Peak Oil is You
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Page added on August 11, 2015
Are the chickens coming home to roost?
Forget quantitative easing and low base rates, the REAL great global stimulus—tumbling prices in commodities and, most importantly, oil— continues and it’s hard to see what’s going to change any time soon.
This huge transfer of wealth from commodity producers to consumers has shown little sign of abating despite a brief spring rally off the lows, which are once again being challenged in products from copper to iron.
In oil, the signs of the glut in supply are everywhere. Even in deepest, darkest Sussex prices are tumbling. I can now fill up the car with diesel at below £1.10 ($1.70) a liter and all the talk from the supermarkets is of a battle down to a pound. In addition, us poor souls who live on heating oil rather than gas are at last having a field day. Latest prices are down to just 30 pence a liter. My most expensive purchase of the last four years has been north of 70 pence a liter. Happy Days!
But surely the old adage that low prices are the cure for low prices will soon come to the fore and float prices aggressively in the not too distant future?
Well in the normal course of events that would be the case, with billions of dollars of production coming off the table in response to low prices. And to a certain extent that is happening in North America and elsewhere. Yet this time, the great global game of chicken means there is a huge reluctance to be the one to cut production and lose market share.
But is it really a game of chicken or in reality a bunch of headless chickens running around, unsure how to react, thereby resulting in no response or action? Saudi Arabia and its allies on the Organisation of Petroleum Exporting Countries (OPEC) are painted as being at war with the U.S. and others who have upset the oil production applecart, staring down the interloper until it cracks.
The problem is Saudi Arabia and OPEC have such enormous budgetary pressures that they daren’t cut first as non-OPEC producers from Russia and elsewhere would gladly leap in to markets they vacate.
It’s not much better in the U.S. Yes, the cost of shale production has now fallen from very high to only moderately high but the price falls haven’t actually led to oil wells being shut. In fact, finances are so bad that many smaller U.S. operators are now producing even more oil in spite of the falling price in order to have greater dollar sales and satiate the banks who have lent them so much money.
Yes, there has been a demand response at low commodity prices but nowhere near enough to offset the current over-production. Look at US car sales. They are surging to circa 17 million units on an annualised basis and, yes, Americans are driving more miles with these shiny new automobiles. But they aren’t necessarily using more fuel. You see, the average age of a car in the US now is 11.5 years old. The new purchases are on a different stratosphere in terms of fuel efficiency.
My only real concern though on creating a bear case scenario for oil though is that it’s becoming a consensus view and that worries me. The last time so many people had such conviction on oil was when we were north of $100 per barrel. That call was for prices to rally slowly until the end of the decade. So much for safety in numbers.
14 Comments on "Are the chickens coming home to roost?"
Makati1 on Tue, 11th Aug 2015 10:05 pm
The Red Queen in the oil fields…lol.
apneaman on Tue, 11th Aug 2015 10:52 pm
“Look at US car sales. They are surging to circa 17 million units on an annualised basis…..”
Here’s One Sign of Trouble in the Subprime Auto Lending Market
Hitting a speed bump
http://www.bloomberg.com/news/articles/2015-08-11/here-s-one-sign-of-trouble-in-the-subprime-auto-lending-market
Auto loan defaults sink to new low in June
http://www.autoremarketing.com/subprime/auto-loan-defaults-sink-new-low-june
I wonder what they will do after the next crash and massive defaults? When it was subprime mortgages they could not afford all the evictions and maintenance on empty houses so some folks got a pass – at least they mowed the lawn and such – till things settled (bail out) down. Nobody does repo’s for free, so it should be interesting to see what happens. I guess some newer vehicles have a wireless kill switch, but I bet there is away around that too – if you know someone and have the price.
WTF on Wed, 12th Aug 2015 2:43 am
It’s hard to believe people get paid to write shit articles like this one.
charmcitysking on Wed, 12th Aug 2015 4:34 am
The chickens are coming home to roost, Bobby Bouchier
Davy on Wed, 12th Aug 2015 5:06 am
“Look at US car sales. They are surging to circa 17 million units on an annualized basis…..”
It is pretty sad when the cornucopian establishment uses cars as the gauge of a healthy economy. We got plenty of cars already. The corns might dig a little deeper and see what kind of mal-investment policies lead to that 17Mil figure.
This has been so fun lately for me watching the Makster fall on his face with his superhero Brics and the corns bite it with their happy face economy. Many of the things I have been referencing for 2 years now are happening. This is because I do not have an agenda like the Makster or the cornucopian establishment.
Well, OK, I am doomer Davy the PO board dude doomer so in that sense I have an agenda of doom and prep. Yet, this is not so much a pushing of an agenda as it is asking people to prove the Davy dude doomer position wrong because I have no wish to suffer. I have no wish for the average China man to suffer. I have no wish for so many organisms to suffer.
I would like the world to live more modestly with respect for our mother earth. Unfortunately what is needed is massive invasive surgery for a way of life without a future. This is globally and all inclusive. Anywhere you go you have either overpopulation, overconsumption, or incompatible living arrangement per climate and fossil fuel depletion. In fact in some areas you have all three conditions. Take Las Vegas as an example of an absurd arrangement.
Lawfish1964 on Wed, 12th Aug 2015 6:47 am
Las Vegas won’t exist five years from now. Perhaps sooner. Lake Meade breached 1,075 feet last month. If it’s below that in January, Arizona and Nevada lose a bunch of water. But the scary part is once you get to 950 feet, the dam can no longer generate electricity. So much for Vegas.
Davy on Wed, 12th Aug 2015 8:19 am
Law, don’t worry, the NOo has always said gas is the answer to all our problems. They will build a gas pipeline from the east and a water pipeline from the west for desal and they will meet in Las Vegas.
History often repeats itself. Something similar happened in the 19th century with the transcontinental railroad Just change the names and faces.
In fact we could turn lake mead into one huge water storage reservoirs for all the AltE greens say is coming on line starting next year. We can fill that baby up and resurrect the house boat rental business while we are at it.
And stop right now Law, I know what you are thinking.$. The Fed will print the necessary money. This will reflate the economy and eventually make it over to Asia where it will cure the Chinese stock market flu and currency STD’s.
Lawfish1964 on Wed, 12th Aug 2015 8:52 am
You got it, Davy! I’m so glad economists can solve all these problems.
penury on Wed, 12th Aug 2015 10:47 am
If reports of the spill in Co are accurate. Lake Powell is fed by the river. Lake Mead is fed by Lake Powell. the contaminents in the water will persist for years. No one will be drinking that water or using it for much of anything. For a background try (Lake Rooseveldt/Comminco Smelter)
BC on Wed, 12th Aug 2015 11:28 am
Interestingly, the percent of US households purchasing new cars is at 36-year lows for the 6- and 9-year rates and at historically recession-like levels for the YoY and 3-year rates.
No surprise given that more than half of households spend 55-60% of disposable income for housing, auto transport, and illth care costs.
Mortgage and auto debt and rents are making 90% of the population poor, and illth care is making the whole economy ill.
God bless ‘Merika . . . ???
BC on Wed, 12th Aug 2015 12:16 pm
Lawfish, right about “Lost Wages”.
I have personal knowledge that as long ago as the 1950s and 1970s-90s the BLM, Army Corps, USGS, and Interior had comprehensive studies estimating the population carrying capacity of water resources for “Lost Wages”, Phoenix, Tucson, SoCal, Palm Desert, CA Central Valley, and West Tejas. The population carrying capacity for most of these metro areas was exceeded in the 1990s.
The reports were sequestered and academics lost their jobs because of the hostility to the reports’ conclusions from industry, including hotels/resorts, golf courses, builders, mortgage lenders, NAR, agribusiness, and the usual suspects.
I fully expect a mass population out-migration from the Desert Southwest and parts of Socal, Palm Desert, etc.
Where these migrants go is the question, but I suspect that many will be compelled to attempt to migrate to the PacNW. The problem is that the region itself is experiencing drought, and despite the presumption of abundant rainfall, the region gets less precipitation than much of the eastern and southeastern parts of the US. Therefore, the region’s carrying capacity itself is close to the edge and would not withstand for long a mass-population in-migration.
Moreover, if the emerging climate conditions are cyclical as is suggested by more climatological research evidence, a mega-drought is underway, which aligns with a similar phenomenon that might have caused the end of the Anasazi and Mayan civilizations (or mass migrations from the drought-stricken regions).
The economic, political, and social implications are profound, and few of us are ever thinking about it, let alone are informed.
There are just too many of us to sustain our complex, high-tech, high-energy, high-entropy way of living and civilization, and no one with standing, credibility, legitimacy, and authority is permitted to say so in order to prepare us to respond, innovate, and adapt in time.
theedrich on Wed, 12th Aug 2015 7:34 pm
Hey boys and girls! No problem! TPTB are going to divert the Columbia River from WA&OR down to NV and CA. Mission accomplished.
Makati1 on Wed, 12th Aug 2015 9:13 pm
“… in reality a bunch of headless chickens running around, unsure how to react,…”
Well said.
alokin on Wed, 12th Aug 2015 9:29 pm
The car sales figures is only an indicator of the IQ of average j6P, how about the water tanks sales figures in the drought stricken areas?