[rockdoc123]

$this->bbcode_second_pass_quote('', 'I') am with you 100 percent on this one Pops, IMO the only way we will be seeing $20/bbl oil is if the economy is so bad nobody can afford more, which would cause an extreme supply limit.

[Paulo1]

Almost all oil workers would be out of work long before we hit $20...and just about everyone else too!!

What scares me is just the hint of normalizing interest rates causes the market to drop and other currencies to tank, thus prompting reassuring murmurings about continuing ZIRP. Talk about being painted into a corner, painting yourself into a corner!! Plus, as other currenies drop the meme of robust exceptionalism continues for USA talking heads.

If capitalism was allowed to function with market discovery as opposed to crony protectionism, we would not be where we are today. Hey, Wisconsin is now a 'Right to Work' state..... all will soon be better.

And someone is taking pot shots at cops in MO.

Chaos before there is $20 oil....violent chaos.

[Pops]

$this->bbcode_second_pass_quote('Paulo1', 'W')hat scares me is just the hint of normalizing interest rates causes the market to drop and other currencies to tank, thus prompting reassuring murmurings about continuing ZIRP.

[ChilPhil1986]

One thing that hasn't really been mentioned yet that might shed some light on what Pops is saying--

The Dollar Index (DXY)



I mean, I usually stay out of a discussion about the Fed, since I don't really have much history of it at my disposal beside the Wikipedia page. I know Woodrow Wilson basically started it, and I know I didn't hear much about it in any history book I ever read until after Nixon nixed (pun) the gold standard. Would they really have any teeth without fiat currency?

Prediction:
My armchair is telling me that with the two bearish factors of the continued strength of the dollar (which, in my opinion, goes largely in hand with the Fed's continued winding down of QE and ZIRP), the looming overcapacity of oil at current storage rates, but with the two bullish factors of the continued decrease of well counts in the US, and the continued 7% growth of China and other developing nations, oil prices are basically gonna be range trading or very slightly down over the next six months. I could always be wrong about the ZIRP going away. God forbid stocks have a damn DOWN year. There's always the unpredictable factors like natural phenomena coming along, too, but I think this is just the beginning of the end for a lot of the riskier producers out there.

[Pops]

Hard to remember to keep that in mind Phil. Good point.

So does that stem from fewer imports, higher expectations for US rate hikes, safety from global recession on the horizon, US "inflation" expectation...???

[ChilPhil1986]

Most of it has to do with forex, which I loathe because for every currency that gets traded on forex, that's another variable to take into account. On this website, there is much ado about predicting what oil prices will do, and starting with the basics of supply and demand, at least in my mind, it's simpler. Forex is ridiculous.

From what I can tell, it's a combination of everything that you said. The DXY is a measure of the dollar against a 'basket' of other currencies, so from the graph, it just means that the US dollar is outperforming most other countries. It's a measure of confidence, like every other market. Hence, with the Fed showing confidence by winding down stimulus, EVERYONE ELSE in the world is like, 'HEY, I'm gonna buy some dollars and make some money'. Since oil is priced in dollars, the oil itself isn't de-valuing as much as people say. It's just that the dollar has increase in value so much over the past six months that the price has gone down. This is in addition to the supply-demand factors already mentioned.

I think there is one more bump left in the DXY when the Fed does raise interest rates, but then the dollar should be 'reset' to terms with the rest of the world from where it was before 2008.

DISCLAIMER: Fuck economics.

[Pops]

$this->bbcode_second_pass_quote('ChilPhil1986', 'D')ISCLAIMER:

[TemplarMyst]

Hey Chili,

Curious if you have read any of the more recent stuff by David Stockman? OMB Director under Reagan, founding member of Blackrock, as of late railing against the deformation of capitalism (The Great Deformation is his bestseller). He falls into the category of analysts Pops referenced to start the thread. Mebbe a bit more strident than most.

IMO he has the single deepest understanding of the state of both the US and global market scenes, but I'm not an expert myself, so my perspective may be a bit jaded. He has such a command of the numbers and the players that I'm continuously amazed when I try to fact check him.

His fundamental perspective is that what is underlying the jagged recovery is not so much an organic supply and demand question so much as a matter of peak debt. It is the debt levels, of individuals, families, companies, and countries, that is holding any recovery in check. QE and ZIRP have only exaggerated the problem, and in fact have created an environment where traders operating in the carry trade are doped to the gills in cheap money from them, and once again have that leveraged up the hilt.

So it's not that the recovery isn't actually happening, but that it is, at best stilted, and at worst a recovery tottering on a foundation of sand. Oil, gas, and the other commodities are all at the mercy of the leveraged debt covering the planet. No sovereign fund, no national account, no investor, is unaffected.

I'm finding his arguments, his data, and his historical perspective to be fairly perspective. Unfortunately I'm about a third of the way through his book at this point.

[ChilPhil1986]

I'm always on the lookout for new books to read, Templar, and I'll keep that on my list. Never read anything by Stockman before, and I'm about 1/3 of the way thru Yergin's The Prize right now. I'll be going under the knife soon with a solid chance of prolonged bedrest afterwords, so I'll be sure to pick it up.

My point of view is that energy commodities are too central to the daily lives of too many people in power (and too central to the people from whom their power is derived, ie. the middle class) for access to them to be limited by economic constraints for very long. This is why QE, ZIRP, the New Deal, etc. were started in the first place. It might be a more fundamental structural shift next time, but whatever it takes to keep BAU going will happen until peak energy begins to take the power from the people in power.

[TemplarMyst]

Yikes! Well, whatever the procedure is, best of luck with it!

To your point about the people in power (the Owners to Pops, the Oligarchy to me, but its the same cast of characters) I agree they will continue BAU as long as they possibly can. It does seem they are pushing all the buttons again.

Wonder how long it'll last. Anybody's guess, I suppose. It's gonna be ugly when what goes around does in fact come around.

[ennui2]

$this->bbcode_second_pass_quote('kublikhan', 'G')oing to have to disagree with just about everything Revi said. Unlike the price crash in 2008 that was primarily a demand side collapse, this time around the price collapse is mainly because of oversupply, a glut of oil.

[kublikhan]

$this->bbcode_second_pass_quote('pstarr', 'T')he same drop has occurred in many construction materials, though neither copper, coal, nor oil reserves have increased.

[kublikhan]

And why do you keep saying we are in a recession? The world recession ended in 2009. Since 2010, the world has been in a recovery. A rather anemic one, but a recovery nonetheless.

$this->bbcode_second_pass_quote('', '[')b]DEFINITION OF 'GLOBAL RECESSION'
An extended period of economic decline around the world. The International Monetary Fund (IMF) uses a broad set of criteria to identify global recessions, including a decrease in per-capita gross domestic product worldwide.

According to the IMF, there have been four global recessions since World War II, beginning in 1975, 1982, 1991 and 2009, respectively. This last recession was the deepest and widest of them all. Since 2010, the world economy has been in a process of recovery, albeit a slow one.

[ennui2]

Exactly. There's a lot of "curve-fitting" going on by people who have an agenda to draw a particular conclusion.

It's like, if oil is $100+/bbl, it validates Hubbert's curve. If oil is $20/bbl, it is because people "couldn't pay" $100/bbl and so we are just in a lull (I suppose). There is just this very shallow correlation is causation style analysis going on.

Occam's razor analysis would favor the narrative that we had a recession (only partly caused by oil prices) and the total fallout from the recession has pretty much cleared away. We haven't suffered from dollar collapse due to printing money. The US auto industry actually has managed to bounce back somewhat, and there's a new bubble going on in the mobile tech sector that is helping to lift GDP.

Now, if your livelihood depends on working in an industry that is on the losing side of the 21st century information economy, it's natural you'll view things in a negative way. If you don't have a college degree, probably the #1 demand for you as a worker will come from low-level service jobs, especially working in dirty jobs like nursing homes.

We've been through this before, the talk about the primary economy vs. levels of economy farther and farther removed from the land or physical labor. The main wealth-generator right now that I can see, outside of fossil-fuel extraction, is from bits and bytes. Whether that's just as unsustainable as real-estate paper is an open question. There was a dot com crash prior to the housing crash, and the common theme was an economy being pumped up by something pretty abstract and far removed from commodities, other than the fact that during these bubbles, these commodities are in an abundance that facilitates this house of cards to flourish.

So people can talk all they want about fiat currency and how the world would be a better place with a gold standard and what not, but regardless of how we'd like it to be, the world trudges on as it is now. QE led to a boom in the stock market which has led to a lot of business activity, especially in startups and the tech sector. It's not the 1930s and so the parallels with the great depression really didn't hold true 1:1.

If anyone wants to talk about how the other shoe will drop at some point, be my guess, but if you're biased to wanting the shoe to drop, if somehow it validates your cosmological world-view, then I'm going to have to view these predictions and whatever facts you cherry-pick to support it with suspicion.

This is not a game and I don't feel the need to "prove" that I'm right with any sort of chicken-little prediction. I want to shake out the truth about where we are and where we're headed regardless of where I may personally want us to go for one reason or another. And yet a lot of so-called experts in this field have enough of an axe to grind as well as a bad enough track record on their predictions that I just can never view what they say with the same level of credibility as before. This goes for Greer, Heinberg, and all the rest. Bright people, and can make cogent-sounding arguments, but after the dust settles, they are just making a crap-shoot prediction.

The only thing that seems to be emerging out of this, if you look at it from a larger time-scale, is us following the worst-case scenario of the limits-to-growth chart. It's not Hubbert's curve that I've wedded my world view to now as much as that chart. It's just that the chart doesn't tell you where, for instance, "population reduction" comes from. It's of limited use from a short-term planning perspective.

[onlooker]

I personally believe that looking at the entire world economic panorama, it is evident that demand destruction has taken place. People and entities just do not have the liquid cash to purchase anything. Debt seems to be a factor. Just look at all the quantitive easing that has occurred in both US and Europe yet it seems not to be having much benefit. Deflation and Depression are the key words to describe the current situation. Bubbles have burst and all resources seem to be getting more expensive, these are other factors that seem to be contributing. So Oil, like any commodity is subject to the Supply-Demand equation. So oil is down in response to lesser demand.

[dolanbaker]

$this->bbcode_second_pass_quote('pstarr', '
')No country anymore is on a building binge. Low demand even in the face of low prices, not supply, created a supply-constrained environment.

[davep]

$this->bbcode_second_pass_quote('', 'T')he same drop has occurred in many construction materials, though neither copper, coal, nor oil reserves have increased. One can blame speculation, the Russian oligarchs, US imperial designs, or moonbats but one can not attributes these simultaneous price drops to new discoveries, new technologies.