The oil world’s been full of speculation about the shift of strategy last year by Saudi Arabia which saw it keep the pumps running even as the price fell, turning an initial drop into a plunge.
There may be a simpler explanation for Saudi’s willingness to see prices slide than an attack on US shale or a “political plot” against regional rival Iran, though: a change in the Saudi view on peak oil.
The Saudis have two choices with their oil: sell it now, or sell it later.
If they think oil is running out, it is reasonable to think prices will keep rising in future – perhaps rising much faster than the returns they could earn by deploying the money elsewhere, particularly since they invest a lot of their excess foreign exchange in US Treasury bonds paying almost nothing. The logical thing to do is to keep as much oil in the ground as possible, pumping only enough to keep the global economy ticking over.
On the other hand, if peak oil is so much bunkum, at least for the foreseeable future, then it makes sense to pump a lot more oil. Worse, if peak oil is the opposite of the truth – that demand for oil might go into a long-term decline – then it makes sense to pump as much as possible as soon as possible, whatever the price, because it will only be worth less in future.
Not being a senior member of the Saudi royal family I don’t know the truth. Perhaps the Saudis did a secret deal with the US to hurt Russia. Perhaps they are trying to pressure the Russians to cut off Bashar al-Assad in Syria.
It is true that the simplest explanation isn’t always the best in the strife-torn Middle East. But new technologies are making it easier to access oil from shale, Brazilian pre-salt formations and Canadian oil sands, while global warming, ironically, is making the Arctic look like a potential new source of wells.
At the same time, human ingenuity has done what it always does when prices of one resource are very high: find ways to replace it with others. Electric cars have gone from an expensive toy to the edges of the mainstream, and demand for fuel efficiency made smaller cars a popular choice in the SUV-loving US once again.
Some Saudi comments suggest they are just fed up with being the swing producer, letting inefficient high-cost countries make money when they could be instead. But if the Saudis believed in peak oil, it doesn’t matter at all. If oil is running out, then the value of the Saudi fields goes up the more Russian or Venezuelan fields are depleted, no matter how inefficient their production.
Behind all the debates, a simple change of mindset is enough to explain why oil has plunged. If this is really the deeper explanation, then oil may well never see $100 a barrel again.
buddavis on Tue, 17th Mar 2015 2:45 pm
I guess $100 oil is right around the corner after this “KOD” article.
Plantagenet on Tue, 17th Mar 2015 3:01 pm
Something is behind the KSA decision to change policies and pump oil and contribute to the current oil glut.
Its certainly not a desire to maximize profits—-the Saudis would make a lot more money by restricting their production enough to keep oil prices up at ca. $100 bbls. The Saudis are literally pumping their oil as fast as they can, irregardless of the price. The Saudis were the ones entering into contracts at lower and lower prices, moving the world oil price down.
Maybe the Saudis actually do think that peak oil is bogus, and thats the reason they are creating this oil glut.
Davy on Tue, 17th Mar 2015 3:10 pm
Planter, keep on runnin from reality. Your avatar says it all.
J-Gav on Tue, 17th Mar 2015 3:10 pm
“Peak oil … so much bunkum for the foreseeable future?”
That’s a bold statement. Unless the expression “foreseeable future” has now been pared down to the span of a decade.
As for “oil may never see $100 a barrel again,” what difference does that make in a world where people risk not being able to pay for it at $70 bbl?
Plantagenet on Tue, 17th Mar 2015 3:13 pm
Davy—
Any chance of a more substantive thought that actually has something to do with this topic, or is that all you’ve got?
rockman on Tue, 17th Mar 2015 3:28 pm
“…the Saudis would make a lot more money by restricting their production enough to keep oil prices up at ca. $100 bbls.” Not a certainty by any means. Selling 1 bbl of oil at $100/bbl doesn’t generate as much income as selling 2 bbls at $60/bbl each. Granted the dynamics are much more complicated than that simple model but the basic reality is the same: IMHO the KSA (like most US oil companies that also haven’t curtailed the production) is more concerned about cash flow then maximizing the price they receive per bbl. I’m sure the Saudis have no problem recalling how much cash flow they lost by continuously cutting their production in the 80’s in an effort to increase oil prices. Back then it was the other OPEC members that took advantage of the KSA sacrifice. I doubt the Saudis are going to be as willing to take the bullet for the US shale producers this time around.
GregT on Tue, 17th Mar 2015 3:28 pm
Davy is correct planter. Your avatar is very fitting. Much better than that silly spinning red propeller thingy.
Davy on Tue, 17th Mar 2015 3:54 pm
Planter, read what Rock said and get back to me.
Got it
Cheerios
Plantagenet on Tue, 17th Mar 2015 4:16 pm
Daver
If you aren’t capable of reading rock’s comment yourself then there is no point in my reading it to you—–
Cheers!
steve on Tue, 17th Mar 2015 5:08 pm
First, what is up with the crazy avatars!
Second how long can this system keep going? I am amazed it is still going! I have people come up to me and say well I guess your peak oil theory was wrong….not knowing anything about peak oil…It is like the liberal who is against fracking and coal burning and nuclear but lives in a big house and drives an SUV! There is a total disconnect of where everything comes from! My guess is that our financial system will collapse before anything else and that is coming so so soon…
Davy on Tue, 17th Mar 2015 7:00 pm
Steve, here is the abstract BAU in a physics context of the laws of motion. http://www.scienceclarified.com/everyday/Real-Life-Chemistry-Vol-3/Momentum.html
MOMENTUM- The faster an object is moving—whether it be a baseball, an automobile, or a particle of matter—the harder it is to stop. This is a reflection of momentum, or specifically, linear momentum, which is equal to mass multiplied by velocity. A third important concept is impulse, the product of force multiplied by length in time. Impulse, also defined as a change in momentum
INERTIA – Inertia, as defined by the second law of motion, is the tendency of an object in motion to remain in motion, and of an object at rest to remain at rest
IMPULSE – For an object to have momentum, some force must have set it in motion, and that force must have been applied over a period of time. Likewise, when the object experiences a collision or any other event that changes its momentum, that change may be described in terms of a certain amount of force applied over a certain period of time. Acceleration can be defined as a change.
BAU analogy
Economy is mass. Growth is velocity. BAU and its complexity is momentum. BAU and its complexity has inertia to the end of growth. POD and financial problems are impulse collisions.
BAU complexity is the resulting momentum from an economy growing. BAU has inertia to the end of growth. BAU’s inertia to the end of growth is from its energy intensity plus increasing complexity. Energy intensity and complexity were impulses that propelled BAU forward but now they are negative impulses working to slow BAU because of their natural limits and diminishing returns. These once positive forces are now negative forces that are decelerating BAU through entropic decay.
BAU is like a nice round airborne mucus loogie that when in motion in the air has symmetrical mass but when that BAU loogie decelerates it becomes asymmetric when it hits a brick wall of POD and or a financial collapse. When that BAU loogie loses all momentum it is no longer a BAU loogie it is now a brick wall loogie.
Plantagenet on Tue, 17th Mar 2015 7:18 pm
Daver….I’m glad to see you get off the Avatar thing and start making meaningful posts again.
Congrats.
However, I must kvetch about one thing in your long metaphor. EROEI has not gone negative as your metaphor suggests. Drilling for oil still have a positive EROEI—even drilling in tight shales.
The EROEI from oil drilling is not as grand as it was 50-75 years ago, but its good enough that the economy can still grow, albeit more slowly.
Cheers!
Speculawyer on Tue, 17th Mar 2015 7:28 pm
Why do people keep saying they changed policies? They did nothing different. They are just pumping the same as they were before. No change. Ugh.
Davy on Tue, 17th Mar 2015 7:59 pm
Planter, you said the words “The EROEI from oil drilling is not as grand as it was 50-75 years ago, but its good enough that the economy can still grow, albeit “more slowly”. Planter BAU does not do “more slowly” very well very long.
This is the critical point to understand with a complex dynamic system in descent. A brittle, unsustainable, and non-resilient human system that is extremely efficient and energy intensive. Natural systems are another animal being complex with sustainability and resilience.
We may still be growing but not solid productive growth per normal fundamentals. It is more cancerous growth of the mal-invested kind that once the initial activity boost to economic velocity is over it actually drags economic velocity down by parasitic bad debt decay. Everywhere you look we see poor consumption, over population, unfunded ecological destruction, poor lifestyles, corruption, manipulation, and wealth transfer. This wealth transfer is from the productive economy to the aristocratic management sector that is in an inverted triangle. IOW a grand Ponzi scheme appearing increasingly like a house of cards using bottom cards to increase the height.
The direction of these momentums is negative. One might call these negative momentums now predicaments because they are multiple problems with no solutions because of limits of growth and diminishing returns. Planter the diminishing returns is another way of saying your “more slowly”. Our foundational energy sources appears to be crossing a critical net energy point. There are no scalable substitutions for these foundational energy sources with current populations, systematic transitional time requirements, and resource availability. Complexity is suffering from diminishing returns and energy depletion. BAU complexity cannot degrowth. BAU complexity degrowth is in effect a bifurcation to a new and lower complexity level.
Planter all this and you want to say “the economy can still grow, albeit “more slowly” ”. Planter friend open your ears brother can you hear the thunder? Thunder in this case means a shit storm is approaching.
ennui2 on Tue, 17th Mar 2015 8:10 pm
“.I’m glad to see you get off the Avatar thing and start making meaningful posts again.”
This coming from Mr. Obama drive-by-political-satire Planty? Pot calling kettle black.
Plantagenet on Tue, 17th Mar 2015 8:29 pm
ennui2—you are so pathetic that you don’t even have an avatar.
Hahahahahahahahahahah!
Makati1 on Tue, 17th Mar 2015 8:35 pm
In recent news…
http://www.bbc.com/news/world-middle-east-31893070
“The US embassy in the Saudi capital Riyadh has cancelled all consular services for Sunday and Monday due to “heightened security concerns”.
In a statement, the embassy said consular services in Riyadh, Jeddah and Dhahran would not be available.
It urged US citizens to take extra precautions when travelling in Saudi Arabia and to keep a low profile.
On Friday, the embassy warned that Western oil workers could be the target of militant attacks.
It said it had information that “individuals associated with a terrorist organisation” could be targeting people working in the oil-rich Eastern Province.
The message did not identify the militants.
Saturday’s statement did not give details of any specific threat but said: “All US citizens are encouraged to be aware of their surroundings and take extra precautions when travelling throughout the country.
“The Department of State urges US citizens to carefully consider the risks of travelling to Saudi Arabia and limit non-essential travel within the country.”
The last security incident in Saudi Arabia involving US citizens happened last October when a disgruntled Saudi-American, dismissed from his job at a US defence contractor in Riyadh, shot two US co-workers, killing one and wounding the other.”
GregT on Tue, 17th Mar 2015 9:02 pm
lil planter said:
“Daver….I’m glad to see you get off the Avatar thing”
Then 1 hour and 11 minutes later said:
“ennui2—you are so pathetic that you don’t even have an avatar.”
“Hahahahahahahahahahah!”
??????????????????????????????
bicycledave on Tue, 17th Mar 2015 10:11 pm
Hi Rockman,
Just thought I’d say hello. I haven’t been active on any forums for some time now.
I created a new website mostly as a technology exercise to help our daughter with her little website business. She needs some new software for a blog, forum, slideshow, etc. So, I did a prototype for her. Of course, I used my biases as the theme but the site won’t actually get promoted in any fashion – cars still dominate. But, you might enjoy seeing it: http://www.bikex.net/virtue
dubya on Tue, 17th Mar 2015 11:31 pm
I’m just posting to see what my avatar looks like today.
Well, and also because I don’t think Davy is quite right about the economy having inertia. If there are no engine control chips (like after the Mar 11 japan Tsunami) that line just immediately stops.
Policy is different, the Republicans can’t change their mind cause _____ was the way my grandpappy did it, and that’s good enough for me.
Something in between would be the US retooling for WWII. A fast policy change produced a fast economy change.
I see what you’re saying, but I don’t think there is any inherent inertia other than development times.
Plantagenet on Tue, 17th Mar 2015 11:56 pm
GregT
Why the obsession with avatars?
I suggest you try doing a post with an idea or a fact or some content in it for a change. For instance–
The world is in an oil glut, and the Saudis are playing a big role in creating the oil glut.
Aaahhhhh. Facts are good things.
steve on Wed, 18th Mar 2015 12:47 am
I have been reading here for some time before this I was an automatic earth reader and zero hedge…but I can’t for the life of me understand the playground banter that goes on here….Who gives a sh** if someone disagrees with you that is what it is all about. Do you just want to come here and hear preaching to the choir? Uh…yep I am right again…People on here take Plants comments like someone has spit in their face….come on people Man up!
Apneaman on Wed, 18th Mar 2015 1:44 am
Don’t ever stop trying, steve. Some people just need more time before they understand 😉
Plantagenet on Wed, 18th Mar 2015 1:51 am
Steve …… I don’t get it either.
—Plant
yoananda on Wed, 18th Mar 2015 5:30 am
They don’t have 2 choices : they have a population eager to kill them all if they don’t have enough money, EACH MONTH.
Davy on Wed, 18th Mar 2015 6:12 am
W-ya, The inertia is systematic. BAU has a systemic dynamics that is adaptive and not static. It has basic nodes and systems that allow movement in a defined directions. Once that movement is in motion it has inertia to policies or impulses that try to change that motion. Degrowth polices fall into this category with a growing BAU.
Just as this inertia can be with BAU accelerating with growth it can be in the deceleration phase of entropic decay to BAU. Growth policies that have hit limits and diminishing returns experience the inertia of BAU slowing down. When BAU makes that inflection from growth to descent it will have a new and different momentum that will have the inertia of resisting growth based policies of the BAUtopians. Dysfunction, abandonment, and irrational policy are the results of this entropic decay and they will have the inertia of BAU in descent.
W-ya, trying to use physics to describe an abstract dynamic system is not perfect but we have to admit we are subject to natural laws and the results are quantifiable. W-ya, you are looking at this from a historic and BAUtopian point of view of a different paradigm of the last few hundred years of average steady growth.
We have been for a very short time in a bumpy plateau and we are setting up now for a bumpy descent. This is because of our foundation commodity of oil is in depletion and a financial system in bifurcation. This is clearly a systematic bumpy descent situation. These are the basics of BAU that cannot be bifurcated with entropic decay and still grow our economy.
Econ 101 as described in the context of growth will not work in the same way for descent. Even if a new econ 101 is dreamed up we still have the random and the chaos of a system in bifurcation not within cyclical growth but cyclical descent. A system undergoing entropic decay is fundamentally different than a growing system. Decay is not predictable like growth. Inertia here is valid in an abstract sense of saying at the global level once this huge complex system changes direction its momentum and the inertia of change to that momentum will be quantifiable and the new reality.
How we react to this new reality will determine survivability. Will anyone here debate good mitigation and adaptation strategies of localism of food, poor lifestyle elimination for conservation of resources, and attitudinal adjustments for suffering of descent? No. Inertia fits in this analysis by determining directions and valid policies.
I admit this view point is abstract and causal but valid. What are the alternative viewpoints hopium and the denial of the BAUtopians. Somebody has to start using an abstraction with a new causality to express something that is alien to normal thinking. This is revolutionary because descent has never been generational it has been cyclical within growth. Now we have a generational descent in cyclical descent. The growth part of this equation will generally just be stability or a pause of descent in steps down. Growth is likely over for a generation. That is a new animal that requires new thinking and quickly if you care about your next meal.
rockman on Wed, 18th Mar 2015 6:23 am
Steve – “Who gives a sh** if someone disagrees with you that is what it is all about.” Good point. As a petroleum geologist for 4 decades if I let having my ideas rejected bother me I would have committed suicide long ago. OTOH being rejected by a woman when I was younger was devastating. But after enough practice I eventually came to terms with that also. LOL.
Davy on Wed, 18th Mar 2015 6:44 am
No, doubt Rock. The almighty was mean and vindictive when he put those bosoms and a pleasure box on a woman and gave us young boys too many hormones. I would have been so far ahead without alcohol and women. But I must say I has some great times dispersed between the ass kickin’s and the heart breaks.
GregT on Wed, 18th Mar 2015 7:57 am
Stick around Steve,
Join in the discussions. You’ll figure it out sooner than later. 🙂
bicycledave on Wed, 18th Mar 2015 8:18 am
Rockman, I probably should have mentioned that we used to exchange a few comments back on TOD – especially about NG issues.
This site seems to be the best replacement for TOD.
rockman on Wed, 18th Mar 2015 10:43 am
I thought I remembered you Dave. Glad you’re here. We need more new blood joining into the conversation. We’ve got a tight circle here that has become somewhat repetitive. And that includes the Rockman in particular. Not that there isn’t some entertainment value in pissing down each other’s leg on occasion and calling it rain. LOL. At least the oil price collapse and Putin give us something new to focus upon.
Kenz300 on Sat, 21st Mar 2015 2:37 pm
The high cost shale, tar sands and deep water producers are being pushed to the edge of bankruptcy………
The smaller high cost producers are shutting down and pulling out.
Deep pocket producers have the funds to stick it out for a while.
Banks are looking at loses on loans to the energy industry and are now pulling back capital and will be reluctant to stick their necks out again……