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Low Oil Prices - Why Worry?
Submitted by Gail Tverberg via Our Finite World blog,
Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit.
In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy.
What Janet Yellen is seeing in Figure 1, even though she does not recognize it, is evidence of a slowing world economy. The economy can no longer support energy prices as high as they have been, and they have gradually retreated. Currency relativities have also readjusted, leading to lower prices of imported goods for the United States. Both lower energy prices and lower prices of imported goods contribute to lower inflation rates.
Instead of reaching “Peak Oil” through the limit of high oil prices, we are reaching the opposite limit, sometimes called “Limits to Growth.” Limits to Growth describes the situation when an economy stops growing because the economy cannot handle high energy prices. In many ways, Limits to Growth with low oil prices is worse than Peak Oil with high oil prices. Slowing economic growth leads to commodity prices that can never rebound by very much, or for very long. Thus, this economic malaise leads to a fairly fast cutback in commodity production. It can also lead to massive debt defaults.
Let’s look at some of the pieces of our current predicament.
Part 1. Getting oil prices to rise again to a high level, and stay there, is likely to be difficult. High oil prices tend to lead to economic contraction.
Figure 2 shows an illustration I made over five years ago:
Figure 2. Chart made by author in Feb. 2010, for an article called Peak Oil: Looking for the Wrong Symptoms.
Clearly Figure 2 exaggerates some aspects of an oil price change, but it makes an important point. If oil prices rise–even if it is after prices have fallen from a higher level–there is likely to be an adverse impact on our pocketbooks. Our wages (represented by the size of the circles) don’t increase. Fixed expenses, including mortgages and other debt payments, don’t change either. The expenses that do increase in price are oil products, such as gasoline and diesel, and food, since oil is used to create and transport food. When the cost of food and gasoline rises, discretionary spending (in other words, “everything else”) shrinks.
When discretionary spending gets squeezed, layoffs are likely. Waitresses at restaurants may get laid off; workers in the home building and auto manufacturing industries may find their jobs eliminated. Some workers who get laid off from their jobs may default on their loans causing problems for banks as well. We start the cycle of recession and falling oil prices that we should be familiar with, after the crash in oil prices in 2008.
So instead of getting oil prices to rise permanently, at most we get a zigzag effect. Oil prices rise for a while, become hard to maintain, and then fall back again, as recessionary influences tend to reduce the demand for oil and bring the price of oil back down again.
Part 2. The world economy has been held together by increasing debt at ever-lower interest rates for many years. We are reaching limits on this process.
Back in the second half of 2008, oil prices dropped sharply. A number of steps were taken to get the world economy working better again. The US began Quantitative Easing (QE) in late 2008. This helped reduce longer-term interest rates, allowing consumers to better afford homes and cars. Since building cars and homes requires oil (and cars require oil to operate as well), their greater sales could stimulate the economy, and thus help raise demand for oil and other commodities.
Figure 3. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.
Following the 2008 crash, there were other stimulus efforts as well. China, in particular, ramped up its debt after 2008, as did many governments around the world. This additional governmental debt led to increased spending on roads and homes. This spending thus added to the demand for oil and helped bring the price of oil back up.
These stimulus effects gradually brought prices up to the $120 per barrel level in 2011. After this, stimulus efforts gradually tapered. Oil prices gradually slid down between 2011 and 2014, as the push for ever-higher debt levels faded. When the US discontinued its QE and China started scaling back on the amount of debt it added in 2014, oil prices began a severe drop, not too different from the way they dropped in 2008.
I reported earlier that the July 2008 crash corresponded with a reduction in debt levels. Both US credit card debt (Fig. 4) and mortgage debt (Fig. 5) decreased at precisely the time of the 2008 price crash.
Figure 4. US Revolving Debt Outstanding (mostly credit card debt) based on monthly data from the Federal Reserve.
Figure 5. US Mortgage Debt Outstanding, based on the Federal Reserve Z1 Report.
At this point, interest rates are at record low levels; they are even negative in some parts of Europe. Interest rates have been falling since 1981.
Figure 6. Chart prepared by the St. Louis Fed using data through July 20, 2015.
I showed in a recent post (How our energy problem leads to a debt collapse problem) that when the cost of oil production is over $20 per barrel, we need ever-higher debt ratios to GDP to produce economic growth. This need for ever-rising debt contributes to our inability to keep commodity prices high enough to satisfy the needs of commodity producers.
Part 3. We are reaching a demographic bottleneck with the “baby boomers” retiring. This demographic bottleneck causes an adverse impact on the demand for commodities.
Demand represents the amount of goods customers can afford. The amount consumers can afford doesn’t necessarily rise endlessly. One of the problems leading to falling demand is falling inflation-adjusted median wages. I have written about this issue previously in How Economic Growth Fails.
Figure 7. Median Inflation-Adjusted Family Income, in chart prepared by the Federal Reserve of St. Louis.
Another part of the problem of falling demand is a falling number of working-age individuals–something I approximate by using estimates of the population aged 20 to 64. Figure 8 shows how the population of these working-age individuals has been changing for the United States, Europe, and Japan.
Figure 8. Annual percentage growth in population aged 20 – 64, based on UN 2015 population estimates.
Figure 8 indicates that Japan’s working age population started shrinking in 1998 and now is shrinking by more than 1.0% per year. Europe’s working age population started shrinking in 2012. The United States’ working age population hasn’t started shrinking, but its rate of growth started slowing in 1999. This slowdown in growth rate is likely part of the reason that labor force participation rates have been falling in the United States since about 1999.
Figure 9. US Labor force participation rate. Chart prepared by the Federal Reserve of St. Louis.
When there are fewer workers, the economy has a tendency to shrink. Tax levels to pay for retirees are likely to start increasing. As the ratio of retirees rises, those still working find it increasingly difficult to afford new homes and cars. In fact, if the population of workers aged 20 to 64 is shrinking, there is little need to add new homes for this group; all that is needed is repairs for existing homes. Many retirees aged 65 and over would like their own homes, but providing separate living quarters for this population becomes increasingly unaffordable, as the elderly population becomes greater and greater, relative to the working age population.
Figure 10 shows that the population aged 65 and over already equals 47% of Japan’s working age population. (This fact no doubt explains some of Japan’s recent financial difficulties.) The ratios of the elderly to the working age population are lower for Europe and the United States, but are trending higher. This may be a reason why Germany has been open to adding new immigrants to its population.
Figure 10. Ratio of elderly (age 65+) to working age population (aged 20 to 64) based on UN 2015 population estimates.
For the Most Developed Regions in total (which includes US, Europe, and Japan), the UN projects that those aged 65 and over will equal 50% of those aged 20 to 64 by 2050. China is expected to have a similar percentage of elderly, relative to working age (51%), by 2050. With such a large elderly population, every two people aged 20 to 64 (not all of whom may be working) need to be supporting one person over 65, in addition to the children whom they are supporting.
Demand for commodities comes from workers having income to purchase goods that are made using commodities–things like roads, new houses, new schools, and new factories. Economies that are trying to care for an increasingly large percentage of elderly citizens don’t need a lot of new houses, roads and factories. This lower demand is part of what tends to hold commodity prices down, including oil prices.
Part 4. World oil demand, and in fact, energy demand in general, is now slowing.
If we calculate energy demand based on changes in world consumption, we see a definite pattern of slowing growth (Fig.11). I commented on this slowing growth in my recent post, BP Data Suggests We Are Reaching Peak Energy Demand.
Figure 11. Annual percent change in world oil and energy consumption, based on BP Statistical Review of World Energy 2015 data.
The pattern we are seeing is the one to be expected if the world is entering another recession. Economists may miss this point if they are focused primarily on the GDP indications of the United States.
World economic growth rates are not easily measured. China’s economic growth seems to be slowing now, but this change does not seem to be fully reflected in its recently reported GDP. Rapidly changing financial exchange rates also make the true world economic growth rate harder to discern. Countries whose currencies have dropped relative to the dollar are now less able to buy our goods and services, and are less able to repay dollar denominated debts.
Part 5. The low price problem is now affecting many commodities besides oil. The widespread nature of the problem suggests that the issue is a demand (affordability) problem–something that is hard to fix.
Many people focus only on oil, believing that it is in some way different from other commodities. Unfortunately, nearly all commodities are showing falling prices:
Figure 12. Monthly commodity price index from Commodity Markets Outlook, July 2015. Used under Creative Commons license.
Energy prices stayed high longer than other prices, perhaps because they were in some sense more essential. But now, they have fallen as much as other prices. The fact that commodities tend to move together tends to hold over the longer term, suggesting that demand (driven by growth in debt, working age population, and other factors) underlies many commodity price trends simultaneously.
Figure 13. Inflation adjusted prices adjusted to 1999 price = 100, based on World Bank “Pink Sheet” data.
The pattern of many commodities moving together is what we would expect if there were a demand problem leading to low prices. This demand problem would likely reflect several issues:
- The world economy cannot tolerate high priced energy because of the problem shown in Figure 2. We have increasingly used cheaper debt and larger quantities of debt to cover this basic problem, but are running out of fixes.
- The cost of producing energy products keeps trending upward, because we extracted the cheap-to-produce oil (and coal and natural gas) first. We have no alternative but to use more expensive-to-produce energy products.
- Many costs other than energy costs have been trending upward in inflation-adjusted terms, as well. These include fresh water costs, the cost of metal extraction, the cost of mitigating pollution, and the cost of advanced education. All of these tend to squeeze discretionary income in a pattern similar to the problem indicated in Figure 2. Thus, they tend to add to recessionary influences.
- We are now reaching a working population bottleneck as well, as described in Part 4.
Part 6. Oil prices seem to need to be under $60 barrel, and perhaps under $40 barrel, to encourage demand growth in US, Europe, and Japan.
If we look at the historical impact of oil prices on consumption for the US, Europe, and Japan combined, we find that whenever oil prices are above $60 per barrel in inflation-adjusted prices, consumption tends to fall. Consumption tends to be flat in the $40 to $60 per barrel range. It is only when prices are in the under $40 per barrel range that consumption has generally risen.
Figure 14. Historical consumption vs. price for the United States, Japan, and Europe. Based on a combination of EIA and BP data.
There is virtually no oil that can be produced in the under $40 barrel range–or even in the under $60 barrel a range, if tax needs of governments are included. Thus, we end up with non-overlapping ranges:
- The amount that consumers in advanced economies can afford.
- The amount the producers, with their current high-cost structure, actually need.
One issue, with lower oil prices, is, “What kinds of uses do the lower oil prices encourage?” Clearly, no one will build a new factory using oil, unless the price of oil is expected to be sufficiently low over the long-term for this use. Thus, adding industry will likely be difficult, even if the price of oil drops for a few years. We also note that the United States seems to have started losing its industrial production in the 1970s (Fig. 15), as its own oil production fell. Apart from the temporarily greater use of oil in shale drilling, the trend toward off-shoring industrial production will likely continue, regardless of the price of oil.
Figure 15. US per capita energy consumption by sector, based on EIA data. Includes all types of energy, including the amount of fossil fuels that would need to be burned to produce electricity.
If we cannot expect low oil prices to favorably affect the industrial sector, the primary impact of lower oil prices will likely be on the transportation sector. (Little oil is used in the residential and commercial sectors.) Goods shipped by truck will be cheaper to ship. This will make imported goods, which are already cheap (thanks to the rising dollar), cheaper yet. Airlines may be able to add more flights, and this may add some jobs. But more than anything else, lower oil prices will encourage people to drive more miles in personal automobiles and will encourage the use of larger, less fuel-efficient vehicles. These uses are much less beneficial to the economy than adding high-paid industrial jobs.
Part 7. Saudi Arabia is not in a position to help the world with its low price oil problem, even if it wanted to.
Many of the common beliefs about Saudi Arabia’s oil capacity are of doubtful validity. Saudi Arabia claims to have huge oil reserves, but as a practical matter, its growth in oil production has been modest. Its oil exports are actually down relative to its exports in the 1970s, and relative to the 2005-2006 period.
Figure 16. Saudi Arabia’s oil production, consumption, and exports based on BP Statistical Review of World Energy 2015 data.
Low oil prices are having an adverse impact on the revenues that Saudi Arabia receives for exporting oil. In 2015, Saudi Arabia has so far issued bonds worth $5 billion US$, and plans to issue more to fill the gap in its budget caused by falling oil prices. Saudi Arabia really needs $100+ per barrel oil prices to fund its budget. In fact, nearly all of the other OPEC countries also need $100+ prices to fund their budgets. Saudi Arabia also has a growing population, so it needs rising oil exports just to maintain its 2014 level of exports per capita. Saudi Arabia cannot reduce its exports by 10% to 25% to help the rest of the world. It would lose market share and likely not get it back. Losing market share would permanently leave a “hole” in its budget that could never be refilled.
Saudi Arabia and a number of the other OPEC countries have published “proven reserve” numbers that are widely believed to be inflated. Even if the reserves represent a reasonable outlook for very long term production, there is no way that Saudi oil production can be ramped up greatly, without a large investment of capital–something that is likely not to be available in a low price environment.
In the United States, there is an expectation that when estimates are published, the authors will do their best to produce correct amounts. In the real world, there is a lot of exaggeration that takes place. Most of us have heard about the recent Volkswagen emissions scandal and the uncertainty regarding China’s GDP growth rates. Saudi Arabia, on a monthly basis, does not give truthful oil production numbers to OPEC–OPEC regularly publishes “third party estimates” which are considered more reliable. If Saudi Arabia cannot be trusted to give accurate monthly oil production amounts, why should we believe any other unaudited amounts that it provides?
Part 8. We seem to be at a point where major debt defaults will soon start for oil and other commodities. Once this happens, the resulting layoffs and bank problems will put even more downward pressure on commodity prices.
Wolf Richter has recently written about huge jumps in interest rates that are being forced on some borrowers. Olin Corp., a manufacture of chlor-alkali products, recently attempted to sell $1.5 billion in eight and ten year bonds with yields of 6.5% and 6.75% respectively. Instead, it ended up selling $1.22 billion of bonds with the same maturities, with yields of 9.75% and 10.0% respectively.
Richter also mentions existing bonds of energy companies that are trading at big discounts, indicating that buyers have substantial questions regarding whether the bonds will pay off as expected. Chesapeake Energy, the second largest natural gas driller in the US, has 7% notes due in 2023 that are now trading at 67 cent on the dollar. Halcon Resources has 8.875% notes due in 2021 that are trading at 33.5 cents on the dollar. Lynn Energy has 6.5% notes due in 2021 that are trading at 23 cents on the dollar. Clearly, bond investors think that debt defaults are not far away.
The latest round of twice-yearly reevaluations is under way, and almost 80 percent of oil and natural gas producers will see a reduction in the maximum amount they can borrow, according to a survey by Haynes and Boone LLP, a law firm with offices in Houston, New York and other cities. Companies’ credit lines will be cut by an average of 39 percent, the survey showed.
Debts of mining companies are also being affected with today’s low prices of metals. Thus, we can expect defaults and cutbacks in areas other than oil and gas, too.
There is a widespread belief that if prices remain low, someone will come along, buy the distressed assets at low prices, and ramp up production as soon as prices rise again. If prices never rise for very long, though, this won’t happen. The bankruptcies that occur will mean the end for that particular resource play. We won’t really be able to get prices back up to where they need to be to extract the resources.
Thus low prices, with no way to get them back up, and no hope of making a profit on extraction, are likely the way we reach limits in a finite world. Because low demand affects all commodities simultaneously, “Limits to Growth” equates to what might be called “Peak Resources” of all kinds, at approximately the same time.
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As always, the cure for low prices is low prices.
And the cure for high prices is high prices.
Shhh...the author is promoting compulsion instead of freedom.
The authour is promoting doom porn and not in a good way. Article is just not logical. Yes there will be a peak oil, maybe even a peak in some resources like gold or uranium. But it is not today. One has to understand that the reason we are here today is everything ZH is about, mispricing of the market, malinvestment, geopolitical games... Cheap oil IS NOT a result of peak oil. It is a result of US taking care of business with BRICS. Let's review the history of this. Sochi olympics, Ukraine Maidan happens, frackers go berserk, Saudis start pumping extra oil, oil prices start crashing verticaly, China's stock market shoots to the moon and crashes causing further weakness. And this is without talking about the Fed rates, reduced CAPEX which all affect demand. Does anyone remember the dramatic talks about Cushing overflowing? Well it is not happening, and it has not happened.
Low prices of oil are not going to lead to lower prices of oil and lower oil demand. Low oil prices will undermine the cappacity of the entire industry and will work to affect the supply (bankrupt a few companies) and demand (cheaper oil>higher consumption). With such a large current oil consumption we are probably facing large price spikes down the road when old wells start dying and not enough new ones are explored or tested to replace them.
What we need to worry is the fact that our most essential driver, i.e. energy is being mispriced and that these sudden changes will rock the boat for a while now. Our gross domestic product is equal to the amount of energy used in a year (including hydro, nuclear, coal, oil, nat.gas). What happens when we misprice the value of energy is that the entire system changes to conform with energy prices. The after effects of this oil crash are yet to be felt.
Where ya' been Karl? Traders quit bidding the price up (oil, gold, pork bellies- doesn't matter) capex goes to shit, supply dwindles and prices eventually go thru the fuckin' roof 'cause nobody, nowhere can just magically increase production.
Rinse. Repeat.
Simple, really.
low prices leading to reduced supply leading to somewhat higher prices leading to more supply will account for fluctuations in price, say, year to year.
the forces cited in the post, lower working age populations, rising debt loads, depletion of low cost reserves, will account for the downward slope of the trendline around which those fluctuations occur.
maybe?
Yeah, come to think of it, pork bellies is a bad example. Supply might be elastic enough on a y2y basis to mitigate wild price swings. As you said, maybe?
Do we actually have lower working age populations? With all respect, I always read your comments 'cause you make me think- It looks to me that working age population has grown while the opportunities to earn a living have shrunk.
So yeah, that's inherently deflationary.
I guess the point I'm trying to convey is that the productive segment of society will always need energy (above all) and raw materials of every type.
Outside a mass die-off, coupled with the miraculous extinction of the oligarch class, demand will grow unabated, and it takes a shitload more capital, talent and effort to re-start a gold mine or an oilfield than a pig farm.
Definitely inflationary.
To top it all off, money (actually currency, aka debt) has been so cheap for so long that nobody knows what anything is actually worth.
Thanks for taking the time to reply.
The fed and the eCONomists can just add the energy numbers back into the cpi numbers to hide the deflation. See problem solved
Gail. let's just cut to the chase here. The economy has been mismanaged and as a result, everything is screwed up, including oil.
No need for yet another long, boring, white paper where you adjust your earlier positions.
The capital mismanagement over the last thirty years is now farcical. Pumping phony money into everything results in American Ghost Cities.
"As always, the cure for low prices is low prices."
And what happens when entire industries go TU?
EROEI. Margins.
I had this called as an "affordability" issue even before the author claims to have understood it as that.
Economies of scale in reverse. We're seeing huge contraction just about everywhere (except CB balance sheets!). Demand IS falling: reversing wages; lost jobs; demographics (this one is nearly impossible to hide, and it has essentially no "solution," not in any time-frame that's likely to help any time soon). As margins continue to get smashed (keep in mind debt repayments based on older contracts of higher repayment levels) we'll see more consolidations, guttings and closures. A reduction in "economies of scale" drives down margins and affordability.
I'll suffer through the consequences - just give me lower oil prices.
CHoward just give me lower oil prices
With low crude prices, nationwide gasoline prices should be far less than they are. Give me cheaper gas prices too.
The collapse of Saudi Arabia is inevitable
http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-18...
Obama's war on energy and Russia is not going so well:
Stakes are high as US plays the oil card against Iran and RussiaThink about how the Obama administration sees the state of the world. It wants Tehran to come to heel over its nuclear programme. It wants Vladimir Putin to back off in eastern Ukraine. But after recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground. Instead, with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with.
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.
The Saudis did something similar in the mid-1980s.
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
This is exactly what Scooby has been saying ever since Trav7777 was drooling on about his peak oil nonsense.
So there Trav, Scooby wins!
The fucknut Saudi's are trying to kill us again with their trough oil paradigm.
oil too high and the world economy collapses. oil too low and producers go bust and a wave of defaults ensues, plus shortages of the commodity in question, followed by price spikes and more economic mayhem. the longterm consequences of all this is excellent for PMs, but the world by then will be hell of a place.
Let's be clear here. Permanently low oil prices are NOT good for PM. Under any scenario
Does someone feel like tackling that argument? Because low oil prices don't mean jack squat for miners considering gold dropped the same time. I honestly don't think you can find many things more correlated in this screwed up economy than Gold and oil price. Hell even this chart supplied makes that clear. And the entire point of the article is how there won't be any fluctiations in oil. It's a negative feedback loop it definitely won't be going back up
Exactly....
I guess you don't understand charts or correlations. 1 star bandit's generally don't
Peak Oil is like "climate change" - content free, science free, goal-seeked gibberish.
Science requires falsifiability. That is, you make a prediction based on a hypothesis, and if the prediction is accurate, your hypothesis is strengthened; if not, it's crap and you go back to the drawing board.
"Climate change" is crap because it is not falsifiable. Getting warmer? It's climate change! Getting colder? It's some previously unknown feature of the Earth's atmosphere or oceans or whatever, so it's climate change. Whatever happens is deemed to be "climate change," so it is not and cannot be science.
Peak Oil is the same way. Oh, shit, prices went down like the Peak Oilers have been saying for years could never happen! No worries, it's just some previously unknown shit that further Proves Peak Oil.
Come back when you have a coherent theory and falsifiable hypotheses. Until then, Peak Oil, go sit in the corner with your cousin Climate Change and think about what you've done.
No shit - how could you have a "peak" in an infinite resource?!
On top of that, The Bible says jack about Peak Oil. Or Climate Change. Nuff said.
With retail prices so low, why not increase fuel taxes? The sheeple are use to paying $4/gal. $1 in additional tax should be fine.
[Rev 6:6 KJV] 6 And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and [see] thou hurt not the oil and the wine.
it's saying a days wage to eat for the 99.9% that day. Yet the .001% will have all the oil and the wine.
Peak oil, not olive oil. Sheesh.
Go trim your wick.
Al Gore, the high priest of gaia, talks about climate change. Is that good enough for you?
All you need to do is tithe 10% of your earnings to Wall Street to avoid the climate warming rapture
Reality has been royally falsifying the claims of "climate hysterics" (climate change nazis) year after year after year after decade.
Stupid is as stupid does...
\facepalm
too bad for the chesapeake et al they aren't a tbtf bank. sucks to try to make a living actually producing shit. far more lucrative to be a parasite banker.
that's what you call a negative feedback loop. Donald Trump's mission and destiny is to preside over US bankruptcy
My god before the full retard run starting in 2005, how did the oil companies do it?
They must have been losing money extracting oil for 100 years.
I know since the dotcom era a company doesn't need to make any money to be worth billions, but oil companies? I thought they always made money.
I guess I was wrong. Before oil went above $50 there was no profit to be made. Until oil hit $100 these corporations were operating lean. I wonder where they got the money to build those billion dollar rigs in the ocean. Imagine spending all that money just to extract something you lose money on. If it really cost $100 a barrel to get oil out of the ground, those guys sure were stupid working all those years losing $80 on every barrel.
the easy to get oil is mostly gone. Offshore rigs obviously cost a lot more than a plopping a well down in Texas. minimum wage was $5 when oil was $20 last. More taxes on gasoline. Lots of reasons why it would be less profitable this time around.
basically that our economy is dog shit and can't support fracking, offshoring or anything that requires more resources than a hole in the ground. The truth is probably somewhere in the middle
OT...I would like to correct the record and apologize for not fact checking my sources.
I have been saying Pope Francis said or wrote capitalism is the "dung of the devil". He was actually quoting Basil of Caesarea and he (Basil) was making that comment about greed, the blind pursuit of money...not capitalism.
It doesn't take away the fact that Pope Francis is "pursuing money" for his own purposes but contextually Basil was correct, I was wrong in attributing the quote to Francis.
I dunno, I didn't finish it. Too damn long.
BennyBoy (first post) concretized it best. Please review.
Some pretty old data.
Bunch of shit graphs there. Bad data. Bad analysis. Bad conclusions.
I don't have much to say about data, since I don't care for this type of analysis, but damn are those graphs ugly!
Peak oilers (of which I still am one) have been talking of this since the early '00's. It is called "bumping" and it is a damned if you do, damned if you don't trap of high oil prices slow demand eventually, whilst low oil prices eventually slow expoloration, begetting less oil in the future. (See Shell and Alaska just yesterday). The whole reason they have to look for oil in all of the tough places is because there is less oil and it is harder to get. Peak oil is a fungible moment. It's peak output at a given time for a given economy (my own version) and will continue to change.... and we will continue to be at peak for awhile. Peak is more like a plateau with a few lumps.
If oil was plentiful and easy to get (like 80 yrs. ago) the world would definitely be a different place.
For now, yes, and damn good thing too...
44 years ago oil was not the flip side of the dollar, gold was. The petro dollar allowed the Fed. gov. to increase it's debt from 390 Billion to 18.25 Trillion by extracting tribute form other oil consuming countries. Peak debt(public + private) was originally reached in 2008. Oil prices hit their all time high in, drum roll please, 2008. We now live in a zombie economy where the Fed. gov. issues just enough debt (and the FED counterfeits) in a futile attempt to offset private deleveraging.
If you save 1$ on Gasoline, Government will make you spend or lose 2$ somewhere else.
^^ . . .
The issue is not high or low prices. The issue is that the growth paradigm is a false paradigm.
In our world there is excess capacity and consumption must be stimulated simply to maintain the current level of consumption. We consume much more than we need to consume. When people do not have money in the US, typically they only stop consuming unnecessary consumption.
Part of the centralist plan is to create unneeded consumption and to make production more costly by adding friction to the pipe.
Is debt a necessary consumption? I think not.
That is a symptom of the fractional reserve banking system. We have to spend money that doesn't exist to supply the money that never existed
Yes, there is no "11th marble"...
what did they cut your 8 ball with this time?
Your lack of an intelligent response is not surprising. The artificial manipulation of prices to the benefit of a few at the expense of many is not a sustainable situation, period.
What is there to argue about? You make no relevant point here. I tend to believe it's not manipulated. The economy really sucks and that impacts investing in more complicated oil extraction. It's really fucking simple bro
Endless "loans" of fresh fiat to deadbeat frackers at low rates is The Fed central planning manipulating oil prices by directing scarce resources to a place they would not get to in a free market. So, you are wrong about what you tend to believe re. manipulation.
"excess capacity"...
Really? Is everyone fed, clothed, and in decent housing? Are you really that fucking ignorant?
Debt is a death trap, period. There is no "11th marble".
You cannot "borrow from a future" that does not exist or that is not yours to begin with!!!!
You cannot "borrow from a future" that does not exist or that is not yours to begin with!!!!
This would require the younger generation revolting against the status quo. It seems to me, that it is slowly beginning to happen, inadvertently. They can't afford cars or housing thanks to their lifelong student loans, but are not yet revolting because they haven't consciously recognized who's screwing them over. See Japan. 25 years of this insanity. Now, they have something called 'grass eaters', when cyanide would be simpler.Yes, such "let the majority eat cake" monetary experiments have been tried before. The outcome will be no different this time around.
I'm not ashamed to admit it.
I did not follow this at all.
To what extent does the author actually understand the autonomy of prices paid at the pump to supply/demand and actual cost of extraction?
I mean - I do not.
But it seems like the author should, but doesn't either.
What am I missing, please?
The gist of the story is Oil is too costly to drill for a banana republic going nowhere. That sabotages any future investment in exploration, rendering us back to an inescapable stone age.
Prices should reflect value. I for one know that the oil burner heats a house a lot easier than splitting wood.
If you don't think refined distillates of oil are valuable then start wearing clothing from natural fibers and riding your fucking bike everywhere.
So many stupid fucks, let the culling begin already.
Whoever said oil isn't valuable? You know im sure people in China would be driving cars instead of riding bikes this whole time if they had the ability. You have to be a certified moran to think people choose to be peons
No shit, still doesn't mean that there is an fucking price discovery in oil.
You'll need to rewrite the definition because believe me oil is traded in markets and the price has been discovered generations ago...
not quite. The majority of oil being sold has been priced in dollars, yes, for a while. That is changing and the low "price" is still not sustainable, period. You admit that much in other posts. Besides, most likely, technology will make oil about as relevant as the buggy whip, ...someday...
I did not admit that. If you follow me I see this for exactly what it is. A negative feedback loop that will keep prices down for good.
Talking about "prices" in the absence of price discovery is moronic!!!!
The truth is that the real price/value of oil could be $5 per barrel or $5,000 per barrel.
Without price discover, nobody knows. Stupid fucks.
Tell that to the guy who would rather pay $2.50 a gallon for gas instead of $100?
Irrelevant as that which cannot be sustain, won't be. I do enjoy a sale, no doubt, but the truth is they never last...
But you are saying that there is no price discovery and there it is everywhere, everyday, in every market. That it is a price goosed by force and not nestled by liberty matters not to those who must pay it. It is the price, regardless.
Again, not sustainable, which was my point. Thanks for helping.
You literally couldn't be more wrong if you tried! What is not sustainable is high oil prices
Oh, you are so welcome!
Your point in bold is that there is no such thing as price discovery, but there is. It abounds.
Strange thing to refer the moniker of Laws of Physics to BennyBoy, but review the first comment in this thread.
A good candidate for the ignore button. You have to be a real mental giant to understand supply and demand now apparently. If prices were unsustainably low none of us would be buying oil, they'd be sold out.
END THE FED
You can not follow this becuase it is total garbage. I've tried to be patient with Gail while reading her for a couple years now at Peak Oil Barrel, etal. She is an intelligent lady adn lays some reasonable groundwork to then only completely leave the reservation. I am suspicious, being a former bankster herself, Gail is little more than a planted troll doing damage control for when the ultimate day of reconning finally arrives.
As a practicing Petroleum Engineer and one who has learned an awful lot re: economics and the economy and prior human economies from ZH, Jimmy Rogers, Neil Ferguson, Peter Schiff, Mike Maloney on phyz and FedRes system, and many more who I'm grateful to, I can tell you Gail, as a former banker, is doing one thing - trying to throw enough BS upon teh ceiling in hopes to deflect blame from the real causes and symptoms of this crises.
Peak Oil is real but it is meaningless out of context with Prices,ie, we are at Peak $70 Oil. The world can not bring shale oil and gas to market at less than something above $70 oil prices and $4 NG Prices to meet 95 MMBOPD Demand. So what has occured? Prices have dropped and so is supply.
I'll tell you what and this should come as not the tiniest surprise to fight club. The Fed has manipulated the economy, beginning in or about 2005, knowing full well from US Military and other reports that Peak Oil was here. They threw out $B to their Primary Dealers to then go create wholly-owned Portfolio Cos in my industry US Oil and Gas E&P, to the detriment of all those without access to this infinite supply of free monies (every private company and entreprenuer such as myself) as well as the taxpayers as a whole as they will ultimately pay the price - again.
Prices have crashed as they must when every PONZI is unveiled. Those free fiat JBucks to the "special people" were destroyed but temporarily brought to bear a huge fossil supply surplus. This in the light of deteriorating economies due to these and other FedRes and US Govt actions. Supply will drop from here as the realization of all that capital destruction on the PONZI Shale Plays is exposed. But that will not cause prices to rise; atleast not until the US and World Economy improves, which is far beyond my pay grade to know the timing. But i can damn well stick my finger into the air and measure the temperature and it is below freezing - industry health-wise.
What i do know is that:
1. The US FedRes adn their member-owner TBTF WS Banksters once again brought the world another fiat PONZI BUBBLE - the US Shale PONZI
2. The taxpayers and country as a whole will suffer for it; and
3. the Banksters became Billionaires in teh process. I'm lookin' at you Lloyd Fuckfein.
Imagery.
Imagery - Before seeing your post, in reply to someone above, claiming there is no manipulation of oil prices, I wrote what looks to me like a short version of what you're saying.
Endless "loans" of fresh fiat to deadbeat frackers at low rates is The Fed central planning manipulating oil prices by directing scarce resources to a place they would not get to in a free market.
We have a shit economy and demand destruction combined with Saudi unleashing with all it's might, Iraq's oil being held back then unleashed, Iran's oil same thing + more on deck and then the biggest banker funded fuck show shale boom that is in crazy debt after ten years of "miracle" but somehow managed to flood the market with more oil so now we are at extra cheap ass oil and somehow this leads people to the conclusion that peak oil is a fantasy?
Look at the price of these shale "miracle" wells, look at the decline rates and then look at how much oil the US uses everyday. You may also notice the locations of the majority of all world conflict.
are you single?
Yeah.... maybe we can meet up in the prison camp later.
If they control everything, i.e. everything is rigged, then what difference does it make, i.e. why worry.
if nobody worried we'd still be watching dan rather and thinking the fed reserve was actually american
Sounds like nonsense to me. It isn't "Peak oil with low oil prices", the low oil prices are because of low consumption, which merely delays peak oil. We will reach peak oil if and when consumption demand exceeds the ability to pump it out of the ground faster at any price.
If people have to bid aqainst each other for a limited supply of oil, those who lose the bidding war would have to cut back whether they want to or not -- and yes, even at today's prices there might be a few who can't afford gasoline for their car.
I am just chalking it up to the new Orwellian paradigm, just like the Saudi's being allowed in the UN human rights council. Maybe someday we will look back and miss the days when everything was so easy because all you had to do or believe was the opposite of what you were told.
Oil from coal will be the next step, and I can guess who will own all our coal reserves we're saving for the day.
This particular chart in the article speaks volumes re, why establishment Republicans and Democrats alike campaign for increased immigration:
* Figure 8. Annual percentage growth in population aged 20 – 64, based on UN 2015 population estimates. *
Corporations want moar consumers, and they don't seem to care too much where they come from so long as they pour into the country and CONSUME.
I concur with the Peak 70USD Oil Argument - it just happened to be reinforced by the FED's QE Programs. I'm open to the Abiotic Oil Argument as well; but even if some/all Oil Reserves end up being Abiotic, we've yet to assess the replenishment cycle(s) of such Reserves.
The USA has farmed out too many MFG and SVC related Jobs overseas, so unless Misters Trump and/or Sanders raise Tariffs or demand domestic content/origin, IMHO, the "Trend" we're in (ruination of Low End Wage Earners, Middle Class, and Higher End Wage Earners (I'd say, many a 10 to 5Percenter - I know I have been) by the 20 Years of FreeTradeAgreement Offshoring/H-1B-ing) will continue.
Once CHN resets from its bubble; and resumes its organic GDP Growth, demand for Crude should pick up slowly.
I'm surprised that the KSA Aristrocrats haven't opened up their own IBs, Commercial, and Retail Banks in the USA. I'm not referring to the "Silent Partner" investments. It should be a nice "Hedge" to the Petrol Business.
Demand for oil and energy is decreasing. And yet these Peak Oil doomsdayers still complain. They'll never be happy.
I see peak government on the horizon. Rejoice! Be happy! I've been dreaming all my life I would live long enough to see this.