Yes, I did write Petroleum Oil An Organic Renewable Resource. Wouldn’t it be funny if oil prices were based on a false economy, a false scarcity, like diamonds?
What if oil were as plentiful and as easy to harness as compost? That the environmentalists are unwitting dupes who actually fuel inflated oil prices as an unintended consequence of crying “the sky is falling, the sky is falling.”
All markets desperately try to keep their product from being commoditized; or, they push to restrict production (a false scarcity) until profits stabilize (as in, become more profitable).
Commoditization kills profit margins.
Creating a sense of scarcity allows profits to improve just based on simple fear. And there is no end to where it can be ultimately pushed if the market is willing to remain flexible. Take agribusiness. Subsidies are not about paying farmers not to farm, it is about gaming the commodities market so that wheat is either easier to sell or more profitable to produce.
Let’s look at the diamond market.
This from Mark del Bianco when I popped him an IM looking for the world “false scarcity,” “DeBeers (South Africa) and the Russians have conspired to keep the worldwide supply low. The US DOJ has chased DeBeers for years on antitrust cases. DeBeers has to avoid the U.S. for that reason. They sell outside US.”
Same with oil. If you can push the profts of oil for a little while — or until the market fails or, more realistically, corrects itself — you can bring lots of other markets along for the ride, including precious metals (especially gold). It can be a real boon for the commodities broker and his brokerage.
I was moved to discuss this based both Anthony Citrano’s article, The Coming Islamic Superpowers?, and a missive I published from an unnamed journalist in an undisclosed location who had an interesting chat with a retired general, So a Retired General Walks up to a Journalist in a Bar….
So, this morning I go back to follow up on The Coming Islamic Superpowers? (thanks for the link, Anthony) and am happy to see some wonderful comments so I add my own:
Everything is ties together. Gold is flying as high as oil. Copper, too. The Chicago exchange is having a hayday. Don’t just look at who is making money on oil, look also at who is making money on contracts, on services, on shipping, and on commodities. That is where it is fun to look.
Follow the money.
Harry is right. Sustainable energy is just stealing from Peter to pay Paul.
It will aid the individuals who are early adopters, but when these initiatives become national or global solutions, there will be just the sort of blowback that Harry mentions.
The market is too smart — and is too interconnected — to fall for the “sustainable energy” solution.
Oh, and there is way too much money to be made to let the whole sustainable energy market become institutionalized. Agribusiness can ignore a lot of backyard personal gardens — can suffer them without the flattening of growth — but when the point of pain happens, then agribusiness might not be so kind.
The important thing to try to do is to find a replacement profit center for these investors — sort of a methadone — who are now invested in fossil fuel.
Organics worked for agribusiness. What will the methadone be for energy?
What do you think?
