Why oil prices can’t rise very high, for very long

Oil prices are now as high as they have been for three years. At this writing, Brent is $74.14 per barrel and West Texas Intermediate is at $68.76. These prices aren’t really very high, if a person looks at the situation from a longer term point of view than the last three years.

Figure 1. EIA chart of weekly average Brent oil prices, through April 13, 2018.

There is always a question of how high oil prices can go, and for how long.

In fact, we have many resources, of many kinds, whose prices of extraction keep rising higher. For example, obtaining fresh water for the world’s population keeps getting more and more expensive. Some parts of the world need to resort to desalination.

The world economy cannot withstand high prices for any of these resources for very long. Certainly, it cannot withstand high prices for a combination of necessary resources, because people need to cut back on other purchases, in order to afford the necessities whose prices are rising. This article is a guest post by another actuary, who goes by the pseudonym Shunyata. He explains in a different way why high resource prices cannot last, whether they are for oil, or natural gas, water, or even fresh air.

Dear Readers:

As you are no doubt aware, Gail has created a fantastic portfolio of blogs that explore our energy/financial/economic system, blogs that reveal many hidden or misunderstood aspects of our situation. I have found these discussions invaluable and share them wherever I am able; to solve our societal problems we need to develop a societal understanding of these issues.

The problem I face is helping other people, like my grandparents, get a foothold in this complex discussion. They can understand why oil might “run out,” but trying to understand the problematic financial situation is more difficult. I like metaphors to explain things – metaphors that allow my grandparents to understand the major elements of the situation. The metaphors I am using are to the oil industry. My grandparents have been following the oil situation for a long time. If a person has been following the oil industry, they may be helpful.

Below you will see how I explain Gail’s detailed writing to my grandparents in three short chapters. I hope you find this outline helpful in your own discussions, and I welcome your suggestions for improving the transparency of the story.


What if air had to be produced from wells and purchased by businesses and families to conduct their normal affairs?

If air is readily available in the ground, we can always extract what we need, making it easy for businesses and families to operate, or even to grow.

What happens if air becomes harder to extract? Perhaps the easy air is gone and we are increasingly looking at extracting deep water air, or air dissolved in shale stone.

Technology may be able to help; sometimes it can help a lot. But there is an immediate production cost shock in funding the development of that technology. This cost shock occurs whether we are talking about conventional air or solar-based renewable air.

There is a lower but permanent increase in production cost, both to fund the complexity of the technology (a deep water air rig just costs more to operate than a land rig) and to pay off any debt needed to build the new technological infrastructure. This cost increase occurs whether we are talking about conventional air or solar-based renewable air.

This cost increase is a permanent drag on the economy. Wages don’t rise to compensate for the higher cost of air. There is no substitute for air, and air simply isn’t available in the quantities the economy previously enjoyed – unless we stop doing things that we were doing before and redirect those resources toward producing the same amount of air we used to have.


In a modern financial system, we use “money” as a proxy for economic activity. In a barter system, I can obtain goods and services by trading my work product for your work product. But carting around packages of finished goods is unwieldy, so we use “money” as a medium of exchange. If you and I are both willing to trade our finished goods for a symbolic piece of paper, then I can trade my goods and services for paper, bring that paper to you and trade it for your goods and services. This medium of exchange makes it easy to trade complex goods and services over long distances, or at different points in time.

How would lending work in this barter system? Someone could produce many finished goods, trade it for symbolic paper, but not immediately trade it for other goods, and “save” their paper for later. Debt is a process of borrowing someone else’s saved symbolic paper to purchase goods and services for themselves. This is helpful when I need to build a deep water air rig but don’t have the money myself. I can borrow someone else’s money and pay them back later, after my rig is bringing in revenue.

This simple borrowing process only works if some people aren’t consuming goods and services in the economy, and are instead allowing others to “borrow” their ability to consume. What if there isn’t enough saving to make large borrowing possible? What if I want to maximize economic activity and don’t want people to defer their own individual consumption?

If we want more funding than barter can provide, this can be done in more than one way:

[a] Money can be loaned into existence. This happens every day, when people decide to buy a car, and take out a loan for that purpose. Or people buy something with a credit card, and decide to carry a balance, rather than pay it off immediately. Nearly all loans today represent new money to the system.

[b] Governments can also obtain money by issuing bonds. Or they can simply issue money certificates without having any backing for the money.

Let’s call the process of adding funding to the economy, over and above what would be available by debt, “money printing.” In each of these cases, symbolic paper is added to the economy without previous work having been performed.

[1] Money printing can be helpful when it represents an investment in growing the overall economy. Investment in deep water air rigs will make air more available in the economy and will spur an expansion of economic activity. In this case the goods and services in the economy eventually “grow into” the amount of money that has been printed and the extra economic activity in the future is used to repay the debt.

[2] Money printing is unhelpful when it simply becomes someone’s savings (i.e. growing wealth inequality). The economy is still obligated to repay the debt (usually through taxes) and economic activity becomes sequestered in wealthy people’s savings, without ever creating demand for someone else’s product.

[3] Money printing is also unhelpful when it is used to fund more air consumption without any investment in air production. For example, a family that borrows money for an air vacation (or for basic daily air subsistence):

  • Now has a debt–repayment of which will reduce future air consumption
  • Has created no permanent demand for air and does not require permanently expanding air production for the economy–so their vacation air demand tends to increase the cost of air for all other consumers.

What happens when we put these two chapters together? When air becomes more difficult to extract:

[1] Production cost goes up permanently.

[2] Economic activity is redirected to maintain air production, and overall economic activity is reduced. With reduced overall economic activity there is a reduced need for air, resulting in excess air supply and a temporary reduction in air price.

[3] If air consumers spend their available money on air and defer other purchases, there is an additional reduction in economic activity, additional excess supply and further reduction in air price.

[4] Reduced price means less revenue to air producers.

[5] Owners of idled air rigs still have debts to pay (money borrowed to build air rig in the first place). They are willing to undercut the market price of air just to get revenue to pay their debts, even if they aren’t making a profit otherwise. This drives the price even lower.

So air prices fall, even though the cost of air production continues to rise.

This begins to look like an economic crisis. A natural response of governments is to print money so that consumers have more money available to purchase air, without deferring other purchases.

This can work for a while, but ultimately fails when there is no overall growth in economic activity to match the increased money supply. The debt comes due (usually in the form of higher taxes). There isn’t enough productive activity in the economy to easily pay back the debt. As a result, consumers must defer even more of their consumption to repay debt, ultimately resulting in even lower air prices.

Eventually either the debt market or air market runs the risk of failing entirely.

[1] When economic activity falters, people can no longer repay their debts (or earn enough income to pay taxes toward government debt). Either of these outcomes is bad both for borrowers and lenders.

[2] If economic activity falters, market forces push air producers to a zero-profit price point. At this point, producers have enough money to keep the rigs running and cover debt payments, but no more. Ultimately this cannibalizes the ability of air producers to maintain existing air supplies. They are unable to purchase replacement machines, if any one breaks. They cannot make new investments.

Clearly, this situation cannot continue. High prices cannot be passed on to consumers, or they will be unable to buy other necessities of life. At the same time, if the producers do not get high enough prices, they cannot continue to provide the air or any other commodity that is needed.

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.
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1,703 Responses to Why oil prices can’t rise very high, for very long

  1. JT Roberts says:

    The greed of the western developed nations is finally catching up to them. Thinking you can create debt slaves with impunity is a form of insanity. When they have nothing left to sell they sell themselves. Which means they migrate.

  2. Third World person says:

    another stupid decision from country call new zealand

    New Zealand bans all new offshore oil exploration as part of ‘carbon-neutral future’
    Prime minister Jacinda Ardern says move ‘will essentially take effect in 30 or more years’ time’
    The New Zealand government will grant no new offshore oil exploration permits in a move that is being hailed by conservation and environmental groups as a historic victory in the battle against climate change.

    The ban will apply to new permits and won’t affect the existing 22, some of which have decades left on their exploration rights and cover an area of 100,000 sq km.

    The prime minister, Jacinda Ardern, said her government “has a plan to transition towards a carbon-neutral future, one that looks 30 years in advance”.

    “Transitions have to start somewhere and unless we make decisions today that will essentially take effect in 30 or more years’ time, we run the risk of acting too late and causing abrupt shocks to communities and our country.”

  3. I am working on a write-up of part of my talk to the actuarial group. It isn’t finished yet, however. Sorry! The talk plus Q+A was 75 minutes, so I couldn’t write it all up as a single post if I wanted to.

  4. Harry Gibbs says:

    “Argentina is seeking International Monetary Fund aid after a series of drastic interest rate rises failed to stop the slide in the peso, pushing a country that only recently restored its credibility with investors back towards a financial crisis.”


    • Harry Gibbs says:

      “Emerging market currencies have swooned against the US dollar in the second quarter, leaving the asset class on track for its worst run since jitters over China ignited a heavy rout three years ago, according to a key gauge.

      “JPMorgan’s EM currency index has dropped 5.1 per cent since the end of March, Bloomberg data show. It is the biggest retreat since the third quarter of 2015…

      “”Broad dollar strength has delivered a brutal second quarter for EM so far,” said Chris Turner, head of currencies strategy at ING.”


      • Harry Gibbs says:

        “Spurred on by massive investor demand for government bond yields, some African states are also issuing “record levels” of foreign currency debt, pushing their countries to the brink of debt distress, the IMF said. It said that about 40% of low-income countries in the region are now in debt distress or at high risk, adding that refinancing such debt could soon become more costly.”


        • Debt problems no longer just a developed world problem! Debt in foreign currencies run the risk that the country’s own currency will fall. Right now, the price of commodities tends to be relatively high. If the price of the commodities a particular sub-Sahara Africa country sells falls, that country will likely see a fall in its currency relativity, and will have even more trouble repaying it loans.

      • The flip side of the US doing well is that a lot of Ems are doing very badly.

        In the long run, the world cannot get along with poorly functioning EM countries.

  5. Harry Gibbs says:

    “Last week, the US published its draft framework for upcoming trade talks with China — a detailed list of demands of its rival… The document amounts to a declaration of trade war, writes Martin Wolf in his column. It is unthinkable that China — or any other sovereign nation — could accept such humiliating terms.”


    • Harry Gibbs says:

      “The sense of crisis in Iran runs deep and wide. The economy is in free fall. The currency is plummeting. Rising prices are squeezing city dwellers. A five-year drought is devastating the countryside. The pitched battle between political moderates and hard-liners is so perilous that there is even talk of a military takeover. Now, the lifeline offered by the 2015 nuclear deal, which was supposed to alleviate pressure on Iran’s economy and crack open the barriers to the West, is falling apart, too…”


      • I am sure low oil prices are part of the problem as well.

        • First of all, we can be pretty sure that the timing about ending the nuclear deal NOW has been carefully selected as getting the most leverage against the opponent within the recent cycle of events. It’s the US-Israeli-(Elders) classic way of accelerating action for the perceived moment of turning the momentum their way, which would be otherwise impossible.

          Similarly, as timing for pushing all these “color revolutions” of past decades through otherwise marginalized-ineffectual factions, which however at correct timing can surprisingly deliver, i.e. sell their home country for phony promises (“democracy-freedom-markets”) nevertheless securing few scrap$ from the table for the key enablers..etc.

      • iran is run by godbotherers….saudi is the same, but propped up by oil surplus and the usa

        the same godbotherers want to inflict their insanity on the usa and elsewhere.

        it is just another name for fascist totalitarianism—-and it clearly shows what it leads to

  6. Harry Gibbs says:

    “America’s student loan problem just surpassed a depressing milestone. Outstanding student debt reached $1.521 trillion in the first quarter of 2018, according to the Federal Reserve, hitting $1.5 trillion for the first time.”


  7. Harry Gibbs says:

    “UK house prices saw their biggest monthly drop in eight years when they fell 3.1% in April.”


  8. Harry Gibbs says:

    “Innovative financial instruments contribute to every financial crisis.

    “Portfolio insurance, the practice of using dynamic hedging to limit losses, played a big part in the 1987 crash. High-yield and emerging-market debt, leveraged private-equity transactions and hedge funds have all had central roles in upheavals, as have securitization, including CDOs, and various derivatives.

    “In the next crisis, familiar instruments – chiefly risky debt and derivatives, either rebranded or modified – will be prominent. There are record levels of high-yield and emerging-market (some of it now labeled “frontier market”) debt outstanding. Volumes in private equity (once called leveraged buyouts) are high. Securitization and CDOs have re-emerged, including subprime transactions in auto loans.

    “Banks may be less exposed directly than in the past, but they have significant indirect exposure to these instruments through loans to nonbank financial institutions.

    “More recent innovations may also cause trouble. One is the $5 trillion of exchange-traded funds…

    “Then there’s the growth of automated trading, which now constitutes about 80 percent of total activity. Underlying algorithms are calibrated to past data, weighted heavily to recent artificially benign market conditions. The performance of these strategies in volatile, falling and illiquid markets is untested.

    “The recurrent risks introduced by new instruments are straightforward.

    “The assumption of market liquidity fails repeatedly to recognize that no product can be more liquid than its underlying asset – which frequently can’t be traded during dislocations. ETFs and automated trading create a perverse illusion of liquidity in favorable, calm conditions…

    “The exposure can be gauged by the fact that in early 2018 a relatively minor dislocation in volatility markets spread rapidly to other assets, resulting in global losses of around $5 trillion.

    “Institutional and regulatory initiatives can’t prevent financial innovation from contributing to new crises.

    “Third, there’s a lack of institutional memory. Investors, traders and risk managers who made mistakes in the last crisis are rarely retained. Many current financial market participants began their careers after 2008 and have never experienced a serious downturn.

    “To paraphrase the comedian Will Rogers’ observation about war: You can’t say financial systems don’t progress – in every new crisis they kill you in a new way.”


    • I learned at the actuarial conference I attended (and spoke at) yesterday that some of the Variable Annuity insurers (offering payouts based on the results of the stock market and bond yields) use offshore reinsurance to so as to keep their keep their capital needs low–the calculations used in solvency regulation only looks at what is retained in the company selling the product, not the whether or not the reinsurance that the company says it has can, in fact, withstand fluctuations. Of course, individual regulators from individual states can complain about the problem. These offshore reinsurers have very little regulation.

      The rules on capital needs are complex, and gradually changing. The proposed new rules that regulators are working on seem to assume a worst case scenario of a -10% decline in the S&P 500 over a 10 year period. The decline could be greater over 5 years–I think it was 20%. This was as bad a scenario (5% probability) as the regulatory actuaries could imagine. This seems to be more stringent than what is currently assumed by many companies.

      A buzz in survey offered to actuaries attending the session gave five choices of possible “worst case” scenarios to be considered. As I recall, the worst case scenarios offered as a choice ranged from +10% after 10 years to -10% after 10 years. The views of actuaries in the audience answering the survey were mostly in the range of +0% to -10% after 10 years. Compared to what we are thinking, this is not a very severe downward trend.

      One of the purposes of the new regulations is to encourage the use of derivatives to protect life insurance companies from downward fluctuations in the stock market. As I see it, this simply pushes the problem elsewhere. It doesn’t really fix the problem. In a way, it is like moving the risk to offshore reinsurers.

      • Harry Gibbs says:

        On that basis, they must perceive you as an industrial-strength pessimist! How was your talk received?

        • They put the talk in a relatively big room, based on the interest people placed in the subject during pre-registration. The room wasn’t full, but I don’t think any of the rooms were full for a talk from 3:00-4:15 on the last day of conference. I finished the talk in about 60 minutes, as suggested, and there were a full set of questions until the 75 minute time slot was finished. Afterward, there was a group of people clustered around, asking quite a few more questions. Some even followed me out to the hallway area where there were snacks available.

          I think the big reaction was, “This is too much to really absorb in 75 minutes. It sounds interesting, but I don’t quite know how to apply it to my daily work yet.”

          Also, “If there is so much oil, coal and gas in the ground, why can’t we get it out? We still don’t quite understand why prices can’t rise high enough?” even after being told quite a few reasons why this couldn’t happen.

          Some of the earlier talks had been about what interest rates to use in pension and life insurance valuations. These tended to focus on which averages of historical data to use. They were also interested in various groups’ forecasts of future GDP growth rates. My talk showed the connection between growth in energy consumption and GDP growths, and should have raised red flags with respect to their methodology.

          I didn’t really talk about the economy collapsing, although I sort of hinted at it–much bigger stock market decline, for example. I mentioned the slowing bicycle analogy as well, and the fact that it would fall over if it went too slowly. I figured the audience was not really at the point where they could contemplate human extinction.

  9. Third World person says:

    Putin may be guy who recover the country from failed state

    but is no where near what impact Joseph Stalin had on Soviet union

    • Third World person says:

      Putin is fakester like trump and Obama

      • Are you serious?

        Vlad and his lieutenants turned their country from precipice of failed state into orderly status and in some capacities restored former regional – global power again.

        It took ~20yrs of herculean effort counting from the last Chechen war (imported US-Gulfie Jihadists), and obviously the common folk received the shortest stick of the deal, because mil-industrial complex and heavy industries (not only in resource extraction) were prioritized first. That being said, living conditions improved a bit.

        While Mr. O was just another wimpy political actor for hire and Mr. T is mid level biz operator – huckster trying to sell the presidency for whatever gains to his silly mini real estate empire, both just surf on the decline..

  10. Lastcall says:


    • Greg Machala says:

      Israel and Iran are already on the verge of war. This is going to add even
      more fuel that fire. In other news, – Jerusalem to name city square near US Embassy in Trump’s honor. The will probably call it Trump Square. Iran, Syria, Russia and China vs the USA and Israel.

      • Lastcall says:

        This is just a re-arranging of the deckchairs. Start by asking the native americans about reaching deals with the American govt, then go from there.

        The hegemon has declining marginal utility in all its actions, from adding extra defence spending, reserve currency bullying effectiveness, and trade war manuervering. Its hollowed out, and all that is required is patience. The enormous ramp up in homeland security/surveillance tells you all you need to know.

        A fish rots from the head.

  11. Third World person says:

    here is Marie Antoinette of modern times
    The richest woman in the world warned her fellow countrymen they are becoming too expensive to employ.

    Mining tycoon Gina Rinehart said it is becoming too costly for multinational companies who could hire workers for two dollars a day in Africa.

    The 58-year-old said in a video address yesterday that businesses are forced to look to other nations as the price for Australian labour is too high, something which was immediately criticized by Prime Minister Julia Gillard.


  12. Baby Doomer says:

    US pressure on Iran has nothing to do with nuclear deal – Moscow


  13. xabier says:

    One puff and you will believe that you are a disembodied consciousness, uploaded onto a nano-space ship……

  14. Baby Doomer says:

    Imminent peak oil could burst US, global economic bubble – study


  15. Van Kent says:

    We don’t really know if humans are like other apex predators highly sensitive to ecological collapse, or are among the most adaptable mammals to ever walk the earth. One may be inclined to lean toward the latter given that humans have colonized every ecological niche on the planet except Antarctica. That bands of people can survive in and around deserts as well as the Arctic as well as equatorial rainforests speaks to the resilience of small social groups. It’s why The Road is so disturbingly plausible; there could be a scenario in which basically everything is dead but people, lingering in the last grey waste of the world. On the other hand, we’ve never lived outside of the very favorable conditions of the Holocene, and past civilizational and population collapses suggest humans are in fact quite sensitive to climatic shifts.

    What we do know is that, given everything above, we are living through a confluence of events that will shake the foundations of civilization, and jeopardize our capacity to sustain large populations of humans. There is enough certainty around these issues to justify being existentially alarmed. At this point, whether we go extinct or all but a thousand of us go extinct (again), maybe that shouldn’t make much difference. Maybe the destruction of a few billion or 5 billion people is morally equivalent to the destruction of all 7 billion of us, and so should provoke equal degrees of urgency. Maybe this debate about whether we’ll go completely extinct rather than just mostly extinct is absurd. Or maybe not. I don’t know. What I do know is that, regardless of the answer, there’s no excuse to stop fighting for a world that sustains life.


    • Fast Eddy says:

      If only humans could extinct themselves… without the involvement of spent fuel ponds… ideally we’d be wiped clean from the face of the earth .. and all other organisms would remain…

      It’s like chemo and cancer though… you can’t get rid of the bad .. without killing at least some of the good.

    • xabier says:

      We’ve turned ourselves, mostly, into cripples propped up by complex infrastructure which cannot outlive ecological collapse. When that goes, we go.

      • Harry Gibbs says:

        I’ve heard us described as ‘the prosthetic species’. Think that might have been Albert Bartlett’s phrase.

  16. Baby Doomer says:

    When you have physical growth on a finite planet, pressures are going to mount to stop the growth.

    -Dennis Meadows

  17. Baby Doomer says:

    Now that Trump is going to likely pull out of the Iran deal. The media will start spreading fake news claiming how evil Iran is. And that they threatened to “Wipe Israel off of the map”…..

  18. Third World person says:

    and now for the joke of the day

    SpaceX’s President Is Thinking Even Bigger Than Elon Musk – Shotwell believes SpaceX’s stated goal of taking humans to Mars is just the first step in moving to other solar systems and galaxies. “Mars is fine, but it’s a fixer-upper planet”

    she want to visit Proxima Centauri which is nearest star to solar system
    but that will take 70000 thousand years to reach by most modern tech that will have

    btw i want to know what is smoke and can she give to me

    • xabier says:

      One puff and you will believe that you are a disembodied consciousness, uploaded onto a nano-space ship……

    • Fast Eddy says:

      Shares in Home Depot surged on this news.

    • Greg Machala says:

      ” That will take 70000 thousand years to reach by most modern tech that we have” – and there is nothing there. Bummer – 70000 years of wasted time. Are these people paid to think up this crap?

    • JesseJames says:

      You are looking at this the wrong way.
      She is participating in gaming the system. What she wants are tax breaks and free gov money to “work on” what is essentially a useless project. Plus there are some dumb enough fools that will invest in it. On top of that it might kick up her share price.
      This is a fools game. She knows it and you know it.

  19. Baby Doomer says:

    Musk drowning his sorrows dating goth chicks now!


  20. Fast Eddy says:


    So why doesn’t vlad threaten to turn off the tap?

    • xabier says:

      Frankly, he can just sit back and watch Britain self-destruct, socially and economically, while her politicians fall ever deeper into disrepute.

      • Fast Eddy says:


        And this gives him the opportunity to exercise his Schadenfreude….

    • MG says:

      Who would buy the Russian gas?

      The domestic Russian gas consumption is rather stagnating.


      With the declining prices of the energy, they must sell more…

      • Fast Eddy says:

        Turning it off for a week isnt going to collapse Russia…

        • MG says:

          But it can damage their customers. They do not need another Ukraine with its declining ability to buy the natural gas.

          • it will—because the world’s commercial infrastructure is co-dependent.

            eventually it will collapse of its own accord of course….but that will be another….turning off the gass would put the world economy into a tailspin from which it would not recover

          • Fast Eddy says:

            Ya but the alternative is they get brain damaged by the alliance of countries that wants to cave their face in … what better way to fight back than to deny them energy.. much better than unleashing a few nuclear warheads into tel aviv to send a message

    • theblondbeast says:

      Look to the forex! The real goal for Russia would be to improve their real terms of trade. In a perfect world for them this would mean being a net importer. They would pay for imports with Rubles. They could also sell exports in Rubles.


      Until recently Russia sold Oil in U.S. Dollars and could not sell it in other currencies. They also sold gas in dollars until 2014. This meant they had a lot of dollars to spend which lived on a computer at the Fed. They used these dollars to purchase this: http://www.worldstopexports.com/russias-top-10-imports/

      In 2015 Russia began accepting payments from China in Yuan, in order to compete with Suadi Arabia. In 2014 after Sanctions by the Obama administration over Ukraine Russia began trading natural gas in euro/rubles/yuan.

      So Russia needs to export in order to import. Exports would be harmed by Saber rattling. What they really need to do is spend a decade on industrial infrastructure so they are less reliant on imports for critical stuff – and then insist on selling their oil in Rubles, creating a demand for their currency internationally.

      • MG says:

        “What they really need to do is spend a decade on industrial infrastructure so they are less reliant on imports for critical stuff – and then insist on selling their oil in Rubles, creating a demand for their currency internationally.”

        If they are less reliant on imports for critical stuff, they will not export energy: and their customers can collapse.

        But many countries, that are current energy suppliers, are not very much suitable for living: they need a lot of imports from more favourable climates etc.

  21. Harry Gibbs says:

    “China saw a current account deficit of USD 28.2 billion in the first quarter of this year, the country’s first quarterly deficit since the second quarter of 2001, data released yeterday by the State Administration of Foreign Exchange (SAFE) showed.”


  22. Harry Gibbs says:

    “Something is very wrong. Return on assets (“ROA”) is only 0.32% (annualizing the data) and Deutsche Bank’s risk weighted assets constitute only 24% of total assets (and only 21% in CIB). This is a far lower percentage compared to other universal banks. Its derivative financial instrument positive market value also looks far higher as a percentage of total assets than other majors. This needs further investigation. Whilst Deutsche’s reported capital ratios look adequate, we wonder if Deutsche is understating its risk weighted assets by using a model based approach and so is less well capitalized than is apparent.”


  23. Harry Gibbs says:

    “Not too long ago the overwhelming consensus from the perennial Wall Street Carnival Barkers was that investors were enjoying a global growth renaissance that would last for as far as the eye can see. Unfortunately, it didn’t take much time to de-bunk that fairy tale. After a lackluster start to 2018, the market’s expectations for global growth for the remainder of this year is now waning with each tick higher in bond yields…

    “…not only is global growth already in the process of slowing but the insidious bursting of the bond bubble is gaining momentum and should soon push the economy into a worldwide synchronized recession.

    “The attempt of central banks to exit interest rate repression, along with a massively increased debt load, has dramatically stretched the skin on the international bond bubble so thin that air has started to pour out. And as interest rates are rising, global economies are coping with debt loads so massive they have even drawn the concern of the International Monetary Fund (IMF.)

    “The IMF calculates global debt hit $164 trillion at the end of 2016, which would be 225% of the size of the $73 trillion global economy; surpassing the prior peak in global debt of 213% of the worldwide economy in 2009…

    “…the Institute of International Finance has also calculated the debt burden, and the data here is even more daunting. They have the debt of worldwide economies pegged at $237 trillion as of September 30, 2017. If you do the math, $237 trillion in global debt will put global debt-to-GDP at a whopping 318%! It should be mentioned that the global GDP ratio figure is completely phony, as the denominator is artificially boosted by trillions of dollars’ worth of negative nominal interest rates and will collapse under that overhanging debt pile as rates normalize.”


  24. Baby Doomer says:

    Saudi energy minister says concerned about tight spare oil capacity


    The game over, world spare oil production capacity is dwindling fast(with high depletion, low hanging fruit gone) and only ever rising demand . world is near the end of oil age, oil shortages as early as end of 2018….. prepare…

  25. Lastcall says:

    Thank you D. Trump/USA; we have had the extreme displeasure of Hitlery Clinton visiting NZ to promote her book…(turns and vom.ts out window)..”What happened”, and have had to listen to the local sycophants/journalists lauding her career. This is a mere 3 weeks or so after Obama the drone-master has been and gone, and had given some very expensive speaking engagements.

    But what has been worse is finding out that as a NZ taxpayer, I have been contributing indirectly to a Clinton foundation affiliate..I forget the name..but its a scam for Ethiopia or some such similar locale. The term ‘vampire squid’ seems appropriate here. What clutches we are ensnared in …un freakin believable!

  26. Baby Doomer says:

    Are we entering the age of involuntary degrowth? Promethean technologies and declining returns of innovation (Bonaiuti 2017)

    “… advanced capitalist societies have entered a phase of declining marginal returns — or involuntary degrowth — with possible major effects on the system’s capacity to maintain its present institutional framework.”


    • Baby Doomer says:

      “Once a certain threshold has been reached, the social organisation as a whole will enter a phase of declining marginal returns, that is to say, a critical phase, which, if ignored, may lead to the collapse of the whole system.”

      This threshold appears to have been reached by Europe, Japan and the US before the early 1970s, he argues.

  27. Fast Eddy says:

    This is an outstanding read… (not related to energy… or the end of the world….) … I knew Alan Woods when I first landed in HK… he hosted some magnificent parties!!! …. but lost touch with him when he shipped off to the Philippines…

    Now this is one hell of a life story!


    • xabier says:

      FE, did he provide ‘end of party gifts’ to his guests? I’ve heard about those….. 🙂

      • Fast Eddy says:

        Don’t recall that…

        What I do recall is landing in HK … and being in the bar Neptune mentioned… and this lovely lady handing me an invite to ‘A Sensual Evening’ (she was apparently wife number one as I was later to learn) … and him saying to her ‘don’t just invite guys’ … and then saying to me ‘you need to bring hot girls … we need more hot girls’….

        And showing up at the party the next Saturday having come from a small town in northern ontario to such an extravaganza…. there were two very smashing girls in lingerie circulating and putting on a faux sex show… my mate and try tried to pick them up but no doubt they were already booked to perform with The King later….

        Last time I saw Alan was in a restaurant in Manila…he was with Number One Wife… we went to a bar afterwards and were having a chat over a beer while Wife Number One was seeking additional companions for their evening.

        I’ll bet he departed with zero regrets. Timing was a little off though…. 2008 was a bit premature.

        I see a movie here.. perhaps Leo D could pull himself away from his sea level concrete eco project… to star….

  28. Baby Doomer says:

    Impacts of oil price shocks on the United States economy: A meta-analysis of the oil price elasticity of GDP for net oil-importing economies (Oladosu 2018)


  29. Fast Eddy says:

    Behold The Sudden Stop. Risk of Emerging Markets Collapse

    The recent collapse of the Argentine Peso and other emerging currencies is more than a warning sign.

    It could be the arrival of a “sudden stop”. As I explain in Escape from the Central Bank Trap (BEP, 2017), a sudden stop happens when the extraordinary and excessive flow of cheap US dollars into emerging markets suddenly reverses and funds return to the U.S. looking for safer assets. The central bank “carry trade” of low interest rates and abundant liquidity was used to buy “growth” and “inflation-linked” assets in emerging markets. As the evidence of a global slowdown adds to the rising rates in the U.S. and the Fed’s QT (quantitative tightening), emerging markets lose the tsunami of inflows and face massive outflows, because the bubble period was not used to strengthen those countries’ economies, but to perpetuate their imbalances.

    The Argentine Peso, at the close of this article, lost 17% annualized is one of the most devalued currencies in 2018. More than the Lira of Turkey or the Ruble of Russia.

    What explains this drop?


    When you weave such a tangled web… there is the risk of getting caught in it.

    • Greg Machala says:

      Don’t count on government officials to protect anything but their own butts. The people – your on your own. Sorry, you people are no longer useful to us – buh bye. The only thing governments are concerned about is the people killing government officials and their handlers.

    • JesseJames says:

      I think you should prepare to protect your family as best you can. Numerous disaster scenarios are possible, however the most sure thing is economic collapse when we run short on oil…well documented on this blog.

  30. Fast Eddy says:

    What’s it called? Koombaya? I’ll get on Amazon and search for it now

  31. Baby Doomer says:

    Fault lines post collapse…


    • Fast Eddy says:

      Fake. The elites will retire to their bunkers… they will not make any attempt to help or control the masses… they will allow the herd to die off…. because the herd will serve no purpose now that the recoverable resources have been completely exhausted

      They will linger on in their prison holes in the ground for awhile… then they too will die

  32. Baby Doomer says:

    Marx and Communism Are Not Dead; One More Financial Crisis Could Bring them Back


    • Fast Eddy says:

      No mention of the fact that there would be limited investment in new production … because there ain’t nothing left to invest in that can be profitably extracted even at these prices….

    • Davidin100millionbilliontrillionzillionyears says:

      the rise of the pointless job:

      “I had to work at Facebook”

      “I had to design Teslas”

      “I had to work on plans to colonize Mars”

      “I had to be a hair stylist for Trump”

      “I had to drive for Uber”

      “I had to study climitt change”

      “I had to write academic papers”

      “I had to peer review academic papers”

      “I had to bring supplies to celebrity preppers”

      “I had to give a guy his 20th tattoo”

      “I had to work for the NYT”

      “I had to work in the US Congress”

      “I had to maintain spent fuel ponds”

      “I had to date Amber Heard”

      “I had to work for NASA”

      “I had to play pro hockey”

      “I had to work for the International Olympic Committee”

      “I had to work for the UN”

      “I had to work for the IMF”

      “I had to…

  33. Dan says:


    Let’s see how high oil prices can go and how long they’ll stay there. We may be well on the way to seeing how things play out.

    Interesting times. Please keep your arms and legs inside the craft, fasten your seat belts, and brace for impact.

    • Davidin100millionbilliontrillionzillionyears says:

      WTI is $70.02…

      a 10% spike brings it to $77… no big deal…

      though a 20 30 40 50 % spike…

      well… things could get dicey by about…

      June 1st… 😉

  34. Volvo740 says:

    “The California Energy Commission will vote Wednesday on whether to enact a sweeping new mandate that will artificially propagate the state’s solar energy sector. If passed, the proposed rule will require solar panels to be installed in all new homes, apartment buildings and condos up to three stories high, beginning on Jan. 1, 2020. Exceptions will be made for homes that are blocked by trees or taller buildings, or can’t fit a solar panel. ”

    I’m surprised they made the exceptions for trees. But why exempt taller buildings?


    • Volvo740 says:

      OK, I read that wrong…

    • Volvo740 says:

      Maybe having a 50W panel is compliant enuf?? But wiring it in is definitely a big expense.

      • Fast Eddy says:

        Get ready for the most expensive electricity in the world!!!!

        Surely California’s govt must be aware of this:

        Germany Runs Up Against the Limits of Renewables

        Even as Germany adds lots of wind and solar power to the electric grid, the country’s carbon emissions are rising. Will the rest of the world learn from its lesson? After years of declines, Germany’s carbon emissions rose slightly in 2015, largely because the country produces much more electricity than it needs. That’s happening because even if there are times when renewables can supply nearly all of the electricity on the grid, the variability of those sources forces Germany to keep other power plants running. And in Germany, which is phasing out its nuclear plants, those other plants primarily burn dirty coal.


        Could it be that they are aware that 2020 will never happen… well it will happen but we won’t be around for it

    • daddio7 says:

      Why allow structures that can’t accommodate panels to be built? I guess they could get a panel offset by installing panels on an older building that doesn’t have them.

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