Oil Price Plunge? It’s The Global Economy, Stupid!

33 Comments on "Oil Price Plunge? It’s The Global Economy, Stupid!"

Nony on Fri, 12th Sep 2014 12:50 pm 



If consumption is up, while price declines, then it is impossible for demand drop to be the only reason. Supply of sub hundred dollar oil has to have increased. This is a mathematical fact.

nemteck on Fri, 12th Sep 2014 1:38 pm 



Who did the graph? It is hard to believe that from June to July the GDP tumbled 100*(2.73-2.49)/2.173 = 11%. In Western countries economists are worried if a GDP goes down 0.3% for the whole year. In this respect, 11% looks like a world depression. And that in a single month!

Plantagenet on Fri, 12th Sep 2014 2:12 pm 



Yes the economy is crappy but US oil demand and global oil demand are UP over the last few years, not down.

This means the oil price drop is due to INCREASING SUPPLY, not decreases in demand.

Davy on Fri, 12th Sep 2014 2:53 pm 



Naw, Planter, IMO, demand is lagging at the same time some minor supply increases have occurred. Very tenuous supply increases with all the geopolitical turmoil. Official statistics cannot be trusted. They have been completely skewed towards goal seeking government economist. IMO the global system really doesn’t know what is going on because of all the corruption and manipulation.

shortonoil on Fri, 12th Sep 2014 3:18 pm 



That is Global 2014 GDP EXPECTATIONS!!! It is the consensus of a group of economist. The 2013 numbers are real, the 2014 we won’t know until well into 2015. And Yea, a lot of people expect the STHTF.

“Maybe – just maybe – that explains the price of oil… ”

Maybe – just maybe – the price of oil explains the expectations…

dolanbaker on Fri, 12th Sep 2014 3:24 pm 



“Who did the graph? It is hard to believe that from June to July the GDP tumbled 100*(2.73-2.49)/2.173 = 11%.”
It’s the rate of growth that’s dropped 11% not the entire GDP, if I’m reading the chart correctly.

In other words growth s 2.49% down from 2.73%.

Nony on Fri, 12th Sep 2014 3:39 pm 



If consumption is UP, while price is DOWN, then supply must have increased. This is mathematical.

Cue Rock, to come by and say that 90 dollars is worse than 30. And I agree. But that is not the point of the discussion. It is only about 100 going to 90.

And the supply-demand math is graphically provable. It is geometry even.

P.s. And natural gas has had HUGE growth in consumption along with much lower price (2008 compared to 2014). This is definitely a story of supply increase. And it doesn’t matter about Haynesville drilling less. Or about Rock getting his ass kicked out of GOM gas. Bottom line is the Marcellus outcompeted them and pushed them away. So all the Berman arguments about Marcellus must decline soon since Haynesville drilling is down are flawed.

Poordogabone on Fri, 12th Sep 2014 3:49 pm 



No surprise, China’s economy is slowing down.
Demand for oil has been falling for the last 6 years in western countries as purchasing power is slowly but steadily going down for the vast majority.
-It’s creeping…

Northwest Resident on Fri, 12th Sep 2014 4:00 pm 



If consumption is up, regardless of price, then supply must have increased. What the price tells us is a mystery dependent on many factors. For example, I read that holders of gas and oil futures were dumping those on the market, driving the current price down, and the reason they are dumping them is because they have no confidence that they’ll be worth a damn in the future. Nony and Plant — never miss an opportunity to cheer for the shale oil development.

Nony on Fri, 12th Sep 2014 4:10 pm 



The Marcellus is mighty. You need to learn to love it, NWR:

https://www.youtube.com/watch?v=aWPvKxSA7nw

MSN fanboy on Fri, 12th Sep 2014 4:28 pm 



LOL Nony, dont put too much faith in shale, unless of course your personally invested?

Pops on Fri, 12th Sep 2014 5:22 pm 



IEA and EIA have both lowered demand forecasts for this year, IEA called the drop “remarkable” – China’s growth is forecast at ‘only’ 2%.

I pre-visioned this, except I thought it would happen last year, LOL

Robert Testa on Fri, 12th Sep 2014 5:25 pm 



Maybe just maybe technology is the real factor.Wind,fuelcells,nat.gas,solar,electric,coal,wood and anything else you can think of.Bobby

Shaved Monkey on Fri, 12th Sep 2014 5:28 pm 



A low oil price is a convenient way of hurting Russia.

jmb on Fri, 12th Sep 2014 6:08 pm 



poordog, you’ve got it. China is slowing down. Japan is in serious contraction. Much of the Eurozone is either in recession or near it. Much of South America and other undeveloped countries are slowing down. There is a lot of demand destruction globally, which means more oil for the US. There is a whole lot of wealth flowing from the rest of the world to the US as a result of “$ printing”. The US buys oil and cheap goods with essentially counterfeit money. There is no increased worldwide oil supply. The price falls because so few can afford it except here in the US. So it’s no surprise.
And I think this trend will continue. The entire world is supporting huge US consumption.

Davy on Fri, 12th Sep 2014 6:28 pm 



JMB, what do you call what China, Japan, and Europe are doing with their credit creation. I guess since it is not a US credit creation it is essentially not counterfeit wealth creation….NOT! The US has done nothing out of the ordinary that the other large economies have not also done except have a reserve currency THAT gives the US some advantages.

Davy on Fri, 12th Sep 2014 6:31 pm 



Monkey, I have also been wondering what kind of manipulation has been going on in the markets to hurt Russia. We know the oil market is one of the most corrupt and manipulated market next to gold and libor.

jmb on Fri, 12th Sep 2014 6:35 pm 



I think this trend will continue – worldwide wealth flowing to the US, that is, until we’ve sucked the rest of the world dry of money and oil, and they can’t give any more. At that point the trend will change. When that will be is anyone’s guess. Could be many years.

rockman on Fri, 12th Sep 2014 7:26 pm 



Yes…oil has recently plunged -300% from it’s level 10 years ago. But let’s forget “ancient” history. Recently oil prices have dropped around 10% depending when you start your chart. So the world was consuming record amount of oil prior to the “plunge”. So now all those folks who couldn’t afford $100/bbl oil but could pony up $90/bbl are back in the game. So the expectation would be a decrease/increase in global oil consumption? A decrease/increase drilling activity?

As shorty points out it’s difficult for many economists to grasp the rather simple concept of time lag. The system responds to changes in the dynamics. But it does so on it’s own schedule.

JuanP on Fri, 12th Sep 2014 7:36 pm 



Unrelated to subject. The Archdruid has a nice piece this week: http://thearchdruidreport.blogspot.com/
And it links to a piece by Herman Daly on limits to growth and diminishing returns: http://steadystate.org/three-limits-to-growth/

bobinget on Fri, 12th Sep 2014 7:58 pm 



Truck, tractor and auto sales are up (for the year) on every front except Europe.

http://www.autonews.com/article/20140904/RETAIL01/140909925 (Canada sees 8% jump in August)

http://www.clickondetroit.com/consumer/automotive/chrysler-august-us-sales-up-20-percent/27852466
(CHRYSLER UP 20%)

http://www.ibtimes.com/here-are-march-2014-big-8-us-auto-sales-numbers-gm-ford-chrysler-toyota-honda-nissan-kiahyundai ( all numbers)

http://www.cnbc.com/id/101321938#.
(82.84 MILLION cars, light trucks sold in 2013 Worldwide….

Now, actually read the fact that consumption is set to rise in 2015. (EIA)

http://ir.eia.gov/wpsr/wpsrsummary.pdf

Excerpt: latest EIA Repore;
Total products supplied over the last four-week period averaged 19.4 million barrels per day, up by 2.1% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.0 million barrels per day, up by 0.1% from the same period last year. Distillate fuel product supplied averaged over 3.7 million barrels per day over the last four weeks, up by 1.5% from the same period last year. Jet fuel product supplied is unchanged compared to the same four-week period last year.

(I was wrong on a prediction we would exceed 20 M B p/d last week) we did however BURN 19.09 the previous week.. That’s every fing day!)

I ascribe low oil prices to the fact that big banks are more or less out of the game. Oil companies simply stopped looking, stopped spending on tricky plays
to maximize return to shareholders. Watch for a huge price spike that will I fear slow economy in 2015.

When supply is as limited as it is there is no money to be made by hedge fund traders by advertising that fact.

Anyone noticed?– We are back in Iraq, now to Syria, still bombing Yemen, (vanishing exports) Libya, (no exports) Sudan (nadda) Somalia,(nadda) in a quite energy intensive air-war. The only military consumption wise was military expenditures. That… is now history. The Saudis are expected to supply our forces to the detriment of exports to the civil sectors.

One more thing you Don’t hear about because it’s darkest Africa; Boko Haram is having one major victory after another IS style. Example:

http://www.dw.de/northern-nigerians-live-in-fear-of-boko-haram/a-17909149

While we are mounting big plans to eliminate IS,
Boko Haram moves South to almost undefended oil wells. Completely corrupt ‘leadership’ will flee the country with bags of cash while Boko Haram promises Shira Law. (remember those 200 kidnapped school girls?) No? Not a finger was raised to to free them showing exactly a utterly useless army only goos for collecting bribes and intimidating civilians.

Makati1 on Fri, 12th Sep 2014 9:06 pm 



JuanP, yes, his piece was very interesting, as usual.

As for the numbers … anyone who believes ANY numbers from the governments or corporations of the world need to look into that famous bridge in New York that I have for sale. We are in World War 3 and it has been going on for decades. I would say since the 70s. It is a financial/propaganda war but is slowly turning into a shooting war as the Empire slowly crumbles under it’s mistakes and greed.

Dave Thompson on Fri, 12th Sep 2014 10:24 pm 



http://wpmedia.business.financialpost.com/2014/02/fp0221_oilpatchcosts_c_jr1.jpeg?w=620&h=425

Davy on Sat, 13th Sep 2014 7:38 am 



Bob, I recommend you check out Boko Harmam on PBS Frontline. I believe it internet streams. This situation is exactly as you describe.

shortonoil on Sat, 13th Sep 2014 9:09 am 



Petroleum has an intrinsic value that is dependent on its physical properties. Those properties are reliant on its molecular structure, and they determine its value. Petroleum is not some magical potion that powers the world. It is finite, and so is its value. The price of oil hit about $100/barrel, and stayed there for over three years. It is now declining. Long term it will continue to decline. Oil is now not worth more than about $100/b to the end consumer, and that value is going down as the energy it can deliver falls.

What we are witnessing is the beginning of the end of the oil age . We will first see the end of high production cost petroleum. Ultra deep, arctic, bitumen, and shale will soon, and already are in many cases, not be worth the cost of extracting, and processing them. The cancellation of these projects, and shut-in of fields will become a commonplace event. Over the next few years these highly cherished terms will become anachronisms in the lexicon of oil.

By 2020 it will become apparent to the most uniformed, brain dead of observers that the age of oil is ending. The cheerleaders of technology will be silenced as one after another of the world’s economies collapse. The chaos, and transition that will occur during the following decade will mark one of the important eras in the history of civilization. The ongoing depletion of petroleum is rapidly bringing us to that point.

http://www.thehillsgroup.org/

marmico on Sat, 13th Sep 2014 10:29 am 



By 2020 it will become apparent to the most uniformed, brain dead of observers that the age of oil is ending.

No doubt you were saying in 2005 [2010] that by 2010 [2015] it will become…

Maybe thrice is right. I doubt it. I maybe uninformed but I am not uniformed.

Meanwhile, KSA keeps on exporting its comparative advantage. Average exports in the 16 year period from 1997-2013 were 8.3 mb/d and 2013 exports were 8.7 mb/d.

Please plot the correlation coefficient of the zero hedge chart. It’s nada.

Davy on Sat, 13th Sep 2014 10:48 am 



M, back to bark your corny. You can claim failed predictions but time is on doomers side. You are optimism is a house of cards teetering.

Nony on Sat, 13th Sep 2014 11:20 am 



Bakken hit a new record, yesterday.

nemteck on Sat, 13th Sep 2014 11:57 am 



Shortonoil wrote: “The price of oil hit about $100/barrel …… is now declining. Long term it will continue to decline. “. That is a bold guess that bares no evidence since most producers need $80+ per barrel to make either a profit or governments to fiance expenditure (Saudi Arabia $100/b, Iran $135/b.
“The cancellation of these [high cost] projects, and shut-in of fields will become a commonplace event“. Do the surviving producers become non-profit companies to supply oil to the suffering public to run their cars? The US has no public transport infrastructure worth mentioning so they produce 16 Million cars per year. The above statement is in contradiction to the IEA that forecasts a steady increase in oil consumption that requires higher oil prices since new discoveries are diminishing and also expensive.

Charles on Sat, 13th Sep 2014 11:59 am 



oil prices like stock prices like currency prices are set by future expectations for oil, stock, currency. They are not set by a look out the side windows or the rear view mirror.

UK13 AMP on Sun, 14th Sep 2014 3:06 am 



100,000 Tesla’s per year hitting the road using erm ah, that’s right, NO OIL and none of the producers want to cut back production in this climate…

Makati1 on Sun, 14th Sep 2014 5:05 am 



UK13 AMP, where does the energy come from to make Teslas? To repair them? To make the parts to repair them? To produce the electric to power them? To allow the owners to earn the money to pay for them and to maintain and power them?

Answer: OIL!!!

Makati1 on Sun, 14th Sep 2014 5:07 am 



BTW UK13, at 100,000 per year, all it will take is 10,000+ years to replace the current number of cars on the world’s highways today.