Oil Pulse

Given the price flatline over the half-century to 1973, it’s not easy to be confident that the market has settled into a steady rhythm, but the investment side of the oil business certainly seems to have:

Oil00

(Via.)

Something like two decades of low energy prices ahead, if the established pattern is prolonged. There’s either a valuable futurist building-block there, or a provocation for futurological discussion.

January 27, 2015admin 34 Comments »
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34 Responses to this entry

  • Oil Pulse | Neoreactive Says:

    […] Oil Pulse […]

    Posted on January 27th, 2015 at 9:20 am Reply | Quote
  • Oil Pulse | Reaction Times Says:

    […] Source: Outside In […]

    Posted on January 27th, 2015 at 2:00 pm Reply | Quote
  • Manticore Says:

    I think this is a hard chart to generalize from. My hunch is that the last few months on that chart represent the death of the petrodollar and the beginning of a currency/oil war between the Atlantic and Eurasian spheres. I suspect we’re in for turbulence. (Jim Rickards is worth reading on this.)

    [Reply]

    NRx_N00B Reply:

    Even the death of the petrodollar could simply be a manifestation of underlying thermoeconomic issues; particularly when currency/debt is viewed as somewhat of a proxy for energy. If so, the showdown between the Atlantic and Eurasian spheres really does become a zero-sum-game.

    [Reply]

    Posted on January 27th, 2015 at 2:06 pm Reply | Quote
  • Manticore Says:

    On closer consideration, I take your point. But much of the investment being made at the moment is on the infrastructure for the extraction of more expensive BTU’s. Below a certain threshold, it won’t be online to contribute any further downward pressure.

    [Reply]

    admin Reply:

    Anything other than studied agnosticism on this is probably reckless. The Peakers clearly have a point which — when properly expressed — is tautologically true. On the other hand, the capabilities of techonomic innovation to open up resources at shrinking cost always tends to outperform skeptical expectations.

    [Reply]

    Manticore Reply:

    Yeah, but studied agnosticism is no fun. Bold reckless irrationality = maximal acceleration. ; )

    (Better still if you can do it with OPM and put the downside to a central bank.)

    [Reply]

    Kgaard Reply:

    The peakers have no point at all that I can see. If they did it would show up somewhere in this chart. But it doesn’t.

    That said, I agree with your conclusion that this chart (poorly constructed though it is) suggests an extended period of low oil prices.

    There’s also an important monetary parallel between 1982 and 2015: Both years were/are roughly two years post a peak in the gold price. Just as the 80s were the down-side of the commodity-inflation mountain (i.e. the opposite of the 70s upside), so to the 2012-20?? period is shaping up to be the downside of the mountain created by the commodity inflation of the 2002-2012 period.

    So when you combine a stronger US$ with a big infrastructure drive, the result seems to be, pretty convincingly, a long period of low oil prices.

    [Reply]

    Posted on January 27th, 2015 at 5:27 pm Reply | Quote
  • NRx_N00B Says:

    It would be interesting to see these things tied into an underlying thermoeconomic model (see ideas of Frederick Soddy, Myron Tribus, Nicholas Georgescu-Roegen..etc)—something anchored in physical reality; because at some point ignoring thermoeconomics becomes a matter of not seeing the forest for the trees.

    [Reply]

    admin Reply:

    Theory gets revised, so it’s difficult to find solid foundations.

    [Reply]

    NRx_N00B Reply:

    I hear you, the next decade or two should be incredibly interesting/revealing; on so many fronts.

    [Reply]

    Manticore Reply:

    I like this line of thinking a lot. No doubt, this is a useful explanatory framework. I’m a bit skeptical of its potential for generating predictions, but I will have to dig into the authors you cite.

    Posted on January 27th, 2015 at 5:38 pm Reply | Quote
  • spandrell Says:

    It does seem that demand has peaked. China doesn’t have enough roads to place more cars, and their industry is overbuilt; Europe and Japan are in demographic decline; India and the rest of the Third World aren’t growing nor ever will; immigrants in the US aren’t just productive enough to consume as much as the Americans they’re replacing.

    Of course supply shocks happen now and then; but there’s no big demand increase to shoot up prices ever again.

    [Reply]

    NRx_N00B Reply:

    Inefficiencies and mismanagement aside, the world economy *may* be bouncing off the revv limiter. There was a post on zerohedge recently showing rig counts in Saudi Arabia rising significantly corresponding to the precipitous drop in North American rig counts—not sure if it was accurate. Everything I’ve been hearing about conventional reservoirs in Saudi Arabia is that the relentless increase in water cuts is becoming a big problem.

    [Reply]

    Erebus Reply:

    Entirely agreed. I’d also mention that emerging technologies like this (which is downright astounding new research) and the hopefully-forthcoming Mg2+ ion battery are only going to add to the pinch.

    [Reply]

    R. Reply:

    That’s energy storage, not energy production technology.

    Any widespread use of electric cars would necessitate an enormous expansion in grid power supply. The amount of fossil fuel energy in transportation in the US is so high that replacement of all fossil fuel use in transportation with electricity would require about 300 GW of new 100% available generating capacity.

    [Reply]

    Erebus Reply:

    It should go without saying that the transition from fossil-fueled cars to electric battery-powered cars and highly-efficient hybrids is only going to accelerate as battery technologies improve. As such, as petroleum is of course not used for electricity production in the USA, and as energy production technologies are also advancing at a steady enough rate, it’s easy to see demand for oil actually decreasing over time due to technological factors alone. It obviously won’t happen overnight, but I think that’s clearly the way things are headed.

    R. Reply:

    @Erebus

    Yeah, of course oil is not used for energy production, but I kind of doubt anyone is going to pave over US deserts with solar power stations in order to have the ‘leccy for all those cars. NIMBY and BANANA rules!

    It’d endanger desert tortoises or something. And in case of solar-thermal power generations, those things are ‘death rays’.

    http://www.thewire.com/national/2014/02/nevadas-massive-solar-plant-death-ray-birds/358244/

    Doesn’t matter that kitties kill far more birds (estimates range from 1.5 to 4 billion in the US alone), or that scaring birds away with fake or rael birds of prey works pretty well.

    NRx_N00B Reply:

    Further to Spandrell’s post: barring any significant growth, one has to wonder how long stagnancy can last before we see things snowball on an accelerating downward spiral; like rising populism and discontent in the EU leading to complete breakup followed by trade barriers popping up everywhere coupled with growing waves of migrants wanting in for a suckle on the welfare teat (add to that, exponentially increasing surveillance states)—potentially, a slow motion train wreck in action. I guess we have yet to see if/how things unfold—perhaps I’m playing too much chicken little.

    [Reply]

    SVErshov Reply:

    demand peaked in OECD countries, and may never get back, but in non-OECD countries demand
    growth driven by transport and industry.

    http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/The_Oil_Market_2030.pdf

    [Reply]

    spandrell Reply:

    It’ll stop growing soon. China can’t industrialize further, and India isn’t going to develop. Neither are the rest of course.

    [Reply]

    Hurlock Reply:

    Why is India not going to develop?

    Kgaard Reply:

    Yes, why should India not develop? That makes no sense. IQs are rising, public policy is probably going to improve, and the place is simply ripe for growth.

    The same can be said for the most of the entire Third World, actually.

    Posted on January 27th, 2015 at 6:12 pm Reply | Quote
  • SVErshov Says:

    Oil consumption appears to be continue growing in next 30 years. Population and income grow is two main contributing factors.

    [Reply]

    Posted on January 28th, 2015 at 8:44 am Reply | Quote
  • R. Says:

    Something like two decades of low energy prices ahead, if the established pattern is prolonged.

    Why should it be?

    Demand may not rise much, but Saudis are running out of oil, therefore supply is going to contract.

    This increase in their output was their last hurrah.

    [Reply]

    Kgaard Reply:

    What’s your best source for the argument that the Saudis are running out of oil? I’m open to being swayed either way but have not been convinced that what you say is true.

    [Reply]

    R. Reply:

    They’re keeping their reserves secret, have been doing so since 1982, and many people have claimed they’re overstated by a good amount (40-50%). A wikileaked message from the US consul in SA expressed similar sentiments.

    It looks like Saudi production has peaked, and is only going to decline. The more they keep the production up now by using better extraction methods, the faster the decline is going to be. US conventional oil peaked gently, same is probably not going to be true for Saudi oil.

    Of course, shale oil and gas adds a lot of unknown variables into the mix, the size of such reserves is unclear. It’s a new technology, and there has already been a lot of wild-ass guessing. Poland’s shale gas reserves went down 90% after a re-assessment. And you can bet US companies are probably over-optimistic concerning future production. After all, being overly optimistic is so very human and extremely common in leader types who usually head businesses.

    But, one thing is pretty much sure – such oil and gas can’t be economically extracted at low prices, and cheap oil is a very finite resource, so expecting $40 oil to be a reality for a long time seems sort of unlikely, the same as expecting oil prices to spike to $300.

    [Reply]

    Posted on January 28th, 2015 at 8:06 pm Reply | Quote
  • Matt Says:

    Something like two decades of low energy prices ahead, if the established pattern is prolonged. There’s either a valuable futurist building-block there, or a provocation for futurological discussion.

    “Low energy prices” is quite the understatement. We’re looking at a deflationary death spiral that will destroy the economy unless there’s some reasonable demand management.

    [Reply]

    Posted on January 28th, 2015 at 11:10 pm Reply | Quote
  • spandrell Says:

    India won’t develop because:

    1. Kgaard says it will, and a good rule of thumb is to bet against anything he says.
    2. Indians are stupid on average.
    3. Those who aren’t are leaving in droves.
    4. 50% of children are malnourished.
    5. That won’t improve with further population growth.

    India has 27 379 500 births a year. If that kept stable for 70 years it would mean a population of 1.9 billion.

    Of course it’s not going to happen. Malnourishment will grow until they actually starve. That’s not how a country develops.
    It will get worse until it gets better; best case scenario it breaks up and each region tries to fix the mess by itself. But there’s point 2. to constraint how good it can get.

    At any rate it won’t reach Chinese levels of development in our lifetimes.

    [Reply]

    Kgaard Reply:

    Spandrell on three occasions I have called for readers to propose specific market-based bets against any of my positions (which basically are long Japan, hyperinflation isn’t going to happen and bitcoin is not all its cracked up to be). If can think of a specific instance where I’m wrong, cite it. If you’ve got a specific bet you’d like to propose that will prove over the coming year that I am wrong and you are right, propose it.

    You’re really just engaging in petulant, r-selected herd behavior here.

    [Reply]

    blogospheroid Reply:

    Spandrell,

    Mauritius is the existence proof for possible indian development. Basically peasant indian stock, but with good institutions. It’s doing fairly well right now. Nowhere near Taiwan or Singapore, (possible chinese comparison), but stil doing well. If Indian percapita reaches mauritius levels, I would consider indian development a roaring success. Again, I don’t think India will overtake china in level of development at any given moment of time, but India most certainly will reach the current level of chinese development sometime in the next 25 to 30 years.

    Indians may not be smart on average, but they are conscientious. Who knows that a bunch of them might find the right combination of complementarities with computers, ala “Average is Over” (Tyler Cowen) and average income could rise.

    None of this is counting the Indian diaspora which is disproportionately selected from the higher castes. They will mostly be living in other, more comfortable countries.

    [Reply]

    spandrell Reply:

    Yes, because an economy based on ocean tourism run by a small unified nation somehow can scale up to a nation pushing into 2 billion divided in hundreds of languages and thousands of endogamous castes.

    No way in hell India can coordinate enough to be nothing close to China today. Look, if India were a homogeneous nation of 30 million they could plausibly pull off a Morocco. Even a Tunis. But given the mess of disparate nations and jatis in their lousy piece of real estate and their level of overpopulation, there’s no way in hell they can organize a properly functional state. Not gonna happen.

    You guys think what China, the country with the longest history of unified government on Earth, has achieved was just a fluke. It wasn’t. It was damn hard and only made possible because China has the smartest people on Earth running on the political capital of 2500 years of rational government. And even they are having trouble pulling away of the middle-income trap. This stuff isn’t easy.

    [Reply]

    blogospheroid Reply:

    Ominous.

    I agree on the mentioned hurdles. But are you thinking about India going beyond the middle income range? I meant reaching upto the level that China is right now, which is middle income range. Maybe we’re arguing semantics. Just to make clear, what is your estimate of peak indian per capita income ?

    spandrell Reply:

    I’ll be very surprised if they ever get to USD 4k per capita corrected for inflation. Probably won’t even get to 3k.

    [Reply]

    Posted on January 29th, 2015 at 4:19 am Reply | Quote

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