Peak Oil is You

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Page added on May 24, 2018

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We need to talk about Peak Oil again


Here’s a new indicator for you: It seems that the difference between the price of oil here and abroad is a measure of tightness in the market, with a rising spread indicating higher prices in the future, with all the inflationary pressures that that implies. From today’s Wall Street Journal:

Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears

U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.

U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.

The divergence is a sign of how stretched global oil supplies have become even as U.S. output has marched higher, overtaking Saudi Arabia and rivaling Russia. That has contributed to soaring U.S. exports, which have hit a record of nearly 2.6 million barrels a day as users clamor.

“The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group.

Both benchmarks have been on a tear lately. The Organization of the Petroleum Exporting Countries and its allies have been holding oil off the market for more than a year, and demand has surged as the global economy roared to life. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further. A glut of oil that held prices down for years is essentially gone.

Oil price Brent WTI

Higher oil prices are starting to boost inflation and some worry that they will rein in the pace of economic growth, cutting into disposable income. U.S. gasoline prices have climbed to $2.92 a gallon on average, and are already more than $3 in several states. Companies like Walmart Inc. have warned that higher fuel prices are starting to threaten margins.

The political jockeying over higher oil prices has begun. President Donald Trump has pointed the finger at OPEC, blaming the cartel for “artificially Very High” prices in a tweet in April. Sen. Ed Markey (D., Mass.) has said Mr. Trump’s foreign policy is driving prices higher and is calling to reinstate the oil-export ban, which was lifted in 2015.

“Rather than sending American crude oil abroad to benefit Big Oil’s bottom line and foreign nations such as China, it should be kept here to help insulate consumers from geopolitical uncertainty and benefit American families,” a report to be released by his office on Monday says.

Some economists have argued that shipping oil abroad wouldn’t contribute to higher prices at the pump. Retail fuel prices have historically been more closely tied to the world benchmark rather than the national one, since gasoline is exported.

Some analysts said Brent’s push higher may be a signal that U.S. oil can’t fill the void in the global oil market quickly enough.

Soaring oil means several things:

Geopolitically, it’s a big net negative for the US, since the main beneficiaries are countries that are at best frenemies and at worst flat-out threats. Saudi Arabia, Iran, Venezuela, and Russia are all big oil exporters and will, to varying degrees, use the coming windfall to do things that liberal democracies will not appreciate.

Economically, expensive oil means tighter margins for businesses that operate with long supply chains. Food, for instance, tends to travel long distances to reach local grocery stores, so higher transport costs mean more expensive tomatoes and hamburgers. Businesses suffering in this way will raise their prices to compensate, which will combine with tight labor conditions to goose the official inflation numbers.

This in turn will push up interest rates, with potentially serious consequences. See There’s A Number That Ends This Cycle — But What Is It?

And the car companies, well, they’ll find themselves on the wrong side of history once again, going all-in on trucks just as Big Iron becomes too expensive to own. See America’s Dumbest Companies Repeat Their Biggest Mistakes.

For precious metals miners the picture is mixed. Mining is energy intensive, so higher oil means rising costs. But inflation is great for gold and silver prices, which will more-or-less offset oil. The experience of the 1970s, when gold and silver soared along with oil, gives cause for optimism.

Anyhow, rising oil is one more peak-cycle indicator that solidifies the comparisons with past peaks and the carnage that followed.

8 Comments on "We need to talk about Peak Oil again"

  1. DMyers on Thu, 24th May 2018 11:17 pm 

    The glut is gone. Imagine that. I was counting on it. Thought it was a permanent thing.

    “The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group. [quoting from the article]. I disagree with this viewpoint. The message is that we should squander more of the resource to facilitate low prices, with the implied aim of promoting BAU. FYou to the future.

    Use more and find less ends up as less. Thank God the glut is gone. At last, we don’t have to hear about it anymore and about all the new technology that made it possible.

    Dollar Collapse says it all. Takes a lot of toilet paper to buy a gallon of gas.

    Peak oil is back. We still have an issue. It’s a finite resource. It’ a finite Earth.
    Twas only for a moment that it may have seemed otherwise.


  2. Cloggie on Thu, 24th May 2018 11:51 pm 

    Pork cycle in action:

    Expect oil price to increase again, to perhaps a 2008 level, restoring profits of those who are able to bring fossil fuel, any fossil fuel, to the markets. Expect increase of pressure to start fracking outside the US or begin to exploit the endless potential of under ground coal gasification (UCG) in Europe.

    All this (and “Paris”) is playing into the hands of renewable energy proponents, with their proposition becoming cheaper with every passing year.

    There is no (long term) energy problem. By the end of the century we’ll have a “solar economy”, probably hydrogen/NH3/hydro-storage based.

  3. MASTERMIND on Fri, 25th May 2018 12:22 am 

    Two men blow up IED inside Indian restaurant in Canada, multiple injuries

  4. deadly on Fri, 25th May 2018 4:22 am 

    Every tractor in Canada, the US, Europe, Russia, those places and China are all out in fields seeding crops.

    Ten million tractors with 200 gallons in each tank gets burned fast.

    2 billion gallons is about 50 million barrels. All gone in a few days. A week later, another 50 million barrels of tractor fuel just for farming across the globe.

    Ships, trains, millions of trucks and cars, planes. Easy to see how the glut is gone and some scarcity appears here and there.

    Anhydrous ammonia shortages too, the supply can’t get there fast enough.

  5. Simon on Fri, 25th May 2018 5:12 am 

    Don’t forget the tyres, ploughing with 7 ploughshares at speed, really tears them up

  6. Outcast_Searcher on Fri, 25th May 2018 5:09 pm 

    Let’s see what KSA and Russia (and OPEC) opening back the production they’re curtailing in the short run does. (Thus, far, a several dollar a barrel decrease in the last weeks as the market anticipates more supply).

    Let’s see what higher prices do to exploration and production in the longer term. Just because prices are rising recently, doesn’t mean they’ll do so forever.

    Are we already forgetting the frequent volatility since ’73, or just spreading FUD for kicks, fast crash doomers?

  7. Outcast_Searcher on Fri, 25th May 2018 5:11 pm 

    Yes Cloggie, at say $5 a gallon, in addition to lots of complaining, it ought to help bring LOTS of solar, wind, battery, and EV production to market faster, since even many “dedicated” ICE customers will want a cheaper alternative.

  8. Free Speech Forum on Fri, 25th May 2018 11:23 pm 

    When our overlords make a decree, they always sell it as a minor temporary law that only affects Muslims, junkies, sex offenders, homosexuals, illegal immigrants, blacks, or the mentally ill. The 1% doesn’t mention that the law will become permanent and more draconian.

    No one cares if owning cows are illegal, yoga pants are illegal, teen driving is illegal, or smoking is illegal. The problem is what happens when your job is banned, the government steals your house, tortures your family, or sends you to the concentration camps.

    Are you just going to take it?

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