Guest post by Tom Therramus that is the pen name of a US based Professor. The article was first published on Oil-Price.net.
Consider some recent headlines: “World Bank Warns Of Extreme Volatility In Oil Markets”, “International Energy Agency Head: Oil markets are entering an era of unprecedented volatility” and “Oil prices spike, stocks plummet as uncertainty roils global markets – Washington Post” .
All was calm when I predicted in February 2018 at oil-price.net that mid-June 2018″ would see an upsurge in oil price volatility. Four months later, on June 26 2018, a volatility spike in West Texas Intermediate crude oil spot price marked the beginning of the turbulent phase in the oil markets that we are now experiencing.
This is the second time at oil-price.net that I have correctly anticipated the timing of turmoil in the oil markets. In an article in late 2013 I accurately predicted the last bout of volatility, which hit in 2014, when oil prices gyrated to lows not seen for nearly fifteen years.
For those who have followed my articles at oil-price.net, which began in early 2010, you’ll know that there is no magic to my forecasts. I may be mildly autistic, but I am not psychic. They are based on a repeating pattern of spiking variance in oil pricesthat seems to have initiated from around the year 2000. For the last two decades, wave-like palpitations have surged through the oil markets like clockwork every 3 to 4 years.
Who knows whether this pattern will continue going forward, but so far it has conformed to an ongoing succession with 6, possibly 7 repetitions, if one counts a modest bump of increased variance that occurred in 1996.
The chart below illustrates this cycle of volatility in oil prices. The chart’s legend also provides some technical details on the approach I take to analyze it. For folk who may feel a little overwhelmed by this chart, skip it if you prefer. The article can be read, and hopefully understood by well-informed readers, without the chart.
Contemplate some further headlines of late: “Big Swings in Stock Market Are at Their Highest Level Since 2011 – New York Times” “Stocks Waver on Last Day of Turbulent Week – Wall Street Journal”, and “Stocks flip between gains and losses as Wall Street prepares to wrap up week of wild swings – MarketWatch”.
I made a second prediction last February based on past observations. Namely, that if a surge in oil price volatility occurred mid-2018, then 6 months or so later, “it will be followed by a crappy period in the stock market”.
As indicated by the news reports above, this forecast has also been confirmed. In December, some 6 months after the first oil volatility spike in June, the Dow Jones Industrial average had a sudden decline that saw some 20% of its value lost. In equally short order, the Dow had a whipsaw recovery, but the “crappy period” in the equity markets may not be over yet.
I have to say that my feeling about being right again are mixed. My hyper-focused Aspie brain feels some small satisfaction. The work that it has taken to unriddle and document this phenomenon over many years has been considerable. But, my heart is sad, as I believe that real hardship may be in the offing. This is because the steady and uninhibited flow of oil is the lifeblood of our civilization. I believe that the repeating pattern of bursting chaos that we’ve seen emanate from the energy markets over the last two decades is a symptom that all is not well and that the situation may not calm, but worsen, going forward.
Oil Price Instability Indicates That The 300 Year Era Of Fossil Fuel May Be Entering A Culminating Phase
I have been partial to the 19th century British painter JMW Turner since I was a child. A few years ago, I stood wonderstruck inches from his great painting “The Fighting Temairie – 1838”, then on exhibition at the Royal Naval Academy in Greenwich, London.
Shivers ran down my back as I stared into the painting’s rough surface, depicting the final journey of an old wooden warship. The Fighting Temairie – a veteran ship of the line at the battle of Trafalgar – is shown being towed to the wrecker’s yard by a then, new-fangled steam tug. An eccentric sun sits on the horizon, suffusing the poignant scene with gentle evening light.
Another favorite is “Rain, steam and speed – 1844” with its train coming at the viewer like a bat out of hell from a pastoral of cloud, river, forest, and mountain. The verdant backdrop that the train speeds away from is classical, diffuse and mysterious – as finely wrought as any da Vinci.
Turner’s sublime gift was to capture the sentiment of a world on the verge of momentous change. The industrial revolution was being fueled by coal and its thunderous engines heralded new prosperity. But these noisome machines also portended the passing of a simpler epoch with its predictable agrarian rhythms, beasts of burden and technologies made by hand.
One wonders how the artistic sensitivity of Mr Turner might have responded to the current juncture, which I believe marks another of history’s major shifts in phase.
It is my firm view that the cycle in oil price variance that we have witnessed for the last two decades is a clear sign that our planet’s tolerance for exploitation of fossil fuels is reaching its limits. Indeed, it signals the culmination of the process whose beginnings JMW Turner observed and recorded with such beauty.
Instability In Oil Markets May Be At The Root Of Our Political Problems As Well
I have argued for some time that the repeating pattern of oil price instability, and its coupled dance with the stock market, is not just a matter of finance and economics. Oscillating like a pulsing dark star, it seems to be beaming mayhem into our political and social arrangements as well.
I explored this in one of my past articles, going to the trouble of generating time series of derivatives from political polling numbers in the US and then using the same Fourier transforms on these data that I use to pick out the repeating pattern in oil price volatility.
This analysis revealed that shifts in political sentiment in the US show remarkable correlation with the pattern of swings in oil prices over time.
Bringing this down to earth for those like me who struggle with math (albeit that I still enjoy it), reflect on the outcomes of the last three US presidential elections. Its dimming into the past now, but at the time of Barack Obama’s emergence into national politics the odds that he’d become our first black president seemed low. Then the oil shock and financial crisis of 2008 hit and Mr Obama unexpectedly won, handily defeating Mr McCain, who though gruff and a little eccentric, was eminently electable by the standards of all the other old white dudes who have led our country since 1789.
And then – after the decent and ultimately conventional Mr Obama – a nemesis. The unpredictable Mr Trump, whose person, it seems fair to observe, is the incarnate essence of our time – the very embodiment of the new age of volatility.
Recently, the unruly consilient signals from the markets, politics, as well as the environment were the subject of an excellent article by Canadian author and journalist Andrew Nikiforuk. And naturally I found his piece excellent, as Nikiforuk quoted directly from my oil-price.net writings, nicely summarizing the Therramus perspective. He also did a good job covering the work of fellow oil doomsayer Gail Tverberg, who has an influential blog “Our Finite World”.
He writes, “This new volatility in oil prices is analogous to other trends like the increasing frequency of wildfires in forests destabilized by drought and climate change.”
Sadly, Nikiforuk is one of the few professional journalists who has ventured into this area and grasped its “big picture” implications. Glance at any newspaper, market news website or TV show and you will find that the only factors given credence for their impact on oil prices, and for that matter most market indices, are day-to-day. But logically, the obsessively short-term bias of the media, with its focus on this week’s move by the Fed, or last month’s meeting of OPEC or that tweet from Donald Trump, is nonsensical. Such explanations cannot explain an oscillating structure (i.e., that shown on the chart), which is embedded in a near 20-year time span.
To put this another way, my correct predictions at oil-price.net on February 19 2018 of coming upsurges in oil price and equity variance, were based on the fact that June 2018 marked the anticipated timing of the next wave of volatility from a cycle that initiated at the turn of the millennium. Whilst coincident inputs from the Fed, OPEC or the President etc might exacerbate its amplitude, the ultimate cause of turmoil in the markets in the latter half of 2018 is baked into the long-term pattern illustrated in the chart above.
My “Oil Bet”
It is said that the President is an idiot and of late he has joined the chorus of media cognoscenti. In his case, the straw he has grasped at was to blame the chairman of the Federal Reserve for the recent difficulties in the stock market. It is likely that he did so to deflect criticism for his own actions on trade, China and shutting down the government, which many view to be contributory factors to the recent market swoon.
There is a tribal, partisan instinct in me that sincerely wishes to find fault in Mr Trump. But ultimately, I am convinced the tail-chasing focus on proximal causality that both he and his critics pursue is ludicrous. Mr Trump can no more be held to account for what is going on than his predecessors. It could be argued that past leaders are more culpable, as the signs of distress have been with us for nearly a generation.
The widespread inability, or lack of willingness, to understand our present situation on time scales of anything other than weeks and days has long perplexed me. In May of last year, I received an unexpected royalty payment on one of my patents. It was welcome, but I really did not need the money, so I decided to put it into an exchange traded fund (ETF) that tracks the price of West Texas Intermediate crude oil. My plan was to try and shift my perspective by creating a conflict of interest and then document my response.
So, the results of the experiment are in and it turns out that I am also an idiot. I have lost money, big time. But worse, the margins of the Excel spread sheet documenting what I call my “oil bet” are full of daily speculation on actions by the Saudi and Russian governments and what the Iranians are up to in the Gulf of Hormuz. In a further move toward the quotidian orientation for which I find fault in others, I have also begun musing about how to model short-term variances in my oil ETF mathematically in order disclose and exploit any underlying structure.
My investment has also been significantly up at points over the last year, but heck, it’s a volatile market.
Our Addiction to Oil
There is a colleague at the research institute where I work who is renowned for his original contributions on drug addiction. I won’t embarrass him by revealing his name, but if he ever reads this article he’ll knows who he is.
The question that his work addresses is how much worth do humans place on the future. By asking people questions like – Would you take $80 now or $100 in a month? – he can measure with precision the value that different individuals discount a delay in a future reward. I won’t go further into his methods or results except to say that two key numbers are 9 days and 4 years.
On average, drug addicts place as much value on the next 9 days as non addicts do on the next four years.
We are all human and each of us expresses frailty in our own way, but unsurprisingly, those who value the future in days rather than years tend to make all sorts of bad decisions on drugs, sexual partners, smoking, alcohol, food intake, gambling … name your vice.
Whilst such behaviors take a destructive toll on individuals, I have begun to wonder whether the difference in the degree to which so-called addicts and non-addicts discount the future is really that different, especially when viewed from a broader perspective. If one considers the time course of the issues that we now face, including the economic, political and environmental (e.g., climate change) challenges that appear to be stemming from over-use of oil and other hydrocarbons, a 4-year period still seems like a rather narrow frame. You might even see it is part of the problem that, at an optimum, most brains are not really wired to go much beyond a 5-year plan.
A few months back I read “The Hidden Life of Trees” by German forester Peter Wohlleben. In his book, Wohlleben skillfully creates a perspective for his reader of a living organism who might dwell in an immature, child-like phase for 10s to 100s of years, and whose life span at maturity could span 100s, or even 1000s of years.
The author also points to the intertwining, branching root systems of trees, and their fungal commensals, noting that they are capable of conducting electrical impulses and have levels of complexity comparable to networks found in the brain. Wohlleben slyly hints at the possibility that tree root systems may process information in a manner resembling neural networks i.e., trees have some level of cognition.
One has to be careful not to be anthropromorphic. Nonetheless, Wohlleben’s book had me pondering. What if humans had the 5000-year lifespan of the Methuselah Bristlecone pine or could match the 4000 years of the Llangernyw Yew tree? Surely, our discounting of the future would extend out much further than 4 years ? Also, would our exploitation of resources such as fossil fuel change if we knew that we would personally have to live with the consequences, rather than fobbing these off on our children, their children and so on?
And what if trees could think? How might they regard us humans? As hopeless addicts, I suspect.
Any complex time-series analysis gives peaks in an FFT analysis, and one has to be careful not to read too much from the tea leaves. The business cycle has been known for centuries, and quasi-periodicities work until they don’t.
Peak Oil is comming. That one is certain. Climate doom is not. They keep us entertained with the second so we don’t ponder too much about the first. It is after all a good excuse for an energy transition that is going to be required. The problem is it won’t work. We can’t run our civilization on renewables, and I don’t think we will ever get fusion to work the way we need it to.
“Oil Price Instability Indicates That The 300 Year Era Of Fossil Fuel May Be Entering A Culminating Phase.”
What is going to be interesting, in the next 10 years, are the following factors, in no particular order of importance:
1) Whether Greens can be convinced that nuclear is a necessary part of any energy future. The sooner this happens, the better off the world is likely to be.
2) the adoption rate of electric cars.
3) the decline curve for oil demand versus the decline curve for oil supply. There is no reason why the rest of the world couldn’t replicate U.S. success in shale oil. The barriers are all political and economic, not scientific. If the rest of the world manages to get over fracking fears, our supply will extend a long time. In which case oil will ultimately be brought low by demand drops. As demand drops, many countries will seek to monetize their remaining oil as quickly as possible, viewing it as a wasting asset. This will drive down oil costs even faster.
4) Alternate scenario – Greens prevent nuclear power, and fracking. Supply is constricted, But high prices create demand destruction, so it is unclear if this scenario speeds or slows the end of oil. can we make RE actually work?
5) The behavior of China and India, who are ultimately the arbiters of our future. Do they cut demand for hydrocarbons? Or increase it? Certainly the Chinese seem all in on electric cars.
6) Naturally the climate will play a factor. Most Greens, being remarkably ignorant, don’t realize the climate changes with or without carbon dioxide. If the earth cools naturally, as it has done in the past, despite carbon dioxide increases, adoption of RE might slow to a crawl. Alternately the Earth could warm, again, in no relation to carbon dioxide. That could drive RE faster.
So we have several game changing players and processes at work here. Oil could go much higher, or much much lower. Energy could be abundant or scarce.
I agree with most of your points, especially around India and China and the rest of the developing world. Almost regardless of the solution, if you increase the population of the world and then upgrade everyone’s lifestyle to that of the develop western world, you’re back in the same situation with a global problem to solve. I so relieved that population growth appears to be waning in most parts of the world, but we have a big consumption hump to climb.
Where I do take exception is your assertions discounting the role of the carbon dioxide increase in climate change. Although I agree that the climate changes naturally by itself and impact to date is modest as this is really a potential future concern, that does not negate the fact that when humans impact earth on a global scale it may have an impact on the planet itself. It’s not all one or the other, both can be true and over time it’s possible human caused climate change may dwarf the shorter term background variation.
Finally, I see the post policy is to be polite and not use terms like “deniers” to describe a people that you disagree with. Your post was polite but I’m a bit uncomfortable with the term greens to describe people that you disagree with. Both groups of people (deniers and greens, to use the negative vernaculars) include many folks that are ill informed, but both groups also include people that are informed but just disagree on the approach going forward.
Thank you for your thoughtful response.
I’m not negating the role of carbon dioxide, just pointing out that, not only don’t we (the west) control supply or demand for hydrocarbons, we don’t control natural climate forcing, which we know exists. And that those natural forcings may be additive, or subtractive, of anthropogenic forcing. And that those natural forcings, which are largely unmeasured and unacknowledged by climate change activists, may influence public perceptions regarding the scope and scale of the problem.
If we drop down into a major, natural cooling trend, then the impact of carbon dioxide may be highly attenuated. Alternately, if we are in a natural warming trend, our efforts to reduce carbon dioxide may show little immediate impact. In both cases it may be hard to sustain an expensive program for RE.
We can deploy solar panels on every roof in America and have no impact. We can all drive electric cars and have no impact. Even immense, disruptive, and financially unsound efforts on our part may have no effect on the outcome.
In such a situation it is going to be very hard to sustain much enthusiasm for expensive RE or anything else.
To me, the bottom line is that arguing about anthropogenic climate change is utterly pointless. The only path for GHG reduction is if it is much cheaper and better than all other possible alternatives. No hiding the ball, no passing the costs on somewhere else, no subsides. Consumers must see decreasing energy prices wherever GHG emissions are reduced. Utilities need to be eager to add GHG reductions to their portfolio for that exact reason. Poor countries have to see it is a best, cheapest, alternative. Electric cars can’t just be as good as ICE cars, they have to be better – cheaper, faster, more reliable.
Bottom line – climate change cannot be the driver for GHG reductions. It can only be a happy beneficiary of GHG reductions. All efforts to the contrary are doomed to failure. I think climate change activists are remarkably blind to this reality. They see the only path forward as forcing everyone to obey – but they will never have enough power, over enough people, to make any difference. We need to change the paradigm.
To change the paradigm of environmental groups, let’s take the total annual budgets of all environmental organizations in the U.S., which would be several billion $, and devote the entirety of that money to buying and giving away for free, solar panels to utilities. Buy only panels at the lowest price per watt. Create a large sustained market for cheap solar panels, and provide benefits to people who cannot afford to front the costs themselves. Focus on small towns and small utilities. They would see solar power as essentially free. It would reduce utility costs, despite dependability issues.
Alternately raise the money and offer 150,000 golden tickets of $20,000 each to buyers of new electric vehicles under a price of say, $40k in price. That could spur the sale of an additional hundreds of thousands of additional electric cars per year, and make a base Tesla Model 3 just $15,000 to lucky buyers.
Stop lobbying for someone else to do stuff, and start working toward making solutions so cheap they can’t be ignored. Create increasing demand for cheaper solutions.
I was not aware that “greens” had any negative connotation whatsoever, being used heavily by groups like Green Peace and Green parties in Europe. I’ve also used the term “climate change enthusiast” at times, as a tongue in cheek reference to the opposite of a climate change “denier”. But whatever appellation you feel comfortable with is fine with me.
Fission works.
Yes. Inside the Sun.
That’s fusion, not fission.
Hi Javier,
Tx for responding to my post. I have to apologize for not engaging you and other readers – I’ve had a grant deadline that has left me with little time for much else during the last few weeks. I depend on research grants for my supply of “guns and whiskey” and other life necessaries…
On your point, “Any complex time-series analysis gives peaks in an FFT analysis, and one has to be careful not to read too much from the tea leaves.” I agree, but here are some considerations/mitigations.
First, you will note a control calculation that I undertook wherein I “shuffled” the daily time series and re-performed the FFT. One can repeat this randomization over and over again with little evidence of a dominant frequency emerging in the frequency domain.
Second, in an earlier article (see http://www.oil-price.net/en/articles/volatility-in-oil-price-on-the-way-again.php) I performed FFT on an 8 year period prior to 2000 and again, no dominant frequency was found. The oscillating signal seems to have emerged sui generis after the turn of the millenium.
Third, the approach seems to provide a certain prospective robustness. My FFT based method enabled me to predict in late 2013 that 2014 would see increased oil price volatility (see http://www.oil-price.net/en/articles/oil-price-volatility-on-the-way.php). Then again in February 2018, I predicted that mid-June 2018 would see a rise in oil price volatility (see http://oil-price.net/en/articles/volatility-in-oil-price-on-the-way-again.php).
The first volatility spike hit last year on June 26 2018 – a level of precision in my forecast that even I was a little startled by.
Having said all this, I think one can lose the wood for the trees. The core of this story is not in its prospective outcomes. I’m not trying to develop an approach to investment etc. The key relevance is in the retrospective lessons that I think we are learning. My hypothesis is that the oscillating signal of instability in energy markets disclosed by my analyses is having real impacts on our civilization at large. We may be being hit every 3-4 to years by a tidal wave and not even registering the fact. These waves of instability seem to be propagating trouble into our economy and political arrangements, and yes I agree, the ultimate basis is likely PEAK OIL.
Peak oil is happening, but over a generational time course and not in the way that most imagined it would. My view is that the mechanism behind the oscillating signal of price instability relates to a cycle of supply/demand imbalances that occur at the crest of resource-depletion (Hubbert) curves. If you want to see historical examples take a look at Ugo Bardi’s work on whale oil/baleen in the 19th century.
An initial key step in an exorcism is to recognize and name the demon. This is the task at hand, unfortunately what follows is harder.
“Peak Oil is comming. That one is certain.”
No, it is not.
People ask me how much oil there is, and my answer is always the same: At what price?
Think of any resource like a pyramid. At the top of the pyramid is the amount of resource available at a low price. Each level down the pyramid represents an increase in price, and each step down represents a doubling or tripling of the size of the resource. As you travel toward the base of the pyramid, toward higher costs, you realize that the resource base heads to infinity.
At a price of $4.60 a gallon, Los Alamos calculated we could produce unlimited amounts of gasoline using nuclear power, water, and air. But naturally, we will never get there – at $4.60 a gallon electric cars become extremely cheap alternatives. Given half our oil goes to powering vehicles, expensive oil results in demand destruction on an epic scale. If that seems high – Norway sells gasoline at $7.82 U.S. today. It is why they have the largest penetration of electric cars in the world.
I will predict here and now – nothing short of catastrophic war will ever get oil above $80/barrel again. That time has passed, and will not be seen again.
Peak consumption will occur long before Peak oil. Demand destruction is happening now even at low prices – it is what is keeping prices low. Cars are increasing in efficiency. Electric cars are going on sale. LED lighting is destroying demand relentlessly as well. A huge part of wrecking the coal market is not just cheap gas, but very efficient system for converting that gas to electricity. Producing 6 Tcf per year, the Marcellus shale in Pennsylvania alone can generate 840 TWh of electricity, or enough to meet the entire electricity demand needs of Texas, California, and South Carolina combined. In 2000 1 TCF of gas could generate 115 Twh of electricity. In 2015 that was 140 TWh. It is still improving.
This all tracks back to the power of computing and Moore’s law. As computing power increases, and becomes cheaper, it spreads to more and more industries. Fracking is simply a manifestation of the increase in computing power – better seismic, better sensors, better controls. Without cheap computing power none of that would be possible. Same for electric cars – they need cheap fast computing power to be truly economical. Same for electrical generators – a lot of the improvement is on better controls and monitoring of the combustion.
Well stated.
“…nothing short of catastrophic war will ever get oil above $80/barrel again.”
https://www.eia.gov/dnav/pet/hist/RBRTED.htm
Brent Spot Price FOB (Dollars per Barrel) – EIA
2018 Sep-24 to Sep-28 80.89 82.21 81.87 81.54 82.72
2018 Oct- 1 to Oct- 5 84.94 85.63 85.45 86.07 85.12
2018 Oct- 8 to Oct-12 84.22 85.16 83.82 81.35 80.71
2018 Oct-15 to Oct-19 80.91 80.53 79.91 80.30 80.38
Just sayin….
The price today? $67.69 FOB. It is just not sustainable above $80 FOB. You prove my point.
“IEA: U.S. Shale To Seize Market Share In Next Decade
Mar 11, 2019 at 17:21 | Nick Cunningham The U.S. shale industry has been responsible for a tidal wave of oil production in recent years, and shale will increasingly dominate the oil market over the next half-decade…”
“U.S. Electric Vehicle Sales Increased by 81% in 2018.”
“Forecast: 2019 US EV Sales Growth ~12%”
“Electric Car Sales Expected To Increase Substantially In 2019.”
If transportation represents 50% of oil usage, anytime oil pushes above $80 FOB, demand destruction accelerates until the price is brought back down. And that demand destruction is permanent – the electric cars don’t just go away once oil prices drop.
On the production side it is know as shale band theory – oil prices now have an upper and lower bound, largely decided by shale output and production costs. If prices rose to, say, $80 per barrel, shale activity ramps up and new supplies come online, dragging prices back down below that threshold. If prices fall to $40 per barrel or below, drilling will dry up and the drop tightens the market just enough to push prices back up. Anyone notice that while prices are volatile, they are volatile within a very specific range?
What is a disadvantage of shale (short term productivity of wells) actually becomes an advantage – it works to rapidly surge and restrict supply in response to prices.
People fall into the trap of ignoring swing production and consumption. They say, well, shale oil only represents X% of the oil produced, or electric cars are only X% of the total fleet. It doesn’t matter. Swing production/consumption dictates prices. It is the ability to ramp up and down that matters, not the % of the market share.
And the trend is more manufacturers of electric cars of lower prices, and lower production prices for shale oil, in more markets. That actually pushes the band for oil prices downwards over time. In 10 years $80 FOB might be $70, or $60.
Your confidence is admirable. I am more of a “look at the data and let’s see how this story” plays type of a person. This being said, the retrospective analysis is clear – there is an oscillating signal in price volatility with 6-7 repeats in its succession. This signal would be consistent with mathematical patterns characterizing the crest of a Hubbert resource-depletion curve. I don’t know this means we’re at Peak Oil, but the oscillating signal I characterize is an data point that suggests that we might be.
OR the oscillating signal is the shale band theory in action. In fact it perfectly fits what I would expect to see in the data since 2008. What you are seeing are cycles in demand destruction and shale production.
Peak oil theory has always had a what I call the simple future flaw. The classic example is the star ship Enterprise, zooming around the galaxy faster than the speed of light, with clunky Bakelite switches and mini skirts.
The simple future flaw – whenever we envision the future, we envision it as the same as now, with only one or two things different. Peak oil is, same as now, but we have run out of oil.
Things is, as Yoda might say, “always in motion is the future.” The future is never just one thing changing, it is everything changing. We have less oil in the ground, but we have better technology for extracting it. Or more countries are open to exploration. We have high prices, but we also have rapid demand destruction.
The problem with peak oil is there are loads of technologies that can radically change the picture. Let’s say electric cars fall to…$25 k, 0-60 in 3 seconds, 300 mile range. And consumers find fueling their cars at home to be a tremendous convenience. I wouldn’t say that is impossible in the next 10 years.
Or say various companies working on reducing drilling costs succeed, and drop costs by an order of magnitude. So production costs for fracked oil drop from $50 to $5.
Peak oil is a subset of peak this, and peak that. In 1890 they worried New York would soon be choked with horse manure – peak manure. Instead by 1920 it was choked with cars.
Peaks have a long history of being just foothills, and ultimately, footnotes, in history.
Tom, I think your theory is very interesting, and I appreciate you posting it here. You could very well be correct, and I could be wrong. But the future is the undiscovered country, and I think there may be more than one possible explanation for what is occurring in the data.
Geo,
Could not respond to your your previous post – there was not a “reply” option.
I am not familiar with Shale band theory – so did some research i.e., I googled it : ) Technical definition I found was rather narrow and financial – setting confines of price bands etc. Intuitively, my sense is that “shale band theory” is the consequence of practices that occur/operate at or near the crest of the Hubbert curve. Viz as exploitation of a resource itself starts to alter the physical state of the resource “in the ground”, new more difficult and expensive strategies are required. However, these “innovations” can not produce at the same rate as when the resource flowed freely, and also have inherently episodic outcomes – leading, perhaps, to the type of oscillating patterns that my FFT analyses suggest.
As the old Bhuddist parable goes – we may be grabbing the same Elephant by different body parts…
I agree that the future is another and unimagined country. However, I think that where we diverge and honestly where I believe that you are in error, is to assume that human ingenunity provides us immunity from the laws of physics. Yes – we will probably muddle through the coming unpleasantness and tack together solutions or sorts. But the myth that our smarts will always see to us emerging “on top and better than ever” is dangerous IMO.
But, again, to return to the larger point of my article – Whether it be from “Shale band theory” or “Peak oil”, the resulting disruptions emanating from energy market instability over the last 20 years are already MORE than our system can bear.
If this instability intensifies going forward, then based on what I see as its destabilizing knockon effects on our financial and political arrangements so far (e.g. 2008, Trump), contemplation of the future gives me pause.
T
Sorry not to respond sooner. This discussion is getting philosophical which is fun.
“However, I think that where we diverge and honestly where I believe that you are in error, is to assume that human ingenuity provides us immunity from the laws of physics.”
You are making a classic error here. Assuming human ingenuity is a driver of anything. What I believe is that humans will exploit the laws of physics to the maximum degree possible. And that when you calculate the limits of what is possible, you realize that we are not even close to reaching them.
I don’t think being optimistic is dangerous at all. The one common factor in all failure is conviction that a problem can’t be solved. Pessimism is much more dangerous than optimism. I am very pessimistic about just one thing – and that is that whether pessimistic predictions are true.
“If this instability intensifies going forward…..”
Let me explain what human ingenuity actual is. But first a digression. Most people don’t understand how evolution works. For a typical set of 200 mutations, 190 will be neutral, 5 will be fatal, 4 will be harmful but not fatal, and 1 will be beneficial. Yet here we are. The recipients of billions of years of fortunate mutations. And instability is exactly what drives the process.
I have a simple and foolproof method to guess a winning lotto number correctly every time. I just purchase 100 billion lottery tickets with random numbers. As long as it is physically possible for a winner to exist, I will be that winner.
Capitalism is the same way – for every 200 companies started, 30% fail in the first year. 50% in 5 years. 66% in 10 years. Of the remaining 44%, most are not wildly successful – most just putter along. One in hundreds, thousands, millions, is the next Microsoft. Yet Microsoft exists, along with Google, Chevron, etc. And again, instability drive innovation.
All are brute force calculation schemes. We don’t know the answer. We don’t even know how to find the answer. We simply try every single possible answer till we find the right one.
And each year the number of solutions we can test is increasing. There are more people alive today then at any time in human history, with more scientists and engineers, with more computational power. And it is steadily increasing – the speed at which every possible solution to any problem can be tried is accelerating.
Which brings me around to the first paragraph – if it is physically possible for solution to exist, I believe a solution will be found. And I don’t see any physical limits worth mentioning to any of the problems we face.
Geo, you should compare 2 curves: the first one is that of 2P reserves discoveries of conventional oil, the second one is that of oil price, and you will see that oil prices have now little influence on new discoveries.
Of course, there is shale oil, the future of which is still difficult to forecast, but is for the moment a US success story which is not really extending to the rest of the world.
For those not in the know, 2P refers to proven and probable reserves.
The advantage of being an old guy, you start to notice the same incorrect predictions keep getting made over and over gain. Often by the same people.
All the predictions of Peak Oil were exactly right, but assumed something that was not true – technology was standing still. If we still had 1990s technology, they would have been right. We don’t, hence they are wrong. Reserves are defined by being technologically extractable, and the disconnect between 2P and price is a direct measure of the rate of technological improvement, which is very high at the moment.
Is the fact that the shale revolution isn’t extending anywhere else especially surprising?
I know some people who were involved in trying to export the shale revolution to Poland. The word I heard was “chaotic”. Not a word that rallies much investment.The country wanted 50% of the production off the top, and the land owners didn’t own the mineral rights below their land, so got essentially nothing, and therefore fought tooth and nail to stop it. The country couldn’t even settle on regulations.
Why not drill in say Texas, where the land owner will happily settle for a 15% royalty, and the regulations are all in place, as well as all the infrastructure to collect and process the resulting finds?
Especially at low prices, why bother with Poland? Why bother with anywhere else?
The U.S. is about the only country that allows individuals and private companies to own the minerals beneath their land, and to strike a deal. Discover oil or natural gas in your backyard and you can get rich fast. But in most other places, you’re out of luck: Those minerals are the property of the government. That is one of the major obstacles for exporting the shale revolution anywhere else.
I would hope that the author has read the excellent history of oil written by Daniel Yergin – The Prize – which informs us that there have been many periods of extreme volatility in oil markets going back to its earliest days. I spent nearly two decades involved in oil and gas trading, with much of that time spent on considering oil price scenarios on time frames ranging from seconds and minutes through to weeks, months and years and on to decades that are involved in investment decisions.
I see that Murphy is still regarded as the bible for technical analysis: an art that taught there was always more than one way to read a market chart and technical indicators, and yet analysis could become self-fulfilling because many paid attention to it: at times, you would watch a market turn to the cent at a technical target price. Again, there is a fractal nature to price behaviour across timescales.
Overlaying this was what might be called physical analysis, keeping track of production trends, interregional shipping and shipping markets, and factors that might affect demand from the weather through to the economy.
A further important layer was following what was going on in markets: large positions established by particular entities could often prove influential, most especially if they were forced to unwind them in a hurry (Down markets tend to be much more volatile and shorter lived than bull or sideways) markets. The entry of banks and financial institutions into the markets occurred in a big way once OPEC ceased to have any meaningful control over prices, and with the development of the Brent market, which gave a rocket boost to oil trading (the driver was actually the 1984/5 miners’ strike, which saw light sweet North Sea oil sold to markets overseas, and replaced by heavy gunge mainly from the Middle East that produced plenty of heavy fuel oil for the power stations). Once the banks started applying financial portfolio theory and offering clients oil traded funds, they swamped the market. The financial crisis in 2008 saw banks forced to unwind these vehicles by the need to free collateral to bolster balance sheets: hence the severity of the price drop.
Of course, geopolitics and “news” are big drivers of prices and trends. Some of the most volatile periods are marked by oil news: Mossadeq, Arab-Israeli wars, Kuwait invasion, end of Communism in Russia, Chavez coming to power in Venezuela are obvious examples. Being able to forecast possible geopolitical developments is certainly key to understanding the markets.
Then there is the deep double bass: the resource base and its exploitation. If we go back to the era of OPEC dominance, there was reason to be fearful for the future. R/P ratios fell to around 30 years at the global level. But that dominance and high real prices particularly during the early part of the Iran/Iraq war drove exploration effort across the world, and R/P ratios rose. They are still not far from recent highs at 50.2 years for proven reserves as at end 2017 according to BP Energy statistics, despite attacks on oil investment by the green fraternity.
I no longer attempt to put all the pieces together – besides I don’t have the access to information that you get at a trader’s desk with specialist publications, databases etc. all on tap. But if I look briefly now, I see:
Technical: Near the top of an Elliot B wave (indeed it has arguably even slightly overshot a Fibonacci retracement from the December low), with the vicious C down wave to follow; the top and the 2018 high will also define an Andrews pitchfork channel for prices to follow. Minor support around $44 and $42 in Brent from the repeated bottoms of the largely sideways trading since 2015, with major support at the multi year low – yet with enough momentum even that could be breached. Timescale to bottom of C wave not quite yet defined, but likely late this year – say Oct/Nov.
Economy: Considerable weakness in both Europe and China threaten to undermine demand and prices. The threat of further financial crisis could amplify this dramatically, as with 2008.
Geopolitics: In Venezuela, Maduro’s days seem numbered – his ouster would see some rebound in output quite quickly, with a more significant return to previous normality taking 3-5 years. Iran sanctions are not leaving the market short of oil. Risk of Gulf flare up has been lowered by the removal of MbS from de facto running Saudi and stirring the pot in Yemen and with Iran etc. Russia seem keen to push gas exports (Nordstream II, China) for revenues to fund the military-industrial complex: actual military adventures are likely later, but for now consolidating the position in Syria will suffice. China is smarting from its trade war with the US: however, belligerence at this stage is for show, as they need to find a way to restart the economy, not helped by recession in Europe. Europe looks increasingly unstable politically in a self-fulfilling double spiral of economic underperformance and political unrest.
All these forces may look predominantly bearish for now, but there is always room for surprises, such as Iran deciding to be more pro-active militarily in the face of sanctions (their new submarine is a declaration of intent, although rather easy to track in the shallow Gulf). Once the market has found a solid bottom and rebounded, the next phase will be harder to pick until we have a clearer picture. We are likely still some way off from peak oil: start to get seriously concerned when those global R/P ratios drop below 40. That is at least a decade away on the simple arithmetic.
P.S. No-one should consider what I have written as investment advice. With my lack of access to detailed information I’m much more likely to be wrong than in the past when it was part of my job.
I see several problems using the R/P ratio as a proxy for scarcity. Basically one would have to remove Canadian oil sands that exceed current pipeline capacity and reduce the estimates of some OPEC countries, since their reserve figures are not accurate. You would then end up with something much lower than 50.
More useful proxies of medium term scarcity is to look at i) exploration success (low in recent years) and ii) how much oil will come from new conventional projects in coming years. This latter figure can be compared to global decline rate from post peak fields. In 2015 the net was positive (i.e. surplus w/o LTO even accounting for demand growth and hence the stock increase), in the coming years it look to be neutral or negative. Perhaps LTO and other short cycle projects will fill the gap for years to come, perhaps not?
Whilst I wouldn’t want to trust R/P ratios at the level of individual countries (or at least some of them), at the global level the trend is sufficient when we are dealing with several decades ahead. If you look at R/P ratio history for the US, it seems that the exploration and proving effort is more or less hand to mouth – it has never exceeded 14 years over the past 4 decades, and from 1980 to 2000 it barely ever exceeded 10 years.
Many years ago I was involved in the compilation of global oil statistics that involved making judgements on various published sources. Reservoir engineers and geologists with experience in many different countries were key in assessing proven and probable reserves as best we could. Back then, they were a conservative bunch.
Thank you for this thought-provoking post. A small correction – it’s Gail Tverberg, not Tvedberg, at Our Finite World.
I also think you might reframe your thoughts and the issue as ‘our energy addiction and consider how we could manufacture our fuel and power from something besides fossil carbon and hydrocarbon resources. I phrase it that way because we certainly don’t put raw crude oil into fuel tanks; fuel manufacture takes a lot of energy as well.
In other words, separate the thought of energy from our present source. There are major hurdles no matter what new sources we move to. I personally think that new nuclear reactor designs offer the best path forward. Euan and the regulars here also appreciate the value of nuclear fission. Gail Tverberg doesn’t seem to take fission and its possibilities into account on Our Finite World, as near as I can tell.
Tom Therramus, you put too much credence in Andrew Nikiforuk, just because he likes your analysis. It is not surprising there is volatility in a currently saturated market that is highly dependent on political winds, which shows up in a FFT analysis as Javier notes. With a little digging I bet you might consider Nikiforuk to be a biased and scientifically poorly informed individual, which is why he seems to have become peripheral in the Canadian media. You can check out his books and articles. I hate to make a personal comment, but in the twisted world of environmentalism opportunists, charlatans, and the self-deluded abound. Up to a point I enjoyed his 1993 book “The Fourth Horseman” but it was technically light-weight, and it garnered poor reviews from experts. Perhaps a common thread…
Hi Brian, Tx for responding to my post. Your opinion is noted. T
Whilst short term volatility will continue, I think the rise of fracking will reduce the scope for large future price spikes.
Traditionally, oil supply is to some extent determined by multi billion dollar, multi decade investments in oil fields. These investments are made at times of high oil prices, and then come on stream when the oil price is low, pushing it down further. With high capital costs and low(ish) operating costs, big oil cannot respond to price changes.
Fracking is shorter term. A well is productive for a few years only, and a new well can be drilled with a few months notice.
About 2 years ago, Saudi Arabia decided to put the frackers out of business and upped production. The price crashed, and sure enough, new wells fracked plummeted. As a big, bureaucratic organisation, Aramco assumed “job done”. The frackers would lose their revenues and go out of business, leaving the market for OPEC once again.
But frackers are not big bureaucracies. They cut costs, cut investments, cut pay,mothballed equipment, and lay low. And the moment the price increase, out they come, to frack some wells, and up the supply.
https://www.eia.gov/analysis/studies/worldshalegas/
Look at that map and consider – only Canada and the U.S. are producing significant hydrocarbons from shale fracking. What if the rest of the world followed our lead? We could have 10 to 20 times the resource base, easily. heck even adding just Northern Canada and Alaska, and Mexico would double the fracked output. Note how shallow, offshore waters are not even included on the map.
The potential is immense. American frackers are clever, and north american laws encourage investment, but all of that can be replicated elsewhere.
In theory we have 100+ years of oil and gas at our disposal. But only in theory.
On the flip side, 50% of oil in the U.S. goes to passenger car travel. If electric cars become popular, demand could drop quickly, say 1-2% every year for 25 years. Given we currently use 20% of the world’s oil, we could cut demand up to 10% in 25 years.
That same demand ratio is true in most countries – oil demand is 30-50% for transportation fuels for cars and trucks.
So imagine a supply surge of +50% and a demand drop of -50% over 25 years.
Not saying it can or will happen, probably unlikely, but such a scenario is not outside the boundaries of what is possible. I’m only pointing this out in the context of oil price volatility. The price for oil could become very volatile, surging and collapsing suddenly.
“Fracking is shorter term. A well is productive for a few years only, and a new well can be drilled with a few months notice”
Fracking requires an endless supply of investors who don’t want their money back.
“U.S. SHALE OIL INDUSTRY: Not In The Business To Make Money, But To Take Money”
https://srsroccoreport.com/u-s-shale-oil-industry-not-in-the-business-to-make-money-but-to-take-money/
That is contradicted by the large independents and multinational companies that are now taking positions in shale development.
would the “take money” also apply in Argentina and China?
It is odd how people persist in promoting information that was debunked a decade ago. Or are they say that since 2006 all money invested in fracking has been lost?
I had my doubts a decade ago, but not now. Shale is profitable, even at relatively low prices. At least in the U.S. with our appropriate financial and oil infrastructure.
Not sure how you define ‘profitable’, but by any cash flow measure fracking is hopelessly unprofitable. You might as well throw $100 bills down a hole. Operators in the Bakken have a cumulative total free cash flow of over negative $40B since 2008. Eagle Ford performance is no better. Permian might be somewhat better. The only E&Ps I can think of off the top of my head who consistently generate positive FCF are EOG and Continental Resources.
Decline rates on these wells are so high that fields are in constant need of drilling, and the more you drill, the greater the decline burden next year, which will require you to drill even more just to keep production flat, and so on, ad infinitum. This is called the “Red Queen syndrome”. This business is unable fund its own capex requirements so it turns to perpetual debt and equity issuance, resulting in a constantly growing debt pile and/or shareholder dilution.
Much of what is produced from shale rock is condensate, which is significantly inferior in energy quality to conventional crude oil.
The proven reserves for shale in the US are much smaller than you might think – maybe 22-25 billion BOE. At current rates, by the mid 2020s all 3 major shale fields likely will be in terminal decline. The net effect of all this on history will be that the revolution added another decade and a half of supply growth to the US.
A straight-faced analyst might say that it works in the US because of private mineral rights, but a cynic might say it ‘works’ only here because only the US has seemingly unending capital reserves to throw away on this. At best, shale production is a marginal business.
Phil D, thank you. Any comments on fracked natural gas?
You are playing the same sad trombone I have been hearing for 10 years. Shale is always just about to fail, and somehow never does. You are essentially arguing we are producing 6 million barrels of oil a day at a loss. In less than a decade, U.S. shale oil revenues have soared, from nearly zero to more than $70 billion annually. Just an illusion.
John Shaw, chair of Harvard’s Earth and Planetary Sciences Department, recently observed: “It’s fair to say we’re not at the end of this [shale] era, we’re at the very beginning.”
Break even costs for shale are likely to fall again – to as low as $5/barrel in the next 10 years.
My argument boils down to, essentially, we don’t know. Both supply and demand are hard to gauge, two many moving parts.
“You are playing the same sad trombone I have been hearing for 10 years.”
Actually, the shell game seems to be heading for a closure. Investors are getting tired – at last.
“… If we take an average for both groups, the major oil companies are down 2% from their highs in October while the shale companies are lower by a staggering 43% …”
https://srsroccoreport.com/the-bloodbath-in-u-s-shale-stocks-continues-worst-is-yet-to-come/
Not really. Those investors aren’t going to get their money back. Period. Whether fracking happens or not – so it might as well happen.
Correct. Investors have lost their money. It will never come back. There are no two ways about it. Financial reports and cash-flow statements reflect reality. They are there for a reason.
Which investors and what money? Some investors are going to lose, others win, and the world just keeps spinning around.
People betting on high oil prices, which is likely a majority of current investors, people who listened to the peak oil guys, will likely lose their shirts. People who are optimistic about oil prices, paid attention to what is happening on the ground, made money.
It is funny – if oil prices were high right now, say $100 a barrel, these investors would be making bank. But they grossly underestimated the odds of their own success. They succeeded so wildly they drove the price of oil down to a point where they have a difficult time making a profit. Who knew increasing oil supplies would be so easy? I sure didn’t.
Pessimism has a cost.
If there are volatility spikes in the futures prices then they should be reflected int the implied volatilty of the options on the futures – was this checked and was there a 3/4y cycle?
If there was one then it suggests a profitable trading strategy for a quant hedge fund ie buy/sell volatilty through various option combinations over the cycle. Did the author, besides making predictions, trade the volatility and was it successful?
Hi M, Please see my response to Javier. T
In the context of this discussion, the 2015 book: “The Price of Oil” by Aguilera and Radetsky, makes for interesting, if rather contrarian reading … even so it’s worth acquiring and reading in my opinion.
A brief review may be found here:
https://www.bls.gov/opub/mlr/2017/book-review/the-future-of-oil-prices.htm
(Review downloadable here: https://www.bls.gov/opub/mlr/2017/book-review/pdf/the-future-of-oil-prices.pdf).
The naivity of this article is astounding.
Mr Obama presided over multiple murderous acts by the USA against whole populations in the Middle East and Europe. Massive movements of populations ensued. The effective invasion of Europe by aliens from tribal societies is in the process of destabilising that continent. The desire to oust all incumbent governments and politicians in several countries is a clear manifestation of this.
I am not saying that Obama was solely responsible since he was merely a figurehead who was unable to make the smallest of speeches without his teleprompter. The idea that his period in office was somewhat stable and predictable is what one would expect from an American who wallows in the fake media of that country.
To give you some idea of what has happened to places touched by the curse of American interference, the current estimated population of Ukraine (when Donbass and Crimea are excluded) is 31 million. It was 52 million when the Americans brought in the World Bank and IMF to do their work 27 years ago. Where is this information to be found in the lying mainstream media?
Hello Alfred,
Would you please direct me to some trustworthy media outlets in the UK and USA.
If you want to know what is really going on, here are some suggested English-language websites:
1- https://www.rt.com/ (Russian state media is far closer to the truth than CNN etc.)
2- https://www.voltairenet.org/en (this French journalist had to flee to Syria as his life was/is in danger. His articles are translated by volunteers into many languages)
3- http://johnhelmer.net/ (this – Australian – is perhaps the only independent foreign journalist in Russia. He has been there for 30 years)
4- http://thesaker.is/ (this website effectively debunks all the fake news about Syria, Iran, Israel and so on)
5- https://southfront.org/ (this website effectively debunks all the fake news about Syria, Iran, Israel and so on)
Once you start reading articles in these websites, you realise that their stories reflect reality and actually make sense. The stories of the BBC (e.g. MH-17 and Skripals) simply don’t correspond to reality and the laws of physics.
Frequently, the websites above share articles. That way you can find out who else is telling the truth.
Recently, a survey by an American polling company showed that Americans generally believed that foreigners liked them. In reality, proportion of foreigners who detest the USA has reached unprecedented levels and has been rising for decades. Such is the success of their MSM at brainwashing the American public.
“America’s international image continues to suffer”
http://www.pewglobal.org/2018/10/01/americas-international-image-continues-to-suffer/
Just look at the drubbing at the MSM and in congress that a US representative of Somalian descent got from saying the truth about the role of Jews in US politics. Newly-elected representatives are pressured to sign a piece of paper to say that they will never criticise Israel. Where is that in the MSM?
“Orthodox Jews in US express support for Ilhan Omar”
https://www.trtworld.com/americas/orthodox-jews-in-us-express-support-for-ilhan-omar-24721
Alfred (Cairns) — RT is known to just Make Stuff Up. Indeed, after this post it appears that you do likewise, I am sorry to say.
They do, which makes it doubly unfortunate that even when a person with a clue get allowed on air there, one wouldn’t know it unless they’re a known quantity already. It’s their style of mixing lots of (conflicting) disinformation with just enough truth that makes RT and their masters so insidious and utterly unreliable.
However, other outlets have covered the demands for public servants in the US (one teacher before, now apparently representatives in the house too) to sign away their right to free speech in that particular matter. BDS really ruffles some feathers and the voices demanding loyalty for the _current_ government of a foreign country seem rather loud. Make of that what you will.
Gee Alfred, I had previously just assumed you were simply wrong about…well everything. But the problems goes much deeper. You are wrong because you are extremely gullible.
South front and RT are both run by the Russian government. They print exactly what the government tells them to. Not a source I would trust.
It is amazing how a bit of simple math can answer who is telling the truth. Hint – everyone lies to varying degrees. At least among politicians and the press.
I’m much more worried about Ilhan Omar being a complete ignoramus than her opinion about Israel. Anyone watching her talk extemporaneously has noticed the same thing – she has comic difficulty stringing together a coherent sentence.
Google suggests the population of Ukraine has fallen from 52 million to 45 million. I assume that includes the areas annexed by Russia. (Crimea 2 million, Donbass 4.5 million)
So quite a fall, but not catastrophic. The main issue was that Ukraine stayed in the orbit of the “Soviet Union” and became a kleptocracy. Neighbouring Poland had a similar GDP per capita in 1990, but is now a few times richer. Poland is also hosting about a million Ukranian workers (replacing the Poles in Western Europe).
I’m not sure what this has to do with Obama. Ukraine’s problems are made in Ukraine and Russia. Syria’s problems have been made in Syria and Russia. America bears partial responsibility for Iraq’s problems, but that was before Obama’s time.
And with this tide of migrants to Europe, Europe will be an Islamic state in about 500 years.
Google is 100% a part of the US Establishment. It was nurtured by the CIA, like many other startups such as Facebook etc.
In reality, the putsch-installed government of Ukraine will not carry out a census – for obvious reasons. In the soon-to-be presidential elections, all Ukrainians living in Russia have been disenfranchised. There are 4+ million of them.
If you want to find out the real situation, I suggest you visit a dating/marriage website such as http://1st-international.com/ where you will find that Ukrainian women outnumber Russian women 10:1. Russia has 4+ times the population of Ukraine.
I have a spreadsheet list of 31 very much younger beautiful Ukrainian doctors and dentists who would like to become my future partner. 🙂
Whole cities in Ukraine are denuded of young eligible men – they have fled to avoid having to shoot at their cousins in the east and to be able to sustain themselves economically.
You are delusional on so many levels….Not the least of which is believing anything your read on Ukrainian dating sites….Sheesh.
When I wed one of these beautiful, young and very intelligent ladies – much smarter than me – I will let you know. 🙂
Hi Alfred, When my article first posted at Oil-Price.net Steve Austin the editor alerted readers to the fact that its first comment poster “Solar King” was a “paid for Russian troll”. I was surprised that they’d spend time on my modest efforts, but it nonetheless drove home to me how broad and deep the Russian online influence campaign is.
“In Venezuela, Maduro’s days seem numbered – his ouster would see some rebound in output quite quickly, with a more significant return to previous normality taking 3-5 years. Iran sanctions are not leaving the market short of oil”
So US policy of economic war is supposedly working in Venezuela (it is not) and it is not working in Iran (that is correct). Does this not seem somewhat contradictory?
The reality is that US economic war against a multitude of countries – Cuba, Iran, Venezuela, North Korea, Syria and Russia – is not working. Like it or not, Maduro is popular among his own people. He will be around for a long time. The fact that only some European countries and Japan supported the attempt to replace him with a clown attests to the fact that these countries have no independent foreign policy. They are vassals.
My opinion on Maduro benefits from reading the regional press and viewing some of the footage of anti-Maduro demonstrations in several cities across Venezuela. Some recent developments:
https://www.reuters.com/article/us-venezuela-politics/venezuelas-guaido-vows-to-paralyze-public-sector-to-squeeze-maduro-idUSKCN1QM2ER
If Maduro cannot command large sectors of the economy, he is in trouble.
Guaidó has been careful to court Maduro’s Russian and Chinese supporters (who have made extensive loans to Venezuela repayable in “free” oil that Venzuela struggles to produce) by telling them that their interests would be better served by a change of government. Next door in Colombia, host to 3 million refugees, the president Iván Duque has been quite explicit:
https://www.eltiempo.com/mundo/venezuela/ivan-duque-en-entrevista-con-the-washington-post-dice-que-maduro-podria-encontrar-asilo-en-cuba-333946
“Los días en el poder del presidente de Venezuela Nicolás Maduro están a punto de terminar (…) debido a la creciente presión internacional y doméstica sobre su gobierno “mafioso” y al aumento de las deserciones de sus tropas militares”, afirmó este domingo el presidente de Colombia Iván Duque
Asylum in Cuba beckons.
Of real note was that Guaidó was able to return on a flight landing at Maiquetía, the international airport for Caracas, without any hindrance: scroll down on the above report to see. If Maduro can’t control that border (having vowed to prevent Guaidó’s return from his tour of Latin America to drum up support and doubtless meet other diplomats from around the world, and having previously commanded that Guaidó should not leave the country), power is starting to slip away.
Saturday is promising to be an interesting showdown:
https://www.elespectador.com/noticias/el-mundo/maduro-le-responde-guaido-convocando-marcha-antimperialista-articulo-843408
Perhaps Maduro wants to be able to label demonstrations against him as being in support of him. He will almost certainly use his foreign troops (Bolivians have been useful) to attack some of the demonstrations. Maduro does have some control over the internet, thanks to the Chinese:
https://www.elespectador.com/noticias/el-mundo/bloqueo-el-plan-de-maduro-contra-guaido-articulo-843140
Blocking aid at the few internal border crossing points is much easier, but merely fuels the opposition in the end.
Guaidó was able to return unhindered because the legitimate government of that country decided that they would not fall in the trap the USA had prepared. 🙂
The easiest way to improve the quality of life of ordinary Venezuelans is to stop the economic war. To release the frozen (i.e. stolen) funds and to let the Bank of England return their gold. The BoE is gravely damaging the reputation of the City of London by doing as the USA wants.
As for the demonstrations in favour of the CIA-puppet Guaidó, they were well-attended by people wearing the latest designer sunglasses. People who never missed a meal in their lives. They are by no means representatives of the population at large.
People in the US government are openly claiming the oil of Venezuela for their own companies. So much for fracking being a great success.
“Maduro 1: Abrams 0: but this match is far from over…”
http://thesaker.is/maduro-1-abrams-0-but-this-match-is-far-from-over/
Please understand that I am by no means a supporter of Socialism or Maduro. However, I believe that countries should be left alone and for the USA and Western Europe to try and solve their own problems. Many of these problems – e.g. mass population movements – are caused by their failed foreign adventures.
https://www.telegraph.co.uk/business/2019/02/28/warrington-council-sees-light-innovative-solar-power-venture/
I’m assuming they turn the street lights off at night, and close their offices on gloomy winter days.
I am surprised that the hard-bitten rational Euan Mearns has ventured into the realm of existential angst and prophecies of doom. When clichés like “addiction to oil” get trotted out, it’s a sign that your eye is not on the ball.
Hi Oldfossil, Tx for looking at my article. You’ve responded to my posts at Energy Matters in the past with sage insights. I’m hoping to persuade you to read it again and come back with some further thoughts. You’ll note for example, that I don’t simply trot out a cliche (which yesm I did do – sorry), but back it up with academic research on the time frames that human brains operate on, which I think is part of the problem here. T
My main focus is transport and it seems that there is very little awareness in the wider investment / financial market side of the potential speed of the coming disruption.
Globally it is very likely that we have hit peak sales of Fossil fuel vehicles already. In the 3 major markets EU / US / China this has already happened. We are still in the early stages of Electric Vehicle (EV) adoption which globally has crept up to 2.5% of the total sales market (2018). This has occurred at the same time as we have come off a cyclical peak in new vehicle sales which has already passed (circa 2017). By the time this cycle repeats EVs will have a substantial share of the market and therefore new sales of fossile fuel vehicles have already entered terminal decline.
What the $Trillion dollar question of our time to consider is – what is the shape of that EV adoption curve? The vast majority of financial market based assessments assume only shallow incremental growth in EVs… this is a conservative cognative bias against predicting rapid change. A look at the real world automotive market…. and the value of investments in electrified transport by the industry post the 2015 ‘dieselgate’ saga shows that this change is close at hand. What is also often under reported is that there is an enthusiastic global market for long range (200miles+) EVs which are now becoming the norm in 2019. Take into account associsted public policy levers from various governments committed to phase out of fossile fuels in transport and any established volume car maker not making the shift risks being the Kodak /Nokia of the automotive world
The EV enthusiasts press – which i read – are keen on the consumer goods adoption comparison that looks at the historical rapid rate of adoption of domestic items from Refridgerators and TVs to Home Computers & Mobile Phones . Most of these curves are logarithmic with change happening rapidly after an initial slower start. Personally I have some skepticism with some selective reading of this data and assumptions made however in terms of what I consider to be the most likely scenario I largely share the conclusion that this change will be rapid.
At what point does this affect oil. Very soon in my mind as it will only take a few % points drop in the demand for transport fuel to unpin the long term futures and this will be enough to cause a significant disruption in the market . The shift of large Oil majors such as BP and Shell to diversify into green tech shows that even the conservative and of the industry is hedging its bets.
I suggest that you take a look at what happens to EV sales when the Government Subsidies are withdrawn, the subsidies are supposed to be for “start-up” to get the business off the ground.
The only problem is, EVs have been around for over 100 years and should not need any kind of help if the demand was really there.
The real situation is that Governments are trying to force EVs on the public in the stupid fight against “Carbon” polution.
I’m going to park any discussion on your denial of climate change…. although I fairly call you out on it
My interest in responding to you is what I consider a fairly naive assumption that subsidies on the capital cost of EVs are massive effect on growth I doubt all the rich first movers buying Teslas were bothered very much about a few thousand $ tax rebate vs a $60, 70, 80,000 car. Besides for Tedla they have now lost that subsidy as they have crossed a 200k sales threshold.
Now if you think consumers are so price sensitive then you would surely share my assessment as Tesla have just dropped the price of the Model 3 to (from) $35,000. The main volume car manufactures are all looking to compete in this space from GM to VW so the investment is encouraging a downward cost spiral as is commonly seen in Tech.
Sure you can’t make a $10k EV and turn a profit today… but that’s not the average price of a car in any of the leading markets… and the opex cost of owning an EV is so much lower due to lower fuel, maintenance and taxation costs. I agree the later there is somewhat a factor… but the why shouldn’t i we tax Co2/Nox/PM2 when we tax cigarettes alcohol and anything else bad for consumers
CO2, is not “Bad for Consumers”, it is Plant Food, of which the World has been starving for thousands of years.
Nox & PM2 Science does not stand up to scrutiny.
As to subsidies, if they have no affect why have sales dropped so much when they have been removed?
I am talking Facts, you are talking opinion.
In the UK the only advantage of owning an EV is lack of Fuel Taxation, when the Government recoups that and they must to balance the books, there will be no financial advantage at all.
To give you some idea there are 32,000,000 cars in the UK.
Averaging 12,000 miles per year.
Let’s say at 30mpg that is 400 Gallons of Fuel at £5.34/gallon.
70% of which is taxes, so £3.74/gallon.
That is about £1500 to add to the cost of the Electricity for your EV.
Still think it will be cheaper?
By the way that is about £48 Billion in Fuel taxes that the Government must have.
Of course you have to add the other minor little “infrastructure” costs to mass EV ownership, like all the chargers and all the extra Electricity Generation required.
Engels – More or less what I have been saying, to much derision.
The full transition will take 20 years, but people confuse % of the total fleet with % of new sales. I think new sales could easily go majority electric within < a decade.
Last year, U.S. consumers bought just over 360,000 EVs, around 3% of total sales. But that is 81% more than the previous year. Doesn't take many years at that growth rate to reach 50%. Let's assume growth drops to just 15%. In 20 years that is 50% of all car sales are EVs.
Every car company on the planet is planning on adding EVs. VW expects to be selling approximately 2–3 million electric cars a year by 2025, with those cars making up approximately 20–25% of the company’s total sales. That is in 5 short years. Ford says it is investing $11 billion in electrics. GM is planning on making 20 electric models starting 2020. the list goes on and on.
As to A C Osborn – Tesla is marketing the Model 3 at $35k without any government incentives whatsoever, and those incentives are phasing out anyway in the U.S. In < 5 years the U.S. federal incentives will all be gone. I can easily imagine a <$30k EV by then.
I agree with you – a subsidized EV market is stupid – we can't afford to subsidize enough to make any difference. But I think we are rapidly moving past that whole stupid "Gub-mint gotta do somethin' " stage.
If 50% of the total oil consumed is consumed by passenger vehicles, and 50% of all new cars sold are EVs, in 20 years, we get a 1% decline per year in oil consumed. If it occurs faster, we could get even 2-3% annual declines. At 100% EV penetration we cut oil oil use in half. That will be interesting.
And sure, there will be road taxes and infrastructure costs that must be paid. That will all get factored in, along with the reduction in smog, reduced fuel spills, etc. The distribution network for gasoline costs a lot more than for electricity. But there will be drawbacks to the mass emergence of EVs no doubt.
Regarding extra generation – yes. You are right. but how did all those gas stations get built anyway? That entire gasoline infrastructure? It was built on profits from selling fuel to ICE vehicles, much like the new electric infrastructure will be built out using the profits of electric sales to EVs. I expect out and about electric charging on the street will be $0.30/kwh, while home charging will be $0.15/kwh. And to some extent, like night charging, all you are doing is using the exiting infrastructure more efficiently – rather than dialing down the gas plant in the evening, you keep it running to charge cars. So you are making more sales using the same capital infrastructure. I suspect fuel taxes will migrate over to registration taxes.
Anyway, lots of changes, but none of them back breaking, or technologically impossible. Disruptive, sure. But ultimately not a huge problem.
It is important to understand that despite their brand of Socialism, Venezuela is a viable country. The fact that these blackouts came at this precise time strongly suggests external (i.e. US interference)
“Venezuela – Three Total Blackouts In Three Days – Government Presumes U.S. Cyberattack”
https://www.moonofalabama.org/2019/03/venezuela-three-total-blackouts-in-three-days-government-presumes-us-cyberattack.html
Similar things are alleged to have happened in the past to their oil pumping facilities. Obviously, most of this equipment comes from the USA. They probably know more about these installations than the locals do.
BTW, my ex-classmate Richard Branson’s (I was at Stowe School ’64-’68) concert in Colombia was a flop. Despite the massive hype. The fact that this ruthless businessman got involved strongly suggests that the US offered his airlines more favourable routes and slots at their airports.
Let’s not forget that governments control the airline business 100% – by controlling flying rights and so on. It is largely a nationalised business in all but name. Anyone can make excellent profits with suitable slots at LHR and JFK. With the blessing of governments, legacy airlines destroyed upstarts like Laker’s Skytrain.
“The conspiracy of large airlines throughout Europe and North America, which were aggressively price-matching Laker Airways even at the expense of massive losses. This charge, which was brought to court as the largest aviation antitrust case in history, was later settled out of court.
Aggressive, non-profitable price dropping in Australia by Qantas, which later went on to enjoy a monopoly and pushed east/west airline prices through the roof.”
https://en.wikipedia.org/wiki/Freddie_Laker
De acuerdo con Maduro, se trata de “ataques electromagnéticos contra las líneas de transmisión” de la represa de Guri (estado Bolívar, sur), la mayor hidroeléctrica del país.
I call BS when Maduro starts claiming electromagnetic attacks against transmission lines are responsible. It may seem credible to the uneducated from the barrios. More likely is mismanagement of Guri – which we’ve seen before:
http://euanmearns.com/more-revelations-on-venezuelas-drought-and-the-guri-dam/
http://euanmearns.com/drought-el-nino-blackouts-and-venezuela/
or simply strikes. Guaidó goes with incompetence and corruption which chimes with the earlier experience.
A claim that Guri has “totally collapsed” from the former oil minister:
http://www.venezuelaaldia.com/2019/03/08/rafael-ramirez-confirma-colapso-total-de-embalse-el-guri/
I don’t think this means the dam itself, but just the generation operation and reservoir water levels. It was pretty much the same situation a year ago, just not quite as severe (but with appeals to Tlaloc, or Mother Nature, for rain):
http://www.diariocontraste.com/2018/03/motta-dominguez-bajos-niveles-de-agua-en-los-embalses-y-sabotajes-en-estaciones/
It seems that the thermoelectric plants around the country are also in a bad way, contributing doubtless to overuse of Guri and depletion of the reservoir.
Not the best resolution, but here is a comparison of NASA satellite shots between August 2017 when the reservoir had refilled and a few days ago, showing the North West corner where the dam is sited. It’s clear that the water level is substantially lower now, with several islands clearly visible.
https://go.nasa.gov/2HiWsHt
The USA’s leaders, in their inimitable hubris, are already gloating that they brought down the electrical system of Venezuela.
“Rubio’s Gloating Betrays US Sabotage in Venezuela Power Blitz”
https://www.strategic-culture.org/news/2019/03/14/rubio-gloating-betrays-us-sabotage-venezuela-power-blitz.html
Apparently, China has offered to sort out their IT problems. That is certainly not what president Monroe had in mind.
https://en.wikipedia.org/wiki/Monroe_Doctrine
Look guys! Please wake up and stop thinking that it is business as usual in places like South American and Africa.
“Macron’s concern over China’s presence in Africa is about keeping riches in the West”
https://www.rt.com/op-ed/453939-macron-china-africa-presence/
The false flags and Gladio operations are overwhelming the fake media. There is an ongoing panic.
“Evidence Indicates Link Between North Korean Embassy Break-In And Christchurch Attacks”
https://disobedientmedia.com/2019/03/evidence-indicates-link-between-north-korean-embassy-break-in-and-christchurch-attacks/
When they try to stop the spread of videos and hide the data, you know that it is a false flag.
Irish net electricity output has collapsed in January .
The lowest Jan figure since net figures were calculated .
http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/Define.asp?maintable=MSM01&PLanguage=0
Are Investors Finally Waking up to North America’s Fraked Gas Crises?
Justin Milkulka
2019 Feb 07
DeSmog
Does this mean that the price is natural and in North America is going to sharply increase? Does it depending on the Federal Reserve interest rates?
For every complex problem there is an answer that is clear, simple, and wrong – HL Mencken.
Natural gas as become too cheap to drill. In 2005 it spiked to $16.00/mmbtu. Money pored into facking – too much money. It brought the price down below $ 2.00/mmbtu. Right now it is still very low – $2.90 mmbtu? That is incredibly cheap.
At $4 mmbtu this all goes profitable again. At $5-6 mm/btu all is right in the world. That is what Wall street has been betting on – that gas prices would go up. They didn’t account for two things:
1) they thought that opening up the U.S. to gas exports would increase prices. In 2017 we had articles like this: https://oilprice.com/Energy/Natural-Gas/Natural-Gas-Prices-Poised-To-Rise-As-Exports-Boom.html
2) One reason natural gas is so cheap right now is that fracking for oil in the U.S. ends up producing huge amounts of gas at the same time. This gas that comes out of the wells with the oil is known as “associated gas.” And it is so plentiful that in places like the Permian Basin in Texas, the price of natural gas has actually gone negative.
Anyway, hard to see the future. Some people are still betting on a boom of gas exports, increasing prices. Trump has been flogging the Euros to buy more U.S. gas for this reason. But so far, we can produce much more than we need.
I find it interesting that people are arguing fracking is a scam, and doomed to fail, amidst evidence that just the opposite is true – it succeeds entirely too well, and produces more resources than we can possibly use, driving down prices so low it bankrupts companies.
I really find it difficult to understand why so many people here find it impossible to accept that the USA is out to grab the oil of Venezuela via regime change. Senior US politicians are already on record saying that they want US oil companies to control the oil of Venezuela. Here is an example that is not to be easily found on the lying mainstream media. BTW, I am no Socialist. I am simply seeking the truth wherever it may be.
“Pompeo enlists US energy conglomerates for global oil war”
https://www.wsws.org/en/articles/2019/03/15/pomp-m15.html
Here is the same piece of news to be found behind a paywall at the Wall Street Journal. Note how what is obviously imperialism is called “Values”
“Trump’s Secretary of State Wants Energy Companies to Help Spread U.S. Values”
https://www.wsj.com/articles/trumps-secretary-of-state-wants-energy-companies-to-help-spread-u-s-values-11552444514
London’s Financial Times – which I subscribed to for 30 years – has not published this rather important piece of news. The second way of lying is to hide the truth.
If you want to know some background – i.e. reality – I suggest the following website:
“Regime change – Venezuela”
https://thegrayzone.com/tag/regime-change/
“I really find it difficult to understand why so many people here find it impossible to accept that the USA is out to grab the oil of Venezuela via regime change.”
Well, probably because the idea is ignorant and silly.
1) the U.S. is currently exporting oil – we have too much.
2) The U.S. has been accused of “taking” the oil before – in Libya, Iraq, etc. Didn’t happen – the U.S. “took” nothing. They did buy some at market price. But most of the oil went elsewhere. Currently the U.S. imports zero from Libya, and almost nothing from Iraq.
3) Anyone in the oil trade would tell you the value of Venezuelan crude is low – it is heavy and sulpherous. Hard to produce and refine. Also the industry in that country has been largely wrecked by the socialists – it will take years to get them back up to production and a huge investment. Why bother?
4) Currently the U.S. imports 500,000 barrels a day from Venezuela. That is compared to 3.5 million bpd from Canada. They could easily do without it. Unfortunately the U.S. is one of the few places that Venezuelan oil can go (hard to refine heavy, sulpherous). When you are one of the few markets for a product, you don’t have to compete much to get it.
5) Lastly, legally, China and Russia loaned a huge amount to Venezuela in exchange for oil to be produced in the future. They are the ones financing and supporting the crappy socialist government there. Why not accuse them of prolonging the suffering to “grab” the oil? Seems like a much better analogy.
People don’t usually “grab” things they could easily buy, or make for themselves.
“the U.S. is currently exporting oil – we have too much”
I never heard any country claiming too much oil – not even Saudi Arabia. It is like claiming you have too much gold or too much farmland or too many smart people. A strange way of thinking.
In the real world, the USA has invaded Iraq, has attacked Libya, has waged economic war on Iran for 40 years and on Venezuela for 20 years. Now, what do you think all these countries have in common? Coconuts?
Trump has publicly stated that the USA can change the ruler of Saudi Arabia in a twinkle. If he can do that to Saudi Arabia, he most certainly can do it to Kuwait, Qatar and the UAE. Why change regime if they do as they are told? No reason to do so.
Currently, the US occupation forces in Syria happen to be sitting astride the best oil fields of Syria. Admittedly, these are not world-class, but the fact that they are there is indisputable. The fact that the USA allowed ISIS to export Syrian oil via Turkey (NATO) to Israel for years is also indisputable. The Russian air force put an end to that nonsense in a few days. The only conclusion one can draw is that ISIS and the USA are two sides of the same coin.
“American-backed forces currently control the most lucrative oil and gas fields in the country”
https://www.thenational.ae/world/mena/us-pull-out-exposes-oil-and-gas-fields-in-syria-s-east-to-government-control-1.804568
I will leave the gracious readers decide who is “ignorant and silly”
For the sake of your sanity I suggest you stop reading whatever you are reading.
Alfred, there is a saying, your ideas are so bad they don’t even rise to the level of being wrong.
I followed your link – “US pull-out exposes oil and gas fields in Syria’s east to government control.” The story is how the U.S. is pulling out of Syria, and turning the oil fields over to the government. Also how the locals, the Kurds, are mad about it.
Obviously you don’t read your own links.
The U.S. apparently sucks at stealing oil. I mean we keep invading to take all the oil, then we forget about it, and leave all that precious oil behind. I guess we’ll just have to invade again, so we can try not to forget to steal all their oil this time.
Look, try using your head for more than a hat stand. Think about what you actually know, instead of building your theories on conjectures, based on suppositions of hypothesis, of conspiracy theories about variables of wild guesses.
And stop reading anything produced by government media in Russia. That would be a good start. And read your links before you post. Oh, and maybe don’t post unless you have something constructive to say.
And use some math. For example, math tells me Syria is the 60th most prolific oil producer in the world, behind other oil producing powerhouses like Ukraine. Germany, and New Zealand.
Alfred, I’m afraid the verdict is in.
“Too much” means production is far more than the U.S. can consume, driving prices down. What do we need with Venezuela? They produce heavy, sulfur rich crude. Currently here is no U.S. market for Venezuelan crude. They prefer the light sweet of the Permian.
Conversely, Russia and China are propping up the Maduro government in exchange for promises to get most of the future oil production. So who’s stealing the oil again?
Just as a side note, Germany produces more oil and gas than Syria. So does New Zealand.
And you really should read your own link – its about how the U.S., the oil grabber, is turning over the oil fields to the Syrian government. The Kurds are upset with the U.S. for doing that. A very poor example. Care to try again?
Here is what the Iranian minister of Petroleum has to say about market volatility. Something that the MSM seems to have forgotten to tell us.
“Americans talk a lot and I advise them to talk less. They have caused tensions in the oil market for over a year now and they are responsible for it; and if this trend continues, the market will be more tense”
https://www.rt.com/business/454047-us-tensions-oil-market/
I mean, who ever asked him for an opinion on the matter? 🙂
Alfred Cairns – “Americans talk a lot and I advise them to talk less. They have caused tensions in the oil market for over a year now and they are responsible for it;”
Look at the figure accompanying the article. Reflect on how an assignment of causation over the last year is difficult to square with an oscillating structure that has probably been in place for 20 years. To put this another way, the pattern of price volatility in the oil markets revealed by FFT in the figure, and discussed in the article, has been present since the turn of the millennium, thus it is unlikely to be related to Americans talking “a lot” and causing “tensions” over the last year.
US EIA: The U.S. Gulf Coast became a net exporter of crude oil in late 2018
Please understand I just post what I find interesting. Not why I find it interesting.
T2M
A dose of reality.
“On the Ground in Venezuela vs. the Media Spectacle”
https://www.counterpunch.org/2019/03/18/on-the-ground-in-venezuela-vs-the-media-spectacle/
No shortage of the stuff.
The crisis is a result of ever increasing intermediate consumption and not real final human consumption.
This is closely tied to the monopolistic creation of credit .
If credit was owned by the commons then you would see a very different structural use of the stuff .
Here is another take on Venezuela and the real reason for the US trying to take over the country – like Ukraine.
“I expect that the primary real reason for the sanctions was to try to take Venezuela’s oil production offline and, through this action, force oil prices higher.”
https://ourfiniteworld.com/2019/03/20/a-different-view-of-venezuelas-energy-problems/
According to this view, the USA has been engaged for many years in trying to destroy the oil facilities of other countries – so as to raise the price of oil to its competitors (Europe, China, India and Japan) while supporting its indigenous uneconomic production. Well, they have certainly succeeded in damaging production in many countries (Iraq-Iran War, Iraq occupation, Syria partial occupation, Libya destruction)
BTW, it is the 5 year anniversary since the people of Crimea decided to return to their motherland – Russia. Not much about that in the lying MSM. I guess that showing videos of and reporting on the frestivities is not what the readers are supposed to know. 🙂
“Crimea’s Reunification with Russia – a Landmark Event”
https://www.strategic-culture.org/news/2019/03/22/crimea-reunification-with-russia-landmark-event.html
Personally, I look forward to the peaceful fragmentation of the Ukraine into its component parts. Their so-called nationalists will be stuck in a little island that used to be called Galicia
festivities please!
Thank you 🙂
A professor who doesn’t like Trump….my mind is blown