Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on December 8, 2015
The real danger of the oil collapse
The collapse of the housing bubble sent the world spiraling into recession. The collapse of the energy and commodity bubble threatens to be just as damaging.
That few are willing to even use the term “bubble” with regard to the boom and bust in the price of oil, copper, iron ore, and other materials tells how early we still are in the painful unwind phase.
As with housing, there was a fundamental reason for these prices to soar. China has been on a historic commodities binge as it doubled the size of its economy in recent years to become one of the world’s largest. Even so, those fundamentals begat—as they have so often throughout human history—a feeding frenzy.
That frenzy of financing, mining, fracking and dealmaking exacerbated the boom and now, the bust as China’s growth and appetite for such raw materials has slowed dramatically.
The collapse of this apparatus is already proving deeply painful for the world economy.
This year will mark the slowest global growth pace since the 2008-09 financial crisis sparked by the housing market’s collapse. Following several downgrades, the International Monetary Fund now expects growth of just over 3%. The IMF has also lopped 2.25 percentage points off its growth forecasts for the next three years for commodity exporters compared with the past three.
Among those, Russia is in a deep downturn. Brazil, a key commodity supplier, has collapsed into its likely worst recession since the 1930s, exacerbated by the political graft scandal that has been revealed in its wake. Venezuela, whose socialist government relied heavily on oil-funded payouts, is now considered the world’s worst-performing economy by the International Monetary Fund. Saudi Arabia, the world’s top oil producer, is tapping debt markets for the first time since 2007 to shore up its heavy cash flow needs.
That America’s economy is among the least directly damaged by this unwind does not mean the country will escape unscathed.
In fact, this crisis may tear just as dramatically at its social fabric.
There is, for starters, the slowdown in world trade that is already damaging profits everywhere from the big corporate multinationals (and smaller companies, like Macy’s and Tiffany, especially exposed to tourist dollars) to regional ports and transportation providers.
There is also the larger instability this energy and commodity collapse has triggered. Russia’s leader, Vladimir Putin, has managed to retain high approval ratings despite his slumping economy by seizing Crimea from Ukraine and participating in the Syrian war that is destabilizing the Mideast and increasingly, Europe and the West. Saudi Arabia and Jordan, among the stabler Mideast nations, are being watched carefully for fear their political collapse could exacerbate the conflagration.
Nor is that conflict remaining a regional one, as demonstrated by the slaughter in San Bernardino, Calif., that was seemingly Islamic State-inspired. That, plus the sharp response from some politicians, like presidential hopeful Donald Trump, to the Muslim faith and to the U.S.remaining open to immigrants and refugees is as much of a pull on America’s social fabric as was the financial crisis.
And as with the housing-triggered financial crisis, society will be desperate for scapegoats to blame for the wreckage it sees. Keep in mind that oil prices, to take the key commodity of this global crisis, do not yet appear to have bottomed. You’ll know they’ve bottomed when the handcuffs come out.
To understand this as a bubble that has now burst at least helps to understand what the energy and commodity collapse has unleashed across the globe. There are upsides too: Venezuela just may get a freer and more prosperous economy, Western consumers and producers get relief from high energy costs, and so forth.
Indeed, Federal Reserve chair Janet Yellen herself has said that “on balance, I would see these developments as a positive for the standpoint of the U.S. economy,” in that lower oil prices is “certainly good for families, for households. It’s putting more money in their pockets.”
As to whether that money is going towards weapons Americans are buying to defend themselves, that perhaps is a not-so-separate matter.
24 Comments on "The real danger of the oil collapse"
twocats on Tue, 8th Dec 2015 7:18 pm
? er? the fox says what again?
makati1 on Tue, 8th Dec 2015 7:45 pm
More ‘kumbaya’ bullshit from the CNBC arm of the Ministry of Propaganda.
Truth Has A Liberal Bias on Tue, 8th Dec 2015 9:48 pm
Actually it was the global recession that popped the American housing bubble. What moron thinks that the popping of an American housing bubble could send the whole worlds economies into recession. The recession was caused by $140/barrel oil.
Boat on Tue, 8th Dec 2015 10:24 pm
Truth,
And the price of oil went up because GW went to war in Iraq creating a shortage. It was not because there wasn’t oil in the ground to drill.
apneaman on Tue, 8th Dec 2015 10:29 pm
Boat who said anything about how much oil is in the ground?
GregT on Tue, 8th Dec 2015 11:02 pm
@Boat,
“And the price of oil went up because GW went to war in Iraq creating a shortage.”
I have submitted links on multiple occasions that have clearly proved this to be wrong.
Why do you continue on with the nonsense? Does proving to everyone else how stupid you are, make you feel better about yourself somehow?
GregT on Tue, 8th Dec 2015 11:07 pm
Wrong Truth,
But very close. The recession was caused by $147/barrel oil.
Boat on Tue, 8th Dec 2015 11:14 pm
apeman,
Drop the ice cream and the brain freeze.Warm up to the real events that took place. Shortages create higher prices. The world lost oil production because of conflict. Now it is getting it back. Iraq is playing a big part in that. If Libia, Nigeria, Iran get back to full production. (man made events/geopolitics) Look to see fracking, tar sands and off shore drilling take a bigger hit. It certainly isn’t depletion, quality of oil or financing like some idiots think. I hope your still around in a few years. You take criticism so well Lol
GregT on Tue, 8th Dec 2015 11:35 pm
Nope Boat,
“It certainly isn’t depletion, quality of oil or financing like some idiots think.”
None of those things have anything to do with the global financial crisis, trillions of dollars of debt, or the continuing deterioration of the world’s economies. Only idiots would think that.
Smart people know that it was all caused by the fluctuation in the 3 million barrels of oil that Iraq produces every day.
And also Boat, only idiots would write; “I hope your still around in a few years.”
It’s: “I hope you’re still around in a few years.”
How do you expect anyone to take you seriously at all, when you consistently make spelling errors at the grade 5 level?
twocats on Tue, 8th Dec 2015 11:36 pm
I would say that the rise of oil prices and inflation in general (interest rates for several month CDs was up to around 5%) was a major stressor that contributed to the collapsing of the housing bubble and all the financialization that included the trillions in derivatives and swaps that cascaded in a giant margin call. If the housing bubble hadn’t been there, the recession might not have been as bad. If peak oil hadn’t started to really set in (around 2002 increases in production slowed from traditional levels), the game might have gone on another decade or so. There, you are all correct, except Boat, he’s way off.
twocats on Tue, 8th Dec 2015 11:43 pm
this time the energy bubble is just an offshoot of the massive liquidity project by the world’s central banks, right now primarily Europe. They are backstopping the global economy which is disintegrating before their eyes. One could make a really good argument that interest rates and inflation were forced towards zero because the global economy could no longer grow due to peak oil. But on the flip side, there are lots of institutions that rely on interest and returns in order to function (every bank and pension fund on planet), thus the massive liquidity to keep all our retirees and banksters rolling in it. It’s a cake and eat it too strategy and by-golly it’s worked for 6 years.
apneaman on Tue, 8th Dec 2015 11:44 pm
” Shortages create higher prices. “?
Is that why diamonds are so high priced, because there is a shortage of them?
You haven’t been paying attention lately boat. Even the MSM has been running stories the past few month about the debt/financing troubles with shale. Funny because that is usually where you get your talking points/delusions from. What evidence can you provide that shows financing/debt is not a problem for the shale people?
U.S. Shale Drillers Are Drowning in Debt
http://www.bloomberg.com/news/articles/2015-09-17/an-oklahoma-of-oil-at-risk-as-debt-shackles-u-s-shale-drillers
Junk-Debt Investors Fight for Scraps as U.S. Shale Rout Deepens
http://www.bloomberg.com/news/articles/2015-09-25/junk-debt-investors-fight-for-scraps-as-u-s-shale-rout-deepens
Oil companies in America
Debt and alive
A shakeout is finally hitting debt-strapped shale producers
http://www.economist.com/news/business/21672253-shakeout-finally-hitting-debt-strapped-shale-producers-debt-and-alive
Even your hometown paper
Banks to tighten grip on shale debt
http://www.houstonchronicle.com/business/energy/article/Banks-to-tighten-grip-on-shale-debt-6514722.php
These are all pro business, pro oil publications and very unfriendly to “peakers”, yet it’s so bad that even they can no longer spin it. Seems like the whole world are “idiots” except you.
apneaman on Tue, 8th Dec 2015 11:50 pm
twocats, boat is always way off. He has bad aim. He couldn’t hit the ocean if he was standing on the end of the pier. We like to keep him around because he is “special”.
Davy on Wed, 9th Dec 2015 6:02 am
Some people act like they are experts on determining the great recession. They say the housing bubble in the states, some say $140plus oil, others speculation with derivatives. The experts don’t even agree. It was all of the above then it was loss of confidence. The loss of confidence was THE biggest result and cause of the recession in my opinion but I am no expert.
rockman on Wed, 9th Dec 2015 6:27 am
“And the price of oil went up because GW went to war in Iraq creating a shortage.”???
In March 2003 President Bush et al invaded Iraq. That year, according to the EIA, the world produced an average of 69.46 mm bopd…up from the 2002 average of 67.29 mm bopd. In 2004 global production increased to 72.60 mm bopd…in 2005 increased further to 73.87 mm bopd. In May 2003 the POTUS gave his “Mission accomplished” speech. In January 2003 oil was $43.17/bbl…in May 2003, after victory was declared by the US, it was $43.35/bbl. The following Oct it was $39/bbl.
marmico on Wed, 9th Dec 2015 6:35 am
Peakers are nothing more than 217 years of failed neo-malthusians.
The U.S. will consume the same quads of petroleum in 2015 as they did in 1980.
http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_7.pdf
Twice the standard of living (the GDP proxy) for the same petroleum input.
Davy on Wed, 9th Dec 2015 6:49 am
We should include the overcapacity in commodities and industrials as further dangers as destabilizing as credit creation policies. These actions point to painful deleveraging, deflationary pressures, and trade wars. How the cornucopians can claim this is ok and the markets will correct it is beyond me. This will be a multiyear blood bath situation because the debt fueled overheated growth we saw recently especially out of China was multiyear.
You can’t fix these things without pain. China is trying now by deflating and inflating but as we see they are in the process of buying up their equity markets and moving debt around instead of realizing bad debt. This is why I feel oil will be under pressure for some time. At some point supply destruction will surely cause volatility of price but by that time what will be left to inflate?
“Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities”
http://www.zerohedge.com/news/2015-12-08/behold-deflationary-wave-china-flooding-world-its-unwanted-commodities
“Between commodity-backed financing deals and the centrally-planned mal-investment boom-driven excess capacity, China has a lot of ‘liquidation’ to do to normalize from a credit-fueled smoke-and-mirrors world to a painful reality. As Bloomberg notes, there’s no let-up in the onslaught of commodities from China. While the country’s total exports are slowing in dollar terms (as we noted last night), shipments of steel, oil products and aluminum are reaching for new highs, flooding the world with unwanted inventories. China’s de-glutting is now the rest of the world’s problem as the deflationary tsunami grows ever higher.
Chinese trade data was ugly with exports down 5 straight months..”
apneaman on Wed, 9th Dec 2015 7:43 am
marmico says
“Twice the standard of living (the GDP proxy) for the same petroleum input.”
White, Middle-Age Suicide In America Skyrockets
White, middle-age suicide spiked 40% in the last 10 years. Why?
https://www.psychologytoday.com/blog/reading-between-the-headlines/201305/white-middle-age-suicide-in-america-skyrockets
What a complete fucking retard you are. Parroting econ 101 website memes.
You remind me of the diary entries of the Nazi faithful from the Führerbunker beneath the Reichstag recounting how as the Russian guns got closer the claims of a super weapon that would turn the tide and bring about a sudden victory became louder and more frequent. True believer to the bitter end.
marmico on Wed, 9th Dec 2015 8:09 am
Well, apie. You may not be aware that the Case and Deaton study has been debunked because they (Deaton being a Nobel laureate in economics to boot) forgot to de-trend the “baby boomers” moving through the cohort.
Gelman’s conclusion is: So there appears to have been no aggregate increase in age-adjusted mortality in this group in the 1989-2013 period.
You should really expand your reading horizons.
Kenz300 on Wed, 9th Dec 2015 9:50 am
Boom …..Bust……
The banks have stopped lending………..
No money to pay back debt………
If It Owns a Well or a Mine, It’s Probably in Trouble
http://www.nytimes.com/2015/12/09/business/anglo-american-to-cut-85000-jobs-amid-commodity-slump.html?emc=edit_th_20151209&nl=todaysheadlines&nlid=21372621&_r=0
Apneaman on Wed, 9th Dec 2015 11:21 am
marmico,that paper is only part of it and what I’m referring to is the suicides, not the overall death rate. Suicides in the last ten years, which are not an estimate. Nice try tricky. You and your econ 101 disciples are getting desperate, but lying with numbers has always been your forte. It’s not just the US either. It’s happening where other economies are tanking. I bet the numbers are even higher as there is no way to tell if an overdose was intentional or accidental without a note. Only a society, a neoliberal society, based solely on money could drive so many to such desperate measures simply because of hard economic times. It’s probably what you will end up doing marmy-noon, if you ever go broke since it’s your religion. What sick weasly little liars you fucks are. That article is so poorly written and so intentionally confusing even the regular readers at that site are scratching their heads in bafflement.
Suicide rate in Alberta climbs 30% in wake of mass oilpatch layoffs
‘It says something really about the horrible human impact of what’s happening in the economy,’ counsellor says
http://www.cbc.ca/news/canada/calgary/suicide-rate-alberta-increase-layoffs-1.3353662
Here is more for those interested in what is really going on.
The Other Dieoffs
“Last week I realized that there were a few subtleties left out of my (rather depressing) topic. I argued that America was doing more than just throwing its working class under the bus; it was actively trying to eliminate them. Meanwhile, the media, especially that tailored to the richest twenty percent of news consumers, is consistently waxing ecstatic on how this is the “best, richest, most peaceful time, ever,” because Facebook, even though most of us Americans are living in communities that are in an advanced state of decay, if not outright collapse.”
http://hipcrime.blogspot.de/2015/12/the-other-dieoffs.html
Apneaman on Wed, 9th Dec 2015 11:30 am
BTW, marmy-nony-papasmurf. The increase in suicides, for the same reasons, was noted long before the Case and Deaton paper came out. Years ago from multiple sources. It’s not rocket science. It’s noted in death records. No ten dollar graphs needed – just add up the numbers.
sidzepp on Wed, 9th Dec 2015 8:36 pm
On the bright side, SUV sales are up.
Davy on Thu, 10th Dec 2015 5:40 am
“Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke”
http://www.bloomberg.com/news/articles/2015-12-10/billions-of-barrels-of-oil-vanish-in-a-puff-of-accounting-smoke
“Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.
But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.
Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.”
“The U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel — last year’s price as calculated by the SEC’s formula — simply don’t pay at today’s prices, and the revolution has stalled.”
“Writedowns, which are reported on a quarterly basis, point to sizable revisions. The 61 companies in the Bloomberg North American Independent Explorers and Producers index have announced impairments of $143.8 billion in the past year.”