches in cost.  And of course, sometime between September and February of next year, another round of loose money will hit the world.  But only after resource costs go lower.

To get an idea how expensive oil is, and remember, the US and Europe are experiencing weak economies, look at the graphs below.  The second one is important, it helps make the costs of oil reletive in current dollars. By any historical standard, oil is expensive.

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

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