Cheap Oil Should Fuel Economy at Last

35 Comments on "Cheap Oil Should Fuel Economy at Last"

penury on Mon, 20th Jul 2015 8:20 am 



The last paragraph outlines the hopes and dreams. Too bad, reality sucks.

idontknowmyself on Mon, 20th Jul 2015 8:22 am 



Make my laugh when economist are using manipulated market data to analyze the so called economy.

The so call market and price discovery mechanism is completely broken.

For example, here in Quebec I pay between 1.25$/litre to 1.35$/litre for gasoline with an current WTI price of 52$ and RBOB Gasoline Futures at 1.93$.

When the price of the WTI was 100$ and RBOB Gasoline Futures 2.92$ I used to pay between 1.35$/litre to 1.40$/litre for gasoline.

No much of a difference.
I came to the conclusion that the market are completely broken and don’t reflect the real price of anything.
If the statistics are made from broken market data, they are completely useless and should not be used in any real serious analysis.

BobInget on Mon, 20th Jul 2015 8:46 am 



Oil edges lower as Saudi crude exports fall, U.S. cuts drill rigs
Oil prices edged lower on Monday as data showed Saudi Arabian exports fell to the lowest in five months despite record output, while a resurgence in U.S. drilling activity seen earlier this month seemed to fizzle out.
Both international and U.S. crude futures posted their third consecutive weekly losses last week on expectations of increased exports from Iran following a deal to ease sanctions against the OPEC producer.

Brent September crude was 12 cents lower at $56.98 a barrel by 0316 GMT. The benchmark had fallen nearly 3 percent last week and more than 10 percent for the month.

U.S. crude futures, also known as West Texas Intermediate (WTI), was down 17 cents at $50.72 on Monday, after falling more than 3 percent last week and more than 14 percent in July. The August contract expires on Tuesday.

Saudi Arabia’s crude oil exports fell in May to their lowest since December, with official data showing daily shipments stood at 6.935 million barrels a day (bpd) compared to 7.737 million bpd in April.

The decline came despite record high output of over 10 million bpd as the Kingdom – traditionally the world’s biggest exporter of crude – transforms into one of the largest oil refining centers.

In the United States, drillers cut seven oil rigs last week, according to a closely watched report by Baker Hughes Inc.

Should WTI get back to a level seen last month around $60 a barrel, “U.S. producers will ramp up activity given improved returns with costs down nearly 30 percent and producers increasingly comfortable (with the current economics),” analysts at Goldman Sachs said in a note to clients.

Schlumberger NV said it is betting on an uptick in demand in coming quarters for oilfield services in North America, a market that has been battered by the steep drop in oil prices.

Current drilling activity indicates U.S. production will grow at just over 100,000 barrels per day in 2016, “which we view as likely given the observed rise in well backlog,” Goldman Sachs said.

Money managers cut their net long U.S. crude futures and options positions in the week to July 14, the U.S. Commodity Futures Trading Commission said on Friday.

Russian Energy Minister Alexander Novak said he will meet OPEC Secretary-General Abdullah al-Badri in Moscow on July 30 to discuss oil markets and the Iran situation.

Britain’s North Sea Buzzard oilfield began ramping up on Friday after an outage on Wednesday. The outage was supportive to Brent as oil from the field contributes to the calculation of the futures price..

(Reporting By Jacob Gronholt-Pedersen; Editing by Richard Pullin)

Tet: Metals / Softs taking it on the chin ..

Davy on Mon, 20th Jul 2015 8:58 am 



That’s like saying cheap food is going to make a sick person well. The world economy is stalling especially now that China is decelerating. The U.S. is too exposed to China and Europe to not feel this deceleration. The U.S. has already seen poor data for first half of the year even discounting the effect of the oil patch slow down.

This is a classic case of demand destruction by deleveraging and limits to central bank market influence. The stock market does not use gas. Real firms use gas. Sure they are related through the wealth effect but this market is rigged and repressed for central bank policy purposes. The markets are the last place they can still influence. The real physical economy must have real stimulus of the traditional kind not forward guidance and digital dopamine.

The corns will soon have to admit growth is slowing. The Asiaphiles will have to eat crow. Yet, I still can’t figure the time frame for an economic contraction event of crisis proportions. With the central banks at the helm there is no historic reference except maybe Soviet Union and that was a different command economy. This time frame is important because it is not if it is when the SHTF.

steve on Mon, 20th Jul 2015 9:14 am 



Davy one has only to look at the great recession…everything was Awesome and then it wasn’t. Popular theory among the masses is that everything is fixed and we are on our way to bliss….They will not admit growth is slowing they will just call it a new economy…think sharing economy etc…I too am trying to find the time frame for this…the Rich I know think they will not be touched and will be able to sit up above on their cloud watching comfortably…the poor are too busy to look up….

Ralph on Mon, 20th Jul 2015 9:22 am 



Just an aside, but I think the Brent field, which gave its name to the world standard oil grade, has now ended production. Brent oil has ceased to exist. Decommissioning of the offshore wells will take many years and cost $Billions. Something tells me the UK tax payer will find themselves payaing a large part of the bill before it is completed, if it ever is.

BobInget on Mon, 20th Jul 2015 9:24 am 



Saudi EXPORTS fall while PRODUCTION at record levels.
How many time have we here predicted as much?

Wars are hard on oil supplies.

Bottom line here.

We are being set up. The word ‘on the street’
“oil prices (oversupply) will continue like this for at least another year or longer.

The facts on the ground under the street don’t concur.

#1 KSA’s various war efforts are THE reason for stressful (on wells) overproduction.
#2 China’s oil imports continue to rise along with demand. China’s economy growing at 7% is still fastest in the world.
#3 Both consumption and imports are higher by 6.5% for India. Korea likewise.
#4 Conoco (COP) cancelled a brand new deep water exploration ships for lack of places to explore.
#5 Rig counts worldwide are laying down.
#6 Not a single ‘elephant’ oil field has been discovered.

Predictions of continued ‘oversupply’ are based on CURRENT Saudi overproduction.
The Saudis are supporting Egypt with oil.
Egypt is in a state of war.
The Saudis are supplying oil to it’s coalition
along-side the US led Coalition in Iraq and Syria.

#7 Few oil traders understand, KSA and Iran are in a state of war. What could go wrong?

#8 The US is currently in talks with Nigeria’s new president to take action against Islamic State’s Boko Haram. This is another no win way that will certainly, if nothing else, use a lot of oil.

#9 The former oil producing nation of Libya, the single most volatile, the one that began KSA on it’s overproduction five years ago, in chaos.

#10 Mali and Algeria, both oil exporters are engaged with IS in a battle to the deaths of millions.

#11 Perhaps the most tragic, is Sudan and South Sudan. Poster children of oil curses to end all oil curses.

Jimmy on Mon, 20th Jul 2015 9:41 am 



Fifty bucks a barrel; the new ‘cheap’. And somehow that’s lost on most folks.

Davy on Mon, 20th Jul 2015 9:43 am 



Steve, when you force a system you get abrupt shifts. If the authorities wanted long term health they would have taken more of a hit earlier. Although I am not sure if this mess could ever have been fixed or ever will. Maybe they bought some of us time by their lies and corruption. Lies are wrong. The distortion of the truth is wrong. Do we care when we are hungry? This situation is irreversible. Some of you on this board bitch, moan, and complain about who is in charge but I doubt anyone can fix this sinking ship. All that can be done is to shift around the lifeboats to to their friends and family. This situation is all about save your ass at this point.

joe on Mon, 20th Jul 2015 10:31 am 



QE saved the Great Recession from being The Greater Depression. What they have done is nationalised debt, but not the companies (in the main). QE in the Eurozone will do the same. Therein lies euro problem no1, nationalising without being a nation.
Stimulating the economy is easy, all they have to do is let banks lend in retail markets and load up personal debt. Overheating the economy to make lots of profit is tough.
What caused the last recession wasn’t oil, it was speculation and large companies packing up bad loans to sell, to buy more debt.
What’s after happening now is the FED has caused inflation, it’s buying up so much debt and stock it’s bailing out the US. When it comes time to unwind and profit from QE let’s hope there is buyer there to purchase packed up 30yr bonds and notes with nothing backing them.
When rates go up these bonds are at lower value than new ones, therefore nobody will want them.
They have built up a timebomb bigger than boomers pensions. Let’s hope we find another planet to colonise to make room for the growth we need to trade our way out of it.

BobInget on Mon, 20th Jul 2015 10:43 am 



Let’s not confuse wars with growth. Both can consume vast amounts of oil. Wars are not only a total waste, they are anti-growth. We all know how long it takes to build a simple house, a ship,
a large aircraft, a factory. We also see how quickly modern warfare destroys any of those
man made objects.

Human misery index must be nearing 50 year record levels. The five or fifty million climate
and war refugees are going to need our help.
Can we feed this additional human burden or are we to ‘let them fend for themselves’?

Since oil and food are tied together inextricably,
lets look at how many oil EXPORTERS are currently, actively engaged in conflicts;
https://en.wikipedia.org/wiki/List_of_countries_by_oil_exports

Note the top six nations, all at war.
One gotta wonder about ‘collateral damage’ to countries like Venezuela. Wars in the ME, that most ironically LOWERED oil prices, handed Venezuela over to China. Russian oil companies, not Western are taking over potentially a world’s biggest oil exporter without a single bombing raid or drone strike.

Because demand almost everywhere is increasing NOT diminishing, refineries are working overtime (96%) to meet demand.
Today’s price drop is based on a highly nuanced
calculation, there’s too much finished product
floating around. Besides, in six months Iran will be shipping an additional million barrels p/d.

Traders who couldn’t care about next week are suddenly shorting oil in anticipation of an added
one twentieth of the world’s DAILY consumption!

My guess, Iran can’t come close to making up for Saudi Arabia’s missing six million.

shortonoil on Mon, 20th Jul 2015 11:54 am 



“So at the least, the drag from oil on the economy should diminish in the months ahead, putting U.S. growth on a better footing in the second half of the year. What’s more, consumers may start spending more of”

The high oil price experienced over the last few years exceeded the economies ability to pay for it. It was financed with growing debt:

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

In actuality there will be no savings for the consumer, just a lower debt accumulation. It is not likely that the WSJ’s writers understands maximum consumer affordability. Considering that their paycheck depends on convincing the market that everything is roses, and shining glass beads, it is not likely that they will be learning about it any time soon!

http://www.thehillsgroup.org/

shortonoil on Mon, 20th Jul 2015 12:17 pm 



@Davy

“This time frame is important because it is not if it is when the SHTF.”

You will have plenty of warning; just watch for oil company, and sovereign county oil producer bankruptcies, and shut-ins. At $50/ barrel at least a third of them are now operating below their cost of production. They are running on debt. Once the credit markets can no longer keep them functioning the lights will start blinking out all over the planet. Make sure that you are somewhere you can get away from if you must. Entire regions will probably go black, and unless you are equipped to walk out, and defend yourself on the way you’ll probably be there for the next few hundred years.

apneaman on Mon, 20th Jul 2015 12:21 pm 



Shortest Book Ever: Oil Company Ethics

http://www.dailyimpact.net/2015/07/19/shortest-book-ever-oil-company-ethics/#more-2988

Northwest Resident on Mon, 20th Jul 2015 12:55 pm 



“… the lights will start blinking out all over the planet.”

On that day, at that moment, on television screens everywhere the talking heads will be saying how great the economy is, graphics of a soaring stock market will be flashing on various channels, and the big news story of the day will have something to do with Kim Kardashian or preferably Miley Cyrus flashing some skin.

paulo1 on Mon, 20th Jul 2015 1:16 pm 



Re Short’s: “You will have plenty of warning; just watch for oil company, and sovereign county oil producer bankruptcies, and shut-ins. At $50/ barrel at least a third of them are now operating below their cost of production.”

Truer words never spoken. Bankruptcies may be hidden with financing tricks, but shut-ins will speak for themselves.

apneaman on Mon, 20th Jul 2015 1:23 pm 



One way or another the lights will start blinking out all over the planet….. that is guaranteed. Long before sea level rise puts the waters edge on the door step of power plants storm surges will have taken many out.

US Electricity Facilities Less Than Four Feet Above Local High Tide – MAP

http://www.ucsusa.org/sites/default/files/legacy/assets/images/ce/Map-US-Electricity-Facilities-Less-Than-Four-Feet-Above-Local-High-Tide_Full-Size.jpg

tahoe1780 on Mon, 20th Jul 2015 2:32 pm 



Cheap Oil – http://www.zerohedge.com/news/2015-07-20/wti-crude-tumbles-below-50-3-month-lows

BC on Mon, 20th Jul 2015 3:23 pm 



As to “cheap oil”, the 3-, 5-, and 10-year prices are still at $95-$100, whereas the 3-year prices is crossing below the 10-year prices as occurred in 1984, which was close to the date of the secondary US oil production peak and the onset of US deindustrialization and financialization of the economy that has resulted in $50+ trillion in debt and $160,000 of debt per capita.

Moreover, historically the 10-year rate of US real GDP per capita has not grown with the constant US$ price of oil above $35-$40.

And now US and Canadian marginal unprofitable shale and tar extraction is the only thing preventing total world oil supply from contracting per capita, despite the KSA pumping full throttle.

But in spite of US and Canadian shale and tar extraction growing at the fastest 5- and 9-year rates since the late 1920s to early 1930s, US oil production per capita is down 45% since 1970, whereas the per-capita depletion regime’s log-linear trend implies that we reach the 50% depletion/production per capita by no later than the early 2020s, at which point will occur the unambiguous signs of the end of the once-in-history Oil Age epoch, end of growth of the oil- and auto-based economic model, and the end of the institutions and civilization dependent upon the model.

Put another way, we’re doomed, doomed, I tell ya.

Nony on Mon, 20th Jul 2015 3:54 pm 



Just hit a 4 handle for crude:

AUG 2015
Show Price Chart
49.98

(as of 1650 EDT on the CME)

That’s half the price of Hamilton’s “hundred here to stay”.

Free would be even better. But any way you cut it that is approx half of the price for the last few years. That is “50 dollars off”. Peakers saying 50 ain’t 30 just sound truculent and unwilling to look facts in the face. 50 is a hell of a lot better than 100.

I mean if you were doing time, getting your sentence reduced from 10 to 5 would be 5 extra years of freedom. Even if 3 is a more reasonable sentence.

Similarly, dropping from 100 to 50 is a massive savings for consumers.

BC on Mon, 20th Jul 2015 4:37 pm 



@Nony: “Similarly, dropping from 100 to 50 is a massive savings for consumers.”

Not really. Rising rents for 35% of households and ridiculous increases in dis-ease care insurance premia for everyone else not on Medicare or Medicaid combine to more than offset the decline in the price of gasoline as a share of disposable income and household spending.

Besides, the 3- and 10-year average constant US$ prices of oil are still at the level of 2008-11 and 75% higher than at the similar point in the cycle in 1984.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1tVm

The constant US$ price of gasoline is at the same level as in 2005-09, i.e., cyclical peak and recession.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1tVt

The price of gasoline to average weekly earnings is at the level of the previous two recessions.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WGFUPUS2&f=W

Gasoline supply/demand is at the level of 2003, which is down 10% per capita since then.

Oil and gasoline are not cheap in relative historical terms.

Peak Oil is history, i.e., it is a decade behind us in the rear view mirror in per capita terms.

Real uneconomic growth per capita has been over for 7-8 years, only we don’t collectively realize it yet.

Nony on Mon, 20th Jul 2015 5:09 pm 



If oil were 100, would rents be lower? Are the rents up 35% since last summer? Not mine…

shortonoil on Mon, 20th Jul 2015 5:39 pm 



“And now US and Canadian marginal unprofitable shale and tar extraction is the only thing preventing total world oil supply from contracting per capita, despite the KSA pumping full throttle.

Now for the bad news; since 2000 the energy, per unit of petroleum, delivered to the non energy producing sector of the economy has fallen by 54%. World population has grown by 14% over the same period. We are becoming a world with a lot of people, and a lot of oil that will soon have no value for them. If you are a member of the aristocracy you had better start looking for another job!

idontknowmyself on Mon, 20th Jul 2015 6:31 pm 



M Hubbert king knew it was not about money but about energy.

According to Wikipedia:

Hubbert was also an avid technocrat. He co-founded Technocracy Incorporated with Howard Scott. Hubbert wrote a study course[2] that was published without authorship called Technocracy Study Course,[3] the precedent document of that group which advocates a non-market economics form of energy accounting,[4] in contrast to the current Price System method.[5] Hubbert was a member of the Board of Governors, and served as Secretary of education to that organisation.[6]
https://en.wikipedia.org/wiki/M._King_Hubber

People have to be really naive to think that price system represent the reality of today and that governmental data and statistic show a accurate representation of what is happening.

In a energy a accounting economical system Ipad would had never happened because it just don’t make sense from the point of view of energy balance and well being of a people.

idontknowmyself on Mon, 20th Jul 2015 7:05 pm 



This is from Hubbert King according to Widepeida and totally relevant.

I was in New York in the 30’s. I had a box seat at the depression. I can assure you it was a very educational experience. We shut the country down because of monetary reasons. We had manpower and abundant raw materials. Yet we shut the country down. We’re doing the same kind of thing now but with a different material outlook. We are not in the position we were in 1929–30 with regard to the future. Then the physical system was ready to roll. This time it’s not. We are in a crisis in the evolution of human society. It’s unique to both human and geologic history. It has never happened before and it can’t possibly happen again. You can only use oil once. You can only use metals once. Soon all the oil is going to be burned and all the metals mined and scattered.

Like I said, forcing austerity on Greece is equivalent to demand the shut down of EU just because of money. King notice that before and it seems we are going this way. We will shut the monetary system our self be demanding repayment of debt.

Makati1 on Mon, 20th Jul 2015 9:14 pm 



BC, you are correct that “per capita” is the number to watch not the gross numbers we see in the media. It is what affects each one of us that makes the difference.

If there are five pies and 20 consumers, each gets 1/4th of a pie. But, if there are 40 consumers, each gets 1/8th of a pie. Big difference if your life depends on getting 1/4th.

Davy on Mon, 20th Jul 2015 9:26 pm 



BC, Mak likes per capita numbers because it makes his China look better on all those ugly statistics charts if you convert them to per capita. Mak, is a true blue propagandist trying to angle his agenda anyway he can. His agenda just blew up in his face recently. Asia is going down with the rest of us and the Makster can’t believe it. Remember Baghdad Bob when the U.S. Troops were in Baghdad central. Wasn’t that hilarious! That’s Mak recently.

marmico on Tue, 21st Jul 2015 3:20 am 



Oil and gasoline are not cheap in relative historical terms.

Since 1976, the real gasoline annual average price equals ~$2.50 per gallon.

Since 1968, the real refinery acquisition annual average price of oil equals ~$50 per barrel.

2015 real oil and gasoline prices are average in historical terms.

EIA Real Price Viewer

marmico on Tue, 21st Jul 2015 4:29 am 



since 2000 the energy, per unit of petroleum, delivered to the non energy producing sector of the economy has fallen by 54%

If the energy sector delivered 100 units (barrels, quads, joules, mtoe) to the non-energy sector in 2000, it only delivers 46 units in 2015. What a buffoon.

shortonoil on Tue, 21st Jul 2015 6:06 am 



“If the energy sector delivered 100 units (barrels, quads, joules, mtoe)”

Exactly the point we have been trying to make. Barrels are irrelevant without an associated energy value.

“Petroleum production is a process which provides for the delivery of energy from a liquid hydrocarbon.”

http://www.thehillsgroup.org/

BC on Tue, 21st Jul 2015 10:19 am 



marmico, the loss of US real GDP growth since 2000 is on the order of 21-22% versus the long-term trend rate had the trend continued after 2000, which is remarkably similar to the loss of growth Japan experienced from 1990 to the early 2000s, which continues to date, resulting in a ~32-33% loss of real growth since 1990.

Similarly, there has been no growth per capita of US electricity and gasoline consumption since the early to mid-1990s to early 2000s.

However, the energy sector is consuming disproportionately more energy to produce oil at a level per capita no higher than in the late 1940s, 25% lower than in 1985, and 40-45% lower than in 1970.

Think about that.

Put it together. The US has experienced an equivalent loss of growth of real economic activity per capita since 2000 equivalent to the deflationary collapse in 1929-33 and again in 1937-41, i.e., a slow-motion depression that continues to date.

This is occurring with the 3-, 5-, and 10-year prices of oil at a record high from the late 19th century to date.

This is unambiguous evidence of the economy’s declining capacity per capita even to sustain current real uneconomic activity, let alone grow fast enough to permit growth of profits for the necessary capital formation/accumulation to fund future growth AND sustain the existing infrastructure.

These factors are being masked by levels of debt-money obligations per capita that are currently at 4 times real final sales per capita and at a record high to GDP overall. We’re borrowing increasingly in current dollars to bring forward production at decelerating rates for investment, production, employment, and consumption, which in effect is a kind of discounting future growth at ~0% or negative real per capita.

This is not a mystery, as the energy cost of energy extraction at market prices effectively says get it now at whatever cost because there won’t be sufficient demand in the future at prices that will justify growth of extraction.

This is the scenario of the Red Queen Race at the early phase of the fall off the so-called Seneca Cliff. We’re running as fast as we can off the edge of the cliff, but the momentum is such that we have yet to begin the downward acceleration.

Northwest Resident on Tue, 21st Jul 2015 12:20 pm 



“We’re running as fast as we can off the edge of the cliff…”

Picture in your mind Wiley Coyote, having just stupidly run ten feet past the edge of the cliff, his legs still pumping as fast as he can move them, a look of doomful dread and fatal acceptance on his comical face just moments before his rapid plunge to the bottom. That’s about where we are right now.

From my point of view, a sure sign that the big corporations know for a fact that there is NO future for BAU is the fact that they are investing all or most of their profits, plus ZIRP loans, to buy back their own stock. No investing in the future going on — just circling the wagons, getting ready to ride out the storm.

marmico on Tue, 21st Jul 2015 12:58 pm 



BC, you are well aware of the demographic headwinds since 2000 and waning productivity since 2005. If labor force growth and productivity growth equals GDP potential growth, 2-2.5% is the new potential.

The price of oil is irrelevant.

rockman on Tue, 21st Jul 2015 4:12 pm 



“Cheap oil fueling the economy”. Just as expensive oil fueled the economy. It just a matters of degrees.

There is a very old and somewhat mean spirited joke from the bayous where the Rockman was raised. Why do pay your Cajun worker weekly instead of once a month? While he might be the richest SOB in the parish that first weekend his family would starve for much of the remainder of the month.

Makati1 on Tue, 21st Jul 2015 9:34 pm 



BC, many have no grasp of history. They only remember talking points they were taught in school and those were no more than spin by the ‘winners’. That is, IF they were on the required test that the teacher was using to teach to and, IF they paid attention and really listened and didn’t drop out of school prior to that class.

I would bet that most Americans have no clue about the Great Depression unless they are over 40 or took economics in college. Ditto for the world wars or even the Revolutionary War that made America possible. Vague words, if anything. But they can give you the ranking and scores for their fave teams or intimate details of the private lives of the celebrity of the moment.

The dumbing down of the population is one of the requirements of a fascist dictatorship. If you don’t know what you are losing, you don’t feel the loss. Many in the Western world are just now beginning to feel the loss, but have no idea why it is happening to them.