Peak Oil is You
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Page added on January 6, 2015
This Oil Thing Is The Real Deal
Well! WTI below $50 and Brent below $53 when I start writing this. Who knows where they’ll be by the time I’m finished?! The euro down below $1.20, US stocks flirting with -2%, major European ones off -3%, Italy and Greece over -5%. Welcome to the real world, baby! Didn’t think you’d see it again so soon, did you? Welcome to the world where the Kool-Aid recovery does not reign supreme.
Not that you’re not going to hear that anymore, and 24/7 incessantly so, but there’s no recovery with these oil prices, no matter what anybody says. The damage must be gargantuan by now. Everybody’s invested in oil. Sure, lots of shorts and stuff by now, but that’s not going to do much good. Not for pensions funds, or for governments. This thing will not blow up or over softly.
There’s not an oil major or minor or a producing country left that makes a profit at these prices, and there’s no sign anywhere to be seen that the drop will stop. If this keeps going, someday soon somebody’s going to go to war. Maybe domestically, maybe across a border, but it’ll happen.
There are dozens of regimes out there for whom oil prices have become a huge threat to their powers, their status, their lives, and there are dozens of others waiting in the wings, eager to take over. The move is just too big not to lead to bloodshed.
The eurozone is perceived as a major threat to the global economy, but not necessarily for the right reasons. Sure, that looming Grexit is not good for Brussels, but Germany and its courts might be a bigger issue. Mario Draghi will need to announce something along the lines of a QE-like measure on January 22, but can he even without risking to blow up the whole casino?
What’s more, with oil and the euro where they are, and especially where’s they’re headed, what good would any new Draghi policy do, however big it is? Europe today, like the rest of the world, has bigger problems to deal with than yesterday’s inflation rates.
Oil below $50 and falling is bigger than any other political or economic issue. Remember when they all said low oil prices would boost the economy through higher consumer spending? Heard anything much about that lately?
For western countries like Norway, Britain, Holland, oil and gas producers, the loss in – tax – revenue is debilitating. For US states like North Dakota, Texas, Alaska, it’s worse. These are not the kind of entities that can turn on a dime, they write long term budgets, the same way oil companies do. There’s a time lag in consequences, but that doesn’t mean it’s unwise to be ready to get out of Dodge.
Thing is, prices DO turn on a dime. And now they’re stuck with a zillion broken promises to investors and voters. And while the executives and politicians will at worst get thrown out, the other side of the equation is going to be stuck with the tab. And in order to save their skins, the ‘leaders’ will raise that tab wherever they see fit.
This oil thing is the real deal. There’s no Plunge Protection for that. And for all we know nobody that counts wants any. For all we know the American behind the curtain wizard convention plans to use it to destabilize a whole list of additional countries. And for all we know Russia – and perhaps China- have seen that coming from miles away.
If and when an oil producing (!) nation like Turkmenistan devalues its currency by 19% against the dollar, something’s really amiss, and tectonic plates are shifting in a part of the world where balances were already, and always, delicate. And once plates start shifting, who’s to tell where they will end up?
It’s no longer about which factors bring down oil prices, that’s old news; it’s about what oil prices bring down. You know, the next – logical -step. And they bring down more than anybody seems to be aware of. Good luck with saving a dollar a day on your gasoline bill. The world’s power brokers feel they have it all under control – they don’t, nobody has the means to control the entire world – , and they have no qualms about sacrificing you to get what they want.
The oil price drop is a much bigger event than the US subprime housing crisis, it’s bigger than everything put together that happened in 2008. And this time, central banks are lame sitting ducks. Omnipotence is a harsh mistress. She tends to backfire.
28 Comments on "This Oil Thing Is The Real Deal"
Go Speed Racer. on Tue, 6th Jan 2015 4:30 pm
It is interesting. There are two sides. Those who burn it, those who produce it. Seems like usually the side that burns it, wants more than can be produced. However at the present time, the side that burns it can’t buy as fast as its being produced. The producers ought to stop producing, but they wont stop producing, because they want revenue today, now. Meanwhile the side that burns it up, is probly slowing down due to a recession coming up that is not declared yet.
Northwest Resident on Tue, 6th Jan 2015 4:32 pm
I read this article yesterday when it was first posted on the Automatic Earth blog. And my one thought then, which I’m still thinking now, is back to when the price of oil first started plunging and I knew then that major bullshit was heading down the pipeline. What a wild ride it has been since that first beginning of the oil price plunge! And here we are, with the oil price plunging further and faster than any of us had originally thought possible in such a short period of time. It means to me that the economic bubble that we have been living in these last several (or more) years has lost elasticity, the massive debt being pumped into it can no longer keep it inflated, it is collapsing just as we always knew it would, and all the many consequences that we have long discussed and even feared are now queuing up, getting in line, preparing to intrude into our collective realities either individually or in groups of two or more consequences simultaneously. Not long from now, only the insane will be hanging on to their illusion of “all is well”. I just read proof that this last Christmas season was “dismal” based on now known numbers — something I suspected would end up being the case, and now it is a historical fact. Commodities are crashing. Things are breaking all over the place. It’s like we’re in the beginning stages of a major avalanche of mud and boulders and assorted debris, caught in the slumping sludge as it breaks away from the mountainside, but not yet being churned and grinded to death and ultimately buried by it. But we will. If we make it out of 2015 with BAU intact, even remotely intact, I’ll be amazed. Get ready.
penury on Tue, 6th Jan 2015 4:53 pm
NWR, I agree almost totally with your view. My only thought is that geo-politically the U.S is in a position which may lead to disaster. We must cut military spending soon and massively or we will not make it economically to the summer season.
Davy on Tue, 6th Jan 2015 5:12 pm
Well, NR, it has been you on this site proclaiming 2015 the year of the SHTF. It is too early to tell but these movements are a bad omen. It looks increasingly apparent that there are no more rabbits to pull out of the hat by the central banks.
I have been following the dollar appreciation and its ominous effects on the carry trade. “There is globally at least $9 TRILLION US Dollar shorts in the form of carry trades. When a carry trade unwinds, the damage is often catastrophic”.
http://www.zerohedge.com/news/2015-01-05/us-dollar-rally-has-crushed-brazil-australia-and-now-sp-500
Between the oil price crush and the carry trade unwind we must wonder if TPTB are helpless in the face of these storms. There has been a building disequilibrium for so long when it does finally snap it may be the big one. If it is not the big one it is the beginning of the full blown bumpy descent.
Mike999 on Tue, 6th Jan 2015 5:12 pm
First of all, for 8 oil producing states this will hurt. For the other 42 states low oil prices will be a boon in saved gas spending and heating oil costs, and we”ve been hit pretty hard on the east coast for years, and Exxon didn’t shed any tears for nearly bankrupting us.
But, no you’re only going to see marginal spending rise slowly as consumers build up their savings from the previous theft of their wages and income.
I to am interested in the counter-party’s involved with the hedging by oil producers and frackers. Those counter parties are losing money rapidly, which will spread the loses out of the 8 states into the country. But, I’m not sheding any tears for the fraud creating banks either.
penury on Tue, 6th Jan 2015 5:44 pm
Mike999, did you happen to notice that steel workers are being laid off due to drilling rigs being idled? How do you think service providers will feel? Are you and your family covered if the major money center banks go under due to billions of dollars of bonds not being paid back? Are you really ready for the effects on the economy of massive unemployment? If you thing you are, then I want whatever you are smoking.
Westexasfanclub on Tue, 6th Jan 2015 6:23 pm
This year starts so weird. I’m watching here in Europe how everybody is happy to fill his tank for less money, while all the countries start to drift either right or left (the south rather left, the north rather right). Syriza, Podemos, Front National, UKIP, all claiming to save their nations in the name of the people. I really wonder how the world and Europe will look like in a couple of months. Maybe the Euro was an erroneous project – but it was a nice time, when still everything was doing well…
ghung on Tue, 6th Jan 2015 6:35 pm
While my doom-o-meter has been a bit high since oil prices started their drop, as Rock is wont to point out (where’s he been lately anyway?), most of us have seen this before, although it’s usually easier to peg down a specific cause. I guess we’ll see how fragile this ‘recovery’ really is,, or how resilient. Seems that looking for a ‘new normal’ has become the new normal.
A lot of studied people have been telling us that a tough deflationary cycle is baked in, possibly in a semi-permanent fashion. It’s hard to find much of value these days that isn’t already leveraged past the hilt, and what’s remarkable is that most on the financial boards aren’t concerned; don’t see deleveraging as necessary or in the cards. Sure…
Me? Life in the cheap seats means an arctic cold front on the way; getting the wood in, cold, clear days charging the batteries and slab nicely, trying to be a worthy house husband, and working on a hybrid solar system proposal for a ground-breaking this spring; folks retiring from the petro-chemical industry – downsizing,, and pretty sure things are unwinding globally. They’re in their 70s, so they’ve pretty much seen it all. These people could afford to retire anywhere.
Perk Earl on Tue, 6th Jan 2015 6:44 pm
“Well, NR, it has been you on this site proclaiming 2015 the year of the SHTF. It is too early to tell but these movements are a bad omen.”
I thought of that today as the oil price dropped once again. Seems like you may have your finger on the pulse, NR. I argued against the possibility it could happen this year and now I’m wondering if it could. Things are unraveling so fast.
I’m also wondering if the Fed will need to grease up that printing press and start another QE program to reduce the value of the dollar, to increase the price of oil!
Anyway, we shall see what happens this year, but like Davy writes, it’s a bad omen so far.
paulo1 on Tue, 6th Jan 2015 6:50 pm
It isn’t just the 8 staes or the Province of Alberta. Many workers work away from home and send the cheques home. Plus, support industries come from everywhere.
The high US dollar will be a big problem. Here in Canada, BC and Ontario are actually forecasted to grow a bit better/more due to our realative low dollar goosing manufacturing and wood products. I expect there will be a big run on bricks in Calgary. They use them to break the windows in the high rises to facilitate jumping. (This was the joke last slump and during the NEP).
dubya on Tue, 6th Jan 2015 6:56 pm
Is it only me? When oil prices were going up it was a bad thing. Now they are going down it is a bad thing. High prices were bad, shall I assume that low prices are also bad?
I don’t know were this is all going but it seems like whatever is happening, that justifies your own world view:
high prices allow more technology to frack, but we can keep doing so for nothing!
Peak Oil will bring high prices, now these low prices prove that peak oil is here!
Low oil prices will lower commodity prices, which is bad! I mean, good!
Makati1 on Tue, 6th Jan 2015 6:58 pm
January 7, 2015: I sit here with my first cup of coffee, reading all of your comments and thinking about what the next 358 days may bring. Too many options. Too many “black swans”. Too many possibilities to even guess. Everything from more of the same to nuclear exchanges between superpowers. I will only say that we tend more to the latter than the prior.
No matter how we see it or what we think, I see a very bumpy and painful year ahead for most of us. Buckle Up!
Davy on Tue, 6th Jan 2015 7:34 pm
W-ya, oil prices need to remain in a range of comfort for all involved. Over the many years wild swings either direction have brought on problems. That was when we had a normal growth period with a basically healthy world economy. We are in a new age now of financial repression, excessive debt and oil (economic value) depletion. The global system is now very fragile and unable to tolerate the swings especially with all the excessive global financial repression. So the “Too much” up or down has significance.
We are in a dangerous period where the Central banks are losing control. It appears oil may be the trigger that destroys the central bank’s influence. The central banks are the only game in town now. I imagine we are going to see a herd on the verge of a stampede if the herd gets a whiff of central bank abandonment. Confidence is liquidity so any loss of confidence in the central banks’ ability to levitate the markets is going to be dangerous. Once confidence is lost I fear there will be little to stave off hyperinflation i.e. complete loss of confidence globally. Yet, with nowhere for all the fictitious money to go it is difficult to see any movement. Physical wealth opportunities are limited and in many case rehypothecated multiple times. I see a Minsky moment in the making much like we almost had in 08.
GregT on Tue, 6th Jan 2015 7:50 pm
“Me? Life in the cheap seats means an arctic cold front on the way”
Enjoy your life securely strapped into your cold and cheap seats Ghung. Be sure to stock up on plenty of popcorn, or whatever it is that you enjoy most, while watching this mess unfold.
GregT on Tue, 6th Jan 2015 8:13 pm
“Is it only me?”
No Dubya, regardless of how simple this should be to understand, you are definitely not alone.
MSN Fanboy on Tue, 6th Jan 2015 8:27 pm
WHERE IS NONY NOW?
MUHAWAHAHAHAHAHAAH…. YOU WERE WRONNNNNNNNG NONY.
SHALE IS MIGHTY SHALE IS MIGHTY… THE TITANIC IS UNSINKABLE THE TITANIC IS UNSINKABLE
Bob Owens on Tue, 6th Jan 2015 8:29 pm
High oil prices are a problem; low oil prices are a problem. Will the current low prices destroy the economy and world? I doubt it. Their impact may be large and serious but no world killer. Last week we were all concerned about Ebola (remember that?). Well, we aren’t all going to die. The same will probably hold true for low oil prices. While you can, build up a food stockpile; learn to rotate the stock; find out what works for you. I guarantee you if you have a 6 month food supply you will be a lot happier if any problems come your way. Do it today. Make a difference for yourself, your family and your community. Don’t just wait for disaster; it isn’t coming.
trickydick on Tue, 6th Jan 2015 8:56 pm
On a positive note, Johnson and Johnson has started testing their new Ebola vaccine on humans. And here I thought it was insane to let those infected dingbats back into the US. I am clearly not being aggressive enough in my money-making schemes.
ghung on Tue, 6th Jan 2015 10:03 pm
GregT: “Enjoy your life securely strapped into your cold and cheap seats Ghung. Be sure to stock up on plenty of popcorn, or whatever it is that you enjoy most, while watching this mess unfold.”
I suggest you do the same, Greg, or whatever floats your boat. Scurrying around, burning stuff and helplessly hoping to change anything beyond your own behavior is a waste of time and resources. Resistance is futile.
Perk Earl on Tue, 6th Jan 2015 11:42 pm
“Resistance is futile.”
That’s the truth. Might as well go with the flow at this point. Hard to do when it means knowing we’re heading straight off a cliff, but that’s the course that’s been set by a global economy with 7.2 billion members led by TPTB ignoring depleting transport energy content against a reckless, no holds barred effort to grow the economy no matter what might happen.
shallowsand on Tue, 6th Jan 2015 11:53 pm
Interesting to note that from 1947-1973, the average annual price for a barrel of crude oil, in today’s dollars, ranged from $20 to $27. 26 years the real price barely moved.
We all know what happened in 1973. Not too many years after 1973, this country started the deficit spending. Now much of the world is deep in debt. Coincidence?
marmico on Wed, 7th Jan 2015 2:45 am
Coincidence? I don’t think so.
In January 2015 the average hourly worker in the U.S. now works less minutes per day to purchase a sufficient quantity of gasoline to travel a distance of 100 miles in an average new model year light duty vehicle than at anytime in the last 40 years.
Da chart.
Makati1 on Wed, 7th Jan 2015 5:15 am
Marmico, the problem with your idea is that the average American hourly worker today cannot afford an average new model car of any kind and is likely to be unemployed by the end of 2015. Not to mention the savage attack on his income by Obamacare.
I noticed that the chart you reference is by the same government owned entities that tell us the US is energy independent, unemployment is under 6% and the economy is growing. BS!
Dredd on Wed, 7th Jan 2015 5:54 am
The people involved, not the commodity, is the source of instability.
Political economics that develop, when market share grabs get serious, reflect on an emotionally unstable layer in “the free market.”
rockman on Wed, 7th Jan 2015 6:05 am
Ghung – “…as Rock is wont to point out (where’s he been lately anyway?)”. Between recompleting a well and beginning the search for wounded operators to skin I’ve been bouncing around a lot lately. In the office at 0500 this morning going thru a production data base looking for potential acquisitions. Probably won’t make a move on any of them for 6 months: let the pain and reality set in deep.
Had our staff meeting yesterday of some of the young ones who haven’t been thru a bust before who were having trouble understanding the optimism of us old farts. I got the idea across leaving them with a good bit of smiles by simply explaining that we were shifting into “cannibal mode”…we do eat our own when they become crippled. LOL. Really. And, as always, it isn’t personal, just business.
As far as the general economy befitting quickly from the lower oil price we’ll see in the next 12 months. Just another reminder about the ’08 price bust: the world consumed less $58/bbl oil (2009’ avg price) in the 12 months after the bust then it consumed $98/bbl oil (avg. 2008 price) before the bust. As was mentioned above: low prices can knock the oil patch to its knees in just several months. But it can take years for the global economy to fully reap the rewards of lower oil prices.
Shallow – “…from 1947-1973…the price of oil in today’s dollars, ranged from $20 to $27. For 26 years the real price barely moved.” And that period, up until the early 70’s, was dominated by the only truly effective oil cartel the world has ever seen: the Texas Rail Road Commission. The TRRC set the rate at which oil wells were allowed to produce in the state, which was the oil global OIL EXPORTER for most of that period. Yes: the US was the Saudi Arabia and OPEC all rolled into one for a time. And Texas was not going to allow operators to put too much oil in the market place to hurt prices nor would it allow prices to get high enough to cause demand destruction. Thus a long period of stability.
Davy on Wed, 7th Jan 2015 7:23 am
“Resistance is futile”. Doomer buddies, one word on collapse “Who the frig knows how, when, how quick, how deep and where this is going to play out. We can mention all the gore we know is going to happen but are we not talking like Hollywood. Have you ever seen a Hollywood movie on collapse that was nothing but every conceivable gore imaginable and some dreamed up. I have never seen a realistic collapse movie and I actively searched for them. I wish I could make a movie with some realism.
This is going to be as much about communities pulling together as much as falling apart. The ying yang come to mind. You can’t know comfort without also knowing pain. Human creativity and good decisions will not evaporate. Not all location will be in desperation or constant continuous chaos. We know those location that have no future. It is highly advisable to leave while you can. I know that is tough love but if you are in such a location you should plan on plenty of gore and plan accordingly.
No place is immune but some places have potential survivability built in. I feel I have that in central Missouri in many scenarios but not all by a long shot. I am 50 miles from Fort Leonard wood. A10s do practice strafing runs on my farm silo. The B-TWOo’s do there operational runs in the MOA I am in. You can be sure that a nuk will happen in my vicinity in WWIII if it comes to that. There is a Nuk plant in the north on the MO River that could go critical in collapse. These are my worries. Marauders will be dealt with in this area with frontier justice. There is plenty of food around for a time at least. Good water and fire wood is everywhere. I have a great spring on my place.
The dinosaurs did not go extinct immediately. A human bottleneck may play out over multiple years or we may evolve into something postmodern. All this gore talk is speculative at lease widespread gore. Don’t we already have plenty of gore? As far as the diminishment of Ebola well you folks should realize another empty chamber man had in his modern man Russian roulette. If we have a collapsing situation and Ebola becomes establish and maybe mutates into a more effective pathogen we now know how that will play out.
steveo on Wed, 7th Jan 2015 7:40 am
“And that period, up until the early 70’s, was dominated by the only truly effective oil cartel the world has ever seen: the Texas Rail Road Commission.”
Looks like guberment regulation did some good. Who’d have thunk it?
shallowsand on Wed, 7th Jan 2015 11:01 pm
Maybe RRC should have reigned in these shale guys. LOL!