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Unfortunately the graph doesn't take the geopolitics of the situation into account. American oil reserves are long past their peak (about 40 years ago) and we a

Unfortunately the graph doesn't take the geopolitics of the situation into account. American oil reserves are long past their peak (about 40 years ago) and we are largely dependent on foreign oil. If demand begins to outstrip supply, what's stopping the Saudis from keeping their oil to themselves? Or better yet, what's stopping them from selling it to China for a much higher price than what American oil companies can bid.

cellis 16y ago
An equilibrium will be reached.
ghshephard 16y ago
Oil is fungible. As long as the product is sold into the market, it doesn't matter who is purchasing/selling it. So, if Canada were to switch it's contracts to China, then the people who were previously selling to China, would then sell to the US. The only possible concern would be an embargo, in which countries _refused_ to sell to the US at any price. That would be problematic - but it isn't related to Peak Oil and could occur at any time (and, in fact, has in the past) - see http://en.wikipedia.org/wiki/1973_oil_crisis http://en.wikipedia.org/wiki/1973_oil_crisis
- david927 16y ago
  It's fungible until it becomes strategic.
  - gruseom 16y ago
    Interesting point, but oil is strategic, so by your logic it must not be fungible.
    - david927 16y ago
      I'm sure you're just being funny, but I'll bite: How I'm using the term strategic here is to indicate that certain resources, those that are most critical to be able to function, such as water and oil, will not always respond to market forces. So the flatness of suppliers, that it is fungible, is rendered irrelavent once it becomes critical, because that is an aspect of the market to which it no longer strictly applies.
  - jackowayed 16y ago
    No. It's always fungible. Crude oil is crude oil is crude oil. Now, problems could still arise where many countries refuse to sell to us or where China just buys a bunch of oil and starts a huge strategic petroleum reserve that's mainly meant to give us more of a shortage (but that would get expensive quickly, even for China.). But that has nothing to do with whether oil is fungible. Fungibility means that it makes no difference if Saudi Arabia decides they won't sell to us and instead sells the 100B barrels/day that they would have sold to us (made up number) to China, and because of that, China buys 100B fewer barrels/day from Canada, who sells that 100B to us instead.
    - david927 16y ago
      You don't understand. America, for example, needs a minimum amount of oil per day to function. If oil becomes very scarce, very quickly, then most countries will see it as a strategic resource. They may sell, to be sure, but not at a volume or a price that will ensure a level of functional viability. This may not happen, of course, but America isn't stupid: it has spent hundreds of billions ensuring that Iraqi oil will be that source when others fail. Do you see? It's not just a simple matter of being fungible, because all suppliers are also consumers, and the resource has the potential to be strategic, in which case trumps market forces. If suddenly water became scarce, I may not sell to you at any price because I want to ensure that I have enough for me and my family. It doesn't matter that water is the same everywhere -- if everyone feels that way, you're not going to get some at a price or volume of any certainty. Period.
    - stretchwithme 16y ago
      embargoes don't work. they don't work when we try them on other countries. Embargoes really only work when we help those that are embargoing us by setting price controls. We did that in the 70s and it worked like a charm. Normally, the price we would pay would just go up and third countries would sell us the commodity or cartel members would cheat themselves. The 70s embargoes wouldn't have worked if the US government hadn't shot itself in the foot. We even had shortages of natural gas and ALL of it was coming from the US! The market works. The law of supply and demand functions, unless the government decides to break it.
    - 16y ago
idoh 16y ago
If China pays more for the barrels then so be it. It all comes down to who can pay more for it, because they are getting the most value from it.
sokoloff 16y ago
Your last point is what makes a market. If the oil is worth more to the Chinese than it is to American oil companies, the Saudis ought to sell it to them; whether you're Saudi, Chinese or American, capitalism works the same.
david927 16y ago
The answer is Iraq: http://www.foreignpolicy.com/articles/2010/03/17/how_iraqi_oil_is_changing_the_world http://www.foreignpolicy.com/articles/2010/03/17/how_iraqi_o...
- gruseom 16y ago
  That's a very interesting article from the heart of the American foreign policy establishment. Back in 2002-03 during the runup to the Iraq war, I had long conversations with an office mate trying to figure out what was really going on (the asinine fiction of WMDs being obvious propaganda, ineptly executed at that). One theory that we came up with was that the US were doing it to gain leverage over the Saudis. It's interesting to see that articulated so plainly in the pages of Foreign Policy magazine: the emergence of Baghdad as a rival to Riyadh Couldn't have put it better myself! (I'm not saying that's why, of course. I don't know why. But "it has nothing to do with oil" always struck me as a tad naive, and by "a tad" I mean "maximally".)
  - david927 16y ago
    "The Iraq war is largely about oil." ... "I'm saddened that it is politically inconvenient to acknowledge what everyone knows," -- Alan Greenspan

cellis 16y ago

An equilibrium will be reached.

ghshephard 16y ago

Oil is fungible. As long as the product is sold into the market, it doesn't matter who is purchasing/selling it. So, if Canada were to switch it's contracts to China, then the people who were previously selling to China, would then sell to the US. The only possible concern would be an embargo, in which countries _refused_ to sell to the US at any price. That would be problematic - but it isn't related to Peak Oil and could occur at any time (and, in fact, has in the past) - see http://en.wikipedia.org/wiki/1973_oil_crisis http://en.wikipedia.org/wiki/1973_oil_crisis

david927 16y ago
It's fungible until it becomes strategic.
- gruseom 16y ago
  Interesting point, but oil is strategic, so by your logic it must not be fungible.
  - david927 16y ago
    I'm sure you're just being funny, but I'll bite: How I'm using the term strategic here is to indicate that certain resources, those that are most critical to be able to function, such as water and oil, will not always respond to market forces. So the flatness of suppliers, that it is fungible, is rendered irrelavent once it becomes critical, because that is an aspect of the market to which it no longer strictly applies.
- jackowayed 16y ago
  No. It's always fungible. Crude oil is crude oil is crude oil. Now, problems could still arise where many countries refuse to sell to us or where China just buys a bunch of oil and starts a huge strategic petroleum reserve that's mainly meant to give us more of a shortage (but that would get expensive quickly, even for China.). But that has nothing to do with whether oil is fungible. Fungibility means that it makes no difference if Saudi Arabia decides they won't sell to us and instead sells the 100B barrels/day that they would have sold to us (made up number) to China, and because of that, China buys 100B fewer barrels/day from Canada, who sells that 100B to us instead.
  - david927 16y ago
    You don't understand. America, for example, needs a minimum amount of oil per day to function. If oil becomes very scarce, very quickly, then most countries will see it as a strategic resource. They may sell, to be sure, but not at a volume or a price that will ensure a level of functional viability. This may not happen, of course, but America isn't stupid: it has spent hundreds of billions ensuring that Iraqi oil will be that source when others fail. Do you see? It's not just a simple matter of being fungible, because all suppliers are also consumers, and the resource has the potential to be strategic, in which case trumps market forces. If suddenly water became scarce, I may not sell to you at any price because I want to ensure that I have enough for me and my family. It doesn't matter that water is the same everywhere -- if everyone feels that way, you're not going to get some at a price or volume of any certainty. Period.
  - stretchwithme 16y ago
    embargoes don't work. they don't work when we try them on other countries. Embargoes really only work when we help those that are embargoing us by setting price controls. We did that in the 70s and it worked like a charm. Normally, the price we would pay would just go up and third countries would sell us the commodity or cartel members would cheat themselves. The 70s embargoes wouldn't have worked if the US government hadn't shot itself in the foot. We even had shortages of natural gas and ALL of it was coming from the US! The market works. The law of supply and demand functions, unless the government decides to break it.
  - 16y ago

idoh 16y ago

If China pays more for the barrels then so be it. It all comes down to who can pay more for it, because they are getting the most value from it.

sokoloff 16y ago

Your last point is what makes a market. If the oil is worth more to the Chinese than it is to American oil companies, the Saudis ought to sell it to them; whether you're Saudi, Chinese or American, capitalism works the same.

david927 16y ago

The answer is Iraq: http://www.foreignpolicy.com/articles/2010/03/17/how_iraqi_oil_is_changing_the_world http://www.foreignpolicy.com/articles/2010/03/17/how_iraqi_o...

gruseom 16y ago
That's a very interesting article from the heart of the American foreign policy establishment. Back in 2002-03 during the runup to the Iraq war, I had long conversations with an office mate trying to figure out what was really going on (the asinine fiction of WMDs being obvious propaganda, ineptly executed at that). One theory that we came up with was that the US were doing it to gain leverage over the Saudis. It's interesting to see that articulated so plainly in the pages of Foreign Policy magazine: the emergence of Baghdad as a rival to Riyadh Couldn't have put it better myself! (I'm not saying that's why, of course. I don't know why. But "it has nothing to do with oil" always struck me as a tad naive, and by "a tad" I mean "maximally".)
- david927 16y ago
  "The Iraq war is largely about oil." ... "I'm saddened that it is politically inconvenient to acknowledge what everyone knows," -- Alan Greenspan