It is impossible to tell the whole oil story, but perhaps I can offer a few insights regarding where we are today.
[1] We already seem to be back to the falling oil prices and refilling storage tanks scenario.
US crude oil stocks hit their low point on January 19, 2018 and have started to rise again. The amount of crude oil fill has averaged about 365,000 barrels per day since then. At the same time, prices of both Brent and WTI oil have fallen from their high points.
Figure 1. Average weekly spot Brent oil prices from EIA website, with circle pointing to recent downtick in prices.
Many people believe that the oil problem, when it hits, will be running out of oil. People with such a belief interpret a glut of oil to mean that we are still very far from any limit.
[2] An alternative story to running out of oil is that the economy is a self-organized system, operating under the laws of physics. With this story, too little demand for oil is as likely an outcome as a shortage of oil.
Oil and energy products are used to create everything, even jobs. If all humans have is energy from the sun, plus the energy that all animals have, then humans would be much more like chimpanzees. All humans would be able to do is gather plant food and catch a few easy-to-catch animals (earthworms and crickets, for example). They certainly could not extract oil or find uses for it.
It takes a self-organized economy to support the extraction and sale of energy products. We need a complex web that includes:
- Equipment to extract the oil
- Training for engineers and other workers
- Devices that use oil, such as vehicles, farm equipment, road paving equipment
- A financial system to enable transactions to purchase oil
- Buyers with jobs that pay well enough that they can afford to buy goods made with oil
The things that go wrong with this economy can be on the buyers’ end of the economy. Buyers can have jobs, but these jobs may not pay well enough for the buyers to afford the output of the economy. A falling share of the population may be able to afford cars, for example.
[3] It is possible that a recent rapid increase in oil supply is contributing to the current mismatch between supply and demand.
Data of the US Energy Information Administration indicates that US oil supply has recently begun to surge. It is not just crude oil production that is higher. Natural gas liquid production is higher as well. As a result, Total Liquids production is reported to have been more than 16 million barrels per day in November 2017.
Figure 2. US Liquids Production, based on International Energy Data provided by the US EIA.
Oil production of the rest of the world has been relatively flat, as planned.
Figure 3. World excluding the US oil production by type, based on EIA International Energy data through November 2017.
Total world production, combining the amounts on Figures 2 and 3, set a new record of 99.1 million barrels of oil per day for November 2017, based on EIA data. This level is above the November 2016 level, which was the previous record at 98.9 million barrels per day.
At this high level of production, it is not surprising that the economy cannot absorb the full amount of extra supply.
There are also a number of issues that affect buyers’ demand for oil.
[4] The percentage of US residents who can afford to buy a new automobile or light truck seems to be falling over time.
If we look at the number of autos and trucks sold in the US, per 1000 population, we see a pattern of falling humps, as a smaller and smaller share of the population can afford a new car or light truck, each year. The big drops occur during the gray recessionary periods marked on the chart.
Figure 4. Figure showing US Passenger Cars and Light Trucks Purchased per Year per 1000 Population. Original graph by FRED (Federal Reserve of St. Louis). Retitled by author, because units were confusing on original chart.
The first peak came in 1978, at 67.3 units. The second, slightly lower peak came in 1986, at 66.7. The third peak came in 2000 at 61.5 units. The fourth peak came in 2015, at 51.6 units. Early 2018 amounts suggest that the trend in units sold per 1000 population will continue its downward trend.
Part of what is happening is that vehicles are becoming longer-lasting, so that there is not as much need to buy new cars frequently. But having a short-lived, cheap car has an advantage, if it makes cars available to a larger percentage of the total population. With a vehicle, a person has a much better ability to participate in the US workforce. US Labor Force Participation Rates peaked in about the year 2000, which is about the time of the third peak in affordability.
Figure 5. US Labor Force Participation Rate. Chart by FRED (Federal Reserve of St. Louis).
[5] There was a steep rise in the cost of auto ownership in the 1995- 2008 period. This has since fallen back, but the cost is still high relative to the wages of many workers.
One estimate of the cost of auto ownership is the reimbursement rate that the US government allows businesses to pay workers who use their own cars for company business.
Figure 6. Auto reimbursement rates as compiled on this list. Amounts shown on “As Stated” basis, and also at the 2017 cost level, based on CPI Urban.
These costs peaked about 2008 and were reflected in high reimbursement rates for 2009 as well. More recently, buyers of cars have been helped by longer term loans and ultra-low interest rates. If interest rates rise at all, the share of people buying or leasing new vehicles can be expected to fall further from the level shown on Figure 4.
[6] Building homes also requires oil. There has been a sharp drop in US home building, both on an absolute basis, and on a per capita basis, since 2008.
Figure 7. US Housing Units Completed, related to US population. Population from Census Bureau; population from UN 2017 population summary.
Building homes is part of oil demand. It takes oil to transport all of the materials used (lumber, siding, wiring, pipes, appliances) to the place where the house will be built. Furthermore, many of the materials used in building a home are produced using petroleum products.
The number of homes built depends on the number of new households that can afford a separate place to live. The low level of building makes it look as if the economy is still seeing a pattern of young adults living with their parents much longer than in the past. If buildings are to be replaced every 75 years, my calculation suggests that about 6 housing units per 1000 residents need to be built each year. About 2.5 units per thousand are needed, just to keep up with rising population, if upgrading and remodeling can be done almost indefinitely.
The fact that there is little home building reduces the number of jobs available in the building industry. The lack of jobs in this industry helps hold down the demand for oil, because these workers would use their wages to buy goods for themselves, such as food and vehicles. Food is grown and transported using vehicles powered by oil.
The lack of home building also contributes to the nation’s homelessness problem. If there were plenty of inexpensive apartments, there would be fewer homeless people.
[7] There is no longer an oil price at which both oil exporters and oil importers are satisfied. Oil prices today are too low for oil exporters.
I started writing about oil producers complaining that oil prices were too low in early 2014. At that time, oil companies were looking back at prices of over $100 per barrel in 2013. They were saying that $100+ prices were too low to provide adequate funds for reinvestment in new fields. Now prices are in the $65 range, which is even farther below the desired level.
Oil exporters are especially unhappy about today’s low prices, because they need high prices in order to collect needed tax revenue. This is why OPEC members and Russia have been holding back production. The plan is to deplete the glut of oil in storage, and thus get prices up.
It is not at all clear, however, that consumers in oil importing countries can really withstand higher prices. The fact that Brent oil prices could only stay above $70 per barrel for one week on Figure 2 (in the red circle), suggests that consumers in major oil importing countries cannot really withstand oil prices at this high level. I have observed previously that a sustainable price, without adding a huge amount of debt each year, is only about $20 per barrel.
[8] If we analyze vehicle purchases by country, we can see that low oil prices since 2014 seem to be helping major oil importers but are hurting Tier 2 countries that are commodity-dependent.
Figure 8. New vehicles (private passenger and commercial combined) purchased per capita for selected groupings of countries. Amounts shown are from OICA estimates by country.
In this chart, the grouping of Advanced Economies includes:
- USA
- Europe
- Japan
- Canada
- Australia
For this grouping, growth in auto sales is again rising, but has not regained its prior level. This is somewhat similar to the indications in Figure 4, for the US only, looking at cars and light trucks. The main difference is in the last two years. Changes in currency relativities may be helping recent vehicle sales for the other countries in the grouping.
On this chart, the Tier 2 grouping includes:
- Brazil
- Russia
- South Africa
- South Korea
- Malaysia
- Mexico
This group includes several oil and other resource dependent countries. South Korea is perhaps more like the industrial countries in the first grouping. This grouping shows a downturn in the purchasing of vehicles in the last three years, when commodity prices have been depressed. If oil prices were higher, this group would probably be buying more vehicles.
Figure 8 shows that China’s auto sales have been growing rapidly. In fact, China has surpassed the Tier 2 average in per capita sales. In the past year, China’s growth in auto sales has flattened. But with China’s huge population, the absolute number of vehicles sold is still very high: 29.1 million vehicles, compared to 17.6 million for the United States, and compared to 20.9 million for Europe.
India and the Rest of the World account for surprisingly few vehicles sold. On Figure 8, their lines overlap at the bottom of the chart.
[9] The push toward raising interest rates and selling QE securities will tend to reduce oil prices and add to the oil glut.
I wrote about some of the issues involved in Raising Interest Rates Is Like Starting a Fission Chain Reaction. When interest rates are higher, economies are pushed in the direction of recession. All kinds of discretionary spending are reduced. Use of oil will almost certainly be reduced. This could lower oil prices significantly, as it did in 2008 (Figure 1).
[10] To a significant extent, China has been helping hold up world oil consumption, with its rapidly growing economy. It is hitting headwinds now, however.
The International Monetary Fund recently showed an exhibit indicating how China’s debt is growing very rapidly, but its growth in output is slowing. The combination could very easily lead to a credit crisis.
Figure 9. Exhibit from IMF Working Paper called Credit Booms: Is China Different?
Now, the rest of the world depends on China for many imported goods. If China should have problems, it would indirectly affect oil demand elsewhere as well.
Even China’s recent ban on importing certain types of materials for recycling can be expected to have an adverse impact on oil demand. Very often, if a container is sent from China to the US or to Europe, there will be no exported goods to send back to China, except for material for recycling. If China refuses to take recycling, containers will need to be returned empty.
Recycling generally needs to be subsidized. Part of what this subsidy is used for is to pay the cost of shipping material to be recycled to China. If China does not take the recycling, this payment for shipping materials in the otherwise-empty containers will not be made. The shipping company will need to charge exporters more for the one-way trip, if the shipping company is to be profitable. This higher cost, by itself, is a deterrent to trade. In many ways, the higher shipping cost is like a tariff.
[11] Conclusion.
My expectation is that the general direction of oil prices is likely downward, especially if interest rates rise. A major financial disruption of any kind would have a similar effect. Gluts of oil can be expected with lower prices.
Many groups, including the IEA, have been warning about oil shortages because of inadequate investment in new production. Oil shortages, and energy shortages in general, have a multitude of adverse impacts on economies. One of them is loss of jobs, because jobs require the use of energy, for example, to deliver goods in a truck. If many more people are unemployed, there is less demand for oil.
Thus, it is not at all clear that a shortage of oil leads to high prices; it may very well lead to lower prices. Many people are confused about this issue, because the word demand gives a misleading impression of the mechanism involved. Lack of demand comes from part of the population not being able to afford cars and homes. It also comes from cutbacks in government spending and from failing businesses. In an interconnected system, even failing banks tend to reduce oil demand.
Another adverse impact of oil and energy shortages tends to be fighting and wars. The fact that the US seems to be raising its energy production, in apparent disregard for countries that have been trying to cut back, is likely to make some oil exporting countries quite angry. It could sow the seeds for another war.
Economists do not seem to understand that GDP growth rates don’t tell very much about the well-being of individual citizens in an economy. A major issue is wage disparity. If there are many very low wage people, there is likely to be downward pressure on the sale of automobiles, and on the purchase of petroleum products. Economists are likely to think everything is fine, up until a major crisis occurs.
so fast eddy think that no species can survive in nuclear radiation
how stupid here one species that can survive almost anything
Tardigrade can with individual species able to survive extreme conditions that would be rapidly fatal to nearly all other known life forms, such as exposure to extreme temperatures, extreme pressures (both high and low), air deprivation, radiation, dehydration, and starvation
https://en.wikipedia.org/wiki/Tardigrade
http://www.capitalpress.com/Idaho/20180328/idaho-tribes-want-fish-passage-above-snake-river-dams
For DI. The rest of you can read it too.
Workers Say McDonald’s Isn’t Keeping Up With Rising Local Wages
https://www.bloomberg.com/news/articles/2018-04-02/workers-say-mcdonald-s-isn-t-keeping-up-with-rising-local-wages
The end is finally in sight
https://pbs.twimg.com/media/DZu3BwbXcAEJtqD?format=jpg
Americans are unhappier than ever. This is why
https://www.weforum.org/agenda/2018/03/why-americans-are-unhappier-than-ever-and-how-to-fix-it
I don’t think this gives a great understanding of why. As one of my sons says,”Education is a scam.” You can keep going to school, but you cannot get a job you like, that pays the costs back.
Medicine is a scam too. We have found ways to cure things that we cannot possibly pay for. There was an article this week called, “6-Month-Old Navy with 3 Heart Defects and Down Syndrome Defies the Odds.” Do we expect this child will ever become a self-supporting adult? There are also other examples.
The cost-benefit ratio is completely off in a lot of different areas–extracting oil, creating electricity, medicine, education.
To understand what TPTB are planning and thinking just read “KEY MESSAGES” from the section “WHAT HAVE WE LEARNED IN SEVENTY YEARS OF DEVELOPMENT POLICY ANALYSIS” from this link I will provide shortly the final conclusion I have reached is that TPTB do not understand that we live in a finite world and that our present system is dependent on cheap oil which will naturally come to an end due to the exhaustion of our cheap oil they believe that “green technology” will save them and are planning something big very soon in less than two months. The path they will take us on will lead to either a state of HEAVEN or HELL. If HELL is the place the World will become then the world in the coming years will be devoid of life by that I mean most animals including humans.If HEAVEN is the place the world will become then humans will have found a new way to live and die co-operating towards a common goal the greater good of our world the EARTH. https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/WESS_2017-FullReport.pdf
How could you possibly read page 17 to mean Something BIG will happen June 1st?
”global integration means global coordination”.
Hah
Tesla Model 3 Costs More To Charge Than A Gasoline Car
https://seekingalpha.com/article/4160351-tesla-model-3-costs-charge-gasoline-car
This is one cause of the collapse of the Roman Empire:
Orbital forcing is the effect on climate of slow changes in the tilt of the Earth’s axis and shape of the orbit (see Milankovitch cycles). These orbital changes change the total amount of sunlight reaching the Earth by up to 25% at mid-latitudes (from 400 to 500 Wm−2 at latitudes of 60 degrees). In this context, the term “forcing” signifies a physical process that affects the Earth’s kkkkklimate.
https://en.wikipedia.org/wiki/Orbital_forcing
The empire experienced very dramatic kkkllimate change over relatively short periods — decades….
FirstEnergy nuclear, coal plant units file for bankruptcy protection
https://www.reuters.com/article/us-firstenergy-bankruptcy/firstenergy-nuclear-coal-plant-units-file-for-bankruptcy-protection-idUSKCN1H81GX
gotta type fast…
man, somethinhg just plunged thru my roof…
I think spave space sttion junk!
wow!
be back soonm will find oyut 4 sure…
I highly recommend reading this book – it is awesome and outstanding and excellent
Two Take-Aways:
1. The book details how over very short periods (decades) the empire experienced DRAMATATIC changes in kkkkklimate. This lead to hunger and disease. If I believed in manmade KKKK KKKKK before reading this account — there would be no way in hell I would believe in this bull s hit now. And anyone who does read this book and still believes in man made kkkkk kkkkkk … must have their head up their a sss….
2. And for you doomie preppers… you need to read this so you can see what life without BAU looks like…. nasty brutish and short… both in duration — and stature (average height of men was 5’4″ – life span 27 years)….. disease and hunger were constants…. Oh but yes of course – it will be different for you…. it will be like a tee vee show… like Little House on the Prairie….
So put on your Cognitive Dissonance caps… and enjoy a great read….
The Fate of Rome: Climate, Disease, and the End of an Empire (The Princeton History of the Ancient World)
A sweeping new history of how climate change and disease helped bring down the Roman Empire
Here is the monumental retelling of one of the most consequential chapters of human history: the fall of the Roman Empire. The Fate of Rome is the first book to examine the catastrophic role that climate change and infectious diseases played in the collapse of Rome’s power–a story of nature’s triumph over human ambition.
Interweaving a grand historical narrative with cutting-edge kkkklimate science and genetic discoveries, Kyle Harper traces how the fate of Rome was decided not just by emperors, soldiers, and barbarians but also by volcanic eruptions, solar cycles, kkkklimate instability, and devastating viruses and bacteria.
He takes readers from Rome’s pinnacle in the second century, when the empire seemed an invincible superpower, to its unraveling by the seventh century, when Rome was politically fragmented and materially depleted. Harper describes how the Romans were resilient in the face of enormous environmental stress, until the besieged empire could no longer withstand the combined challenges of a “little ice age” and recurrent outbreaks of bubonic plague.
A poignant reflection on humanity’s intimate relationship with the environment, The Fate of Rome provides a sweeping account of how one of history’s greatest civilizations encountered, endured, yet ultimately succumbed to the cumulative burden of nature’s violence. The example of Rome is a timely reminder that climate change and germ evolution have shaped the world we inhabit–in ways that are surprising and profound.
https://www.goodreads.com/book/show/34427005-the-fate-of-rome
I expect that NPR has the same issues, except this particular you tube video has chosen to highlight problems with conservative news.
https://imgur.com/a/wsPGl
Fake news is in the eye of the beholder. I talk about self-organized systems. We have all kinds of peer reviewed papers out, in which each local system is assumed to be independent of all others. In a sense, the peer reviewed papers put out endless false news. The results of these poor analyses are touted endlessly in the press.
I am afraid comments have timed out. Hopefully, I will be able to get a new post up tomorrow.
Cable television is a serpent that people welcome into their homes. It’s toxic.
MSM journalists …puppets
The Animals of Chernobyl
After the Chernobyl disaster humans haven’t been allowed to live in the vicinity. That hasn’t stopped animals and wildlife from moving into the radioactive area
https://youtu.be/TG-nwQBBfmc
fast eddy maybe be correct about human extinction may happens through nuclear radiation
but not all species on earth will die through nuclear radiation
Chernobyl was contained…. as is Fukushima….
if Chernobyl and Fukushima were not contained
then all species live in those places would have die
i don’t not think so
How many thousand times do I need to post this before you f798ing more ons get it?
Are you stuuupid – or mentallllly re tar ded? Or perhaps both?
Japan’s chief cabinet secretary called it “the devil’s scenario.” Two weeks after the 11 March 2011 earthquake and tsunami devastated the Fukushima Daiichi Nuclear Power Plant, causing three nuclear reactors to melt down and release radioactive plumes, officials were bracing for even worse. They feared that spent fuel stored in the reactor halls would catch fire and send radioactive smoke across a much wider swath of eastern Japan, including Tokyo.
http://www.sciencemag.org/news/2016/05/burning-reactor-fuel-could-have-worsened-fukushima-disaster
Containing radiation equivalent to 14,000 times the amount released in the atomic bomb attack on Hiroshima 68 years ago, more than 1,300 used fuel rod assemblies packed tightly together need to be removed from a building that is vulnerable to collapse, should another large earthquake hit the area. http://www.reuters.com/article/2013/08/14/us-japan-fukushima-insight-idUSBRE97D00M20130814
4000 spent fuel ponds on the planet — x 14,000 = 56 MILLION Hiroshima bombs
How is that not an extinction event?
I so tire of having to deal with stewpidity… it never f789ing ends
so you saying that even cockroach will also get extinction in nuclear radiation
or Tardigrade can with individual species able to survive extreme conditions that would be rapidly fatal to nearly all other known life forms, such as exposure to extreme temperatures, extreme pressures (both high and low), air deprivation, radiation, dehydration, and starvation
https://en.wikipedia.org/wiki/Tardigrade
The system of containment seem unbelievably strained, especially if you consider the large number of nuclear facilities and the vulnerabilities–grid support, weather, terrorist attack, financial crisis, etc.–surrounding them. Somebody somewhere must be thinking about this and doing impossible things to stave off the worst. But one can’t take it lightly.
China to slap US with up to 25% bigger import tariffs in trade war retaliation
https://www.rt.com/news/422915-china-us-import-tariffs-response/
https://imgur.com/a/1Mpv2
https://imgur.com/a/HdqKG
Balance of power rocks.
more tariffs = less globalization…
sounds good to me…
by the way…
does that Bastiat quote mean that US soldiers will cross the Chinese border, or that Chinese soldiers will cross the US border?
or both?
Lee globalization = Less exports = Less GDP
Not necessarily, in the same vein, you can have also equals as two alliances (blocks) against each other or one alliance formed against stumbling former hegemonic power. All has been tested and played over history numerous times in various permutations already. So, realistically lets expect something ~similar..
A global energy assessment (Jefferson 2015)
An extensive new scientific analysis conducted by the Former Chief Economist Michael Jefferson at Royal Dutch Shell published in Wiley Interdisciplinary Reviews titled “A Global Energy Assessment 2016” : says “that PROVED conventional oil reserves as detailed in oil industry sources are likely “overstated” by HALF.” & “Punt bluntly,the standard claim that the world has “PROVED” conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 876 billion barrels. Thus, despite the fall in crude oil prices from a peak in June 2014, after that of July 2008, the “Peak Oil” issue remains with us.”
http://onlinelibrary.wiley.com/doi/10.1002/wene.179/pdf
https://oilprice.com/Latest-Energy-News/World-News/50-Of-Proved-Oil-Reserves-May-Have-Just-Vanished.html
so only about 824 billion barrels are actually proved reserves?
yes!
that seems enough to me…
I’ll take it…
Burn More Coal… er, Burn More Oil, too…
i was recent watch this video where even ants are try to defend its nests from Termites invaders
by make wall yet it failed
https://youtu.be/W8vFFM_k1FI
this video remind that another species on this planet earth thinking that it can defend his territory
from invaders by make beautiful walls on the borders of his territory
Maybe we should think of building the wall as another jobs program. It starts a whole cascade of spending, in making products such as cement, and in transporting these goods to the wall area. The wage-earners in these field use their income to buy goods, such as clothing and vehicles.
Of course, there is a downside to the wall. Farmers on the north side of the Rio Grande will not have access to the river. This will permanently reduce agriculture in the area. Not entirely smart, but perhaps the fear of Mexico collapsing is very high.
is just not Mexicans are come to usa
other central american are also come to usa
http://www.dailymail.co.uk/news/article-5566223/1-200-illegal-Central-American-migrants-march-US.html
how many can usa border petrol police can stop
Patrol
They dont need to catch them all at the border Ice can find them later.
Illegal immigrants have dropped 80 percent since 2000. – Source: US Border Patrol
https://www.forbes.com/sites/stuartanderson/2017/12/05/wheres-the-immigration-crisis-u-s-border-patrol-reports-illegal-border-crossings-at-record-low/#21deecfc4b73
what mass immigration wave?
https://imgur.com/a/1lNo4
Hello, did anyone watch the video? The ants attacked. The termites defended. The ants penetrated deep. The termites made a wall around their queen. In the end the ants pulled out. Which does not mean that the Mexican wall will work.
Like the Romans having to build substantial walls around their cities for the first time as the Empire weakened. It worked for several centuries.
They also built Hadrian’s Wall and various walls and earthworks along the border near the Rhine and Danube.
Hadrian’s Wall is a vey interesting–
Just read a book about a traveler who walked the entire length.
They also sort of “Romanized” a lot of their neighboring areas, which again boosted overall trade (+dependencies) and helped can kicking the lifespan of the Empire further, not dissimilar to watching now rich young Chinese girls sporting NY-London-Paris styled fashion, kind of silly given the very different bodily proportions, but very telling in terms of seeking guidance for sequencing of the the collapse or global-power reset at least..
when you build a wall, it is vital to bear in mind that the energy put into building the wall, and subsquently maintaining it must always be sustained at a greater lever that the forces outside the wall seeking to demolish it
greater level
+++++++++++
then there’s the military 10-1 rule, 10X more defensive expendature or energy expended to counter 1X offense.
Alexander’s winning strategy, always be on offense, until there is no defense to offend.
The global economy is having a Wile E. Coyote moment
https://www.bloomberg.com/view/articles/2018-03-09/the-global-economy-s-wile-e-coyote-moment
Still, the groupthink on the synchronized global growth upturn is so pervasive that nobody seemed to notice that South Korea’s GDP contracted in the fourth quarter of 2017, partly due to the biggest drop in its exports in 33 years. And that news came as the country was in the spotlight as host of the winter Olympics.
Because it’s so export-dependent, South Korea is often a canary in the coal mine of global growth. So, when the Asian nation experiences slower growth — let alone negative growth — it’s a yellow flag for the global economy.
I agree that South Korea is one of the countries we should be watching. It is very industrialized, but seems to be losing out as low-cost competitor. Also, its ship building industry is doing terribly, in part because world demand for ships is not rising as it once was. Global trade, as a percentage of GDP, has been more flat.
https://gailtheactuary.files.wordpress.com/2017/08/world-imports-and-exports-as-pct-of-gdp.png
no, just his brother, Hyperbol E. Coyote…
I love Looney Tunes… the action, the music(!)…
never did like Mickey Mouse that much…
but Wile E?
he goes “off a cliff” and straight down to the bottom, and then crashes!
that’s not the global economy at all…
it might be someday… but not “now”…