Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on June 3, 2016
Oil Price Poised For A Boost From A Big Fall In U.S. Production
U.S. oil production has entered the end game with output forecast to plummet as drilling dries up and banks foreclose on oil companies teetering on the brink of insolvency.
Long predicted as a natural development after the 2014 start of the collapse in the oil price the inevitable has been delayed by drillers squeezing every drop out of their wells but that game is all but over.
From a peak of more than 9.5 million barrels a day early last year current output has slipped to 9.1mb/d but if a fresh forecast is correct the number could be 8.5mb/d by July and possibly below 8mb/d in the September quarter.
Back To 2013
If correct that prediction from Australian-based ANZ Banking Group will mean that U.S. oil output will be back to levels last seen in early 2013, the mid-point in the U.S. oil revival.
Slipping U.S. production has been a factor in this year’s oil-price recovery, along with outages in traditionally strong producers such Nigeria and Iraq.
The work of ANZ’s highly-regarded commodities research team into the U.S. oil industry will play well at today’s meeting in Vienna of the Arab-led Organization of Petroleum Exporting Countries where fresh calls are expected for production cuts from countries suffering the effects of the low oil price but resisted by oil hawks such as the industry leader, Saudi Arabia.
Saudi Smiles
The Saudi view has consistently been that the oil market will fix itself with low prices forcing high cost producers out of business, leading to a sustainable price recovery.
What the ANZ has done with its report released earlier today is reinforce the Saudi position with the headline telling the story: “Declines in U.S. oil output set to accelerate”.
A key to the ANZ view is that there are simply not enough drilling rigs active in the U.S. to maintain output. While the most closely followed rig count from the oil services firm Baker Hughes BHI +0.74% puts the number of rigs in the field at 316 (down two on last week) ANZ reckons only 280 are currently in operation.
“To maintain current production levels in the U.S. requires 439 rigs,” ANZ said.
Financial Stress Doing Its Work
Financial stress could exacerbate the situation, the bank added. “Oil producers with sub investment grade debt maturing this year produced approximately 1.3mb/d of oil,” a number served up without ANZ offering a suggestion as to how much of that “stressed” oil be squeezed out.
But, the clear inference is that a major slip is just around the corner.
“Despite drilling activity continuing to fall, U.S. output has remained relatively resilient, ANZ said. “Active or new drilling rigs in the U.S. have fallen from 1600 to 316 (in May) the lowest level since September, 2009.
“This is only just being translated into a fall in U.S. oil production.
Low Prices Bite
“However, we believe the rate of falls in weekly U.S. oil production is about to accelerate as the impact of the falling rig count will be compounded by forced closures and low prices biting.”
One measure of what lies ahead is an ANZ calculation of the daily decline in U.S. production which saw a drop of 65,000 barrels a day in the second half of last year, followed by a fall of 87,000b/d so far this year. But, on some days in recent months, the bank noted, the daily decline has been an eyecatching 197,000 barrels.
ANZ also disputes a recent forecast by the western world’s oil industry watchdog, the International Energy Agency, which is tipping U.S. production of 8.2mb/d by next October, down from the current 9.1mb/d and remaining around 8.2mb/d through 2017.
Upside Oil Price Risk
“This could prove conservative,” the bank said. “We expect the increasing indebtedness to magnify the losses, with U.S. production forecast to fall to below 8mb/d in the September quarter.”
The bank did not provide an oil-price tip but did note that the sharp fall in output over the past few months represented “upside risk” to the oil price as supply cuts start to be felt on stock levels.
69 Comments on "Oil Price Poised For A Boost From A Big Fall In U.S. Production"
MSN Fanboy on Fri, 3rd Jun 2016 7:46 pm
We will shortly see if shortonoil’s thesis proves accurate.
So far, the general predictions of insolvency and bankruptcy appear to be materializing. (As does the high decline rate of unconventional oil resources)
It will be interesting to see if Oil stays below Shortonoil’s nice little upper limit of affordable oil and the consequences it will have on the global economy.
Considering supply is being bought down via price and (MOST IMPORTANTLY) throughout the low oil prices the economy appears to have weakened further (remember when low oil prices were supposed to spur economic growth, wtf happened to that idea?) short’s thesis appears to be proving evident.
Interesting times.
Personally i don’t see why oil wont just shoot back above 100+ dollars a barrel, i am really looking forward to see if you are correct Short.
Davy on Fri, 3rd Jun 2016 8:00 pm
Oil could easily go to $100 or higher but I don’t see that happening in a normal trend of prices rising with an economic expansion. These type of price rises will be shocks and strong market reactions and or corrections. The key point is oil and the economy will likely never be in harmony again. Oil and the economy are mismatched. Important fundamentals cannot be reconciled. Depletion has damaged oils economic contribution to the economy. Deflation has damaged demand in the economy. China’s growth issues are another angle to this mismatch. China’s growth is stalling. China is the most important driver of growing growth for oil and the economy.
GregT on Fri, 3rd Jun 2016 8:07 pm
I will be very surprised if oil doesn’t surpass $100/bbl again. One more undulation in the plateau. I would have to agree with Short’s model however, when considering the longer term overall trend.
shortonoil on Fri, 3rd Jun 2016 8:08 pm
Forbes still not understand that a cut in production takes from 1/2 to one barrel out of demand with about an 8 month lag time.
http://www.thehillsgroup.org/depletion2_022.htm
They are in for one big surprise. Inventories are not going to fall very far, or very fast. For all the traders out there – its time to skin a Bull.
GregT on Fri, 3rd Jun 2016 8:23 pm
“China’s growth is stalling. China is the most important driver of growing growth for oil and the economy.”
Chinese growth was mainly the result of large multinationals offshoring labor for larger profits aimed at domestic markets. Chinese growth is still miles above ours, but dwindling western economies are taking a toll on that growth.
makati1 on Fri, 3rd Jun 2016 8:58 pm
India’s GDP growth is exceeding even China’s today, by more than 1%. While the Us slips deeper into the negatives. Interesting times ahead.
rockman on Fri, 3rd Jun 2016 11:19 pm
First, China’s growth hasn’t stalled. Though the rate of increase has stalled it’s economy is still far above that of the US.
And back to the chicken/egg riddle: are lower oil prices going to be much of an economic boost if, in fact, the lower oil prices are a result of a declining economy? The latest stat for new jib creation was shockingly low especially compared to expectations. More important: this is the second in row of disappointing results as the prervioys number was just revised lower. Still took early to be certain but economists caution that such a trend often preceeds a recession.
GregT on Fri, 3rd Jun 2016 11:24 pm
Rock,
What do you call it when the recession that we still haven’t recovered from, goes further into recession?
makati1 on Sat, 4th Jun 2016 12:48 am
1929 to 1940?
Boat on Sat, 4th Jun 2016 3:35 am
We call it the greg and mak twilight zone. That grey/foggy area where common sense and reasoning just seem to dissipate for unknown reasons.
Davy on Sat, 4th Jun 2016 6:00 am
“Chinese growth is still miles above ours, but dwindling western economies are taking a toll on that growth.” More like corruption and poor governance are taking their toll. Lots of people want to think China is this great driver of growth but the opposite is true now. China is bleeding the world of growth by its stalling economy from economic incongruities. False growth is not growth. False growth is bad debt and NPL. You can’t individually or as a nation invest poorly and expect a return. This is what China has done and it is the end game for the global economy.
http://www.zerohedge.com/news/2016-05-23/kyle-bass-was-right-socgen-does-math-chinas-staggering-npl-problem-issues-dire-warni
http://www.zerohedge.com/news/2016-05-22/china-has-quietly-bailed-out-over-220-billion-bad-debt-past-2-months
http://www.bloomberg.com/news/articles/2016-05-09/world-s-most-extreme-speculative-mania-is-unraveling-in-china
joe on Sat, 4th Jun 2016 8:26 am
Bumpy plateau.
https://www.washingtonpost.com/news/wonk/wp/2013/04/13/peak-oil-isnt-dead-an-interview-with-chris-nelder/
Heres a good interview which is 2 years old and fairly consistent with what we see today.
Peak easy-oil is here, so the closer we get to the low of tight oil output, the quicker things will turn around, prices will spike and the only way to stop it is to expand
Opec as im sure Saudi will try to do. They will drown Iran in a new cartel which will not officially exist but will exist. We will return to the days of Rockerfeller and make all competitors members of the board.
But that wont solve peak oil issues, only prolong the pain.
shortonoil on Sat, 4th Jun 2016 8:28 am
“We will shortly see if shortonoil’s thesis proves accurate.”
The theory behind this is very simple; it states that X amount of energy is required to produce Y in GDP. This relationship was established by the work of Cutler Cleveland in his 2004 publication “Energy and the US Economy: A Biophysical Perspective”. Cleveland was the mentor, and professor of Charles Hall.
Cleveland demonstrated that between 1890 and 1982 the relationship between GDP, and energy consumption in the US had an R sqd fit of 0.98; or, in other words it fit perfectly. This relationship held for 23 years before the Federal Reserve came along, and “invented” the dollar. This is a very strong indication that GDP is independent of the currency in use, and almost totally dependent upon the quantity of energy that is available to the economy. This is not hard to believe as energy is a real thing, while dollars are nothing more than a fabricated abstraction. The state of the economy controls the significance of the dollar, not the other way around. If the FED attempts to control prices by printing dollars, they are pushing on a string.
We have seen this “string pushing” in effect for more than 30 years. The BOJ has been pushing currency onto their economy in massive amounts to produce inflation. As a result a permanent state of deflation has hit Japan. The PBOC, and the ECB have been printing currency with the intent to produce inflation. All that they seem to have accomplished to date has been the destruction of their credit markets.
The Etp Model was designed to calculate the quantity of energy that is, and will be available to the economy from petroleum. Following Cleveland’s conclusions is not difficult when the data fits almost perfectly, and has for the last 126 years.
http://www.thehillsgroup.org/
joe on Sat, 4th Jun 2016 8:41 am
There is a point there. The Gods of money forgot the basic econ 101 idea of diminishing returns. The supply of money is not being spent on higher prices, instead its being saved as low rates do not entice risk. Why would I risk my hard saved 50,000 on a second home if the house prices are not going up at least 3-4% a year? In London and some cities housing has made a comeback but most spending is being used to replace existing items and not to grow personal debt.
That will have to wait for another generation, this one learned its debt lesson.
Peak oil is effectively neutralising globalist central banks monetary policy choices. High oil prices makes interest rate hikes counter productive. Oil is dictating that things will grow slowly.
Oh how I love when reality hits them in the face. Still, we need piles of monopoly money too, to keep the madness going, otherwise I have to grow or catch my own dinner, and thats not fun either!
rockman on Sat, 4th Jun 2016 8:42 am
Greg – Good point. Not that I care much for the term this may be the “new normal” and one more aspect of the POD.
Boat on Sat, 4th Jun 2016 9:44 am
What that energy is used for makes a huge difference to gdp. A nascar event requires energy to produce the event and the gdp rises. Lets say you installed wind power instead. A machine that pays back the energy say 20x. In theory you could provide multi future nascar events for free from banked energy gained.
Theories don’t match real world scenarios. Some of gdp is spent on energy sinks. Some on energy gain.
shortonoil on Sat, 4th Jun 2016 10:25 am
“Theories don’t match real world scenarios. Some of gdp is spent on energy sinks. Some on energy gain.”
GDP is the total dollars spent on goods and services. It does not differentiate based on the productiveness of the expenditure. Replacing a broken window is good for the GDP figures, not breaking the window in the first place isn’t? But the energy to produce that GDP dollar has been constant since 1890, and probably way before then. There in lays the fallacy of technology will save the economy. History informs us that it is not going happen without an adequate supply of energy. Technological advance is just an improved method to expend energy.
marmico on Sat, 4th Jun 2016 10:57 am
But the energy to produce that GDP dollar has been constant since 1890
Bull shit. The total energy intensity of the economy has declined from 15,850 BTUs per real dollar of GDP in 1950 to 5,970 BTUs in 2015. That’s a 68% decline. And petroleum intensity has declined more than total energy intensity.
http://www.eia.gov/totalenergy/data/monthly/pdf/sec1_17.pdf
Cloud9 on Sat, 4th Jun 2016 11:37 am
Marm thanks for the chart. No matter how much I learn, I find I don’t know enough.
Davy on Sat, 4th Jun 2016 11:40 am
Marmi, we are in a different economy today comparing energy intensities must take that into account. Your 68% decline is a bogus comparison especially considering the offshoring of heavy industry from globalism. The components of GDP have changed. Services are more important with heavy industry less so.
shortonoil on Sat, 4th Jun 2016 11:43 am
“But the energy to produce that GDP dollar has been constant since 1890”
Shit for brains is back!!
Read Cleveland’s paper you ignorant douche. Cutler Cleveland lost more IQ sitting on the john every day than you have ever had in your entire life. You’re not qualified to critique a pissing contest between a St. Bernard and a Cockier Spaniel, to say nothing of Cutler Cleveland.
Go back to your 8 block Excel spread sheet, and complete the 65 million iterations to prove that our software is wrong. We will all wait in anticipation of your recondite conclusions; you moron! By the way, when is your parole up for reconsideration. If they let you out some one is sure to knock out what pretense you have for brains in about an hour.
marmico on Sat, 4th Jun 2016 12:24 pm
Bedford “The ETP Fuctard” Hill is getting closer and closer to admission to the loony bin. Everything he writes is empirically incomprehensible.
Cleveland clearly draws a chart of the decline of U.S. energy intensity starting in 1820.
http://tinyurl.com/jkbr6fy
GregT on Sat, 4th Jun 2016 12:31 pm
marmi is at least partially correct.
It takes less and less energy to print money out of thin air, the more efficient computer processors become.
marmico on Sat, 4th Jun 2016 12:57 pm
bogus comparison especially considering the offshoring of heavy industry from globalism.
China is progressing through the greatest industrialization in the history of human kind and it’s energy intensity has declined 50% since 1988.
http://energyblog.nationalgeographic.com/wp-content/uploads/2013/03/ERP-energy-intensity.png
Apneaman on Sat, 4th Jun 2016 12:59 pm
Y’all rearranging deck chairs with these stupid fucking GDP arguments. Humans, Ha! Speaking of energy, just take a look around at it being unleashed upon the heads of the doomed GDP obsessed cancer monkeys. And they still arguing like it fucking matters.
At least 16 killed in Texas floods, four soldiers’ bodies found
http://www.slate.com/blogs/the_slatest/2016/06/02/three_soldiers_dead_six_missing_as_dangerous_texas_flooding_continues.html
File under Dhhhhh….
Floods in France and Germany linked to climate change
http://en.rfi.fr/france/20160602-floods-france-and-germany-linked-climate-change-experts
10 pictures that capture the tragedy wrought by the floods
Nine people have so far lost their lives in devastating flooding in the south of the country, while the Rhine region has also been hit hard. These ten pictures show just how devastating the extreme weather has been.
http://www.thelocal.de/galleries/news/10-pictures–weather-rains-germany-floods-flooding-bavaria/1
Pro tip – when viewing pictures, pay special attention to the smashed to shit infrastructure. That is the future for all of techno industrial civilization.
GregT on Sat, 4th Jun 2016 1:03 pm
China Accounts For Nearly Half Of World’s New Money Supply
“China has pumped enough cash into the economy using various public and private conduits to make even Ben Bernanke blush: between January 2005 and January 2013, Chinese bank deposits have soared by a whopping $11 trillion, rising from $4 trillion to $15 trillion! We have no idea what the real Chinese GDP number is but this expansion alone is anywhere between 200 and 300% of the real GDP as it stands now.”
http://www.zerohedge.com/news/2013-02-08/china-accounts-nearly-half-worlds-new-money-supply
GregT on Sat, 4th Jun 2016 1:06 pm
“Pro tip – when viewing pictures, pay special attention to the smashed to shit infrastructure.”
Yet another positive for GDP numbers.
Boat on Sat, 4th Jun 2016 2:06 pm
We will all die. From the increased climate effects, maybe. Will the world crash any time soon? I don’t see it. Will there be pockets of climate change causing major disruption, yes. Will the hill group be proved wrong on collapse within 2.5 years. yes. That is all.
Boat on Sat, 4th Jun 2016 2:13 pm
greggiet,
Did you know millions of hours of work are not part of gdp?
dissident on Sat, 4th Jun 2016 2:55 pm
Glut, cluck, cluck, glut, glut, cluck, cluck, glut, claaack, cluck.
US production is down nearly half a million barrels per day and all I hear is what the trend in US gasoline stocks is when the oil price is covered in the MSM. Yes, because oil must come from gasoline.
GregT on Sat, 4th Jun 2016 2:57 pm
Kevin,
Did you know that water is wet?
marmico on Sat, 4th Jun 2016 3:06 pm
what the trend in US gasoline stocks is when the oil price is covered
If you were as sophisticated as the apeman’s doom porn aggregation machine, you could do it:
1. Crude days of supply
2. Gasoline days of supply
Yes, because oil must come from gasoline.
I think gasoline is an oil product, but you never know about the interface between a doomer and the loony bin.
marmico on Sat, 4th Jun 2016 6:25 pm
Marm thanks for the chart. No matter how much I learn, I find I don’t know enough.
Precisely. The oil market is an order of magnitude more complex than the chicken wing or pulled pork market.
I’m waiting for the mudlogger Rockman’s POD bull shit to tell us when the oil market is going to flip from contango to backwardation. ROTFLMFAO.
shortonoil on Sat, 4th Jun 2016 6:47 pm
The energy density argument falls apart immediately. That chart merely shows that a dollar is becoming worthless when compared to a non changing reference. BTU is a non changing reference. According to their chart in 1950 one (1) dollar could have bought 15,850 BTU; by 2015 it had fallen to 5,970 BTU. At that rate your pay check will soon not be able to buy enough energy to flick your Bic.
That chart is similar to what our graph shows, except we use World GDP. The EIA chart uses US GDP, and US population.
http://www.thehillsgroup.org/depletion2_008.htm
On average the US has done better than the world in general by about 5.7%. For the US in 2015 one dollar would have bought 5,970 BTU, for the world it was 5,631 BTU.
Incidentally, using a chained dollar completely skews the output of that chart. According to the EIA, and the World Bank in 1970 a dollar would have bought 75,000 BTU. Their chained dollars show 14,370. Their presentation is disingenuous at best.
shortonoil on Sat, 4th Jun 2016 7:53 pm
Measured against a non changing reference like BTU, a worker’s pay check would have had to have increased by 1,332% between 1970 and 2015 to have keep even. In real terms energy is rapidly becoming unaffordable to all but the most prosperous. Ironically, the most prosperous are also the greatest energy users. They will be the first to go broke attempting to maintain their high energy consumption behavior.
Don Stewart on Sat, 4th Jun 2016 9:15 pm
I believe there are several questions, which I certainly don’t claim to understand completely, and which I think there is some general confusion about. We can look at the data from the Etp model and estimate how many BTUs a dollar would purchase at some time in the past, and how many a dollar will purchase today.
Alternatively, we might look at the efficiency with which our machines have operated with a unit of energy:
https://artir.wordpress.com/2016/04/25/no-great-technological-stagnation/
Or, we can look at the notion that the economy is being hollowed out by financialization:
https://medium.com/newco/why-uber-and-apple-wont-save-the-economy-318408a39#.n5akekklk
If we look at the technology trends, we get the notion that a unit of energy should be worth more now, because we can make it do more work. If we look at the skimming operation we call Finance, it looks like the real economy is being starved of capital by Wall Street.
If I understand the Etp model correctly, it focuses on the profitability of producing oil. The energy cost of finding, producing, refining, and distributing oil has been increasing rapidly in recent years. So the price that the oil companies need has been rising rapidly. Yet the ability of the consumers to pay has not been increasing, and has instead been falling…partly because the oil industry is using more of the oil they produce for their own purposes and providing less energy to the civilian economy…which reduces the income producing ability of the civilian economy. The net result is that both the oil companies and the civilian economy are being starved for capital and energy. The end result is the bankruptcy of the oil companies and great suffering in the civilian economy as transportation collapses.
All the technological innovation around more efficient machines really doesn’t help us much if we don’t have the energy to operate the machines. Financialization may be making a bad situation worse.
Don Stewart
makati1 on Sat, 4th Jun 2016 9:38 pm
Don, greed/financialization is definitely killing America. That is going to continue to it’s inevitable end. A huge crash that will take the Us totally into the 3rd world, where it will stay. That is how I see it.
GregT on Sat, 4th Jun 2016 11:01 pm
Sounds like you get it Don Stewart. Most do not.
Northwest Resident on Sun, 5th Jun 2016 2:07 am
It isn’t greed and/or financialization that is killing America — or any of the long list of other countries makati1 didn’t mention that are also up to their necks in greed and financialization.
Rather, greed and financialization on the massive scales we are experiencing — accompanied by centrally planned propaganda, outright market manipulation, and fraud and deceit on a scale never thought possible — are all in response to the global energy crisis and to the financial and social destruction that the energy crisis is causing.
Steadily decreasing energy eventually leads to a fatal result in any system or organism. That’s what we have. Combine that with rapidly depleting vital resources of all types. The dire situation is only accelerating. There is no escape.
The powers that be are preventing collapse for the time being (and for whatever reason), purposefully doing whatever they can to push off the day of ultimate reckoning. Financialization, market manipulation, excessive debt — hey, whatever it takes to limp forward another day!
I’m sure that in their analyses, any amount of financial trickery, lies or manipulation is better than facing ultimate doom today. Some of us might tend to agree with that analysis. Holding off civilizational collapse for another day is justification enough for just about anything. The consequences of standing back and letting the system naturally resolve itself would and will be devastating — an event of epic historical impact for the human race and for the world.
It’s coming, regardless. They can’t delay the banquet of consequences forever, or even for much longer.
makati1 on Sun, 5th Jun 2016 2:34 am
NWR, really? ~4% of the world’s population consuming 25%+ of the world’s resources makes them the MAJOR leader in greed and cause, not “just one of the crowd”.
320 million consuming the same as 1,850 million is pure GREED. If you are going to defend the plundering America, do it with a better argument than that bullshit.
Davy on Sun, 5th Jun 2016 5:48 am
Good summation Don and a pointer at two aspects of the decay and destructive decay of modern civilization. The first is depletion and diminishing returns of efficiency and technology. Many of the great leaps of both efficiency and technology have been achieved. It is now a situation of tweaking those changes and or enhancing production processes to lower cost. We have no new technology to deliver us from the many problems and predicaments we are confronted with. We have just enough ideas and promotions to keep denial going strong. We now have a situation where efficiency and technological enhancement is creating negative benefits. People lives are being mechanized and social isolation is occurring. We are now entering a time of broad based declining prosperity in multiple areas. This decline is financial but it is also natural and with our health. This is directly related to the diminishing returns of technology and efficiency.
The other related issue is depletion of the quality and the (quantity) of quality energy. Energy in all its form as diminished in its effectiveness from depletion. This is happening at a time when society needs more and better (quantity) of quality of energy. We have overpopulation and more problems with a whole range of issues. Problems need energy to solve. The ETP model and peak oil dynamics most fully describe this depletion of our most important energy source oil. Our existential problems and predicaments need no explanation.
The second part of this equation of decay is the economy. Hyper-financialization has become a symptom. Financialization is clearly a parasitic result of concentration of capital and power. Our economic system is in a pathological pursuit of returns globally. Growth is an underlying basis of this pursuit but this growth principal has entered a new and move vicious stage with power and capital concentration. It has now become a moral hazard of corruption, manipulation and wealth transfer. These have always been around but today these moral hazards have become condensed and distilled into very effective and dangerous nodes as cancer metastasizes. It has basically become a tieth or a tax but not an honest one. Within this economic decay we see in financialization and the many other scams a Ponzi of ever greater returns further and further into the future hence unfunded liabilities and debt of all kinds public, private, and natural. Yes, natural, and that is drawing down our natural resources faster than they replenish.
When you combine these two systematic attributes of our modern global situation you see we are clearly in the decay and destructive change position of the collapse process of modern civilization. We are in the break area of bifurcation. This cannot last because there are limits in a finite world and we are clearly bumping up to broad based limits physically and in the systematically abstract areas. It is this condition of our system in compressed corruption and our resources depleted that points to no hope.
All we really have is some time but we don’t know how much time. We can point to the possibility of abrupt climate change and the dead state of oil from peak oil dynamics as decadal. In the approach to these decadal end points will be a systematic break or bifurcation. We can then look at the economy declining and dropping to a much lower activity level as systematically possible at any time. We also have the usual sociopolitical issues of war and social upheaval. I would look to collapse in 10 years as a brick wall and the current at any time issues as the train engine coming apart from exceeding its design maximums.
Davy on Sun, 5th Jun 2016 6:31 am
“When Will The Recession Start: Deutsche Bank’s Disturbing Answer”
http://www.zerohedge.com/news/2016-06-04/when-will-recession-start-deutsche-banks-disturbing-answer
“As such, declining profits and a slowing work force (as the exodus from the labor force returns) is the worst possible feedback loop for an economy; it is the one that the US finds itself in now, ironically just as the Fed hopes to telegraph the all clear by continuing to hike rates and in doing so confirming just how misplaced the Fed’s optimism has been all along.”
“So while the BLS was finally forced to admit the truth about the US labor market yesterday, here is a reminder from DB’s most unexpected “bear”, Joe Lavorna, that “profit margins have likely peaked”: The broadest measure of operating profits is pre-tax corporate profits with inventory valuation (IVA) and capital consumption adjustments (CCAdj). As the first chart below indicates, this series shows substantial compression of corporate margins.”
“Within corporate profits, the majority of the decline has been in domestic rather than overseas profits. This means that recent margin compression has had less to do with the strengthening dollar, and perhaps more to do with weak domestic demand……Not surprisingly, the decline in profit growth has occurred alongside a deceleration in domestic demand. In fact, the year-over-year growth rate of real final sales to private domestic purchasers, our favorite indicator of underlying demand, peaked at 3.6% in Q4 2014 and has since slowed to 2.6% as of last quarter.”
“As a reminder, profit margins peaked in Q3 2014. With that in mind, the historical data reveals that the average and median lead times between the peak in margins and the onset of recession are nine and eight quarters, respectively, which as DB concludees “would imply that the economy could enter recession as soon as the second half of this year.”
Don Stewart on Sun, 5th Jun 2016 8:34 am
For those trying to model collapse, I recommend watching at least the first 10 or 15 minutes of this video featuring Tim Palmer from Britain talking in Canada. Particularly interesting is his recounting of a disastrous weather forecast. The forecast was ‘pleasant considering its England’ but what happened was ‘disastrous hurricane winds’. He shows how the storm could have been predicted by weather models, if the models had been run with slightly different initial conditions (the Butterfly in the Amazon effect). The forecasters might have ended up with ‘a 10 percent chance of disastrous storms’ but the ‘most likely is nothing special’.
https://www.youtube.com/watch?v=w-IHJbzRVVU
Also interesting is this article describing some emerging changes in Economics:
https://evonomics.com/the-deep-and-profound-changes-in-economics-thinking/
It’s a long article about preliminary results. But near the end of the article he talks about ‘what the Federal Reserve might have done about the housing bubble and disastrous bust’. With some new modeling techniques using actual data on individual housing situations, he concludes that the bust could have been predicted. He also concludes that the Fed could have avoided the financial debacle by raising the amounts of money that the banks had to hold in reserve…as opposed to manipulating interest rates, which can have damaging effects on the real, productive economy.
(Also, if you look at his graphs featuring the Case-Shiller index, it looks to me like he is showing that prices are still very inflated.)
I’m not capable of putting together models which would persuade anyone of much of anything. However, it seems to me that both exercises point to the fact that when rubber bands are stretched to their maximum, things get pretty unstable. We don’t know when the failure of some homeowner in Saskatoon to make his payment might set off a collapse and result in something like the hurricane debacle in Britain. We don’t know when a failure in the oil patch may start a cascading failure featuring all the debt. We don’t know if Saudi being forced to abandon its dollar peg will bring down the world economy.
Don Stewart
Northwest Resident on Sun, 5th Jun 2016 10:31 am
makati1 — How in the world did you manage to interpret my post as defending “the plundering America”? I would be interested in the thought process that lead you to that conclusion.
Outcast_Searcher on Sun, 5th Jun 2016 10:42 am
Shortonoil said: “But the energy to produce that GDP dollar has been constant since 1890, and probably way before then.”
But this is completely incorrect, and objectively so. The energy intensity of first world economies is generally falling, particularly that of the US.
http://www.eia.gov/todayinenergy/detail.cfm?id=10191
Specifically, using 1950 as a base of one, by 2040, this will have fallen nearly FIVE fold relative to 1950.
The problem with Short’s theories is that like all doomers, he tends to ignore whatever real world and economic factors he finds inconvenient, relative to his theories.
makati1 on Sun, 5th Jun 2016 10:49 am
“It isn’t greed and/or financialization that is killing America — or any of the long list of other countries makati1 didn’t mention that are also up to their necks in greed and financialization.”
You lump the US in with all of the other mostly Western powers as of EQUAL blame. It is Number One and NOT equal by far. The Us is the MAIN reason for the sorry condition of the world today. Typical, “my country is no worse than any other” exceptionalist bullshit. But you don’t even see that. It is not part of American mentality to accept that they are the main cause, not just another player. 25% consumption by 4% of the population is obviously wrong in so many ways, but again, American “exceptional” thinking blocks that admission by most.
If I misunderstood your comment, I apologize, but I read it that way.
shortonoil on Sun, 5th Jun 2016 10:55 am
“Sounds like you get it Don Stewart. Most do not.”
In our modern, and highly materialistic society (which can be readily associated with the vast wealth that petroleum has brought) the average person has been conditioned into believing that money is the most important aspect of life. That concept has evolved from the invention of the double entry bookkeeping system into what is perceived as modern economic theory.
Because money has been “defined” as the most relevant quantity in existence all problems are viewed as being solvable by an application of what is considered to be the most esteemed point of view. That point of view has become modern economic theory. All problems that come in contact with people must, therefore, be resolvable through the application of economic principles.
Even though economics can not be applied to the most fundamental occurrences observed in nature, and most likely is not even a science in the strictest definition of the term, because of its importance to the individual it has been elevated to the position of the ultimate problem solver. When a concept is held with such religious fervor all other avenues of investigation have become blocked.
Even though it should be apparent to the most casual observer, that economics can not be used to ascertain the outcome of the present situation, it is still regarded as the only method that should be used to project a conclusion. This is reminiscent of the insanity definition; “doing the same thing over and over again, and arriving at the same result”. Then again, perhaps it has nothing to do with trying to come to a definitive result. Perhaps it has more to do with some attempt, no matter how inconclusive, to feign control over a situation for which we humans have absolutely no control, and never will.
Outcast_Searcher on Sun, 5th Jun 2016 10:55 am
Markets look ahead. The fall in US production has been quite predictable, given global prices since the fall in 2014 and falling rig counts.
1). How do we know that markets haven’t (roughly) predicted that US production will fall further? After all, oil prices have already increased by something like 80% since the bottom.
2). Doomers keep acting like bankruptcy of overextended oil producer ‘X’ implies that oil will be inaccessable. As though in a market economy, strong hands can’t buy the resources from the bankrupt (or financially failing) weak hands, and produce in the future, based on their profit projections over time. That’s so wrong it is a great example of the brilliant “interface between a doomer and the loony bin” quip from marmico, in a post above.
onlooker on Sun, 5th Jun 2016 11:03 am
“25% consumption by 4% of the population” Not only that, some of us know that the US was the main player who set the framework of the modern world particularly after WWII. With the successful Capitalism, by being 1/2 of the world economy after WWII, they set up via Bretton Woods and system whereby their corporations along with international organizations and institutions like World Bank , IMF , The World Trade Organization and others would dominate the economic fortunes of the planet. Yes some other western economies helped but it has mainly the US with its hegemonic economy and military after WWII that made all this come about. They used every tactic in the book from sly stealthy ones to outright military invasions. Also, by the vast trade in Weapons and arms. In the meantime, economic pressures of all kinds were applied to all countries to “go with the program”. Debt was a main way to imprison countries in the System. So Makati is right about the US. I am an American I have made it my business to investigate. Not easy when the Mainstream Media never admits any of this and when information can be classified. Thank goodness for the Internet it has freed some of us from the mental cage US put us in. Oh and 911 was an inside job by the US. Believe it.
shortonoil on Sun, 5th Jun 2016 11:06 am
“Shortonoil said: “But the energy to produce that GDP dollar has been constant since 1890, and probably way before then.””
That evaluation came from the work of Dr. Cutler Cleveland (see reference above). We took a very close look at his determination, and could not find anything wrong with it. Perhaps you are more qualified to critique his work than we are? If you do, and find errors please contract Dr. Cleveland.
Otherwise, you have absolutely zero argument! It is your responsibility to show where he is in error, not ours to show why he wasn’t.
http://www.thehillsgroup.org/