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Oil Prices Still Not Low Enough To Fix The Markets
Submitted by Arthur Berman via OilPrice.com,
The problem with oil prices is that they are not low enough.
Current oil prices are simply not low enough to stop over-production. Unless external investment capital is curtailed and producers learn to live within cash flow, a production surplus and low oil prices will persist for years.
Energy Is The Economy
GDP (gross domestic product) correlates empirically with oil prices (Figure 1). GDP increases when oil prices are low or falling; GDP is flat when oil prices are high or rising (GDP and oil prices in the figure are in August 2015 dollars).
Figure 1. U.S. GDP and WTI oil price. GDP and WTI are in August 2015 dollars. Note: I use WTI prices because Brent pricing did not exist before the 1970s.
Source: U.S. Bureau of Labor Statistics, The World Bank, EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
This is because global economic output is highly sensitive to the cost and availability of energy resources (it is also sensitive to debt). Liquid fuels–gasoline, diesel and jet fuel–power most worldwide transport of materials, and electricity from coal and natural gas powers most manufacturing. When energy prices are high, profit margins are lower and economic output and growth slows, and vice versa.
Because oil prices were high in the 4 years before September 2014 and the subsequent oil-price collapse, GDP was flat and economic growth was slow. That, along with high government, corporate and household debt loads, is the main reason why the post-2008 recession has been so persistent and difficult to correct through monetary policy.
Why Oil Prices Were High 2010-2014 and Why They Are Low Today
Brent oil prices exceeded $90 per barrel (August 2015 dollars) for 46 months from November 2010 until September 2014 (Figure 2). This was the longest period of high oil prices in history. Prolonged high prices made tight oil, ultra-deep water oil and oil-sand development feasible. Over-investment and subsequent over-production of expensive oil contributed to the global liquids surplus that caused oil prices to collapse beginning in September 2014.
Figure 2. Brent price in 2015 dollars and world liquids production deficit or surplus.
Source: EIA, U.S., U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.
(click image to enlarge)
Oil prices were high during the 4 years before prices collapsed because world liquids production deficits dominated the oil markets. This was due mostly to ongoing politically-driven supply interruptions in Libya, Iran, and Sudan beginning in 2011. The easing of tensions, particularly in Libya, after 2013 along with increasing volumes of tight and other expensive oil led to a production surplus by early 2014 (Figure 3). Before January 2014, supply was less than consumption but afterward, supply was greater than consumption.
Figure 3. World liquids supply and consumption, and Brent crude oil price.
Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
The global production surplus has persisted for 21 months and supply is still 1.2 million barrels per day more than consumption. This is the main cause of low oil prices that began in mid-2014.
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Ain't that a lube job
You don't need us to tell you that gas prices are back on the rise.
https://www.youtube.com/watch?v=dCwzw3D-w_k
Time for another "accidental" oil refinery fire and explosion to take place, to jack up U.S. gasoline prices.
Supply and demand hasn't applied in years, obsolete terminology these days.
The oil "market" has been "planned" since day one.
The price of oil and interest rates are the two biggest levers for "managing" the world economy.
there's a swimming pool on st croix that ain't being used
The problem with oil prices is that they are not low enough.
What fucking overproduction? Oil production barely rises 1% to 2% a year and a 70% cut in oil prices should have stimulated demand by at least 5%. US is importing 7.5 million barrels a day as is China.
Another worthless article from oilprice.com
some choice quotes from their website
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Funny!
Like of course they will publish articles that provide completely impartial, independent and revealing analysis and exposure of the true facts, irrespective of the interests of their advertising clients and the MSM they are pandering to.
"Another worthless article from oilprice.com"
When it comes to the oil "market" the truth is always elusive. Especially when the topic is "Peak Oil".
Its hilarious to hear these pundits make such white washed statements like :
1° THe stock market is the economy. This was very prevalent here at the HEdge back in 2011.
2° The Energy scene is the economy, is the new mantra as the stock market is now so invisible handed its algo HFT'd to nth degree!
I can't wait for these pundits to now predict :
3° The deflation-apocalypse is the NEW economy stupid à la Gail Tverberg of Finite-world. Before adding :
4° Armageddon-apocalypse is the final solution to our persistent ills!
When MAD is the zeitgeist of the age only Rage is front page.
Forget the sage and his soft shoe shuffle of jazzy poetry in motion.
A more reasonable explication would be to admit that when debt is overloaded in the Reserve currency and its surrogate monetary tributaries, only debt deleveraging and Casino collapsing via Gl-St type medicine will cure the world to move back from a financialized fantasy global construct to the real economy where risk and return mean SOMETHING; all the while facing the gorilla like challenge of climate change of Man's biosphere coupled to peak RM of earth's crust, by INVENTING a new economic cum social paradigm.
But who is gonna bell that mad cat being grilled today on a hot tin roof?
Wait a minute…. Late last year we were told low oil prices are bad for us. Now low oil prices are good?
150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy
http://www.zerohedge.com/news/2014-12-05/150-billion-reasons-why-low-oil...
As long as the prices are manipulated to fuck squared and back via futures contracts, derivatives, offshore storage etc and as long as there is no true supply-demand equilibrium, your question will remain unanswerable.
Current oil prices should be viewed as a temporary lull - and opportunity to reposition your life and lifestyle - because higher energy prices are coming.
There is overproduction. I know, I'm a PE and CEO of US Private E&P. BUT, US Production is beginning to roll over and that will still not be enough as Art shows. WHY? THE EFFING eCONomy stupid!
Demand is in the shitter in US because people can't afford to fill their cars to drive to the 3 part time Mickie D jobs or bartender jobs that are only ones available.
And YES, TBTF WS Finance brought this on as well thru their wholly-owned US Public Shale Oil Companies that got access to those infinite supplies of free monies at teh discount window of FedRes that the US Taxpayer is gonna have to repay. KNOW how they manipulated the financially repressive system, after taxpayers bailed them out, to drive down interest rates so TBTF WS could borrow at ZERO, park at FedRes for Guaranteed 7% spread, or put in wholly-owned US Public Shale Oil Cos.
It was and is all a huge FRAUD.
END THE DAMN US FEDERAL RESERVE and Liquidate the TBTF WS Banks and Banksters. The latter with ropes and lampposts, preferably.
Oil price fell after Ukraine. Saudi overproduction, shale. Geopolitical games.
This is the main cause of low oil prices that began in mid-2014.
The only way that the current situation will continue for years is if debt can be acquired at a rapid pace. Not...gonna...happen.
Aggregate debt due largely to Debt-based currency and Fractional Reserve banking have reached such proportions that it cannot be serviced without impacting operations. Until the debt load is reduced, there will be no recovery. Until there is a recovery there will be only temporary uses for more oil.
We need a new monetary system immediately.
Sounds good to me...now I can buy more tacos at Taco Bell and help support our fledgling economy.
"overproduction" means people have no money to buy staff they need badly
Low oil prices are going to fix the markets.... That's some funny shit
Anyone who sees any correlation in the first graph in this item needs a new pair of glasses. The argument that high oil prices cause economic stagnation does not stand up well when you consider that, in Europe, for example, oil prices to final consumers have always been high by comparison the US, but that has not, by itself caused stagnation. It means only that a higher percentage of costs have to be assigned to energy and it has to be used more carefully. In addition, new technologies have to be assigned to production to reduce the use of energy overall. No: the stagnation experienced in the US for the last 8 years has a lot more to do with excess debt, inequitable distribution of income and lack of movement in wages than to the high cost of energy.