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Page added on January 30, 2016

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Low oil prices produce calamity

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Economic calamity is what to expect from a prolonged period of low oil and gas prices. In fact, it’s already happening. Job losses, corporate loan defaults, reduced investments and an end to the recent reshoring trend are all propelling the U.S. toward recession.

While conventional wisdom suggests we celebrate low oil prices as a consumer spending trigger — with spiking gas guzzler sales, more sales tax revenues, and cheap fuel for planes, trains and trucks — don’t count on it. Massive layoffs have hit the oil industry, and the pain is spreading.

Back in 2014, excitement built over likely U.S. energy independence and reshoring of industrial and manufacturing jobs (double-digit growth from the shale revolution) lost to overseas locations after a 40-year economic coma.

The enthusiasm evaporated when the Saudi Arabia-led Organization of Petroleum Exporting Countries refused to curtail production and dismissed any effort to stabilize commodity prices, sending global oil prices into free fall.

The timing could not be worse for the U.S. oil and gas industry. Already embroiled in the difficulty of navigating the “Great Crew Change” — an almost 50% turnover in skilled employees expected in the next five years — the fallout in oil will erode the knowledge base necessary to train the next generation.

Moreover, a rollout of new technology that would bring the aging oil industry into the modern era has been halted as companies battle for survival. The research and development needed to bring the industry where it needs to be just won’t happen, and never mind climate change.

The bad news continues with corporate defaults in the oil industry surging; 42 companies filed for bankruptcy in 2015, and many analysts expect that number to double in 2016 if commodity prices do not rebound substantially. Banks are now setting aside significant loan loss reserves as they prepare for a wave of energy defaults in the coming months.

There is no joy in extended low oil prices. It’s an economic train wreck already in process.

Jimmy Vallee is a Houston-based energy attorney and author of Giant Shifts: 12 Social & Business Trends Ignited by the New Energy Landscape.

USA Today



20 Comments on "Low oil prices produce calamity"

  1. onlooker on Sat, 30th Jan 2016 5:46 pm 

    I cannot help but to think that at this stage our economies are doomed with low oil prices or with high oil prices.

  2. Boat on Sat, 30th Jan 2016 6:06 pm 

    onlooker.

    Thank you for your insight. Doom from a doomer. Got any more gems?

  3. GregT on Sat, 30th Jan 2016 7:40 pm 

    “I cannot help but to think that at this stage our economies are doomed with low oil prices or with high oil prices.”

    Pretty difficult to ignore the obvious onlooker, especially when it’s been the main ongoing news story for the better part of a year.

  4. Plantagenet on Sat, 30th Jan 2016 7:43 pm 

    Oil gluts and low oil prices are bad for the oil patch, but most people will save some money due to the cheaper gas price.

  5. onlooker on Sat, 30th Jan 2016 7:59 pm 

    Well Boat just seems to think it is doom mongering.

  6. Apneaman on Sat, 30th Jan 2016 8:18 pm 

    Das Boat, here’s a home town gem for ya.

    Report: Greater Houston Economy Has Contracted During The Past 12 Months

    Supply chain managers report falling orders, production, and employment, as slower global growth compounds the damage from low oil prices.

    http://www.houstonpublicmedia.org/articles/news/2016/01/11/133753/report-greater-houston-economy-has-contracted-during-the-past-12-months/

  7. Apneaman on Sat, 30th Jan 2016 8:24 pm 

    Das Boat, here’s a gem of a web site for ya. Lots of graphsNstuff how you like.

    Ponzi World (Over 3 Billion NOT Served)
    The globalized economy is a colossal Ponzi Scheme in which the vast majority survive on the bread crumbs falling off the table. The possibility of 7 billion people achieving a consumption-oriented lifestyle is zero, so the World Bank conveniently set the poverty line at $1.25/day to legalize global slavery. As long as someone else’s children are doing the suffering, it’s “all good”. Post-2008, this illusion was extended merely by plundering all future generations.

    Central Banks Are Out of Ammo

    http://ponziworld.blogspot.ca/2016/01/central-banks-are-out-of-ammo.html

  8. GregT on Sat, 30th Jan 2016 8:35 pm 

    “Well Boat just seems to think it is doom mongering.”

    Boat is a non-realist onlooker. It is what it is, whether Boat chooses to be ignorant of it or not.

  9. onlooker on Sat, 30th Jan 2016 8:36 pm 

    Yep we sure have literally plundered future generations via debt and of course most importantly by degrading, over exploiting and overpopulating the Earth. Welcome to Earth circa 2016. Have a nice short stay young ones.

  10. Apneaman on Sat, 30th Jan 2016 8:53 pm 

    Hess is slashing its capital spending and oil exploration budget by 40% from last year

    http://qz.com/603343/hess-is-slashing-its-capital-spending-and-oil-exploration-budget-by-40-from-last-year/

  11. makati1 on Sat, 30th Jan 2016 11:12 pm 

    I suspect that the last generation of Americans is being born in the Us these days. Why? Well, maybe the spread of incurable diseases, like the Zika virus now moving into the US as it warms up. Countries are already asking women to not get pregnant until a vaccine is designed and ready for distribution. Not that meddling by genetically modifying the carrier mosquito has not played a part in it’s spread. Perhaps another ‘gift’ to humanity from the Empire’s bio labs?

    Other ‘immigrants’ coming to the US or already there:

    Typhus
    Malaria
    Chagas
    Dengue
    Leprosy
    Trachoma
    Etc.

    When the current drugs are no longer effective, or not available when the SHTF, the Four Horsemen will ride out and take down humanity. These small players are just waiting in the wings to come on stage and end the opera. There may not be a fat lady left to sing at the end. Brought down by something you cannot even see.

  12. makati1 on Sat, 30th Jan 2016 11:14 pm 

    BTW: I forget to mention that the Black Plague is still holed up in the rodents of the US Southwest. There are a few cases every year that never make the news. Most of humanity’s scourges are not history. They are just patiently waiting.

  13. makati1 on Sat, 30th Jan 2016 11:26 pm 

    And, I forgot the old standbys, the STDs.

    http://www.zerohedge.com/news/2016-01-30/peak-sharing-economy-syphilis-rates-soar-record-highs

    These will run rampant after condoms and meds are no longer available. The apes won’t stop screwing. LOL

  14. twocats on Sat, 30th Jan 2016 11:51 pm 

    Hess is slashing its capital spending and oil exploration budget by 40% from last year [apneaman]

    chevron just reported, first net earnings loss since 2002 – ouch.

    http://www.sfgate.com/business/article/Chevron-lost-588-million-in-the-fourth-quarter-6793209.php

  15. twocats on Sun, 31st Jan 2016 12:05 am 

    Japan’s move to negative interest rates (which puts 5.5 trillion – 23% of Global GDP – in gov’t bonds in negative territory) is certainly a move of desperation, probably born directly out of Davos. If that doesn’t work to get asset prices flowing again, which it probably won’t, then look for helicopter money by summer of this year.

  16. Apneaman on Sun, 31st Jan 2016 12:14 am 

    Mak, everything old is new again.

    Consumption, the great killer

    “Whether it is known as lupus vulgaris (TB of the skin), Pott’s disease (TB of the bones), or consumption (the “classic” case of lung disease), TB is one of history’s great killers. It is estimated to be responsible for 20% of the deaths in 17th-century London and 30% of those in 19th-century Paris (as recently depicted in the popular film Moulin Rouge). Although not as aggressive as plague, TB has killed more people in history than the black death, leprosy, or HIV. An estimated 1 billion people around the world have been felled by TB in the past two centuries, and the fatalities continue.”

    http://pubs.acs.org/subscribe/archive/mdd/v05/i02/html/02timeline.html

    TB overtakes HIV/AIDS as leading infectious disease killer

    http://www.humanosphere.org/global-health/2015/10/tb-overtakes-hivaids-global-leading-infectious-disease-killer/

    Multidrug-resistant tuberculosis

    http://www.who.int/tb/challenges/mdr/en/

  17. Davy on Sun, 31st Jan 2016 8:33 am 

    “Russia’s Great Shift Downward”
    http://www.bloomberg.com/news/articles/2016-01-28/russia-s-economy-faces-long-term-decline

    “For Russia’s battered economy, 2016 already looks miserable. The ruble has slumped to record lows as oil prices have fallen 11 percent since Jan. 1, to around $30 a barrel. The government, which gets nearly half its revenue from oil and gas, is scrambling to plug a 1.5 trillion-ruble ($19.2 billion) hole in its budget. The International Monetary Fund forecasts the economy will shrink 1 percent this year, after contracting 3.7 percent in 2015. The situation has created “an atmosphere of extreme nervousness,” Economy Minister Alexei Ulyukayev told President Vladimir Putin in a meeting on Jan. 26, according to a transcript released by the Kremlin.”

    “As grim as the numbers are, they may understate the increasingly dismal prospects for a country that only a few years ago was enjoying its greatest prosperity. Economists and business leaders, including some with strong Kremlin ties, are warning that Russia faces long-term stagnation and declining competitiveness. “We find ourselves among the countries that are losing, the downshifting countries,” Herman Gref, head of state-controlled Sberbank, the country’s largest financial institution, said at a conference in Moscow on Jan. 15.”

    “This recession’s different, says Vladislav Inozemtsev, a professor at the National Research University Higher School of Economics in Moscow. “It’s not about oil or sanctions; it’s about structural weakness,” he says. There already were signs of malaise in 2012”

    “The trigger for the downturn, Inozemtsev says, was Putin’s return to the presidency in May 2012. He raised taxes on business and real estate to finance military spending and expanded the reach of inefficient state-controlled companies such as oil giant Rosneft. “Businesspeople became disillusioned,” curbing investment in factories and equipment, Inozemtsev says.”

    “Household incomes have declined for the past two years, and some 22 million Russians live in poverty, up 50 percent since 2013. Retail sales fell 10 percent last year, and auto sales plunged 36 percent.”

    “The state-run companies that dominate the economy are headed by loyal Putin friends, while other members of his inner circle have benefited from big-ticket projects such as the Sochi Olympics that failed to produce lasting economic benefits. Far-reaching reforms, economist Gontmakher says, “are contrary to the institutional interests of the current government.”

  18. Kenz300 on Sun, 31st Jan 2016 10:12 am 

    Solar is the future ……. no monthly fuel costs…….. Solar WINS long term…………..fossil fuels are the past

    Batteries are a game changer…….solar with batteries wins over nat gas, coal and nuclear…………..
    Batteries allow for solar power 24/7…………game over……….

    100% electric transportation and 100% solar by 2030

    https://www.youtube.com/watch?v=RBkND76J91k

  19. ennui2 on Sun, 31st Jan 2016 8:11 pm 

    “Jimmy Vallee is a Houston-based energy attorney”

    Translation: Please feel sorry for the oil industry!

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