We can note that only about 10 years ago, New Economists could still proclaim oil and gold as Sunset Commodities. Resource depletion, let alone climate change never featured in reheated and recycled Adam Smith slogans from about 1760 – reworked as wildly intelligent one-liners by leading edge New Economic "intellectuals" for a decade or two. As they claimed (and a few survivors still claim), if we run out of something someplace, and maybe ruin the environment doing so, we can move somewhere else and practice the same slash and burn – the Earth is big. All you need is market freedom, a few Ponzi schemes maybe, and rejuvenated capitalism will deliver, especially those old-time commodities like oil, metals or even food, which we hardly need any more, even if the Chinese and Indians havent yet found this out.

Periodically, this eccentric and fact-free belief in 'permanent abundance' of all primary products surfaces in official print, for example the December 10, 2008 report of the World Bank: Global Economic Prospects 2009. This report not only claims that mineral resources like oil, gas, and the metals will remain 'abundant', but so also will food commodities. Making sure not to join up the dots by explaining the thermodynamic reality that only cheap energy can beat resource depletion, the World Bank likes to imagine windmills and solar collectors (last year it was biofuels) can get us out of any problem. To be sure, the Bank adds, we might perhaps have a temporary crisis or two like the present !

Taking gold, no underground industrial-scale gold mine on earth now operates at less than 3.5 kilometres depth, on orebodies with a clarke (richness) of better than a few grams per ton. World gold production is almost each and every year behind demand and consumption. If there is a sudden upsurge in demand because the US dollar is given Obama-style benign neglect, after 8 years of Bush-style benign neglect, gold prices can only go North in a very, very serious way.

As for cheap oil which has returned, briefly, to signal that all asset classes are in deflationary rout at this moment (Q4 2008) the ASPO 7 conference in Barcelona, Spain (Oct 2008) provided sobering and very coherent, convergent data on probable future supply trends. By 2010 it is likely the 'Peak Oil plateau' of around 89 Mbd (including about 1.4 Mbd "well-to-wheel" losses in production, transport, storage) will break. Usual press estimates of world total oil production (ranging around 87 – 88 Mbd) do not include the loss factor – some of which is counted, and some not. In other words, current oil demand of about 87.5 Mbd leads to production needs likely exceeding 88.5 Mbd. ASPO estimates, and a few oil industry heavyweights like the CEO of Total Oil SA, place the short-term sustainable maximum for total production at no more than about 90 Mbd.

After the Peak Oil plateau, from 2010, we will move into the post-plateau downslope in world oil availability. Average annual long-term loss will likely run at about 4% by volume, and about 6% annual for export volumes, specially due to the immoderate appetites of oil producer countries – who actually use the stuff themselves ! According to the IBRD's Global Economic Prospects 2009 world oil reserves are (I cite) 'incredibly stable' at approximately 40 years-equivalent of current demand. Confusing this with 'abundance', by design or ignorance, will in no way ensure adequate world oil supply. The World Bank, to be sure, likes to maintain the folksy notion that present production will stay rock solid for exactly 40 years, then fall to zero in an instant ! In fact the Consumer Herd will soon face, and adapt to ever-declining annual export supply because there is No Alternative.

Oil Price rises are Inevitable, anyway

Through 2007, with oil prices regularly flirting near 100 USD/bbl the global economy achieved at least 5% growth. Today, with 40-dollar oil we are likely in a trend of global economic growth being less than 3% annual, and in outright recession for the OECD countries. Cheap oil favors growth ?

Today we have about 12 months – maybe more if the recession is deep and long, and maybe less if OPEC seriously cuts exports – before oil prices have to explode again simply because of supply shortage. From 2010 we face an annual average decline of world oil export supply, currently around 51 Mbd, that will quickly move up to more than 2.5 Mbd lost, each year. This is about the total present oil import need of Germany. Six years of this decline will wipe out almost all current US oil import volume from the oil-dominated energy markets, while they still exist.

To be sure, the specter of runaway and catastrophic climate change, perhaps in 20 or 30 years, is a nice explanation of why Soft Energy and Cleantech is the newest asset bubble financial trolls and political sherpahs have got their hands on, but oil depletion runs on a totally different timeframe. This isnt 20 or 30 years, but 2 or 3 years before oil will have to be taken away from the casino-type, short term focus, rumor-driven and characteristically anarchic free markets, freely shifting prices through + or – 100 dollars per barrel in a few months. Soon, we are going to find that public opinions, economic deciders and even politicians have run out of patience with this insane volatility.

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