Early signs of a pullback in US oil drilling

45 Comments on "Early signs of a pullback in US oil drilling"

shortonoil on Wed, 12th Nov 2014 6:43 am 



Petroleum prices have gone down, and will continue to go down:

http://www.thehillsgroup.org/depletion2_022.htm

It will be falling prices that bring about Peak All Liquids. It has never been about supply, it is all about value, and the value of oil is declining. Those who have thought that we could drill, frack, and crack low quality hydrocarbons into prosperity have been chasing a unicorn.

http://www.thehillsgroup.org/

nemteck on Wed, 12th Nov 2014 8:57 am 



In its annual World Energy Outlook the IEA said that Global oil consumption will rise to 104 Mbd in 2040 driven by demand for transport fuel and petrochemicals. The IEA sees total production of crude staying at around 68Mbd until the early 2030s before dropping to 66Mbd by 2040, creating a huge shortage.
Now, shortonoil (on Sun, 26th Oct 2014 8:10 am ) predicts that oil will cost $0.00 in 2030-2035. How can one reconcile this seemingly contradictory forecasts? One way is that the UN picks up the production and distribution costs and gives the oil for free to the world citizens. Or, the armed forces of US, China, etc., use up all oil and the citizen get nothing, hence, oil is worth $0.00 for them. It also could be that one or the other prediction is wrong.

paulo1 on Wed, 12th Nov 2014 8:58 am 



Mr Hill,

As I read your graph, and have done so many times, it extrapolates a trend without any undulation in economic activity. Is it correct to assume this is a ‘one off’ solution without taking into account a few anemic recoveries along the way.

Peak all liquids yes, I understand that. But what about efficencies going forward….perhaps rail taking over some trucking, employment layoffs, continued debt manipulation to keep the unemployed from hungry protests, different housing solutions? Martial law as required?

I always think of the highway through Galcier Natl. park in Montana built in the Depression. Yes, the situation was awakened with WW2 and cheap energy, but there is infrastructure that needs replacing. There is work to do, work that requires energy, but perhaps other aspects of our wasteful economy would substitute in.

Quite frankly, your graph is terrifying in its implications.

Paulo

paulo1 on Wed, 12th Nov 2014 9:09 am 



Short,

One more question.

What about more subsidies or military conscription of oil production (same result) to ensure marginal production continues in order to provide time to ramp up renewables with a ‘war time’ focus and effort?

Do you have an opinion on that beyond the scope of your graphs? Or, do you simply see a big, “oh oh, we’re **%!ed”. Run. What is your guess beyond the math?

Paulo

sjn on Wed, 12th Nov 2014 9:26 am 



Paulo1, in my opinion, the point is marginal production is becoming systemically counter-productive (negative marginal energy return). Any effort to bring to market financially non-viable primary energy sources through subsidy or command econnomics may provide local supply, but only reduces what’s available globally.

rockman on Wed, 12th Nov 2014 9:37 am 



Just so you folks outside the oil patch understand what we insiders have access to: expectations. It was common knowledge that most of the service companies had already begun the process of modifying their forward plans as far back as last spring. There is a time lag when it comes to oil field adjustments. A manager doesn’t wake up Monday morning and radically change their drilling activities by Friday morning…it can take many months. But Monday afternoon he’ll start talking to his staff about potential changes. And then the staff starts talking to the service companies. And those companies are very quick to modifying their plans.

So some months ago a lot of folks in the oil patch (especially the refiners)saw something not so good coming. The only question was just how bad not so good would be and how long before the new bleeding stops.

shortonoil on Wed, 12th Nov 2014 10:04 am 



paulo1 said:

“What about more subsidies or military conscription of oil production (same result) to ensure marginal production continues in order to provide time to ramp up renewables with a ‘war time’ focus and effort?”

You may want to look at some of yesterdays posts on the Petrodollar.

http://peakoil.com/generalideas/if-everything-is-just-fine-why-are-so-many-really-smart-people-forecasting-economic-disaster

Once the Petrodollar falls (and it must at some point between the present price, and the average cost of production) the US, and much of the rest of the world’s governments will be too severely crippled to do much of anything to relieve the situation. It may be a mistake to rely very heavily on remediation coming from any branch of a central government. It will remain for local institutions to be the primary means of coordinating any response.

paulo1 on Wed, 12th Nov 2014 12:06 pm 



Thank you Short,

I did read that article yesterday and have an opinion/question about petro-dollar’s key role in keeping everything running.

If high frequency trades are possible in any stock market due to computer programming, etc., why then is it not possible to trade currency to currency using any and all world currencies adjusted by the moment? There is already talk about oil trading via a currncy basket.

Furthermore, it would be child’s play for the computer minded to produce a trading app for phones to facilitate localized market trades in any currency, whatsoever, worldwide. Yes money value fluctuates, but with a risk % localized currency exchanges could flourish thanks to inter-connectedness.

I just think in a crisis situation emergency measures can be taken to develop said currency basket in a matter of days after the dust settles.

I re-read the referenced post and comments (skipping the zombie and doomer backyard silo musings) and did notice your… “When the price of oil falls to the cost of production, producers will have to find other means of transacting business than the dollar. After that the US will have to exchange real goods, and services for its oil imports. How much of the current banking, and financial system will remain afterwards is the real question.”

As far as I’m concerned the current financial system is no more than a casino ‘house’, taking a skim for running the game. I think our world and socities would be much better off with a dose of reality.

“People, food is not frozen tater-tots and chicken strips from the mega store”.

“Oh, you have a business degree and are working on an MBA? Can you fix my roof or keep my account books? No? Then what use are you?”

Personally, I don’t have a problem with the ‘market’ crashing by 50% and seeing the end of financialization. But then again, I don’t live in London or New York suking the life out of honest transaction relationships.

One of my favourite employers used to say, “Don’t tell me what you know, what can you do”?

I admit to sitting in a backwater window seat compared to the world stage. We’ll still have BC Hydro supplied electricity financed another way, maybe with local script…who knows? Local bonds to citizens paid by rates? We’ll still have NG and Bitumen to sell or trade. Canada just signed a trading agreement with Russia using respective currencies. I assume they did it for a reason.

Paulo

Paulo

Northwest Resident on Wed, 12th Nov 2014 12:25 pm 



paulo1 — If you skipped the zombie and doomer backyard silo musings, then you missed the most interesting part 🙂

Your referencing the currency basket and other of your “musings” on the world financial situation prompt me to post this link, which argues a single-world currency (via stages one of which is a currency basket) is exactly where we’re headed.

What do you think? Is this article pure conspiracy theory, or do you find it to be close to what you speculate is really happening?

The Economic End Game Explained

“The bottom line is that the stock market, the greatest false indicator of all time, is on the verge of implosion; and the banking elites are positioning themselves to avoid blame for this implosion while the rest of us are being sold on the most elaborate recovery con-game ever conceived. But what is the purpose behind this con-game? Lies are generally only told by those who hope to gain something through deception. What do the elites hope to gain by creating a facade of recovery?

They have openly admitted to the public on numerous occasions EXACTLY what they want — namely, the institution of a truly global and centralized economic system revolving around a highly controlled world currency framework and dominated by a select cult of banking oligarchs. Anyone who claims that this is not the goal is either a liar or an uneducated fool.”

http://alt-market.com/articles/2403-the-economic-end-game-explained

Davy on Wed, 12th Nov 2014 12:34 pm 



Short said – After that the US will have to exchange real goods, and services for its oil imports. How much of the current banking, and financial system will remain afterwards is the real question.”

That may be true short but so will the rest of the world. The dollar is just a currency countries transact with. These countries too must generate value. The global system has self-organized into what it is with countries taking their place like participants in any ecosystem. You can’t easily decouple any majors from the whole anymore. The US is being subject to micro criticism instead of being viewed in relation to the whole systematically. The world today is about money flows and borderless carry trades. Markets and governments are at the mercy of these currency flows and carry trades.

The US produces plenty of goods and services of value. I get the impression here that people think the US simple lives off the benefit of the dollar and petro dollar and nothing else which is absurd. It is discussed like the US gets something for nothing again a false premise. In fact if you study the effects of the petro dollar and the position of having a reserve currency there are many disadvantages created. The people of the US have paid a price for this just as we have for having a global military. I am not trying to diminish the benefits nor the advantages taken by the US but all too often here the balance is in the other direction. The benefits from a reserve currency were once but currently this status is sapping the strength of the foundation of the country for the benefit of few. These few are the global 1%ers.

tahoe1780 on Wed, 12th Nov 2014 1:06 pm 



From Russell Napier of ERIC

It is with regret and sadness we announce the death of money on November 16th 2014 in Brisbane, Australia.
The G20 announcement in Brisbane on November 16th will formalize a “bail in” for large-scale depositors raising the spectre that their deposits are, as many were in 1932, worth less than banknotes. It will be very clear that the value of bank deposits can fall in nominal terms.

On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a “bank run.”

Each country will introduce its own legislation to effect the ‘ bail-in’ agreed by the G20 this coming weekend. The consultation document from the UK’s Treasury lists the following bank creditors who will rank ABOVE depositors in a ‘failing’ financial institution:
•Liabilities representing protected deposits (in the UK the government guarantee protects 100% of deposits up to the value of GBP85,000)
•any liability, so far as it is secured
•Liabilities that the bank has by virtue of holding client assets
•Liabilities arising with an original maturity of less than 7 days owed by the banks to a credit institution or investment firm
•Liabilities arising from participation in designated settlement systems
•Liabilities owed to central counterparties recognized by the European Securities and Markets Authorities… on OTC derivatives, central counterparties and trade depositaries
•Liabilities owed to an employee or former employee in relation to salary or other remuneration, except variable remuneration
•Liabilities owed to an employee or former employee in relation to rights under a pension scheme, except rights to discretionary benefits
•Liabilities owed to creditors arising from the provision to the bank of goods or service (other than financial services) that are critical to the daily functioning of its operations

The above list makes it clear that deposits larger than GBP 85,000 will rank ahead of the bond holders of banks, but they will rank above little else. Importantly, both borrowings of the banks of less than 7 days maturity from other financial institutions and sums owed by banks in their role as counterparties to OTC derivatives will rank above large deposits.

Large deposits at banks are no longer money, as this legislation will formally push them down through the capital structure to a position of material capital risk in any “failing” institution. In our last financial crisis, deposits were de facto guaranteed by the state, but from November 16th holders of large-scale deposits will be, both de facto and de jure, just another creditor squabbling over their share of the assets of a failed bank.

Interestingly, HM Treasury uses the word ‘failing’ rather than “failed” in its consultation document and investors could find their large deposits frozen for a prolonged period in any “failing” institution while the courts unpick the capital structure and decide exactly where any losses should fall.

If we have another Lehman Brothers collapse, large-scale depositors could find themselves in the courts for years before final adjudication on the scale of their losses could be established. During this period would this illiquid asset, formerly called a deposit and now subject to an unknown capital loss, be considered money? Clearly it would not, as its illiquidity and likely decline in nominal value would make it unacceptable as a medium of exchange.

From November 16th 2014 the large-scale deposit at a commercial bank is, at best, a lesser form of money, and to many it will cease to be money at all as its nominal value can fall and it could cease to be accepted as a medium of exchange.

Northwest Resident on Wed, 12th Nov 2014 1:42 pm 



Tahoe — Yeah, I read that earlier this morning over on ZH. Thank goodness I’m not a “large depositor”, or I’d have some decisions to make. Even being a somewhat “medium sized” depositor makes me cringe at the thought. I hear that greenbacks make excellent between-the-mattress padding…

Another article I posted earlier today for paulo1’s feedback (so far, crickets) made the point that TPTB are on track to “herd” people’s retirement savings into bonds, where it will eventually disappear into nothingness. I guess they won’t stop at trying to suck the wealth out of the 99.9% until they’ve got it all. Not that I don’t see the logic in them doing that — the less we have, the less we consume, and that tends to mitigate the over-consumption problem the world (and especially America) is having. It never was going to be easy or pleasant to dramatically reduce American consumption of natural resources. With articles like the one you posted, it looks like it might end up being more painful for some people than I previously imagined.

shortonoil on Wed, 12th Nov 2014 1:50 pm 



“The US is being subject to micro criticism instead of being viewed in relation to the whole systematically.”

Davy, I’m not criticizing the US, I am merely saying that once the price of oil falls to the cost of production that the Petrodollar will end. It is not a matter of economics, it is a matter of energy dynamics, and balance. Any fiat currency is an artificial construct, it has no intrinsic value. Energy is a fundamental unit of reality; it can be neither created nor destroyed. At the production cost point producers will have to receive an equal amount of energy back for what they sell. If they don’t they are guaranteed to go out of business.

How such transactions will occur I don’t know. One possibility would be an energy backed currency. But the days when the FED can spin out a string of 0s and 1s and call them barrels of oil, are coming to an end.

baptised on Wed, 12th Nov 2014 1:58 pm 



Is it just me, I see a trend of USA moving toward old USSR and Russia(now) moving toward old USA.?

baptised on Wed, 12th Nov 2014 2:11 pm 



Oop’s talking only about financials in previous post.

Perk Earl on Wed, 12th Nov 2014 2:24 pm 



http://www.bloomberg.com/energy/

On the topic of pullback in drilling due to lower oil price, Brent is now just 18 pennies from going below 80 a barrel!

Brent -1.50 to 80.17
WTI -1.00 to 76.94

Perk Earl on Wed, 12th Nov 2014 2:58 pm 



http://www.bloomberg.com/energy/

BRENT GOES SUB 80!

Down 1.80 to 79.87

Whoda thunk?!

Harquebus on Wed, 12th Nov 2014 3:12 pm 



Throughout history, all fiat currencies have failed. Every one without exception. All currencies today a fiat and will fail.
Oil is currently being traded for debt dollars which, are intrinsically worthless. A previous poster had it right when they said that China will be trading physical gold for oil. The U.S. has already sold its gold bullion, to China and others.
Add this to the U.S. massive debt which, can never be repaid and the even higher U.S. unfunded liabilities, the U.S. is deep poo poo.
The end of the petrodollar means the end of the U.S. as we know it.

Speculawyer on Wed, 12th Nov 2014 3:17 pm 



Even if there is a pull-back, prices will probably remain low for a while. Fracked wells deplete faster than other wells but they often produce pretty well for the first year.

I’m surprised that prices got this low. I certainly hope it improves the economy. But I don’t see them remaining this low for more than a year.

Speculawyer on Wed, 12th Nov 2014 3:24 pm 



Yeah, Perk Earl, I gotta say I’m surprised by sub 80 Brent. I think to some degree we hit a perfect storm of conditions:
1) Big increase in production in the USA.
2) China growth slowing down
3) Russia desperate to sell oil.
4) Europe economy in the toilet.
5) Although ISIS is running around in the desert of Syria and Iraq, the oil producing regions of middle-East are all quite stable.

Heck, I even wonder if the Syrian conflict has helped push down oil prices as both Iran and Saudi Arabia want to sell oil to pay for their respective sides of that Sunni/Shia proxy war in Syria.

Northwest Resident on Wed, 12th Nov 2014 3:27 pm 



“But I don’t see them remaining this low for more than a year.”

A year of these low prices is about all it will take to put a stake through the heart of most of the high-cost production (shale, deep water, etc…).

And since all production increases these last few years or so have come from those high cost unconventional sources, their closing up shop and calling it quits would certainly impact the world oil supply.

Energy shortages as soon as 2015 with associated dire geopolitical security issues. That’s what the U.S. Military Joint Operations Environment (security planning) document talked about back in 2010. And now, here we are.

Davy on Wed, 12th Nov 2014 3:27 pm 



Hark, speculation on the gold situation or have you been in ft Knox? Hark, tell which major power is not awash with debt please. Hark, tell me which major power is not in ” deep poo poo please? I want a nice laugh. Hark are you talking out your butt on the petrodollar? The end of the U.S. as we know it what does that mean friend? Do you even really know what a petrodollar is?

Harquebus on Wed, 12th Nov 2014 3:45 pm 



@Davy. I know what the petrodollar is worth and okay, the end of the petrodollar will be the end of the world as we know it.
The inflation based ponzi scheme which is the world’s monetary system (fractional reserve banking) is doomed to fail. The economic and political ideologies of compound growth are hitting the physical realities of our finite planet.
Basically, when the poo poo comes, we are all going to be in it.
BTW: When was Fort Knox last audited?

Davy on Wed, 12th Nov 2014 4:13 pm 



Hark, I saw a program where Ft Knox was visited. I know of no audit.

I don’t deny the gold may or may not be there but until we know the talk is speculation. I imagine some has been sold and leased out but I find it hard to believe all of it. I personally think all the gold is there. It is the FED that has leased and sold theirs off.

Harquebus on Wed, 12th Nov 2014 5:04 pm 



@Davy. Time will tell although, don’t expect a full and independent audit anytime soon.
Cheers!

jmb on Wed, 12th Nov 2014 5:13 pm 



“It will be falling prices that bring about Peak All Liquids. It has never been about supply, it is all about value, and the value of oil is declining.”

Short, you seem to be a bit off the target here. Your darts are way off the board and into the wall.

Davy on Wed, 12th Nov 2014 5:42 pm 



jmb said – (short said) “It will be falling prices that bring about Peak All Liquids. It has never been about supply, it is all about value, and the value of oil is declining.”
Short, you seem to be a bit off the target here. Your darts are way off the board and into the wall.

JMB, I find shorts thesis fascinating and relevant to what is happening currently in the systematic decline of our global world. It dove tails with science by showing thermodynamic relationships to mechanical work with a depleting resource. Yet, I would have to say to Short this is a complicated economic world.

We must admit to supply and demand influences. We should accept the distortions of financial repression of rates and liquidity support by the central banks. We need to remember we can look at this with different lenses. Short term and long term look different. We can look at the economy as a whole and we can look at the economy like a Wall Streeter does. The current markets are distorted, corrupted, and manipulated how can his projections account for that?

While I agree with Short on the declining value of oil I find the use of dollar pricing of that trend puzzling. I have not figured out how you could use dollars to show a trend with all the influences that go into the dollar over time. Not to mention if there will be a dollar in a year. In my small brain I feel there is a better measure than price. I am not saying Short is wrong I am saying my brain synapses aren’t firing completely in tune with his analysis.

poaecdotcom on Wed, 12th Nov 2014 6:24 pm 



I disagree with Short on the relationship between energy and dollars.

Energy is everything, I get that. In my opinion, where short leaves the thermodynamic world and enters the shambolic abyss of fiat chaos is by denoting (pricing) real world energy in future fiat dollars, as those those dollars mean something in and of themselves.

Whether a $1, $100 or $1,000,000 buys a barrel of oil has nothing to do with the Laws of Thermodynamics, so why make predictions of price, when price is simply an arbitrary construct, backed by nothing???

One barrel of oil went from $21 to $147 in five years. (03-08).
The dollar/energy “relationship” changed by 600%.

Imo, predicting future prices in dollars is a fools game without understanding and acknowledging fluctuations in money supply.

Harquebus on Wed, 12th Nov 2014 7:22 pm 



‘Gold is Currency and NO Fiat Including the Dollar, Can Match It’

http://sgtreport.com/2014/11/338724/

Harquebus on Wed, 12th Nov 2014 7:29 pm 



Part 2.
http://sgtreport.com/2014/11/gold-is-currency-no-fiat-including-the-dollar-can-match-it-kranzler/

Perk Earl on Wed, 12th Nov 2014 9:23 pm 



“Yeah, Perk Earl, I gotta say I’m surprised by sub 80 Brent. I think to some degree we hit a perfect storm of conditions:”

Yeah speculawyer, a lot of factors came together. Seems like no exporters are willing to back off of going full tilt for fear of losing market share and I think that says a lot about the financial conditions of countries. Guess it’s a dog eat dog situation with the highest cost non-conventional on the bubble. Like watching a slow moving train wreck.

Northwest Resident on Wed, 12th Nov 2014 11:15 pm 



Perk — That sub 80 Brent is amazing.

Some people are saying so what, the oil business has been on a boom/bust rollercoaster ride ever since its inception, why is this time such a big deal.

The assumption of course is that we wait a while, eager consumers with full decks of credit cards suck up that “cheap” oil as fast as they can burn it, demand rises as does the price for oil, economic activity goes off the charts and we’re off to the races again — another BOOM!!

Except this time I don’t think that’s going to happen. I think we’re hitting the limits of our ability to extract not just oil but other resources. We have scavenged the entire planet and there’s nothing but scraps left.

I think THIS bust is the end of the line. It had to end on a bust, and I think this is it — the beginning of the end of the oil age. The Last Bust.

It sure will be interesting to see how things go over the next few months. If my hunch is correct, we’re in for a wild ride!

Perk Earl on Thu, 13th Nov 2014 12:57 am 



“The assumption of course is that we wait a while, eager consumers with full decks of credit cards suck up that “cheap” oil as fast as they can burn it, demand rises as does the price for oil, economic activity goes off the charts and we’re off to the races again — another BOOM!!”

Yeah, a big assumption is right. Here’s an article on consumer slow down.

http://online.wsj.com/articles/big-chains-feel-shoppers-pull-back-1415839473

‘Big Chains Feel Shoppers Pull Back’

“August was our strongest month of the quarter with a solid start to the back-to-school season,” Penney Chief Executive Myron E. “Mike” Ullman III said. “However, like many other retailers, we saw considerable slowdown in September.”

I’m still trying to piece this thing together. The first Qtr. was -2.4% GDP, then suddenly out of nowhere for reasons I’m still not clear on the 2nd qtr. jacks way up to 4.6% and the 3rd qtr. clocks in at 3.4%, then a slow down in consumer spending in this, the 4th qtr.

What the heck happened in the middle there? I just don’t see how the 2nd qtr. could jump up by 7% from the 1st qtr.

Anyway, I think you are right about these next few months, because it seems like every day now there’s some kind of s— going on somewhere. Today was the bank bit in Australia and Brent going sub 80. It’s like a boiler under too much pressure (trying to maintain BAU when it no longer has any business even trying), busting out here and there.

The oil price is very interesting now. It’s getting too low for fracking as rig counts are already dropping, it’s too low for the income expectations of many exporters, yet it’s too high to really generate much consumer action beyond a dribble. Like you mention the consumer is tapped out. They keep trying to keep up a good face borrowing on cards to keep junior spoiled and do all the other stuff, but I think you are right. This time is different – the economy isn’t going to just jump up and run like it use to.

The hardest part for the corns is going to be when the next Lehman moment hits. They will be riding along in their clunker thinking things are getting better, having bought all that US energy independence bit because of North Dakota, thinking we no longer import oil from OPEC, the price at the pumps will be lower, all the govt. stats reported that are lies sound good to them, and when the news hits that signifies yet another 08/09 type step down or worse, they will really wonder who the heck they have to blame now. Notice how in that scenario they never even got it? They won’t either because MSM will spin it 10 days to Sunday until they are sure it’s such and such a country or so and so’s fault.

Did you remember the Star Trek episode where they land on a planet that is mimicking Nazi Germany? They have this leader that is all drugged up in a chair and they revive him from time to time and force him to read a propaganda script. Is this time period any different than that depiction. Just crap being fed to people on the airwaves so they remain calm and working hard.

Northwest Resident on Thu, 13th Nov 2014 1:24 am 



Perk — That’s exactly how I see it. Your analogy to the boiler under too much pressure bursting at the seams is a good one I think. And yes, being a PR graduate and finely tuned to the tricks of he propaganda trade, I too am aware of the Grand Illusion that TPTB project onto the masses who of course accept it as reality. But the reality is far different than what it seems. And that illusion, like the boiler, is starting to burst at the seams. Shouldn’t be long now is my guess and we’ll start to see some major dominoes falling. As if they haven’t already started.

Norm on Thu, 13th Nov 2014 2:20 am 



The article only has one useful detail, the rig count fell… 1568 rigs down by 14 rigs. BUT that is not a significant trend, its called ‘noise’. IF the rig count falls significantly, that sounds bad cause they gotta drill shale like crazy, just to keep production even.

Any sensible efforts at reason, suggests a bad oil shortage eventually. Shale provides a short-term relief but they act like its a permanent solution.

Makati1 on Thu, 13th Nov 2014 3:12 am 



The collapse will end the age of “Intermediaries”. (Persons or organizations skimming off some of the producer’s gains before it gets to the buyer.) They are about 60% or more of Western economies. A lot lower in less ‘developed’ countries. For instance, various government departments account for over three million employees (excludes military).

Then there are the state governments at about four million and local at about 11 million. Total government leeches equal about 18,000,000 employed or roughly 1/5th of all employed people in the USSA. (2012 Census) These are only part of where the budget goes each year. ALL are drones living off of the producers.

Davy on Thu, 13th Nov 2014 6:29 am 



I see diminishing returns screaming in our face. The perfect storm part is multiple, converging, and positive reinforcing diminishing returns. Diminishing returns in itself is not so bad. There is always substitution, innovation, and efficiency. IOW adaptation and mitigation through the time tested market based system we live in. Knowledge, technology, and energy intensity overcoming problems.

What has change is the limits of growth combined with diminishing returns. We now see technology and knowledge failing to grow economic activity in the face of resource depletion. We know there are base resources that cannot be substituted. High quality oil, good land, quality water, pure industrial minerals, and healthy ecosystems.

The perfect storm comes in when you have them converging making the effects magnified and systematically stressful. Tell me do you think we would be having dangerous financial health issues if oil were in abundance with high energy value? NO. Yet, it is more than oil it is our resource base across the board becoming more energy intense to extract at a time of falling energy value and quantity of oil. I say oil quantity because it is clear cheap conventional oil is in decline. The other liquids are fillers like soy to burger.

The other component to the storm is our systematic side. The global economic activity is bifurcating. We see markets that are not behaving properly because of financial repression. Excessive debt creates its own feedbacks primarily by distorting asset classes with bubbles. All that liquidity has to go somewhere. Main Street is not creating proper returns so instead we are seeing a skimming of rates through a huge carry trade. This carry trade is dangerous in itself because it represents trillions in dollars that have moved into emerging markets and financial markets that can easily begin a violent move back to a risk off environment. This risk off environment will be a search for physical and tangible value. We would need 2 earths to satisfy all that notional wealth in the digital world.

A very important but often overlooked part of the storm is overshoot by excessive population. We have frankly too many people chasing too few resources creating social tensions and ecosystem degradation. This in itself causes systematic unease. Remember the financial system is only as good as confidence in it. Confidence is liquidity in a complex integrated global economic system. The economic degradation is ruining our support system. Actions to correct that are not economic but further slow vital growth. A growth based system cannot handle a growth reduction especially with excessive debt to deleverage from.

In summation we have limits of growth and diminishing returns striking in multiple ways. The important thing to remember is there is no substitution left to the most critical base components to our complex global system. We like to think there is and this is where the cornucopians dominate the conversation. They are preaching markets, knowledge, technology, and innovation will allow transition and transcendence of our limits of growth and associated problems. This is the mentality that got us to right here right now. If there is no transcendence then there is only descent. We are on the cusp of a descent paradigm that is primarily an energy gradient of food and liquid fuels. The food part is not yet apparent but is soon will be. Liquid fuels are becoming an issue. All the other problem areas of limits of growth will magnify these two issues creating the perfect storm. Currently the multitude of other limits of growth areas in of themselves are not dangerous but together they present predicaments.

Society has a resilience in our efficiency and energy intensity. This has shaped the conversation towards the corns and left the doomers with egg on their face. Doomers have cried wolf so many times only to see the global system pull a rabbit out of its hat. The corns have one major obstacle and that is a finite world and the demands and swiftness of exponential growth. We are near those limits.

The efficiency and energy intensity that created that powerful momentum of strength can easily turn the other direction. The other direction is a dangerous one for a population because it is characterized by dysfunction, destructive descent, economic abandonment, and irrational reactions. Since little proactivity is happening i.e. lifeboats and plan b’s expect dangerous crisis to develop. The black swans are circling.

rockman on Thu, 13th Nov 2014 7:53 am 



NR – “That sub 80 Brent is amazing”. If you find that a 20% drop in prices shocking you should have been hanging out with me and the boys back in the 80’s when oil prices (adjusted for inflation) fell from $115/bbl to $22/bbl in just 6 years…an 80% drop.

As much difficulty as many folks have appreciating the supply side of the energy dynamics they greatly underestimate the impact of the demand side even more so.

westexas on Thu, 13th Nov 2014 8:49 am 



Three year over year declines in annual Brent crude oil prices (year over year declines of 17% or more*) since the late Nineties:

1997 to 1998: $19 to $13 (a 32% decline)

2000 to 2001: $29 to $24 (a 17% decline)

2008 to 2009: $97 to $62 (a 36% decline)

*We saw a small (2.7%) decline from 2012 to 2013

Northwest Resident on Thu, 13th Nov 2014 9:39 am 



rockman: “…back in the 80’s when oil prices (adjusted for inflation) fell from $115/bbl to $22/bbl in just 6 years…an 80% drop.”

That must have been pure hell.

In a sense, I was with you and the boys at the time, but working it from a different angle. I was a software developer at a large savings and loan company at the time, working on their home mortgage software applications. I remember running reports of all the home foreclosures in Texas, and thinking at the time “holy shit!”. I’m talking thick reports of single-spaced printed reports, each line representing a home in foreclosure. It was a massacre, no doubt about it.

And in another sense, we’ve ALL been right there with you and the boys in the oil patch, all along the way. The boom/bust cycles that the oil patch has gone through reflected right back into the boom/bust cycle of the entire economy. Periods of giddy excitement as we ramped up economic activity during the launch toward the peak of whatever boom cycle you guys were on, only to come spiraling down in a flaming wreck as the oil patch guys lost their asses on yet another bust. Then, after a period of sitting around wondering WTF, back off to the races for another wild ride.

It HAS to all end on a bust — The Last Bust. I think this is it. I don’t think there’s enough oil or enough resources of any kind to fuel another BOOM in the oil industry or in the economy in general. I guess we’ll just have to wait and see.

shallowsand on Thu, 13th Nov 2014 10:14 am 



For a more modern version, how about $140’s in the summer of 08 to 30’s in the winter of 08-09. 2009 and 2010 prices were below where we are at today also.

Oil always overshoots both on the high and low end. It is traded by a bunch of type A’s who’s personal lives are roller coasters. There is a lot of emotion in the oil trade, just as there is in the stock market.

Also, many in the oil business are eternal optimists. Who else could risk millions (now in many cases billions) in hopes they can find something miles below the surface of the earth. That is why production will keep rising for awhile in the shale plays. That along with the fact that projects in process planned at $90+ oil will be completed, they will go ahead and frac a well that has already been drilled. I assume most will wait to see if this is short term price drop. 2013 is the only year were we really didn’t have a short term correction since 2007.

Nony on Thu, 13th Nov 2014 6:23 pm 



Get rid of the export controls. Eliminate the WTI-Brent spread.

Davy on Thu, 13th Nov 2014 6:35 pm 



NOo, a word of warning on using Xanex. It is a short term stabizer not a long term maintenance treatment. Since this bad news appear to have set in like a head cold I am just looking out for my corn brother. Longer term I recommend vigorous debates using reality as your guide. Check in with your support group here on PO. If you like I will sponsor you.

Nony on Thu, 13th Nov 2014 7:22 pm 



Could you grow tits on your back? 😉

Davy on Thu, 13th Nov 2014 7:40 pm 



I love the NOo cause he can dodge a punch with a smile