The oil price collapse: what’s so special about it?

11 Comments on "The oil price collapse: what’s so special about it?"

Jerry McManus on Sun, 11th Jan 2015 2:01 pm 



Perhaps Mr. Bardi could be bothered to answer his own fucking question rather than wasting everyone’s time by tossing off a totally pointless one-liner that only appears to short stroke himself.

What a useless git.

Bandits on Sun, 11th Jan 2015 2:06 pm 



Oh boy comparing the past with now in this instance is a trifle naïve I’d say.

Right now we have crippling debt, not yet peaked. We have peak oil, we have peak cheap oil, we have a couple of billion more mouths to feed and we have a degradation of soil, rivers, seas, oceans, air quality, flora and fauna that is unprecedented in human existence. So this oil price is telling us a whole lot more than previous “adjustments”.

Davy on Sun, 11th Jan 2015 3:04 pm 



“The drops don’t last for long and the trend is clear” UNTIL IT AIN’T. What impresses me these days is we are near or at that point in time of a paradigm shift. At some point there may be a pole shift taking us into a systematic dimensional change. Until that time comes we can pass the days playing with fancy graphs.

shortonoil on Sun, 11th Jan 2015 4:13 pm 



Just a little disingenuous!! If everyone notices this is a log normal scale. That significantly accentuates the highs, and lows.

Take a look at a plot of price vs time without that little added figure. Here is graph# 17 at our site:

http://www.thehillsgroup.org/depletion2_010.htm

What makes this price plunge different this time is that the cost curve has gone parabolic over the last decade, and is approaching a vertical ordinate on the horizontal. This signifies that it will either go to infinity, or hit a discontinuity, and collapse all together.

Because we don’t believe that an infinite price is likely we expect that the following will occur:

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

The discontinuity that appeared in 2012 is predicted by the Etp model. It is the point were the consumer runs out of gas (energy). One can believe that the log normal graph is a true representation of what is happening. We think someone is trying to pull the wool over our eyes.

http://www.thehillsgroup.org/

Joe Clarkson on Sun, 11th Jan 2015 5:02 pm 



shortonoil,

The graph is a log normal scale but it compresses highs and lows rather than accentuates them (think where $50 oil would be on a linear scale). His graph and yours show the same information, except his doesn’t have the curve fitted to it and only goes back to 1984. I guess Bardi figured anyone with eyeballs (not including Jerry McManus) could see the overall trend and answer his question.

Perk Earl on Sun, 11th Jan 2015 5:33 pm 



Wow Short, $20. per barrel consumer affordability in 2020 and looks like about 40 in ~2018. We’re in a heck of a lot of trouble.

Davy on Sun, 11th Jan 2015 5:44 pm 



Here is some bullish sentiment on oil:
http://www.zerohedge.com/news/2015-01-11/bofaml-bullish-bonds-black-gold

Oil contango reaches bearish extremes
Now that contango has reached bearish extremes from which price has often found a base. With the exception of 2008/2009, when the front month future contract trades at a $7.50 discount to the 1yr contract, it has often coincided with a market low or the start of a larger basing process.

With the WTI curve at extreme contango, our attention is drawn to the fast approaching 16yr trendline between 46.13/45.22. While there is not yet enough evidence to say that the downtrend is finished, this is a very high probable location for a base to develop. Watch it closely.

shortonoil on Sun, 11th Jan 2015 6:24 pm 



The graph is a log normal scale but it compresses highs and lows rather than accentuates them (think where $50 oil would be on a linear scale).

The 60% drop he shows between 1997 and 2001 was actually $4.61. $17.23 from $21.84, which gives a 26% drop. You only get 60% if you use the log values of the price. Like I said, totally disingenuous!

shortonoil on Sun, 11th Jan 2015 7:07 pm 



The average yearly price change between 1960 and 2013 was been 3%. The greatest yearly change occurred between 2011 and 2012 at 32%. There has been eight years during that period when there has been no change. On a yearly bases oil prices have been very stable, and have mostly reflected increased production cost. The yearly change between 2013 and 2014 will likely be about 25%, the second greatest on record. 2009 to 2010 will come in third at 21%. Previously the greatest change was 1975 to 1976 at 9%.

Ralph on Mon, 12th Jan 2015 4:25 am 



The striking thing about that price graph, is that this time the plunge has followed a period of remarkable price stability. Previous falls have have been after a sharp rise in price has driven down demand and driven up supply, causing a market imbalance and over correction on the down side.

This time the price just went down. To me that indicates that the market has been manipulated these last few years to sustain a price higher than the market would normally bear. As if major consumers were simply printing money and hoping that the low cost producers didn’t notice…

Davy on Mon, 12th Jan 2015 6:36 am 



Ralf the period of remarkable price stability was financial repression and excessive debt liquidity creating and environment of stable disequilibrium. The stability we saw was like someone throwing a blanket over a fire. The blanket eventually is burned through and the fire resumes. All those effects of depletion that short discusses and we see in other PO dynamics were still there. They were masked by a market driven faux growth. We saw the fracking gold rush distort the oil markets.

I am personally not commenting good or bad on the shale revolution. It bought a few years more BAU. I used this extra time for prep work. Others benefited as well. My point is there was a faux stability that ended with the tapper. The tapper was nothing more than diminishing returns of an artificially simulative monetary policy that lost effectiveness. This is much like a drug loses its effectiveness as it is turned into a maintenance drug. Pain killers or anti-anxiety meds are a prime example.

The key point is oil’s value to the economy is depleting. Once the distorting effects of central banks repression was lifted even a little that stable disequilibrium spilled out into a violent oil price reaction. I see the price now set lose like a wild animal that is not going to be caught. BAU is out of control because the fundamentals are so completely disturbed from normal. Equilibrium will not be attained except by a severe hair cut i.e. recession. I am not sure BAU at this point can survive a recession considering the effects on oil production and debt service. I firmly believe we are on a bumpy descent down or a vicious circle of descent. I don’t have the answer on time frame and degree of fall but I do see an unmistakable trend.