This may be an interesting and important debate. But it’s too long and convoluted for me to follow it.
Would someone please post a brief summary? In particular, please state ralfy’s thesis in a single paragraph.
Is this it? :rolleyes:
No answer? Why do oil prices remain low, despite high demand and diminishing supplies in the long term? Why don’t the oil producers cut production, figuring they can retain wealth in the ground and, with the higher prices, still get adequate revenue?
A key problem, as I see it is: What is “adequate” revenue? If the oil owners and producers were content to pass up immediate cash in favor of future security, acting as a cartel to limit production and increase prices would make sense.
But instead, the big oil players need or want the cash.
Saudi continues to suck oil out of the ground bigly, but falls further and further in arrears. Not only does it make gargantuan payments to U.S. munitions manufacturers, but it has a royal family that is siphoning off billions. Spurred by unclear geopolitical sensibilities they are also financing regional wars, terrorism and counter-terrorism. Right now they are as dependent on oil cash as a junkie is on his heroin fix.
Vladimir hardly cares what happens after Vladimir is dead. His only goal is to maximize cash in the short term.
Chevron is another major player. The last two years they have spent billions more on capital than their profit from operations. They borrow bigly to pay dividends — last year Chevron borrowed $8 billion to pay $8 billion in dividends. Exxon Mobil borrowed $12 billion to pay a $12 billion dividend. Like the cream skimmed off for Saudi Princes and Vladimir’s stooges, much of these dividends are paid to people who don’t really need the money. Exxon’s 9-year paper yields 2.8% while the stock yields 3.8% (though the stock is well off its 2007 and 2014 highs). This cash pump is fueled in part by loose central bank policies.
TL;DR. Higher oil prices would have important advantages, notably reducing AGW, but don’t expect any production cuts with spendthrift Saudis, Putin and Trump-Tillerson in charge.
Also, limits to growth:
In short, the global economy has a growing population and growing energy and resource needs per person because of a growing global middle class:
That’s because the same global economy is capitalist and involves competition. Thus, it needs not just a lot of oil (and copper, phosphorus, etc.) but cheap oil.
Some of those questions might be explained here:
https://www.peakprosperity.com/podcast/110012/richard-sylla-inherently-dangerous-moment-history
Put simply, financiers control the global economy, and the only way that they can become richer is to create more credit, part of which is invested in the oil and gas industry no matter what happens. At the same time, a growing global middle class, from people at work to their children looking for high-paying white collar jobs after graduation, want more credit as part of their raise, promotion, return on investment, home improvement, and new cars, phones, etc. All of these require significant amounts of oil, copper, etc.
We will need more oil and other resources even to meet basic needs of the present world population:
The problem is that increased credit doesn’t reverse peak oil. That’s why Saudi Arabia continues to face more difficulties extracting oil from Ghawar, oil from sources like Manifa may require oil at $150, and the country is investing more in nuclear and solar.
Also, as shown in the past, high oil prices has a detrimental effect on the global economy, together with increasing credit needed to fuel oil production and others.
In short, it’s not just the Saudis, Putin, and Trump who are spendthrifts. The same goes for the global population. But what will halt that won’t simply be financial crashes due to increasing debt, but that plus the effects of limits to growth and environmental damage coupled with AGW.
I don’t normally post in threads I haven’t read all the way through but this was post #6. As soon as I read it I thought, what better guarantee that something won’t happen than a quote from James Howard Kunstler saying that it will?
Thanks for the link, ralfy! I’ve been saying that the low interest rates are a dangerous sign of an unsound economy; I’m glad to see a Professor Emeritus agrees with me!
[QUOTE=Richard Sylla]
One area in which we see this is, despite low oil prices, the capital markets are feeding a lot of money into oil exploration in the United States. This is not wise allocation of capital because a lot of these shale oil, company oil and gas drillers are not making any money now – so Wall Street is putting money into a business sector where the returns don’t look to be that great. What if a lot of these junk bonds fail as they tend to do, or the shale oil drillers go bankrupt after Wall Street has put a lot of money in there? That’s one of the key worries about very low interest rates such as we’re having now – it causes distortions and mis-allocations(…)
I harken back to Hyman Minsky, whom I knew. Minsky said Stability breeds instability. I think we found that out in the financial crisis of 2007-2009 and I see that now they talk about the VIX being very low and the stock exchange people don’t seem to think there’s much danger out there in the world. If Minsky is right, this attitude of Things seem to be very stable now, therefore I can run out and buy stocks at prices that are at historic highs – that may be setting us up for the next financial problem.
There are a lot of similarities to what’s going on right now and what went on before in the 2007-2009 financial crisis. And people don’t seem to worry about that. It’s like things are really stable now and the Central Banks got us through the crisis without having a Great Depression, so it’s smooth sailing from here. There’s probably too much optimism right now about the economic future(…)
[/QUOTE]
However I disagree with ralfy’s conclusion that the low interest rates result from financier greed. I think just the opposite: central bankers would love a stable economy with more normal interest rates, but cannot raise rates — the global economy is too fragile.
Low interest rates result from greed because they allow for greater levels of credit. If any, that’s actually the stable economy that central bankers prefer.
Also, central bankers cannot raise rates readily not because they think that the global economy is fragile but because they work for those that essentially control that economy:
Oil demand in 2017 expected to increase, slow, be outrun by supply, ease, slow a lot.
(Yes, some of that is redundant.)
Bloomberg: Peak oil will not happen because of tightening supply but because of fading demand as improved technology reduces consumption or diverts it to renewables, where that would make sense; industry analysts and producers, according to Bloomberg, are failing to properly account for these peripheral adjustments to the market dynamic and are headed for some seriously trouble.
According to the IEA, conventional production peaked in 2005.
Also, it’s more logical to look at production in light of population. That peaked back in '79:
The low current price of oil (which has held for long enough to be clearly systemic rather than a short-term blip) and the growth of alternatives both point to “bump in the road” as the answer to the original question – the first indicates that there’s quite a bit of slack for prices to rise a bit (bringing additional supply online) with painful but tolerable effects; the second represents significant progress toward long-term solutions.
Well, two things (that you will never see). First off, it would make more sense to look at oil demand, not population. It would only make sense to look at population this way if you were trying to cherry pick your data to say what you want it to say…which is what you do. Secondly, the IEA has since modified its position, but you keep using their 2005 prediction for some odd reason. It’s funny, but US oil production is one of the trade marks of the Peak Oil™ crowd to demonstrate how this all works. US oil production was predicted by Hubbert to peak in the mid to late 70’s, and sure enough, it peaked in the early 80’s. Except, it didn’t. The actual chart of US production completely blows out the Hubbert prediction curve, and in fact, oil peaked (again) in 2016…and is on track to peak yet again this year. All the while, demand in most western nations is down or stagnant and that trend will continue. Certainly, demand in emerging nations is up, but as you can see by the fact that there is STILL a glut of oil on the market with no reverse of that in sight (despite OPEC and the Saudi’s trying to draw that glut down in the last year), it’s hard to see how the Peak Oil™ guys are still on the same broken record, beating the same dead horse across the same stream while trying, desperately, to check its teeth to see if it’s a good deal after changing riders. Basically, the reality as previously stated is that DEMAND will or has already peaked, which will mean that production probably will or has peaked too…but not because there isn’t a lot more oil, simply because we are starting to see the transition away. It’s only in the early stages, but basically simple efficiencies are already causing a downward trend in most industrial nations (including the US) and that will simply accelerate. Heck, several nations have already set out target dates in the not so distant future to end the sale of all or most fossil fuels, including the UK which set 2040 to stop sales.
The problem is that the production cost is high (around $50 to $90), and new production involving diminishing returns (increasing levels of debt in exchange for decreasing increases in production), and all part of discoveries in decline the past seven decades. Add to that low energy returns and quantity for alternatives, and what we have is obviously not a bump.
From what I’ve read (I won’t bother with a cite unless someone other than you wants it), current US shale production costs are more like $50-55, not $50-90…and that bar keeps dropping. Yeah, US companies are currently having to borrow because the price of oil due to the glut you keep failing to mention continues to keep oil prices low, so they aren’t breaking even…quite. Other countries need to have oil prices higher, not because of production costs but because many countries like Russia and Venezuela rely on large profits to make their economies work at all.
As for discoveries, again with the half truths. The basic answer is that new investment is down because there is a wash of oil on the market and because this doesn’t seem to be changing anytime soon companies are having to scale back. Also, all of the easy oil has been found. That said, large discoveries have been made in the last 7 decades, so what you are trying to imply is just spin. As usual. It’s the same old thing with you, for years now. Spin the data (or ignore it or just don’t mention it if it contradicts your narrative), then shift the goal posts, then talk about something else (capitalism or the global middle class), then when someone addresses that shift back to the beginning. Rinse and repeat.
Related news:
“Citi Says Get Ready for an Oil Squeeze”
“HSBC: Brace for the oil, food and financial crash of 2018… UBS Bank confirmed the same conclusion a year earlier.”
Why are you trying to use the bog-standard business cycle as evidence of peak oil?
There is an essentially unending supply of carbonaceous fuel to burn.
Should humanity learn to remove circulating CO2 from the atmosphere,
then the “water cycle” on Earth would be controllable. (more at EarthThrive.Net,
if your interest is piqued. Probably too late, though…)