$50 Oil Doesn’t Work

$50 per barrel oil is clearly less impossible to live with than $30 per barrel oil, because most businesses cannot make a profit with $30 per barrel oil. But is $50 per barrel oil helpful?

I would argue that it really is not.

When oil was over $100 per barrel, human beings in many countries were getting the benefit of most of that high oil price:

  • Some of the $100 per barrel goes as wages to the employees of the oil company who extracted the oil.
  • Often, the oil company contracts with another company to do part of the oil extraction. Part of the $100 per barrel is paid as wages to employees of the subcontracting companies.
  • An oil company buys many goods, such as steel pipe, which are made by others. Part of the $100 per barrel goes to employees of the companies making the goods that the oil company buys.
  • An oil company pays taxes. These taxes are used to fund many programs, including new roads, schools, and transfer payments to the elderly and unemployed. Again, these funds go to actual people, as wages, or as transfer payments to people who cannot work.
  • An oil company pays dividends to stockholders. Some of the stockholders are individuals; others are pension funds, insurance companies, and other companies. Pension funds use the dividends to make pension payments to individuals. Insurance companies use the dividends to make insurance premiums affordable. One way or another, these dividends act to create benefits for individuals.
  • Interest payments on debt go to bondholders or to the bank making the loan. Pension plans and insurance companies often own the bonds. These interest payments go to pay pension payments of individuals or to help make insurance premiums more affordable.
  • A company may have accumulated profits that are not paid out in dividends and taxes. Typically, they are reinvested in the company, allowing more people to have jobs. In some cases, the value of the stock may rise as well.

When the price falls from $100 per barrel to $50 per barrel, the incomes of many people are adversely affected. This is a huge negative with respect to world economic growth.

If the price of oil drops from $100 per barrel to $50 per barrel, this change adversely affects the income of a large share of people who formerly benefited from the high price. Thus, the drop in oil prices affects the incomes of many of the people listed in the previous section.

Furthermore, this drop in income tends to radiate outward to the rest of the economy because each worker who is laid off is forced to purchase fewer discretionary items. These workers are also less able to take on new debt, such as to buy a new car or house. In some cases, they may even default on existing debt.

A drop in oil prices from $100+ per barrel to $50 per barrel leads to job layoffs by oil companies and their subcontractors. Oil companies and their subcontractors may even reduce dividends to shareholders.

While oil prices have recently been as low as $30 per barrel, the subsequent rise in prices to $50 per barrel is not enough to start adding new production. Prices are still far too low to encourage new development.

In 2016, other commodities besides oil have a problem with price below the cost of production.

Many commodities, including coal and natural gas, are currently affected by low prices. So are many kinds of metals, and some kinds of food commodities. Thus, there is pressure in a wide range of industries to lay off workers. There are many parts of the world now feeling recessionary forces.

As prices fall, the pressure is for high-cost producers to drop out. As this happens, the world’s ability to make goods and services falls. The size of the world economy tends to shrink. This shrinkage is clearly not good for a world economy that needs to grow in order for investors to earn a profit, and in order for debtors to repay debt with interest.

Growing demand comes from a combination of increasing wages and increasing debt.

The recent drop in oil prices from the $100+ level seems to come from inadequate demand for oil. This is equivalent to saying that oil at such a high price has not been affordable for a significant share of buyers. We can understand what might have gone wrong, by thinking about how demand for oil might be increased.

Clearly, one way of increasing demand is through increased productivity of workers. If this increased productivity allows wages to rise, this increased productivity can cycle back through the economy as increased demand for goods and services. We can think of the process as an “economic growth pump” that allows continued economic growth.

Generally, increased productivity of workers reflects the use of more capital goods, such as machines, vehicles, and buildings. These capital goods are made using energy products, and operate using energy products. Thus, energy consumption is an important part of the economic growth pump. These capital goods are frequently financed using debt, so debt is another important part of the economic growth pump.

Even apart from the debt necessary for financing capital goods, another way of increasing demand is by adding more debt. If a company adds more debt, it can often hire more workers and can add to its holdings of property. These also help raise the output of the company. As long as the output that is added is sufficiently productive that it can repay the added debt with interest, adding more debt tends to enhance the workings of the economic growth pump.

The way governments have attempted to encourage the use of increased debt in recent years is by decreasing interest rates. The reason this approach is used is because with a lower interest rate, a broader range of investments can seem to be profitable, after repaying debt with interest. Even very “iffy” investments, such as extraction of tight oil from the Bakken, can appear to be profitable.

The extent of the decrease in interest rates since 1981 has been amazingly large.

Figure 1. Ten year treasury interest rates, based on St. Louis Fed data.

Figure 1. Ten year treasury interest rates, based on St. Louis Fed data.

Since 2008, additional steps have been taken to decrease interest rates even further. One of these is the use of Quantitative Easing. Another is the recent use of negative interest rates in Europe and Japan.

Falling demand would seem to suggest that the world’s economic growth pump is no longer working properly. This is happening, even with all of the post-1981 manipulations of interest rates to reduce the cost of borrowed capital, and thus reduce the required threshold for profitability of new investments.

What could cause the economic growth pump to stop working?

One possibility is that accumulated debt reaches too high a level, based on historical parameters. This seems to be happening now in many parts of the world.

Another thing that could go wrong is that the price of oil rises so high that capital goods based on oil are no longer cost effective for leveraging human labor. If this happens, manufacturing is likely to move to countries that use a cheaper mix of fuels, typically including more coal. The shift of manufacturing to China seems to reflect such a change.

A third thing that could go wrong is that pollution becomes too great a problem, forcing a country to slow down economic growth. This seems to be at least part of China’s current problem.

If oil prices drop from $100 to $50 per barrel, this has an adverse impact on debt levels.

With lower oil prices, workers are laid off, both from oil companies and from companies that provide goods and services to oil companies. These workers, in turn, are less able to take on new debt. In some cases, they may also default on their debt.

Oil companies with reduced cash flow are also less able to repay their debt. In some cases, companies may file for bankruptcy. The result is generally that existing debt is “written down.” Even if an oil company does not file for bankruptcy, it is likely to have difficulty adding new debt. The trend in the amount of debt outstanding is likely to change from increasing to decreasing.

As the amount of debt shifts from increasing to decreasing, the economy tends to shift from increasing to shrinking. Instead of adding more employees, companies tend to reduce the number of employees. If many commodities are affected, the impact can be very large.

We need oil prices to rise to $120 per barrel or more.

The current price of $50 per barrel is still way too low. A post I published in February 2014 was called Beginning of the End? Oil Companies Cut Back on Spending. In it, I talked about an analysis by Steve Kopits of Douglas-Westwood. In this analysis, Kopits points out that even at that time–which was before oil prices began dropping in mid-2014–major oil companies were beginning to cut back on spending for new production. Their cost of production was at that time typically at least $120 or $130 per barrel, if prices were to be high enough so that companies could fund new development without adding huge amounts of new debt. Oil prices could perhaps be lower if oil companies could fund their operations using large increases in debt. Company management recognized that such a funding approach would not be prudent–it could lead to unmanageable debt levels.

Today’s cost of oil production is likely to be even higher than it was when Kopits’ analysis was performed in early 2014. If we expect oil production to continue to rise, we probably need oil prices in the $120 to $150 per barrel range for several years. Prices at such a level are likely to be way too high for consumers, because wages do not rise at the same time as oil prices. Consumers find that they need to cut back on discretionary expenditures. These spending cutbacks tend to lead to recession and falling oil prices.

We can think of our economy as being like a big ball, which can be pumped up to greater and greater size with either rising productivity or rising debt.

This process can continue to work, only as long as the debt added is sufficiently productive that it is possible to repay the debt with interest. We seem to be reaching the end of the line on this process. Returns keep falling lower and lower, necessitating ever-lower interest rates.

To some extent, the pumping up of oil prices that occurs in this process represents a lie, because the energy content of a barrel of oil remains unchanged, regardless of price. In fact, the energy of coal and of natural gas per unit of production remains unchanged as well. The value of energy products to society is determined by their physical ability to leverage human labor–for example, how far diesel oil can move a truck. This ability is unchanged, regardless of how expensive that oil is to produce. This is why, at some point, we find that high-priced energy products simply don’t work in the economy. If we spend the huge amount of resources required for the production of energy products, we don’t have enough resources left over for the rest of the economy to grow.

Low oil prices, plus low commodity prices of other kinds, seem to indicate that we are reaching the end of the line in the “pump up the economy with debt” approach. We have been using this approach since 1981. At this point, we have no idea what economy growth would look like, without the stimulus of falling interest rates.

The drop in oil prices and other commodity prices since mid-2014 seems to represent a “shrinking back” of our ability to use debt to raise prices to a level sufficient to cover the cost of extraction, plus associated overhead costs, including taxes. This drop in prices should be an alarm bell that something is seriously wrong. Without continuously rising prices, to keep up with ever-rising extraction costs, fossil fuel production will at some point come to a halt. Renewables will not work well either, because prices will not be high enough for them to be competitive.

Of course, once the economy stops growing, the huge amount of debt we have amassed becomes un-payable. The whole system we have built will begin to look more and more like a Ponzi Scheme.

We are blind to the possibility that oil prices of $50 per barrel may indicate that we are reaching “the end of the line.”

The popular belief is that everything will work out fine. Oil prices will rise a bit, and somehow the economy will get along with less fossil fuel. Somehow, we will make it through this bottleneck.

If we would study history, we would discover that there have been many situations of overshoot and collapse. In fact, those situations tend to look quite a bit like the situation we are seeing today:

  • Falling resources per capita, because of rising population or exhaustion of resources
  • Falling wages of non-elite workers; greater wage disparity
  • Governments finding it increasingly difficult to fund needed programs

There is a popular belief that oil prices will rise, if there is a shortage of energy products. In prior collapses, it is not at all clear that prices have risen. We know that when ancient Babylon collapsed, demand for all products, even slaves, fell. If we are reaching collapse now, we should not be surprised if the prices of commodities, including oil, stay low. Alternatively, they might spike, but only briefly—not enough to really fix our current situation.

Too many wrong theories

Part of our problem is too much confidence that the “magic hand” of supply and demand will fix the economy. We don’t really understand how demand is tied into affordability, and how affordability is tied into wages and debt. We don’t realize that the view that oil prices can rise endlessly is more or less equivalent to the view that economic growth can continue indefinitely in a finite world.

Another part of our problem is failure to understand how the economic pump that keeps the economy operating works. Once debt rises too high, or the cost of energy extraction rises too high, we can no longer keep the system going. Price tends to fall below the cost of energy extraction. The quantity of energy products consumed cannot rise fast enough to keep the economic growth pump operating.

Clearly neoclassical economics doesn’t properly model how the economy really works. But the Energy Returned on Energy Invested (EROEI) theory of Biophysical Economics does not model the current situation well, either. EROEI theory is generally focused on the ratio of Energy Returned by some alternative energy device to Fossil Fuel Energy Used by the same alternative energy device. This focus misses several important points:

  1. The quantity of energy consumed by the economy needs to keep rising, if human productivity is to keep growing, and thus allow the economy to avoid collapsing. EROEI calculations normally have little to say about the quantity of energy products.
  2. The quantity of debt required to produce a given amount of energy by an alternative energy device is very important. The more debt that is added, the worse the alternative energy device is for the economy.
  3. In order for the economic growth pump to keep working, the return on human labor needs to keep rising. This is equivalent to a need for the wages of non-elite workers to keep rising. This is a requirement relating to a different kind of EROEI—energy return on human labor, leveraged with various types of supplemental energy. Today’s EROEI theorists tend to overlook this type of EROEI.

EROEI theory is a simplification that misses several important parts of the story. While a high fossil fuel EROEI is necessary for an alternative to substitute for fossil fuels, it is not sufficient. Thus, EROEI analysis tends to produce “false favorable” results.

Lining up resources in order by their EROEIs seems to be a useful exercise, but, in fact, the cut-off likely needs to be higher than most have supposed, in order to keep total costs low enough so that the economy can really afford a given energy source. In addition, resources that add heavily to debt requirements are probably unhelpful, regardless of their calculated EROEIs.

Conclusion

We are certainly at a worrying point in history. Our networked economy is more complex than most researchers have considered possible. We seem to be headed for collapse because of low prices, rather than high. The base scenario of the 1972 book “The Limits to Growth,” by Donella Meadows and others, seems to indicate that the world will likely reach limits about the current decade.

The modeling done in 1972 laid out the basic situation, but could not be expected to explain precisely how collapse would occur. Now that we are reaching the expected timeframe, we can see more clearly what seems to be happening. We need to be examining what is really happening, rather than tying ourselves to outdated ideas of how the economic system works, and thus, what symptoms we should expect as we approach limits. It may be that $50 per barrel oil is one of the signs that collapse is not far away.

This entry was posted in Financial Implications and tagged , , by Gail Tverberg. Bookmark the permalink.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

1,650 thoughts on “$50 Oil Doesn’t Work

    • Resources and “getting it out cheaply enough and soon enough” are too different things. Also remember that prices are too low, not too high. Adding more oil doesn’t fix the problem.

      • I believe that Russia is counting on the arctic region even for their future gas production.

        “As for oil and gas reserves, the Artic is the new Western Siberia. According to geologists, the reserves have 100 billion tons of fuel – oil and gas. But the proportion of oil and gas is a point for discussion,” he said.

        Kontorovich added that currently the reserves are believed to 80 percent gas.

    • “This discovery made possible to confirm extension of the largest West Siberian petroleum province offshore in the Kara Sea, whose resource potential can be compared with the resource base of Saudi Arabia,” Sechin said.

      That’s a whopper of a claim after many other parts of the Arctic have not indicated big oil deposits, but mostly gas. The Saudi’s have been pumping 10 mbd for decades, and recently the Russians have also produced 10 mbd. So if this news is accurate then the Russians could conceivably increase production to 20 mbd? Sounds dubious. But also it’s like Gail points out, it’s the cost of production vs. oil price that is important. If price is too low the financial gain of producing that oil will not be there.

      • There is a lot of hype, a lot of stealth, and more than anything a lot of disinformation in the oil game. While they play poker with each other, the people in charge will run rings around an honest outside observer every time.

        • Indeed, it is a game and the player factions have a deep, dark back channel for information. We are just witnessing the swirls on the surface as the big fish makes their moves.

  1. The past year was marked by a number of events which proved to be meaningful achievements for the Company. No doubt, the 2014’s most significant – one could say historic – landmark was the discovery of a large oil and gas province in the Kara Sea with discovered resources comparable to the reserves of the whole of Saudi Arabia. It increases Russia’s mineral resource potential many times over and places it among the top oil and gas producers for many years ahead. That is why the new field was given a symbolic name – «Pobeda» (Victory in Russian).

    • Nice and shallow but climate will take its toll even on the the Russians. Frozen 9 months a year. Of couse if they are pumping at prudhoe who knows. Now you can argue that climate change will warm it up but we are all toast cheap oil or not if that happens. This might warm it up too.
      “The catalogue of waste dumped in the Kara sea by the Soviets, according to documents seen by Bellona, includes some 17,000 containers of radioactive waste, 19 ships containing radioactive waste, 14 nuclear reactors, including five that still contain spent nuclear fuel; 735 other pieces of radioactively contaminated heavy machinery, and the K-27 nuclear submarine with its two reactors loaded with nuclear fuel.”

      • Guess the ruskies are using Kara sea to cool nuclear waste. I wonder how much warming of the ice and methane releases that will cause.

  2. The human being doesn’t need work or calories forever. The human being just needs work or calories until he or she dies!

    That’s why you people are getting the collapse story wrong. Your minds aren’t adjusting to decline, so you imagine a rapidly growing system, filled with people and energy and materials production, hitting up against a particular supply constraint or another, and the result is chaos.

    The reason why this doesn’t happen is that the system as a whole adjusts downwards. Doesn’t necessarily happen the same everywhere, but it does happen. The result is the following:
    1) old people begun to realize their time is up, and in any event the healthcare system can no longer keep them going
    2) middle aged people realize this is as good as it’s going to get, so they adjust to downward pressure on their wages, and begun to consume less
    3) the young don’t know any better, so they never really have to adjust until the “oh crap, I have to get a job to feed these creatures I have produced by having fun with that boy or girl” moment sometime in their 20s or 30s.
    4) empires fall apart, sometimes by lashing out, but fall apart nevertheless as is happening to the current empire, the United States
    5) everybody and every institution turns to denial, which doesn’t stop the decline but does make it manageable through propaganda… It’s morning in America! etc. etc. and you have to really keep up the appearances through the manipulation of language, of images, to make people believe their jobs are important, and that they are heroic; witness, for example, the television commercials, which always show the same thing…smiling, happy, multiracial people cooperating and working hard and prospering. Doesn’t matter if the reality is exactly opposite.

    That’s the trick. To make images, and fantasy, dictate the narrative, and to crowd out reality. The United States is very good at this, with Hollywood and television. All the mechanisms are in place…just keep people’s minds fixated on the screens, and they will happily absorb any BS as being the truth. Never let them on to the truth, not even for a second. Now apply this to the entirety of the world and now the collapse dynamics become clearer.

    If I have to define collapse, I would say it is “reality being replaced by fantasy”.

    • Venezuela, Syria, Yemen and Libya would do just fine with a better P.R department ?

    • I think that our Sensai of this site has explained in great detail about 4356,987,894.987 times that the ‘world cannot not adjust downward’

      Providing a great deal of analysis explaining why…

      I like to condense it into ‘grow or die’

      But hey — if you insist the global economy can shrink then all good…

      But observe carefully what happens when global GDP goes negative and we head for the rocks — and the central banks are unable to change the ship’s course…

    • “The reason why this doesn’t happen is that the system as a whole adjusts downwards.”

      Here in the US that is true and I’ve put out that narrative as well, but Y makes a point with certain countries that have faltered and no amount of cajoling by propaganda will right their ship. Right now in the US I think things are doing just that – declining along with declining net energy by shifting the added financial burden on to the broad populace. Some property owner in Illinois just recently received a 26% increase to his property taxes without any justification or explanation, so he paid the first installment with a big stack of 1 dollar bills. A fun way to protest but it won’t change the dynamic of govt. shifting expenses they can no longer pay with the regular money they received on to their constituents. So what is going to happen is that more and more people will fall out of the system, i.e. they will reduce their living circumstances until they are able to avoid property taxes or homeowner dues or some other rising metric. Maybe they have to live with relatives or in their car. During the depression huge extended families all piled into the same house. That’s happening today with people living with their parents. But as people ‘fall out’ the money being received by govt’s is declining and at some point shifting higher fees on to those remaining will no longer work. We will end up with a society of dirt poor people just barely surviving with many committing suicide and at the top will be multi-billionaires. I suppose the billionaires will never have had their egos buffed up as much as when they see all the people in ragged clothing standing in soup lines.

      How it all ends up is difficult to say, but I do agree it just keeps declining and adjusting as it declines. Even in the countries Y mentioned life still goes on. It’s not like turning off a light switch. The idea collapse comes FAST, all hell breaks loose and all are dead except the amount of people the earth can easily support without a modern civilized infrastructure is then back to normal is too clean and easy. It just shifts to a lower level and it’s not going to happen FAST – it’s going to be painfully SLOW. People will get pushed right to the edge of what they can endure. I’ve got a friend I did a lot of projects with who in recent years had a retail business, but him & his wife couldn’t make a living with it competing with Amazon Prime so they had to fold up and start over. He’s been struggling for several years and every time I talk to him that’s all he can talk about. But where’s the relief? There isn’t any because the screws are incessantly being tightened incrementally. Just when someone in his position thinks things are livable, some bill rises above the affordability line and the trouble starts all over again trying to meet those obligations. My wife and I met a family in Michigan on one of our installations and they talked about the suffering they had endured trying to pay for bills that exceeded their income. It’s happening all over the US. But like you say the news and Hollywood paint a very cheery picture. Unemployment is 4.5% GDP is 2.5% the stock market is still very high, aren’t kids wonderful – don’t you just love them – have some more, start a business. Take out more loans – be positive is the propaganda fed to people to get them to commit to things that will break them in the future unless they make more and more money.

  3. That is a wonderful diatribe… although I haven’t the slightest clue what you are trying to say…

    That said — I must admit … those final words to bring a tear to my eye…. reminds me of this touching song by the late great Michael Jackson — a man(?) who lived very very large as part of a society that is build upon making the world a living hell for billions….

    Now where is that pesky butler with my goddam silk hanky … I am about to hit play:

    I understand that Sarah Palin — the Queen of DelusiSTAN – is considering replacing the current national anthem — Koombaya – with Heal the World….

    There will be a referendum on this in the near future.

  4. Let’s check out how to make the world a better place … MJ goes shopping!

    Meanwhile — let’s see what our military is up to as they protect our ‘way of life’

    There’s a place in your heart
    And I know that it is love
    And this place could be much
    Brighter than tomorrow
    And if you really try
    You’ll find there’s no need to cry
    In this place you’ll feel
    There’s no hurt or sorrow

    There are ways to get there
    If you care enough for the living
    Make a little space
    Make a better place

    Heal the world
    Make it a better place
    For you and for me
    And the entire human race
    There are people dying
    If you care enough for the living
    Make it a better place
    For you and for me

    I suppose he had one thing right:

    There are people dying
    If you care enough for the living
    Make it a better place
    For you and for me

    DIE MOFS! DIE! So that we get it all — so we get more — more teevees – more Facebook — more Dancing with Stars — more 241 pizza — more NFL triple headers — more cheap petrol — more Walmarts — more Paris Hilton — more Hollywood blockbusters…

    We want MORE MORE MORE!!! F&%k you world — gimme gimme gimme… more more more — gimme gimme gimme….

    But I digress — it is has been suggested I focus on making the world a better place…

    I will quote from the unknown author:

    “If humans found satisfaction, they wouldn’t last long in the competitive arena of survival of the fittest” http://megacancer.com/

    It would be great folly … to do anything with Jackson’s words … other than hum along….and be feelin groovy….

    Shall we raise a glass to the coming extinction of the freak show? The monster that terrorizes the planet — shall soon meet our demise.

    • “But I digress — it is has been suggested I focus on making the world a better place…”
      Yep, drop those Übermensch ramblings you wannabe Nihilist.

      The Beast will shed the energy leakage bottlenecks and then floor it. Watch in awe as it takes off and becomes.. aware..

  5. Exploring Al-Qa’ida’s Russian Connection

    https://20committee.com/2014/06/10/exploring-al-qaidas-russian-connection/

    “There are two histories: The official history, mendacious, which is given to us; and the secret history, where you find the real causes of events, a shameful history.”

    – Honoré de Balzac

    That Dr. Ayman al-Zawahiri, bin Laden’s right-hand man and the leader of the global jihad movement since bin Laden’s death in May 2011, spent almost a half-year in the mid-1990s in the custody of Russian intelligence is admitted by both sides and is a matter of public record.[3] Just as significant, Zawahiri’s Russian sojourn occurred at a pivotal point in the development of al-Qa’ida; the shift in strategy, resulting in attacks on the “far enemy” (i.e. the United States), the road leading to 9/11, occurred after Zawahiri’s imprisonment by the Russians.

  6. Who else here reads The Trumpet?
    Good article here which shows how China buy up big and don’t care how much they pay while stock piling, which prompts companies to take on huge debt to expand in order to feed China’s demand, then they pull out which leads to financial stress and the fire sale of business in order to avoid bankruptcy, which chinese companies then move in like vultures and buy on the cheap!.https://m.thetrumpet.com/articles/13766,2

    • “Dairy farmers across Europe are struggling with a collapse in prices after a global oversupply of milk was compounded by slowing demand in China and Russia’s ban on EU dairy in retaliation for sanctions”

      http://www.bloomberg.com/news/articles/2016-01-29/milk-collapse-brings-a-45-pay-cut-to-england-s-dairy-farmers

      Commodity prices are collapsing as well … I am not aware of out of the ordinary Chinese acquisition activity in mining and other commodity areas.

      I don’t think the Chinese are purposely doing this — if there were then countries would step in to block acquisitions… I can imagine here in NZ there would be an enormous backlash against China if it were determined they were maliciously trying to bankrupt our farmers.

      And in any event — what does China care if the price of land sold cheaply — they pumped out of USD1 trillion dollars in stimulus in Q1 — they could buy the entire land mass of NZ with that sort of money 🙂

      I think the Chinese are playing along with the rest of the world in trying to keep the hamster running… they are building ghost towns, running up debt, buying commodities — all as part of an orchestrated effort to fend off the collapse of the world.

    • Yeah, and those farms end up as a nice little business for friends and family.

      The debt ends up sunk somewhere in the sprawling financial quagmire of China never to be seen again.

      Makes sense. Chinese Corruption 101.

  7. I’ve just seen an article from Nigeria quoting from a WSJ survey on oil production costs that bears directly on the subject of Gail’s Post.

    “Nigeria is now the third most expensive country to produce oil in the world with a production cost per barrel of crude oil put at $28.99.

    According to a Wall Street Journal’s (WJS) survey of 12 notable oil producers, Nigeria stands behind the United Kingdom (UK) and Brazil in the production cost analysis. Both countries produce a barrel of oil at $44.33 and $34.99 respectively.”

    I have no idea how accurate these figures are or what factors they are leaving out. Also, they quote Saudi Arabia as still being able to pump the black gold very cheaply — just $8.98 a barrel. Sound’s like a Walmart bargain to me.

    “According to the survey, with $3.50 in capital spending, $3 in production cost, and $2.49 in administration and transportation, producing a barrel of crude in Saudi Arabia costs just $8.98.

    The figures however indicate that for every barrel of crude pumped by Nigeria, she nets about $20 profit since oil prices bounced back to levels above $48 or above. Saudi Arabia on the other hand could make as much as $40 or more at the same price level.”

    http://allafrica.com/stories/201606180121.html

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