Exactly why oil traders and speculators think the data has anything to do with the state of world oil demand is beyond me. I suppose, like Pavlov’s dog, they’re only doing what they’re trained to do. But their training comes from a world that no longer exists.

While the US oil inventories data pertains to the largest oil-consuming nation on the planet, it is no more indicative of world demand than US oil production numbers are indicative of world supply. Both are in terminal and irreversible decline.

It certainly wasn’t US fuel demand that took oil prices over $100 in the first place, and it won’t be US fuel demand that will push them back into that range anytime soon. US oil consumption is almost 3 million barrels per day short of its pre-recession peak.

But the fact of the matter is that US oil consumption will never regain its pre-recession peak, just as US motor vehicle sales will never again see the levels that prevailed before the recession. Ditto for oil consumption in Canada, Western Europe, Japan, or, for that matter, anywhere in the OECD economies.

Back in the 1990s, that kind of demand contraction in the OECD would have foretold a big decline in oil prices, since those countries accounted for almost three quarters of global oil demand. Today, they account for barely half, and tomorrow they will account for even less.

Just as the developing world has long surpassed the developed world in terms of coal consumption, the same is about to happen with respect to oil. Between explosive growth in oil-thirsty economies like China and India, and OPEC’s voracious appetite for its own fuel, OECD fuel markets are becoming increasingly marginal. That’s why Saudi Aramco is far more interested in securing long-term supply contracts with rapidly expanding domestic oil markets in countries such as China and India than in supplying shrinking oil markets like those in the US.

In a world where affordable oil supply will soon peak, if it hasn’t already done so, global oil consumption quickly becomes a zero-sum game. As China moves from consuming 8 million barrels a day to 10 million barrels, and OPEC ramps up its own daily consumption from 10.5 million to 12 million barrels, somehow, somewhere else in the world, there must be a corresponding decline in oil consumption. That somewhere else just happens to be the US market and the oil markets of the other OECD economies.

So instead of thinking that a decline in US oil consumption means a build-up in global oil inventories, just think of it as freeing up another barrel to be guzzled in China or the Middle East.

The fact of the matter is, wherever you go in the OECD, we’re all PIGS now. That’s because we mistook an energy shock for a financial crisis and bailed out everyone under the sun. But we are soon going to find out that today’s bailouts are tomorrow’s spending cuts.

The enormity of the government cutbacks that lie ahead is yet to be appreciated. Simply winding down the stimulus is going to be a challenge in itself to the economic outlook, considering that virtually every major OECD economy is still on fiscal life-support right now. But actually paring those deficits down is a whole other matter. For the economy, it is tantamount to taking one’s foot off a floored accelerator, suddenly slamming on the brakes, and then keeping them on at full force for years to come.

That day of reckoning is coming sooner than you might think. While government budgets these days are still trumpeting economic stimulus, finance departments are already quietly focusing on how to unwind it. And capital markets may compel them to do that a lot sooner than they had otherwise planned.

Central banks can print all the money they want, but the pairing of record high budget deficits and record low interest rates is a marriage that isn’t going to last—bond issue after bond issue of government debt will see to that. And when that marriage ends, the cost of servicing that mountain of government debt is going to make the task of reining in those already record budget deficits all the more difficult.

Better do your borrowing before your government does its own. If you don’t, you might not be able to afford what it will soon cost.

Our first run-in with triple-digit oil prices put us into the deepest recession of the postwar period, and has left us with record budget deficits.

What will our next encounter bring?

Oil is already trading at around $80 per barrel, and we are in the very early stages of a global economic recovery. Surely time is on Alberta’s side, and on that of the royalties the province commands from the billions of barrels of oil trapped in its tar sands. Those royalties are already larger than the ones from natural gas, historically the province’s fiscal staple.

What Albertans don’t seem to realize is that they might just be in a position to take a bigger slice of bitumen’s growing royalty pie—particularly when their competitor as the primary source of tomorrow’s oil supply happens to be Venezuela’s Orinoco tar sands.

The latest estimate by the US Geological Survey claims there are 513 billion barrels of heavy oil beneath the steaming jungles of Amazonia, roughly three times the deposits in Alberta. But there is an even bigger difference between the two resources, and it’s not what lies underground.

Venezuela, like most places in the world today, believes that its vast oil reserves belong to its state oil company, Petróleos de Venezuela. In Canada, by contrast, not only is there no state oil company (Petrocan, long privatized, was recently swallowed by Suncor) but there are virtually no foreign ownership restrictions on oil reserves. In a world of rampant resource nationalism, that makes Alberta a very special place.

With the enormous deposits in the Orinoco now off limits, Alberta’s tar sands represent almost three quarters of the oil reserves in the world that are open to private investment and ownership—and by that I mean where good corporate citizens like ExxonMobil can stick a huge straw in them and siphon off the resulting petrodollars to their head offices.

In Venezuela, the company had to walk away from one such straw, a multi-billion-dollar one that it built for the Orinoco tar sands (the 120,000 barrel-per-day Cerro Negro heavy crude upgrader), when President Hugo Chàvez decided to reroute that outward-bound flow of petrodollars. Next thing you know, Exxon (and its Canadian subsidiary, Imperial Oil) is pouring billions of dollars into its Kearl Lake, Alberta, operation, a project that was previously deemed too expensive.

The longer the Orinoco river basin remains a place to fish for peacock bass instead of extracting millions of barrels of heavy oil, the stronger Alberta taxpayers’ position is.

So forget about taking a new political direction with the upstart Wildrose Alliance Party. Facing a $4.5 billion deficit, maybe it’s time Albertans took a page out of Hugo’s playbook, and started getting a bigger share back from their biggest resource.

The first thing I noticed about smart (i.e. off-peak) prices was how expensive dumb (i.e. peak) prices were. At 9.3 cents per kilowatt hour, power ain’t cheap anymore on the grid Sir Adam Beck built from Niagara Falls.

Sure, if I wanted to do my laundry, run the dishwasher and charge my electric car (if I had one) at night, I could get all the juice I wanted at the very reasonable price of 4.4 cents per kilowatt hour. But I might just want to sleep and leave the laundry and dishes for another day and take the bus to work in the morning.

Toronto Hydro’s new smart-pricing initiative is married to Ontario’s new Green Energy Act, which sanctions increased reliance on renewable energy. After gagging on the cost estimates for a couple more reactors, the province backed away from nuclear. And it’s vowing to close down North America’s single largest source of CO² emissions, the Nanticoke coal plant, within the next four years (mind you, the same Ontario government has promised this before).

Tomorrow’s power will come from renewables via a $7 billion deal with Samsung to install wind turbines in the Great Lakes, and to provide solar energy as well.

Many will applaud the addition of this clean and renewable source of power to the grid. Fewer will applaud the 19-cent-per-kilowatt-hour price tag that’ll come along with it.

As they say in stock brokerage, find a strong enough wind, and even pigs can fly. Pay 19 cents per kilowatt hour for power, and you can let the wind turn on the lights. But at that price, how long will you leave them on?

The larger the contribution wind power makes to tomorrow’s grid, the less power you will be able to afford to draw from it—the same way triple-digit oil prices, which will pull tomorrow’s oil supply out of Alberta’s tar sands, will translate into pump prices that’ll force millions of drivers right off the road.

It’s not how many megawatts of additional power new sources like wind add to the grid that counts. Rather, it’s the amount of power demand that a 19-cent–per- kilowatt-hour price will kill that’ll have a far greater effect.

In the end, Ontario’s implicit strategy of future price rationing may be the best energy policy of them all. If power prices keep rising, demand will peak, and maybe then we won’t need to build any new power plants in the first place.

As for my new smart meter, what bears monitoring is how its benchmarks will change. With wind turbines taking over from coal plants, tomorrow’s smart power prices will soon cost more than today’s dumb ones.

As I’ve argued before in this blog and in chapter 7 of my book, it wasn’t too-big-to-fail financial institutions but the interest rate shock from soaring oil prices that deep-sixed the economies of both the US and the rest of the oil-guzzling world. Interest rates didn’t just rise from around one per cent to almost six per cent because no one was minding the store at the Federal Reserve Board. It was soaring oil prices that did all that heavy lifting.

Not only is rescuing failed investment banks a total misread of what put the economy into this recession in the first place, but the huge deficits needed to fund those huge corporate welfare checks all but preclude any further economic stimulus in the future.

In fact, they’ll do just the opposite. Reining in the deficits that follow from Wall Street’s bailout will lead to years of fiscal restraint and a burden on future economic growth. Job-creation rhetoric aside, the President is already stepping on the brakes, and Congress will surely want him to press much harder on them over the balance of his term, as Washington struggles to get the nation’s exploding debt under control.

As their taxes inevitably rise and their social security entitlements inexorably shrink, American taxpayers will increasingly wonder what they have gotten for their tax dollars. And they will no doubt ask themselves why it is that, if they have to own Merrill Lynch and Bank of America now, at the bottom of the cycle, they don’t also get to own these same institutions at the top of the cycle.

Henry Paulson, the recent Treasury Secretary, along with all the other ex-Goldman Sachs folks still at the Treasury Department, will quickly chime in that private ownership is essential to encouraging risk-taking.

But what really encourages risk-taking on Wall Street is when the losses from bad bets can be socialized and left to taxpayers, while the gains from good bets can be paid out to partners at bonus time. And it’s precisely this type of risk-taking that will soon bring back the regulatory barriers than once separated brokerage houses and investment banks from deposit-taking institutions.

Wall Street has always eschewed regulation, pointing to the willingness of the rest of the world to fund it. But the only flow of funds coming in these days is from the American taxpayer, and that, in a nutshell, has been the reason for President Obama’s quick fall from grace.