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Page added on January 16, 2016
End of Petroleum-Centric World?
Plummeting oil prices may challenge the established geopolitical status-quo and even result in war and turmoil, experts warn. Will the petroleum-centric world of the past half-century be restored again soon?
The current slump in oil prices has affected giant oil corporations and the ancillary businesses; it also threatens to undermine economies of major energy-producing countries resulting in a “profound shake up” in the political order, according to Michael T. Klare, a Professor of peace and world security studies at Hampshire College (Massachusetts, United States).
The American academic feels that the continuing depression in oil prices may stretch into the 2020s and beyond.
“Generally speaking, oil prices go up when the global economy is robust, world demand is rising, suppliers are pumping at maximum levels, and little stored or surplus capacity is on hand. They tend to fall when, as now, the global economy is stagnant or slipping, energy demand is tepid, key suppliers fail to rein in production in consonance with falling demand, surplus oil builds up, and future supplies appear assured,” the American academic explains in his article for TomDispatch.com.
Klare refers to the temporary economic slowdown in China, the surge of oil output in North America (up to 9.2 million barrels per day), and most notably to Saudi Arabia’s “steadfast resistance” to decrease its own production or that of the Organization of the Petroleum Exporting Countries (OPEC).What lies beneath the Saudis’ refusal to curtail their oil output? Riyadh is possibly determined to punish Russia and Iran for its support of Syria, the US academic notes. On the other hand, Saudi Arabia is apparently making attempts to drive US shale producers out of the oil market.
To add more fuel to the fire, Iraq and Iran continue to increase their output as well. As Daesh (Islamic State/ISIL) is losing ground in Syria and Iraq, Baghdad’s oil production is expected to continue its growth, Klare remarks.
As for Iran, its nuclear deal with Washington has opened doors for Tehran’s re-entering the oil market. According to US Energy Information Administration forecast released in August 2015, “Iran has the technical capability to increase crude oil production by about 600,000 b/d by the end of 2016.”
“Only three developments could conceivably alter the present low-price environment for oil: a Middle Eastern war that took out one or more of the major energy suppliers; a Saudi decision to constrain production in order to boost prices; or an unexpected global surge in demand,” Klare believes.
American columnist James Stafford of Oilprice.com echoes Klare’s assumption: according to Stafford, direct military confrontation between Saudi Arabia and its longstanding regional rival, Iran, could put oil back into “triple-digit territory” reaching up to $250 per barrel.”A war between the two countries could lead to supply disruptions, with predictable impacts on prices,” he notes, citing Dr. Hossein Askari, a professor at The George Washington University.
However, Klare and Stafford agree that although it is not impossible at this point the war between Saudi Arabia and Iran is a “speculative” issue.
Klare adds that neither Saudi Arabia’s decision to curtail its output nor a sudden spike in demand appears likely anytime soon.
Indeed, according to the International Monetary Fund (IMF), growth rates of emerging and developing economies, which account for almost 60 percent of global GDP and 85 percent of the world’s population, are now down.
“Not only have oil and metals prices fallen by around two-thirds from their most recent peak, but supply and demand side factors suggest that they are likely to stay low for a sustained period,” IMF Managing Director Christine Lagarde said at symposium in Paris on January 12, 2016.
The more likely outcome of the slump, however, is a wave of unrest in oil-producing countries, Klare suggests. The American professor assumes that Nigeria, Venezuela, Algeria and Angola face the prospect of political turmoil.Although Saudi Arabia, one of the world’s leading producers, has survived the initial shock due to its huge foreign reserves, Riyadh has already announced cutbacks in public spending prompting growing discontent among the population of the Gulf kingdom.
In contrast, the Russian establishment is doing well with the Kremlin enjoying widespread popular support. Despite the slump in oil prices Russia’s leadership “has indeed been moving ambitiously on the international front,” Klare notes.
“Whatever happens to oil and the countries that produce it, the global political order that once rested on oil’s soaring price is doomed,” the American academic suggests.
41 Comments on "End of Petroleum-Centric World?"
Davy on Sat, 16th Jan 2016 7:40 am
This is about demand deflation. It is showing up in currencies, oil, and physical economic activity. What is worse this is about the underlying basics of the ETP model longer term. Depletion never stops and will continue. This is about the economic cannibalization of systems, people, and machines most notably in the oil industry. This industry is consuming itself to stay alive. This is more than oil because it is the economy especially in China where a demand super cycle is ending and with it a commodity super cycle. This has reverberated through the emerging markets and resource republics. We are now seeing forced price discovery in the global financial markets with the cross hairs on the US and its global financial headquarters of a reserve currency.
People are complaining about the Fed but I am sure they have plenty of evidence this reaction would happen. They are likely protecting the dollar and their balance sheet. A move like the Fed did surely has deeper meaning. We are talking raw deflation at its most basic level but with inflationary demands of a system from consumption and population growth requirements. That incongruous juxtaposition of decline forces and with growth forces will not end well.
You cannot gut the oil industry and expect demand to increase and vice-versa. Demand is being destroyed at the most basic level. This destruction is real and physical. This will never be recovered because we are destroying muscle now not just fat. This points to a super cycle down with necessary reorientations to overconsumption malinvestment. Basically we have across the board bad debt and macro systematic overextension. The retraction will clean up the bad but in this case since we extended overconsumption out so far the breakdown and drop to a new level of stability is going to overshoot.
Bubbles deflation does this. This is well known. What makes all this worse is overpopulation with macro limits knocking on to systematic diminishing returns to growth. Bellow this we have the basics of the ecosystem decaying and climate destabilization. We have oil’s ability to contribute to growth declining from deflation and depletion. This is an end game that will play out under the surface longer term and at the surface with the latest economic correction we are now in.
Those who think the destruction to oil assets of production “machinery”, reserve potential (stuff), and market mechanisms (confidence) will lead to a price rebound of drastic proportions need to remember the economy buys oil and produces oil. If the economy is in a vicious decline oil will not stem that nor will it recover. Oil and the economy go hand and hand because of the basics of both and the codependence of both.
This will be the end game of the status quo. There is little understanding where this will end up and when. We are at peak everything with huge momentum that can power through inertia of deflation for some time in a grinding down of a great machine but grind down it will. As this great machine grinds down it will decay. Decay is dysfunctional with critical support systems. It involves economic abandonment from random connected and unconnected events. Irrational policies and consumer sentiment will drive absurd reactions. Then there is also the great machine that is physical and abstract that will remain intact but in a slow self-destruction.
We do not know when that machine will come apart and how. But the trend is clear. Oil is an intricate part of this unwind. Together oil and the economy will never recover. Prices may rebound briefly but without momentum. The inertia of decline is too great for the economy and oil. This is the end of the status quo so plan accordingly. Please refer to the next article for support.
Davy on Sat, 16th Jan 2016 7:40 am
“(Re-)Covering Oil and War”
http://www.theautomaticearth.com/2016/01/re-covering-oil-and-war/
“The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.”
“Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.”
“Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.”
“Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.”
“The consequences of all this will be felt all over the world, and for a long time to come. All of our economic systems run on oil, so many jobs are related to it, so many ‘fields’ in the economy, and no, things won’t get easier when oil is at $20 or $10, it’ll be a disaster of biblical proportions, like a swarm of locusts that leaves precious little behind. Squeeze oil and you squeeze the entire economic system. That’s what all the ‘low oil prices are great for the economy’ analysts missed (many still do).”
“And when, in a few years’ time, all the production cuts due to shut wells become our new reality, and eventually they must, then no, there will still not be an oil shortage. Because the economy will be doing so much worse by then that demand will have fallen more than supply.”
makati1 on Sat, 16th Jan 2016 8:28 am
“Will the petroleum-centric world of the past half-century be restored again soon?”
It will NEVER return. Reality is a bitch.
Davy on Sat, 16th Jan 2016 10:24 am
How bouts that there demand!
http://www.zerohedge.com/news/2016-01-16/recession-gate-jpm-cuts-q4-gdp-10-01
shortonoil on Sat, 16th Jan 2016 10:31 am
“Generally speaking, oil prices go up when the global economy is robust, world demand is rising,”
When one begins with an erroneous hypothesis, it is very likely that they will conclude with an erroneous conclusion. Such as:
“What lies beneath the Saudis’ refusal to curtail their oil output? Riyadh is possibly determined to punish Russia and Iran for its support of Syria, the US academic notes. On the other hand, Saudi Arabia is apparently making attempts to drive US shale producers out of the oil market.”
The first statement implies that the economy is embedded with a magical force that allows it to produce petroleum. The stronger the economy the stronger the force, and thus more petroleum is produced. Professor Klare doesn’t state exactly what that force is, or how it works, but assumes the reader will believe it out of hand. That is, the economy grows, and petroleum appears. Maybe, Mr. Skywalker could clarify the situation?
Of course, the reason that society uses petroleum, that is as an energy source, is completely ignored. No provision is provided for its origination. In economics it is ASSUMED that it will always be present in any quantity that may be required. Perhaps it is created by the same force that generated the petroleum? This whole article does, however, seem to leave one with some unanswered questions. Actually, it appears that Professor Klare has left us with more questions than when he began.
http://www.thehillsgroup.org/
Apneaman on Sat, 16th Jan 2016 10:57 am
And yet another major industrial disaster as the ape centric industrial age crumbles under its own weight.
Toxic cloud blankets Brazil’s largest port after rain sets off fire in tanks of acid
http://news.nationalpost.com/news/toxic-cloud-blankets-brazils-largest-port-after-rain-sets-off-fire-in-tanks-of-acid
penury on Sat, 16th Jan 2016 11:21 am
Another article by a PHD. At that point quit reading his knowledge of anything other than academia appears to be non-exstant
onlooker on Sat, 16th Jan 2016 11:36 am
I think they’re is a point to be made about KSA and it’s stability being threatened by this consistent low oil price. If that were to happen yes the ME could be even further destabilized and that is a scary thought.
Plantagenet on Sat, 16th Jan 2016 1:19 pm
People always extrapolate the current situation. When oil prices were going up people assumed they would continue going up.
Now that we’re in an oil glut, people assume low oil prices are here to stay.
In actuality, the oil market oscillates between boom and bust conditions. Right now we are in an oil glut and an oil bust, but that could change quickly if oil supply is curtailed.
Cheers!
Boat on Sat, 16th Jan 2016 1:39 pm
Iran is getting the sanctions lifted any moment. Here comes the rise of conventional oil along with Iraq. All the conventional oil peakers were wrong. How can so many doomers be so wrong about so much.
onlooker on Sat, 16th Jan 2016 1:43 pm
http://www.zerohedge.com/news/2016-01-15/worlds-largest-miner-books-massive-72-billion-writedown-us-shale-assets
This is big.
Davy on Sat, 16th Jan 2016 2:01 pm
Fed indirectly intervenes in energy market by waiving mark to market.
http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale
godq3 on Sat, 16th Jan 2016 3:27 pm
Plantagenet – When before price of oil was much lower than needed to increase world extraction rate (except 2009)?
You extrapolate current business as usual Institution. But it’s not BAU. BAU is hunter gatherer life style. Oil age is around less than 0.1% of our time on this planet. In thousand yeras people won’t even remember that there was such thing like industrial economy.
GregT on Sat, 16th Jan 2016 3:29 pm
“People always extrapolate the current situation.”
People who use blanket statements are almost always completely wrong.
godq3 on Sat, 16th Jan 2016 3:29 pm
Institution = situation, heh.
BC on Sat, 16th Jan 2016 4:15 pm
https://app.box.com/s/vvt8ywyh6w3xxtgvv39myfny2jhgnu0e
https://app.box.com/s/xywlbqm8wswzhfmxh0paiil9cysh8cmk
A couple of reminders for Plant as to why oil is still not yet “cheap” (and thus not actually in a “glut”) at WTI $30.
With the post-2007 trend rate of real final sales at 1% and near 0% per capita, the US is still in a secular recession (“slow-motion depression”) since 2005-08 (Peak Oil) WRT oil consumption to final sales and the differential change rates.
We are likely to see WTI remain in the $20s-$30s for the foreseeable future and US oil production eventually fall to 5-6Mbd and consumption fall to 17-18Mbd from 19-20Mbd during the process.
solidsphere on Sat, 16th Jan 2016 6:41 pm
“Iran is getting the sanctions lifted any moment. Here comes the rise of conventional oil along with Iraq. All the conventional oil peakers were wrong. How can so many doomers be so wrong about so much.”
Well from what I’m reading here iran is expected to contribute a few 100 thousand barrels per day. No way will that compensate for the fact conventional production has been declining and continues to decline in most of the world.
The world consumes nearly 100 Million barrels per day, most from declining conventional, a few hundred thousand barrels is insignificant in comparison.
twocats on Sat, 16th Jan 2016 6:43 pm
Fed indirectly intervenes in energy market by waiving mark to market.
http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale
http://www.zerohedge.com/news/2016-01-15/worlds-largest-miner-books-massive-72-billion-writedown-us-shale-assets
This is big.
We’ve talked a lot about hedge funds, banks, refiners, still funding these guys. But if the losses continue piling up as they have been there just won’t be any way to stop the industry from collapsing. Believe it or not, people aren’t as naive as they were in 2005 – 2007 in the lead up to GFC. Credibility of the Financial system took a huge hit (i.e. institutions don’t trust EACH OTHER)
This is a Hail Mary by the Fed pure and simple. If they are able to keep this thing from imploding even until the election I would be shocked.
what to do? (Maybe?) Queue up false-flag operation to get country into war in three, two…
makati1 on Sat, 16th Jan 2016 6:47 pm
penury, I once read a perfect definition of Phd. in one of Heinlein’s SF novels.
PHD = Piled Higher & Deeper. LOL
GregT on Sat, 16th Jan 2016 7:25 pm
“what to do? (Maybe?) Queue up false-flag operation to get country into war in three, two…”
Sadly twocats, that would be exactly my take as well. The creature from Jekyll Island must live on, no matter how many innocent people need to be slaughtered, both foreign and/or domestic.
Apneaman on Sat, 16th Jan 2016 7:29 pm
So much for energy independence and the mighty dick swinging “independant” US drillers. Junk debt, poisoning the people, favorable legislation and regulatory capture, desperate towns and counties with dollar signs in their eyes bending over for frackers who never pay the infrastructure damage, massive media/think tank blitz, sucker investors, corrupt politicians and now help from the dallas fed and whining, sniveling and special pleading to congress. That’s just the shit I can remember off the top of my head. Who knows all the favorable unknowables these fucks have had. Methinks they are the farthest thing from independant there could be. More like spoiled rich kids who always get their way. Just one more racket in the last days of the empire and capitalism.
Fri Aug 7, 2015 4:41pm EDT
‘Frack now, pay later,’ top services companies say amid oil crash
http://www.reuters.com/article/us-fracking-halliburton-schlumberger-nv-idUSKCN0QC0F220150807
Wha wa wa wa mommy mommy cries the rockmen.
Oil plunge sparks calls for Congress to act
http://thehill.com/homenews/senate/265304-oil-plunge-sparks-calls-for-congress-to-act
Boat on Sat, 16th Jan 2016 8:14 pm
apeman,
Since your a foreigner/poor chart reader you would not know that would never make the US independant of imported oil. I do thank the frackers for driving production so high they dropped the price of gasoline to to $1.56. One of the greatest transfers of wealth from investors to common folk. Same with nat gas. Frackers are providing some of the cheapest home heating heating in decades. Frackers are also killing coal at a quick pace. What a country where capitalism and a free market give us cleaner air and less co2.
Apneaman on Sat, 16th Jan 2016 8:26 pm
Boat, says “One of the greatest transfers of wealth from investors to common folk.”
Fucking hilarious!
makati1 on Sat, 16th Jan 2016 10:48 pm
Boat, we shipped our pollution to China. Previous, the air in the US was just as bad. Maybe the Chinese will force the factories back to the States? Nah, Americans would want $30/hr plus a ship load of bennies to even get off the couch.
GregT on Sat, 16th Jan 2016 11:07 pm
“Fucking hilarious!”
The only things more hilarious than Boat’s constant comedy of errors, is the fact that he is too stupid to figure them out, and that he keeps going on and on and on. Without a doubt the dumbest idiot I have ever experienced in my entire life. I will concede that there are in all likelihood dumber people out there for sure, but I’ve never had the misfortune of dealing with any of them.
You take the cake Boat. I’ve met some really stupid people in my lifetime, but I’ve never met anyone that even remotely comes close to you.
You deserve an award, or something.
Boat on Sat, 16th Jan 2016 11:30 pm
As a consumer of oil related products I welcome the savings. Geeze Gregt, I bet even you know somebody that drives and saves money compared to 2 years ago. Those hundreds of billions of lost revenue show up as consumer cheaper prices. The Canadian brain thinks that’s hilarious. Your a confusing lot. Entertaining though.
GregT on Sat, 16th Jan 2016 11:44 pm
Yup Boat,
I’m saving a whopping 15 bucks on a tank of gas. In the meantime, every other expense in my household continues to grow exponentially. Keep playing the idiot Boat, it will eventually bite you in the ass. Normally, I would feel sorry for people like you, and even go out of my way to help them out, but in your case, you are going to get your just deserves. It is only a matter of time. I promise I won’t laugh, but I defiantly won’t feel bad for you.
onlooker on Sun, 17th Jan 2016 12:31 am
http://westernresourceadvocates.org/western-lands/stopping-oil-shale-and-tar-sands/
Oil Shale and Tar Sands – Two of the Most Polluting Fuels on the Planet
For our resident clown Mr. Boat.
Davy on Sun, 17th Jan 2016 7:36 am
“SYRIA: ‘CIVILIAN OBJECTS WERE NOT DAMAGED’: RUSSIA’S STATEMENTS ON ITS ATTACKS IN SYRIA UNMASKED”
https://www.amnesty.org/en/documents/mde24/3113/2015/en/%20/
“Since Russia formally intervened in the armed conflict in Syria on 30 September, its armed forces have launched thousands of attacks. It has claimed that its armed forces are only striking “terrorist” targets and has not publicly acknowledged that they have caused any civilian deaths and injuries. However, Russian attacks in Syria appear to have actually killed hundreds of civilians and destroyed or damaged hospitals and dozens of homes and other civilian objects. In this briefing, Amnesty International sets out its findings with respect to six attacks.”
“Is Putin Targeting Syrian Civilians?”
http://warmonitor.net/news/2016/01/14/is-putin-targeting-syrian-civilians/
“In December, Syrian regime and Russian airstrikes were responsible for two-thirds of all civilian deaths. Even prior to Russia’s intervention, the medical journal The BMJ asserted that air bombardments, including barrel bombs, missiles and other explosive weapons, were the leading cause of death for children, signifying their inherently indiscriminate nature.”
“Since September 30, 2015, Russian armed forces have launched thousands more of these attacks. Human Rights Watch has also documented Russia’s use of cluster munitions in Syria, which international law bans as an indiscriminate weapon.”
ennui2 on Sun, 17th Jan 2016 10:47 am
Never seen so many zerohedge links in a row.
You people are so trapped in your echo-chambers.
onlooker on Sun, 17th Jan 2016 10:51 am
“You people are so trapped in your echo-chambers.” Or maybe we are the ones in the know.
Davy on Sun, 17th Jan 2016 11:01 am
Enuu, get a grip man things are unwinding. It is what it is and ZH tells it like it is.
Boat on Sun, 17th Jan 2016 12:22 pm
onlooker on Sun, 17th Jan 2016 12:31 am
http://westernresourceadvocates.org/western-lands/stopping-oil-shale-and-tar-sands/
Oil Shale and Tar Sands – Two of the Most Polluting Fuels on the Planet
For our resident clown Mr. Boat.
What is the message your trying to send me? Other than that’s the first time I can remember you resorted to name calling. I guess you want to be called names also. You Canadian?
So onlooker,
onlooker on Sun, 17th Jan 2016 1:09 pm
Because Boat, I have stopped taking you seriously at all as your arguments and just lacking totally in opinion. So I am sorry for the name calling but at some point the arguments reflect upon the person.
onlooker on Sun, 17th Jan 2016 1:10 pm
are just lacking in my opinion. Goodness i wish they had a editing function on here. uhh
Boat on Sun, 17th Jan 2016 1:25 pm
onlooker,
Show me where I am wrong. Debate the facts. This is supposed to be an oil related site. Get specific about where I am wrong.
onlooker on Sun, 17th Jan 2016 1:41 pm
“What a country where capitalism and a free market give us cleaner air and less co2.” Tar and Shale emit lots of CO2 into air in fact by some estimates more than traditional FF. They also pollute our air and water supply. So that is just one example as I am quite certain that your reference to capitalism was too the Tar and Shale plays
GregT on Sun, 17th Jan 2016 3:12 pm
“What a country where capitalism and a free market give us cleaner air and less co2.”
If you are incapable of understanding how completely ridiculous your above statement is Boat, there is no point in attempting to debate anything with you at all.
makati1 on Sun, 17th Jan 2016 7:45 pm
Guys, you have to understand some science and physics to enter into a debate on climate change. Unfortunately, Boat does not have those arrows in his quiver. Because he doesn’t see the air pollution, he assumes it doesn’t exist. Because he is told that his water supply is safe, he doesn’t question the source or the purity.
Ask the residents of Porter Ranch what capitalism has done for them, besides chase them out of their homes for months or suffer a slow death by methane and other noxious gasses.
Or ask the Oklahoma residents what capitalism has done for them besides making them the earthquake epicenter of the world, not to mention the permanent pollution of their water supply.
Or the past residents of Love Canal …and on and on.
Boat only sees what he wants to see, like the Ozark Hillbilly wannabee. Denial. Drugs. Sloth. Ignorance. The causes of collapse of a country that could have lead the world, but decided to try to rule it by force of arms and dictatorship.
makati1 on Sun, 17th Jan 2016 10:02 pm
“While I applaud efforts like this, there’s no way such technologies will ever be implemented on a scale that equals fossil fuels. Renewables harvest solar energy in real time, while fossil fuels offer us millions of years of solar energy stored in highly concentrated form. We have to expend much energy with renewables just to harvest the sun’s energy. There are also some elements of pseudo-science in this piece. For example, “energy recycling” doesn’t make any sense. You can’t recycle energy; you use it once, and it’s gone. And then there’s this whopper: “water provides the energy for a chemical reaction that propels a vehicle.” Say what? Water doesn’t provide the energy for anything because once oxygen and hydrogen atoms bond to form water, they give up all their useful energy. Splitting water requires some other energy input. Remember the jatropha craze? It was going to provide us with a cheap source of liquid fuel. The plant can be grown on “marginal land”! Well, it turned out that growing it on marginal land produced only marginal returns; to extract lots of oil the plants need fertilizer. There is no free lunch. — RF”
http://climatenewsnetwork.net/science-opens-door-to-energy-recycling/
RF said it best.
makati1 on Sun, 17th Jan 2016 10:08 pm
“The California facility spewing massive amounts of natural gas is one of more than 400 storage sites across the United States. Underground wells from Alaska to New York store trillions of cubic feet of the fuel during the year, which utilities tap during chilly winters or power outages. Yet the quality of monitoring and upkeep varies from site to site, raising the risk that more storage facilities could sprout serious leaks in other states.
“It’s only a matter of time before the next one happens,” said Tim O’Connor, who directs the Environmental Defense Fund’s oil and gas program in California. “We just haven’t had the regulatory regimes needed to keep up with the dangers associated with it.”
http://www.ibtimes.com/california-methane-leak-heres-where-over-400-us-natural-gas-storage-facilities-are-2265607
Do you live near to one of these?