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Brace for a devastating oil shock ahead

Brace for a devastating oil shock ahead thumbnail

If Independence Day were about feting the U.S. weaning itself from foreign oil and forging a renewables future, the man behind our call of the day probably wouldn’t be sounding the alarm on a potentially devastating crisis by the end of the decade.

But it’s not. And we aren’t. And he is.

Yes, according to the latest warning from Chris Martenson of the Peak Prosperity blog, there’s an oil shock looming as early as 2018. Not just any oil shock, either. The impact of this particularly nasty spike will be severe and long-lasting, he believes.

“There will be an extremely painful oil supply shortfall sometime between 2018 and 2020,” he explains. “It’ll be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.”

Martenson said there is a way to avoid it — but that’s only if the world economy collapses first and drives down demand.

Not exactly a solution to get excited about.

Short of that, he believes a jump in the price of oil “will kneecap a world economy already weighted down by the highest levels of debt ever recorded.”

A driving factor behind his doomsday view, as the chart below illustrates, is what’s shaping up to be a three-year decline in investment in the oil industry — something we’ve never seen before.

“This isn’t just a slump,” Martenson says. “It’s an historic slump.”

Hence, oil discoveries have been rare, dropping to a record low in 2016 as companies continued to cut spending, according to the IEA.

“Oil is the most important substance for our economy, we’re burning more of it on a yearly basis than ever before, and we just found the lowest amount since the world economy was several times smaller than it is now,” Martenson said. “And all this is happening while we’re reducing our efforts to find more at an unprecedented rate.”

All this supports his prediction of a return to triple-digit oil prices at a time when a vulnerable global economy simply cannot afford it.

As for the stock markets, no worries. Traders just keep embracing the “BTFD” mentality that’s been working for years (more on that below).

Key market gauges

No sign of any oil shock this morning, with crude CLQ7, +0.98%  aiming for eight straight days of gains. Futures on the Dow YMU7, +0.37%  and S&P ESU7, +0.45%  are leaning higher, while gold GCU7, -1.35%  is in the red. Asia markets ADOW, -0.28%  were mixed while Europe SXXP, +0.84%  rallied early in its session.

The chart

If you’ve spent any time navigating the social-media trading pits, you’ve surely been regaled with the “BTFD!” anthem at some point.

When the bull market falters, or your stock takes a nasty hit, what do you do? BTFD.

Yes, buy the f’ing dip, the rally cry that’s seen a spike in usage of late, according to Garrett Hoffman. The data scientist crunched the numbers going back to 2011 and posted this illustration of the results on StockTwits.

As you can see, BTFD peaked in 2014 before drifting out of the banter through the end of 2015. Now it’s back and driving toward its previous peak as the market continues to prove its resilience by rewarding those willing to bet on it.

“BTFD isn’t so much a strategy,” Hoffman says. “BTFD is a bullish anthem, battle cry and way of life.”

The buzz
Tesla’s Model 3 electric car.

You win some, you lose some. Tesla’s TSLA, +2.21%  shot at the mass market, the $35,000 Model 3, should start rolling off the production line on Friday, said Elon Musk in a series of late Sunday tweets. Once under way, output should ramp up “exponentially,” Musk expects, to reach 20,000 per month by December.

But it was a tough weekend for Musk’s SpaceX, which had to abort its planned rocket launch from Cape Canaveral on Sunday with a mere 9 seconds remaining on the countdown. The next window for the Falcon 9 launch is tonight. Unlike recent launches, the rocket will not land and be reused, since the heavier payload will require it to use all its fuel for the launch itself.

Trading is likely to be pretty quiet today, as people stretch out the July Fourth holiday and U.S. stock markets close early. See:Which markets are closed for Independence Day?

The stat

Eight years — That’s how long it’s been since global stock markets have enjoyed such a bullish first half of the year, according to the Wall Street Journal. Of the world’s 30 major indexes, 26 managed to close the first six months in the green.

As you can see by the chart, only four first-half rallies in the past 20 years have been as widespread or better than the current one. In those cases, two of them came before crashes, while the other two ushered in multiyear bull markets.

The economy

The June employment report is the data highlight of this holiday shortened week, but it doesn’t hit until Friday.

Until then, there’s plenty to sift through, including the ISM Manufacturing Index and construction spending numbers today. Both of those hit at 10 a.m. Eastern. Also, June car sales results will filter in throughout the day.



47 Comments on "Brace for a devastating oil shock ahead"

  1. Jason Roberts on Mon, 3rd Jul 2017 8:48 am 

    Amos 5:20
    Shall not the day of the Lord be darkness, and not light? even very dark, and no brightness in it?

    Proof Armageddon Will Happen:

    Who the False Christs Will Be:

  2. Go Speed Racer on Mon, 3rd Jul 2017 9:08 am 

    Ezekiel 14:22, And the Lord sayeth unto thee,
    Thou art totally phucked, and thou shalt
    kisseth thine ass goodbye.

    Roger Waters Side 2 Track 4: if I had been God,
    I coulda done a better job.

  3. Davy on Mon, 3rd Jul 2017 9:25 am 

    This needs to be rephrased as a double danger. What is likely ahead is either an oil shock or an economic shock. They will likely happen together and in a process of decline and decay. Demand destruction will snowball on itself into a deflationary spiral. What is curious is we may get there via stagflation with debt dysfunction.

    Our system is now a Ponzi of debt bubbles with a moral hazard of extend and pretend. Economic repression and easing is nearing an end and there is no growth based strategies left other than direct injections of cash in attempt to maintain demand.

    At some point in a finite world systems cycle. Cycles by definition are not always up. At some point down will occur and this is very dangerous to a system in dysfunction. We are surely getting close but how can we know when a break will occur?

    A significant element of that break potential is confidence. It is possible a renewable revolution may delay both an economic and an oil shock but that is a big if. The scale of a transition is huge and the time frame needed short. Something bad seems to be in the cards but this has been the case for years now. This makes reality even more surreal and irrational.

  4. onlooker on Mon, 3rd Jul 2017 9:40 am 

    This needs to be rephrased as a double danger. What is likely ahead is either an oil shock or an economic shock. — Yep, the oil shock and economic shock go hand in hand

  5. MASTERMIND on Mon, 3rd Jul 2017 9:46 am 

    The sheep will go insane post shocks!

  6. Sissyfuss on Mon, 3rd Jul 2017 10:14 am 

    When the 2008 dilemma reappears it will be fascinating to see what tools the Trump Adminstration applies to counteract the deflating bubbles surrounding them. The tools will probably be from circa 1955 or thereabouts. Yeah, that’ll fix it.

  7. baha on Mon, 3rd Jul 2017 11:19 am 

    He will use the only tool available in the Trump toolbox…bankruptcy.

  8. MASTERMIND on Mon, 3rd Jul 2017 11:26 am 

    There will be blood!

  9. MASTERMIND on Mon, 3rd Jul 2017 11:30 am 

    Here’s How NASA Thinks Society Will Collapse

  10. MASTERMIND on Mon, 3rd Jul 2017 11:38 am 

    I’m talking about every corporation and every social program going bankrupt at once.
    I’m talking about civil wars and French revolutions in every country. I’m talking about people eating people. I’m talking about the worst catastrophe to ever happen in the history of mankind, and WILL ever happen. Nothing has ever, or will ever come close.

  11. Hubert on Mon, 3rd Jul 2017 11:43 am 

    There is no real future for a country that is trillions of dollars in debt.

  12. Lucifer on Mon, 3rd Jul 2017 12:54 pm 

    Hubert my demon friend, there is no real future for most people on earth.

  13. Anonymouse on Mon, 3rd Jul 2017 1:36 pm 

    Telsa, ‘stock market rallies’, lol.

    Teslas, are built with oil, and are nuclear and FF powered cars. The T3 is vaporware.

    The ‘stock market’, is neither a measure of the economy(the real economy), or its ‘health’. It is in fact, a 1%er casino, a means of transferring wealth upwards.

  14. Apneaman on Mon, 3rd Jul 2017 2:21 pm 

    MASTERMIND, NASA, granted the authors some money to fund that study. It’s not what NASA, which is a human constructed institution/legal fiction, thinks, because institutions/fictions have no brain to think with. Also, I have yet to see a NASA PR release stating “we agree” with the study 100%.

  15. MASTERMIND on Mon, 3rd Jul 2017 2:39 pm 

    Apneaman: NASA came up with the idea for the study and the reasons. The study was conducted by top scientist at two of the top universities in America. The study concluded the collapse of our civilization is inevitable.

  16. bobinget on Mon, 3rd Jul 2017 6:16 pm 

    Twenty five billion dollars.
    That’s what the Saudis may realize from their 2018 IPO. (assuming, Kingdom Come)
    A huge take-down from their anticipated ONE TRILLION DOLLAR take.

    Assuming a rational 500 billion valuation they will get 25 billion. KSA will have to pay a dividend so that will cost cash. Saudi cash burn is now in the 10 billion a month range so that’s 2.5 months, Not including dividend payments.

    Raise the valuation to 1 trillion and you get 5 months.

    Oil must be at 50$ for the trillion….

  17. Makati1 on Mon, 3rd Jul 2017 6:25 pm 

    NASA is a tool of TPTB, like every other government funded alphabet organization. They ‘study’ whatever they are told to study and the “findings” are predetermined by TPTB for their own purposes (propaganda).

    The beginning of the end. There is no recovery. It will be down forever and it began in 2007 for most Westerners. The East will eventually follow as the West pulls it down. The 3rd world will be the only world until war and/or climate change ends humanity.

  18. bobinget on Mon, 3rd Jul 2017 6:31 pm 

    Long crude and gas, I’m not so gloomy.
    Whenever a vast majority goes short oil
    (and grains, fertilizers) it’s jump in time.

    By 2018, crude shortages, real.
    Talk of taxing Canadian crude will be a distant memory. Loonie headed higher:

  19. MASTERMIND on Mon, 3rd Jul 2017 6:52 pm 

    Simple really….when the world economy collapses everything shuts down…the end….were
    talking about grids down all over the world and 7.5B people dropping like f*** flies in
    short order…the collapse will be absolutely horrible..There is no collapse or horror movie ever produced that has even come close to imagining what the collapse of BAU might look like… I’m talking about every corporation and every social program going bankrupt at once.I’m talking about people eating people. I’m talking about the worst catastrophe to ever happen in the history of mankind, and WILL ever happen. Nothing has ever, or will ever come close.

  20. twocats on Mon, 3rd Jul 2017 7:03 pm 

    MM – yeah but its gonna happen three years later than most PO analysts predicted almost 20 years before the event, so… joke’s on you buddy.

  21. MASTERMIND on Mon, 3rd Jul 2017 8:18 pm 

    Simple really….when the world economy collapses everything shuts down…the end….were
    talking about grids down all over the world and 7.5B people dropping like f*** flies in
    short order…the collapse will be absolutely horrible..There is no collapse or horror movie ever produced that has even come close to imagining what the collapse of BAU might look like. I’m talking about every corporation and every social program going bankrupt at once.I’m talking about people eating people. I’m talking about the worst catastrophe to ever happen in the history of mankind, and WILL ever happen. Nothing has ever, or will ever come close.

    (Meadows 1972) (Ehrlich 2013)
    (Motesharrei 2012) (Jefferson 2015) (Ebrahimi 2015)

  22. MASTERMIND on Mon, 3rd Jul 2017 8:20 pm 

    we learn from history that we do not learn from history -George Bernard Shaw

  23. deadlykillerbeaz on Mon, 3rd Jul 2017 10:01 pm 

    At a gain of 200,000 increase in population each day, by 2018, there will be another 73,000,000 people. The total will be about 7,590,000,000 people, an increase of one percent.

    Gotta have oil to support and power civilization, has to be there.

    At ten million metric ton of oil consumed, the total in one year will be 3,650,000,000 metric tons gone for good.

    1.25 trillion barrels still to burn divided by 7.3 barrels of oil per ton, there are 171,232,876,712 metric tons to go.

    171232876712/3650000000=46.9131169075 years of oil still left to go.

    A lot can go wrong in the next three or four years, however, oil extraction will slog on into the future.

    Devastating oil shock will be an interruption of supply, not a shortage. A war could do it, but oil will be there for war too. Seems as though what happens every time.

    Oil tankers will be full and on their way to Japan and China, even in 2021.

    As long as the demand is there, it can last for another 45 years or so.

  24. MASTERMIND on Mon, 3rd Jul 2017 10:32 pm 

    Simple really….when the world economy collapses everything shuts down…the end….were
    talking about grids down all over the world and 7.5B people dropping like f*** flies in
    short order…the collapse will be absolutely horrible..There is no collapse or horror movie ever produced that has even come close to imagining what the collapse of BAU might look like. I’m talking about every corporation and every social program going bankrupt at once. I’m talking about people eating people. I’m talking about the worst catastrophe to ever happen in the history of mankind. Nothing has ever, or will ever come close.

    (Meadows 1972) (Ehrlich 2013)
    (Motesharrei 2012) (Jefferson 2015)
    (Ebrahimi 2015) (Chapman,I 2013)

  25. Makati1 on Mon, 3rd Jul 2017 10:51 pm 

    Mastermind, there are many, maybe billions, who will hardly notice when the world economy shuts down. Many here in the Ps don’t have any part in it. No electric, No internet. No ties to banks or even fossil fuels. Do you think the poor of Bangladesh or India or many African countries will notice? Not much if at all. When you do not have, you cannot lose.

    Only those whose lives are tightly tied to the world economy will suffer, according to the amount they are tied to it. Westerners and their wannabees will suffer the most, and they should.

  26. MASTERMIND on Tue, 4th Jul 2017 12:06 am 


    Now you listen to me and you listen good.
    Are all those migrants going to work the night shift at the hundreds of nuclear plants all over the world making sure they don’t meltdown? You primitive Asian fucks are going down with us hard. The nuclear plants will make that a promise! Live free or die bitch!

  27. Simon on Tue, 4th Jul 2017 12:49 am 


    the 3rd world have food, so there is a lot they can lose.
    the poor in india kinda rely on the middle class in india, who rely on …….. you guessed it.


  28. Makati1 on Tue, 4th Jul 2017 1:24 am 

    Mastermind, you are an idiot. Just because the West goes down does not mean everything in the world stops. I suggest you stop guzzling that propaganda Koolaid, take the blinders off and look at the real world.

    The West is already in collapse mode and gaining speed. If you think the rest of the world is ignorant of this, you are even more stupid than some other flag wavers here and that takes a lot of stupid.

    Maybe you should remember that ~100 of those nuke plants are in the US and more in Europe where the collapse will be most felt. The Ps have zero nuke plants. The nearest is in China and they will continue to operate as usual. You are the one who should be scared shitless of the collapse. You have the most to lose.

  29. Makati1 on Tue, 4th Jul 2017 1:27 am 

    Simon get a real view of Asia and come back with a creditable rebuttal. Show me ONE leader in the world who is NOT afraid of the ‘lower classes’ and I will give you a red star.

    Ditto for the middle class. They only exist with the consent of the lower classes as America is soon going to find out. Take away the food stamps and welfare and run for the shelters. You may not live long. Your government knows this. Obviously, you do not.

  30. peakyeast on Tue, 4th Jul 2017 5:12 am 

    @mak: When we global economy gets hit it will hit everybody. There is hardly a person in the world insulated from this event.

    The poor countries will lack aid, food and national income will probably get worse. The people working abroad sending money back home will decrease.

    Goods will not be available. For example viable anti-biotics and other medicines.

  31. Davy on Tue, 4th Jul 2017 5:25 am 

    makati, listen to the more sober and moderate on this site. When they speak you should listen. You are wrapped in a silly delusion of “We” are fine and “They” will suffer. That does not work in the 21st century of interconnectivity. Asia is where the core of overpopulation is. Overpopulation is the key issue of collapse. The die down will be much worse in Asia. It will happen in the west but there are so much few people and the west is a dominant force in the global economic machine. The less critical areas in Asia will fall off the ladder first. The P’s is a prime example of a country that is not critical and is in reality redundant. China can easily make up for anything the P’s does in the global economy. The sad truth for the P’s is China will take over the position as needed. You are subservient to China’s whims economically. You are at the bottom makati and pretending you are on top.

  32. onlooker on Tue, 4th Jul 2017 6:14 am 

    Mak, I am afraid Davy and others are right. The Collapse that is coming will so extensive and devastating that no corner of the planet will be unscathed. The West has its vulnerabilities but so does the East. Principally the huge population that is depleting water resources and clearing wooded areas. CC above all is universal. The Oceans are becoming anoexic and will reach a point of being unable to take in CO2. The tropical warmer areas are and will be the first ti be hit by unlivable conditions dye to CC. Also the huge population has a razor thin margin to feed itself and is already quite reliant on food imports and on mass monoculture agriculture. Just a couple of degrees higher will doom crops. Lack of trees is creating ideal soil erosion and desertification conditions, you know I try to be impartial but we all must
    The Philippines is currently the largest importer of rice in the world,

  33. Makati1 on Tue, 4th Jul 2017 7:18 am 

    peaky, Davy, onlooker, when I get an intelligent response from someone who does NOT live in the FSofA or the EU, and has a mind still able to reason, I might agree with him/her, but all I seem to get is “we’re going down, so you have to also” bullshit!

    Don’t you think that Russia and China can see what is happening and are preparing for it? Why are they building a financial system outside that of the West? Why are they hording gold in amounts that beggar the U$ who may not have any? Why are they getting out of dollars so that they are not tied to the dying system? Why? Because they plan ahead. The U$ and EU does not.

    Answer these questions with real references outside the U$ MSM Iron Curtain and I might change my viewpoint. Until then believe what you want. Anyone who believes that the crash of the markets and major banks is going to instantly stop all commerce is a fool. It will just cripple those whose life is tied the closest to it, the West and their wannabees. Ships will still travel the oceans. Oil will still be recovered and refined. Life will go on on a much lower level, but it will go on. There will no longer be a first world but there will be a world and it will be located in Asia. At least I don’t have to worry about freezing to death, starving, or dying of heat stroke. A good location, I think. The future is going to end a lot of dreams for the spoiled and ignorant.

  34. Makati1 on Tue, 4th Jul 2017 7:37 am 

    BTW onlooker, that article is 9 years old.

    China imports about 3 times as much rice as the Ps, and if you do the math, that 18,000,000 tons is about 34 pounds of rice per capita. (American consume 3 times that amount in potatoes alone, per capita.)

    “With 441,951 hectares of banana plantations and 30 nations receiving top quality Philippine banana products, the Philippines has secured its place as one of the world’s largest and most reputable banana exporters.”

    “The Philippine coconut, known globally for its quality and taste, has made the country the second largest coconut products supplier in the world. About 42% of the world’s coconut oil is from the Philippines. At the same time, the country also satisfies 34% of the global requirement for desiccated coconut which is used as an ingredient in biscuits, snacks, cereals, cakes, and cookies.”

    “No other country in the world can claim to have the sweetest, juiciest mango. Only in the Philippine soil do the most loved mangoes grow and ripen. Countries such as Canada, China, Japan, South Korea, Singapore, and USA, major export destinations of fresh and processed Philippine mango, can attest to the superior taste and quality of the country’s national fruit. And with 187,837 hectares of plantations producing 788,074 metric tons for the domestic market and 48 countries abroad, coupled with a steadily improving production capacity, the Philippines is more than capable of offering this legendary fruit to the world.”

    “As the second-largest tuna exporter in the world, serving major markets such as Japan, the U.S., and the United Kingdom, the Philippines is capable of producing 58,660 metric tons of canned tuna and 28,808 metric tons of frozen or chilled tuna for the international market.”

    Going to starve? I don’t think so. Just keep it local.

  35. MASTERMIND on Tue, 4th Jul 2017 8:05 am 

    You are at the bottom makati and pretending you are on top.


  36. Davy on Tue, 4th Jul 2017 9:19 am 

    Makati, at your age you should be aware of what’s sounds too good to be true usually is too good to be true. You talk about others being brainwashed and being insulated but isn’t that what your life is? You are isolated in a big city acting as if you have broad knowledge of the world. Everyone on this board is conditioned in some way. It is those with open minds and balanced views that show the most common sense. You show pressured competition that shows signs of a personal emotional investment. Take a step outside yourself for once and look inward. You might amaze yourself.

  37. joe on Tue, 4th Jul 2017 10:00 am 

    What makes the global economy function? The dollar? Interest rates? Oil? In 2008 just after Bush left, Obama was faced with a stark choice, either bail out the banks with debt purchases from the FED (a private bank) or sit back and be a single term potus and watch ww3 literally break out everywhere. The FED bought allot of US treasury bonds at a low coupon rate, they need to pass this shit on to suckers who will never realise much profit from them, we are talking trillions of dollars. Ironically this is great from a taxpayers point of view cause the growth rate now is probobly higher than what the FED paid for these except the inflation rate is low cause of low oil prices so they can’t spike rates and dump all this debt on say the Saudis who used to trade for it with oil and reinvest it back into bond markets rasing cash and spending said cash in the US. So these bankers and oilistans have a problem, the system they designed to maintain dollar and oil hegemony is breaking down slowly. Saudi trades vast amounts of oil in Asia now, the US is heavily into tight oil which needs low interest rates to keep going, so in this case the banksters are carrying allot of what they call geopolitical risk.
    It seems Yemen is becoming a Pyrrhic victory for the Saudis who have had to change the line of succession to stop the warlike crown prince causing civil war. Even if the price of oil spikes, the US export of tight oil will limit oil price spikes to weeks/months rather than years, in fact higher interest rates are cancelled by higher prices. The problem is systemic and being ignored by denial, that conventional peak oil is happening now and tight oil is disrupting the market and may unseat allot of governments or worse.

  38. onlooker on Tue, 4th Jul 2017 10:29 am
    Okay, we need all of us to try and focus on the Environment, the Economy is just a subset of it. The links above attest to first that “Increased food production has allowed the human population to swell to its current almost 7 billion size. Estimates are that a third of the earth’s human population is fed thanks to the Haber process.” Second, that our soils around the world are dead pretty much or are dead because of this reliance on synthetic fertilizers and also because of soil erosion and desertification from having eliminated so many trees. So, when FF extraction becomes to expensive and energy intensive then what? So, we can sit here and debate countless years about how this country or region can be okay economically for the time being but in the final analysis the ability of Earth to sustain us is rapidly diminishing from the impacts of our huge population and its activities among which is poisoning the entire Biosphere. The truly horrific effects of climate change are coming and nobody on this planet will be immune. Not seeing this as a global catastrophe is truly missing the point. Oh and happy 4th of July.

  39. bobinget on Tue, 4th Jul 2017 10:44 am 

    Thank you ‘Joe’ for your cogent posts.

  40. Sissyfuss on Tue, 4th Jul 2017 6:10 pm 

    I’d upvote you Joe but then I’d get smeared.

  41. DerHundistlos on Tue, 4th Jul 2017 6:21 pm 


    So true. How easily people get caught up in the weeds.

  42. onlooker on Tue, 4th Jul 2017 6:35 pm 

    Yep Derhund, seeing the tree or trees but missing the Forest

  43. Davy on Tue, 4th Jul 2017 6:41 pm 

    Yea, or talking about the forest as if all the trees are the same.

  44. Makati1 on Tue, 4th Jul 2017 7:56 pm 

    MM, you are either a juvenile or perhaps just uneducated. At least Davy tries to be intelligent, but still inserts his foot occasionally. Both of you have consumed too much government Koolaid. Both of you have no idea what the real world is like outside the U$ MSM propaganda box. None. And it shows.

  45. Davy on Tue, 4th Jul 2017 8:08 pm 

    MM, Makati has me on two lists one is the ignore list and the other is most commented on. It takes a bright guy to keep up with both.

  46. Makati1 on Tue, 4th Jul 2017 8:28 pm 

    Davy, you are obviously getting senile. It is obvious to EVERY reader here that you have NOT been on my ignore list for many months. But then, you are are a most delusional character.

  47. Davy on Tue, 4th Jul 2017 8:50 pm 

    You know all about senile makati. In case you haven’t figured it out it happens when you approach 80. In your case compounded by years of being an idiot.

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