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Falling Oil Price ≠ TEOTWAWKI

Discussions about the economic and financial ramifications of PEAK OIL

Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 10:21:38

When a person is standing on a hill, their perception is altered because the true horizon is obscured. Our little brains are used to taking cues from our surroundings, and because we expect certain things to happen or appear a certain way, when the horizon is hidden our little brains are easily fooled. The Mystery Spot in Santa Cruz CA has been making a living from a hillside and some crooked buildings and that misperception since I don't know when.

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http://www.mysteryspot.com/


I think our peak oil brains have been standing on the side of Hubbert's hill so long that we have a hard time perceiving the true horizon. We expect a ball to roll downhill but our altered sense of perspective has a hard time telling which way is down.

This is from the "oil prices will never recover" thread, a blog rant from Economic-undertow:
Additional repayment obligations are set to be heaped upon the same customers who can’t bear the drillers’ present costs … this is what the crashing oil prices actually mean. Credit breakdown is taking place in plain sight, under the noses of- and unremarked by ‘real’ economists. That people cannot afford their petroleum doesn’t appear to matter; not nearly as much as how the same people ‘feel’ about the economists themselves.


Whether or not there is a "credit breakdown" is beside the point, in fact it is a misperception of the true situation. What is in plain sight is that people can't afford 100mmbopd @ $100/bbl but they can sure afford it at $50!

To drive home that that point (and tie in to my "hill" theme) it seems a lot more of us went over the hills and through the woods at Christmas last year:
Weekly consumption data from the government’s Energy Information Administration show that over the four weeks to January 9, implied US petrol consumption rose 7.1 per cent from the equivalent period a year before — the fastest rate of increase since 2004.

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http://www.ft.com/cms/s/0/16717380-9c8e ... abdc0.html

Demand for motor fuel is up. Of course it is, that is what happens when ability to pay increases! Ability to pay increases when the price falls. The price falls when the supply exceeds demand. It ain't rocket surgery.

This drop in price is caused by the typical oversupply glut. But this time the price, for the first time since maybe forever, is not being defended by the "swing producer". Prior to the US peak in the early '70s the US was the de facto oil cartel and the Texas Railroad Commission the ruling body. The RRC controlled how much oil was produced in Texas (which was about half of US production) so they essentially set the world price. When the RRC pulled the stops after the peak and removed any limit to production, OPEC took over as the world's "relief valve," adjusting their production to match world demand and thereby moderating price.

This time OPEC decided not to play that role, and since US frackers had no one to tell them to slow down, they did what producers always do and produced flat out until they produced too much: Oversupply met falling demand from 4 years of record high oil prices and boom, glutsville.

Did you catch that part? Demand was falling prior to the glut. High price had impaired consumers ability to pay but the "desire" for oil was still there. Now that prices have fallen - due to the glut - it is inevitable that demand will increase and the price rise.

- - - -
Are there economic problems in the world? Yes
Are there economic problems with unconventional oil? Yes
Is there a huge, ongoing credit binge going on that might well collapse like Granny's cake when Junior slams the door? Yes

But demand for oil has clearly not collapsed. If you are thinking and preparing for an impending deflationary recession based on the premiss that oil demand - desire - has crashed and oil is no longer valuable you will be fooled. I don't usually make such bold predictions but I am this time simply because that meme is so far from reality.

In fact this may be the best little respite a Peaky Prepper could hope for. But the noise when demand like the good old days collides with falling production like the bad new days in 6 months or a year or 2 could be truly deafening. I've posted this from Kopits before but I'm gonna do it agian because it shows how out of touch the typical forecasters are, or at least might be, again:

Image

Leads to:
Image
http://www.prienga.com/blog/2015/1/20/s ... -explained

That 3mm/bbl shortfall is all the spare capacity and then some. If you aren't careful that snap back in price could really hurt.

The one thing that is worse than a invariably high oil price is a highly variable oil price. Businesses and consumers both like stability because it allows them to plan - yes Timmy, non-peakers plan too. Even a high and steady price is better for planning and mitigation. But wide swings in the price of oil, especially against a backdrop of huge PR budgets from all corners touting the fracking revolution, US "independence" from oil, the "revolution" in renewables, the resurgence of the US economy and on and on cause a disconnect; another false horizon, and allow the economy to make really bad deciscions. Those bad decisions lead to unexpected moves which are the "pinch points" where the average guy gets hurt.


So don't look this gift horse in the mouth. Which means don't over analyze the current low price. Rather use it to your advantage to further your plan, it won't stick around long - certainly not forever.

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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby basil_hayden » Thu 12 Feb 2015, 11:43:34

Duh?

The only thing that probably WON'T go up in the US or awhile is the rig count, but you can count on motor fuel prices to go up as soon as demand hits the supply curve, which looks like it will just in time for Memorial Day weekend.

So road trip by 4/20 or so.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Paulo1 » Thu 12 Feb 2015, 12:56:40

I am in agreement with Ron P about this year being the Peak in supply. His numbers are simply too convincing, as well as the decline rates submitted by Jeffrey Brown. As far as a collapse goes, and I accept the possibility that a geo-political boom boom might be a black swan event at any time, I think the economy will slide in and out of recession at least one more time on this undulating plateau. When the, "holy shit, it looks like PO folks were right" moment hits, then all bets are off. I would think this will certainly happen before 2020.

I am thankful for this respite. When I talk with relatives about the situation they simply do not believe the stats, that the cupboard is growing a little light with FF groceries. They cannot comprehend it.

I am sure the same reaction was felt about the passenger pigeon, the buffalo, and the Nfld cod fishery. Only this event will be universal affecting all humanity in one way or another. The pundits might quietly retire and be listed in the "whatever happened to"? websites, right along with 'forecasts you should never make', and 'pictures of the worst celebrity plastic suregeries, ever'.

I kind of said, "fu#! it" and bought a new motorcycle. It is the first new (big) thing I have pretty much ever bought for myself and I justified it by telling myself it gets better mileage than a car. It's a helluva lot more fun, too. Plus, I turn 60 this year and have been dealing with aging and dying parents for almost 10 years. We have done our preps without being silly about it. Now might be the time to spend some savings on living a bit before the new set of problems arise to adapt to.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby ROCKMAN » Thu 12 Feb 2015, 12:57:40

Pops – As pointed out before when the economy took a hit at the end of ’08 and oil prices crashed it took a long time for demand to kick back in: the oil consumers burned up less $58/bbl oil in ’09 as then they did $98/bbl oil in ’08. But the economy was suffering from more than just high oil prices. Consider just the overhang of the home mortgage crisis that lasted for years.

But this time it looks like the oil price was the one big drag on the economy and recovery, as hinted by the recent increase in motor fuel consumption. If that’s a reasonable observation lower oil/motor fuel prices will have a stronger (and faster) positive impact on the economy than it did back in ’09.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby hvacman » Thu 12 Feb 2015, 13:15:25

The Mystery Spot! What a flash from my childhood, driving Highway 17 from our inexpensive tract home in Fremont through the Santa Cruz Mountains to hang out for the day in Santa Cruz. Pre-Silicon Valley-era, Bay Area homes were cheap, gas was cheap, and the SC Boardwalk's Giant Dipper was (and still is) a blast. There was also Santa's Village and the dinosaur place in Scotts Valley to sucker us in, with maybe a detour to Roaring Camp Railroad. Peak Fun also occurred around 1970, at least in my memory.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 14:08:24

If Russia has peaked rather than just been sanctioned then this may indeed be it. A year or 2 of US LTO backpedaling while the underling decline erodes the gains might well mean they never catch back up. That leaves Iraq and Iran and Canada and ?

It would indeed be ironic (in a different way than Quinny had in mind) if the peak comes the year that oil falls below $50. If that is true and demand bounces back in a big way and overall production doesn't come back ...

ROCK mentioned declining demand. One big shift in consumption I see this time vs way back when the US first peaked is at that time we moved away from oil for industry and business and even residential and we can't reprise that conservation. Back then we didn't, couldn't cut back on transportation use much, or very fast because we were the auto nation. But industry could switch and they did, and we could learn to conserve in other ways, in the '60s no one had insulated houses or double paned windows - or calking. Transportation didn't really decline much even though much is made of the embargoes - I think we thought it was just the "rag-heads" poking us in the eye and when we pulled Prudhoe bay out of our ear we gave them the figer and drove on.

This time most of the conservation has been in personal transport mainly because that is where the largest savings can be had. I'm almost willing to bet there will be a big surge in new car sales this year, or at least the beginning of it
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Subjectivist » Thu 12 Feb 2015, 14:40:33

Pops, what is Prienga on your graph, I can't figure it out.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby ROCKMAN » Thu 12 Feb 2015, 15:21:18

Pops – Here are some bits and pieces along the lines of your thoughts. Here’s a link with some interesting recent per capita data: http://theenergycollective.com/gail-tve ... -oil-story

As a side bar to the discussion one chart jumped out at me. Folks always argue about what the govt “unemployment" figures really mean. But check out the “US Employment as % of Population”. A rather simple metric to measure and doesn’t depend on assumptions about who wants a job and can’t find one vs those who really don’t care to work anymore. From 1960 to 2000 the % of our population working increased from 30% to 46%. But from 2000 thru 2012 it decreased to about 42%.

Now how would you interpret that trend? Maybe during that 12 year period a lot of Americans became independently wealthy and didn’t need to work anymore. Yeah, yeah, that’s must be it. LOL

The history of US per-capita petroleum consumption will surprise you: December 13, 2010: “I'm participating in a forum about global warming, which raises all the usual questions about how much US petroleum consumption has contributed and is contributing, whether US policies have done too little to discourage petroleum use, and whether a "carbon price" would finally fix that aspect of the global warming problem. To try to anchor that discussion in some facts, I found the following graph illustrating two facts that are counterintuitive for most of us: First, US per-capita consumption of petroleum has been very stable since 1983. Second, consumption has fluctuated only slightly with retail price changes, even the dramatic price spike of 2007 and 2008.”

Total US petroleum consumption peaked at 18.85 million barrels per day (MMBPD) in 1978. It then declined sharply to 15.23 MMBPD under the influence of the Iranian oil embargo, CAFE standards, and a deep recession. Then total consumption rose slowly to 20.80 MMBPD in 2005 and has declined since. (Data on total consumption from EIA.) EIA estimates that US petroleum consumption will increase only 11% from 2008 to 2035 [corrected 12/15/2010], which means per-capita consumption will continue to decline at a modest rate.

The steep decline in per-capita crude oil consumption from 1978 to 1983 was primarily due to reduced consumption in the residential/commercial, industrial, and utility sectors, as is clearly shown by the following graph from EIA. Clearly, those declines were not due to gasoline prices. There were a lot of new regulations in those days mandating energy efficiency and forcing a phase-out of petroleum fuels for electricity generation. During these five or six years the non-transportation uses of petroleum shrank from 47% of total consumption to 38% (and are now down to 36%).
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Quinny » Thu 12 Feb 2015, 15:39:22

Not such a different way at all Pops.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 15:44:39

Subjectivist wrote:Pops, what is Prienga on your graph, I can't figure it out.

Oh, LOL, it's Princeton Energy Advisors - Steven Kopit's new gig after Douglas Westwood and he parted ways.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 16:17:01

ROCKMAN wrote:Now how would you interpret that trend?


[img]http://www.ons.gov.uk/ons/resources/figure4unemploymentrates_tcm77-337743.png
[/img]

Image

Looks like someone convinced those kids to go to school.[/quote]
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 17:31:10

Quinny wrote:Not such a different way at all Pops.

Not picking on you Q, just wanted to steal your headline - :)

But I would say,
Oil becoming valueless because it is a net loss to the economy - or the economy not capable of paying more that $10, whichever way it works, I think is different than if the price falls temporarily due to glut then snaps back to a high price when demand returns - and then presses even higher as we cross the peak.

The ETP model calls for $10/bbl in 2020 (I think), if so it means the economy that can afford no oil, because there basically is no $10 oil. Not new oil for sure but perhaps even strippers go broke. So, more or less, no oil in 2020.

The Wedgie calls for $85 average oil in 2020. Using my new $1 per million barrels of production price guide©, thats 85mmbopd at $85 average.*

I think it is a big difference, don't you?

*(which, considering it's been three years since I made that prediction, 3 years of oil over $100/bbl average, doesn't sound too bad. It's 5mmbopd less than All Liquids currently. So really the real price wouldn't be too much different than a year ago ... hmmmm)
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Quinny » Thu 12 Feb 2015, 17:47:34

Rather like ETP. life outside your wedge seems to me rather like imaginary numbers. Cannot really exist, but useful stepping points on route to a solution. Suppose the fact that there are no real solutions to predicaments explains the complexity of the situation.

It seems ridiculous that 'the economy' can't afford oil.

It also seems ridiculous that oil can't provide enough 'added value' to make it worth extracting.

Both have a ring of truth if you ask me.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Shaved Monkey » Thu 12 Feb 2015, 18:12:29

More time to prep isnt a bad thing for those prepping.
Delusions of plenty and anti prepping by the majority is the real problem.
The price needed to hit high and hard to wake up politicians and the sheeple and give them an appetite for change and to start the infrastructure to deliver some.
This low price is just going to make it way scarier when it suddenly jerks back to reality and the economy gets caught with its pants down.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Thu 12 Feb 2015, 18:30:52

Agree 100% Monk
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby SoyIsMurder » Thu 12 Feb 2015, 22:18:54

This price drop probably won't last too long, but I think it shows that the peak has been pushed at least another 20-30 years into the future.

We hit the peak of easily-accessible light sweet crude long ago, but tight oil/deep water/tar sand extraction has become more efficient and predictable than I ever imagined. Many fracking outfits will go out of business or scale back operations during the price dip, but they will be even quicker to ride to the rescue next time demand spikes. This should provide a supply shock-absorber for quite a while to come.

Inexpensive natural gas will be increasingly put to use for certain fleet vehicles and buses in order to meet environmental regulations and protect against future oil shocks. Struggling coal producers may turn to liquefaction (once prices recover), as natural gas becomes the preferred fuel for power generation. Either of these developments would obviously further reduce petroleum demand.

With the increasingly diverse supply chain, it is hard to argue that anyone needs to prepare for the effects of peak oil anytime soon. Expensive oil will return soon, but the peak is not even on the horizon.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby ROCKMAN » Fri 13 Feb 2015, 09:26:27

Soy - "...but I think it shows that the peak has been pushed at least another 20-30 years into the future." Perhaps but so what? The global economy has been hammered by the POD (Peak Oil Dynamic) for years now and are going to be continue being affected by it regardless of the exact date of GPO. As you point out we've got high oil prices to thank for extending whatever the date of GPO might have been. So what's the value of that extension if the price for it was the oil consumers spending $1.2 TRILLION more for oil the last 8 years then it did the previous 8 years?

So what exactly is the benefit of the extension of the GPO date???
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Fri 13 Feb 2015, 10:00:25

SoyIsMurder wrote:peak has been pushed at least another 20-30 years into the future.


I'll see ROCKs "so what" and raise you a "says who?"
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby ROCKMAN » Fri 13 Feb 2015, 21:25:32

Pops - Lets transform you into the personification of the world's entire population.

So Mr. World (aka Pops)...you're satisfied that it has cost you ONLY $1.2 trillion to claim the bragging rights for extending PO 8 years. So says you??? LOL.
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Re: Falling Oil Price ≠ TEOTWAWKI

Unread postby Pops » Sat 14 Feb 2015, 09:48:53

ROCKMAN wrote:Pops - Lets transform you into the personification of the world's entire population.

So Mr. World (aka Pops)...you're satisfied that it has cost you ONLY $1.2 trillion to claim the bragging rights for extending PO 8 years. So says you??? LOL.

Yep, I'm The Winner!

:wink:
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