Low Oil Prices: An Indication of Major Problems Ahead?

Many people, including most Peak Oilers, expect that oil prices will rise endlessly. They expect rising oil prices because, over time, companies find it necessary to access more difficult-to-extract oil. Accessing such oil tends to be increasingly expensive because it tends to require the use of greater quantities of resources and more advanced technology. This issue is sometimes referred to as diminishing returns. Figure 1 shows how oil prices might be expected to rise, if the higher costs encountered as a result of diminishing returns can be fully recovered from the ultimate customers of this oil.

Figure 1. Chart showing expected long-term rise in oil prices as the full cost of oil production becomes increasingly expensive due to diminishing returns.

In my view, this analysis suggesting ever-rising prices is incomplete. After a point, prices can’t really keep up with rising costs because the wages of many workers lag behind the growing cost of extraction.

The economy is a networked system facing many pressures, including a growing level of debt and the rising use of technology. When these pressures are considered, my analysis indicates that oil prices may fall too low for producers, rather than rise too high for consumers. Oil companies may close down if prices remain too low. Because of this, low oil prices should be of just as much concern as high oil prices.

In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high.

The low oil prices we have been seeing recently fit in disturbingly well with the hypothesis that the world economy is reaching affordability limits for a wide range of commodities, nearly all of which are subject to diminishing returns. This is a different problem than most researchers have been concerned about. In this article, I explain this situation further.

One thing that is a little confusing is the relative roles of diminishing returns and efficiency. I see diminishing returns as being more or less the opposite of growing efficiency.

Figure 2.

The fact that inflation-adjusted oil prices are now much higher than they were in the 1940s to 1960s is a sign that for oil, the contest between diminishing returns and efficiency has basically been won by diminishing returns for over 40 years.

Figure 3.

Oil Prices Cannot Rise Endlessly

It makes no sense for oil prices to rise endlessly, for what is inherently growing inefficiency. Endlessly rising prices for oil would be similar to paying a human laborer more and more for building widgets, during a time that that laborer becomes increasingly disabled. If the number of widgets that the worker can produce in one hour decreases by 50%, logically that worker’s wages should fall by 50%, not rise to make up for his/her growing inefficiency.

The problem with paying higher prices for what is equivalent to growing inefficiency can be hidden for a while, if the economy is growing rapidly enough. The way that the growing inefficiency is hidden is by adding Debt and Complexity (Figure 4).

Figure 4.

Growing complexity is very closely related to “Technology will save us.” Growing complexity involves the use of more advanced machinery and ever-more specialized workers. Businesses become larger and more hierarchical. International trade becomes increasingly important. Financial products such as derivatives become common.

Growing debt goes hand in hand with growing complexity. Businesses need growing debt to support capital expenditures for their new technology. Consumers find growing debt helpful in affording major purchases, such as homes and vehicles. Governments make debt-like promises of pensions to citizen. Thanks to these promised pensions, families can have fewer children and devote fewer years to child care at home.

The problem with adding complexity and adding debt is that they, too, reach diminishing returns. The easiest (and cheapest) fixes tend to be added first. For example, irrigating a field in a dry area may be an easy and cheap way to fix a problem with inadequate food supply. There may be other approaches that could be used as well, such as breeding crops that do well with little rainfall, but the payback on this investment may be smaller and later.

A major drawback of adding complexity is that doing so tends to increase wage and wealth disparity. When an employer pays high wages to supervisory workers and highly skilled workers, this leaves fewer funds with which to pay less skilled workers. Furthermore, the huge amount of capital goods required in this more complex economy tends to disproportionately benefit workers who are already highly paid. This happens because the owners of shares of stock in companies tend to overlap with employees who are already highly paid. Low paid employees can’t afford such purchases.

The net result of greater wage and wealth disparity is that it becomes increasingly difficult to keep prices high enough for oil producers. The many workers with low wages find it difficult to afford homes and families of their own. Their low purchasing power tends to hold down prices of commodities of all kinds. The higher wages of the highly trained and supervisory staff don’t make up for the shortfall in commodity demand because these highly paid workers spend their wages differently. They tend to spend proportionately more on services rather than on commodity-intensive goods. For example, they may send their children to elite colleges and pay for tax avoidance services. These services use relatively little in the way of commodities.

Once the Economy Slows Too Much, the Whole System Tends to Implode

A growing economy can hide a multitude of problems. Paying back debt with interest is easy, if a worker finds his wages growing. In fact, it doesn’t matter if the growth that supports his growing wages comes from inflationary growth or “real” growth, since debt repayment is typically not adjusted for inflation.

Figure 5. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Both real growth and inflationary growth help workers have enough funds left at the end of the period for other goods they need, despite repaying debt with interest.

Once the economy stops growing, the whole system tends to implode. Wage disparity becomes a huge problem. It becomes impossible to repay debt with interest. Young people find that their standards of living are lower than those of their parents. Investments do not appear to be worthwhile without government subsidies. Businesses find that economies of scale no longer work to their advantage. Pension promises become overwhelming, compared to the wages of young people.

The Real Situation with Oil Prices

The real situation with oil prices–and in fact with respect to commodity prices in general–is approximately like that shown in Figure 6.

Figure 6.

What tends to happen is that oil prices tend to fall farther and farther behind what producers require, if they are truly to make adequate reinvestment in new fields and also pay high taxes to their governments. This should not be too surprising because oil prices represent a compromise between what citizens can afford and what producers require.

Figure 7. Illustration indicating that the world has already reached a point where no oil price works for both oil suppliers and oil consumers.

In the years before diminishing returns became too much of a problem (back before 2005, for example), it was possible to find prices that were within an acceptable range for both sellers and buyers. As diminishing returns has become an increasing problem, the price that consumers can afford has tended to fall increasingly far below the price that producers require. This is why oil prices at first fall a little too low for producers, and eventually seem likely to fall far below what producers need to stay in business. The problem is that no price works for both producers and consumers.

Affordability Issues Affect All Commodity Prices, Not Just Oil

We are dealing with a situation in which a growing share of workers (and would be workers) find it difficult to afford a home and family, because of wage disparity issues. Some workers have been displaced from their jobs by robots or by globalization. Some spend many years in advanced schooling and are left with large amounts of debt, making it difficult to afford a home, a family, and other things that many in the older generation were able to take for granted. Many of today’s workers are in low-wage countries; they cannot afford very much of the output of the world economy.

At the same time, diminishing returns affect nearly all commodities, just as they affect oil. Mineral ores are affected by diminishing returns because the highest grade ores tend to be extracted first. Food production is also subject to diminishing returns because population keeps rising, but arable land does not. As a result, each year it is necessary to grow more food per arable acre, leading to a need for more complexity (more irrigation or more fertilizer, or better hybrid seed), often at higher cost.

When the problem of growing wage disparity is matched up with the problem of diminishing returns for the many different types of commodity production, the same problem occurs that occurs with oil. Prices of a wide range of commodities tend to fall below the cost of production–first by a little and, if the debt bubble pops, by a whole lot.

We hear people say, “Of course oil prices will rise. Oil is a necessity.” The thing that they don’t realize is that the problem affects a much bigger “package” of commodities than just oil prices. In fact, finished goods and services of all kinds made with these commodities are also affected, including new homes and vehicles. Thus, the pattern we see of low oil prices, relative to what is required for true profitability, is really an extremely widespread problem.

Interest Rate Policies Affect Affordability

Commodity prices bear surprisingly little relationship to the cost of production. Instead, they seem to depend more on interest rate policies of government agencies. If interest rates rise or fall, this tends to have a big impact on household budgets, because monthly auto payments and home payments depend on interest rates. For example, US interest rates spiked in 1981.

Figure 8. US short and long term interest rates. Graph by FRED.

This spike in interest rates led to a major cutback in energy consumption and in GDP growth.

Figure 9. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank.

Oil prices began to slide, with the higher interest rates.

Figure 10.

Figure 11 indicates that the popping of a debt bubble (mostly relating to US sub-prime housing) sent oil prices down in 2008. Once interest rates were lowered through the US adoption of Quantitative Easing (QE), oil prices rose again. They fell again, when the US discontinued QE.

Figure 11. Figure showing collapsing debt bubble at the time US oil prices peaked, and the use of Quantitative Easing (QE) to stimulate the economy, and thus bring prices back up again.

While these charts show oil prices, there is a tendency for a broad range of commodity prices to move more or less together. This happens because the commodity price issue seems to be driven to a significant extent by the affordability of finished goods and services, including homes, automobiles, and restaurant food.

If the collapse of a major debt bubble occurs again, the world seems likely to experience impacts somewhat similar to those in 2008, depending, of course, on the location(s) and size(s) of the debt bubble(s). A wide variety of commodity prices are likely to fall very low; asset prices may also be affected. This time, however, government organizations seem to have fewer tools for pulling the world economy out of a prolonged slump because interest rates are already very low. Thus, the issues are likely to look more like a widespread economic problem (including far too low commodity prices) than an oil problem.

Lack of Growth in Energy Consumption Per Capita Seems to Lead to Collapse Scenarios

When we look back, the good times from an economic viewpoint occurred when energy consumption per capita (top red parts on Figure 12) were rising rapidly.

Figure 12.

The bad times for the economy were the valleys in Figure 12. Separate labels for these valleys have been added in Figure 13. If energy consumption is not growing relative to the rising world population, collapse in at least a part of the world economy tends to occur.

Figure 13.

The laws of physics tell us that energy consumption is required for movement and for heat. These are the basic processes involved in GDP generation, and in electricity transmission. Thus, it is logical to believe that energy consumption is required for GDP growth. We can see in Figure 9 that growth in energy consumption tends to come before GDP growth, strongly suggesting that it is the cause of GDP growth. This further confirms what the laws of physics tell us.

The fact that partial collapses tend to occur when the growth in energy consumption per capita falls too low is further confirmation of the way the economics system really operates. The Panic of 1857 occurred when the asset price bubble enabled by the California Gold Rush collapsed. Home, farm, and commodity prices fell very low. The problems ultimately were finally resolved in the US Civil War (1861 to 1865).

Similarly, the Depression of the 1930s was preceded by a stock market crash in 1929. During the Great Depression, wage disparity was a major problem. Commodity prices fell very low, as did farm prices. The issues of the Depression were not fully resolved until World War II.

At this point, world growth in energy consumption per capita seems to be falling again. We are also starting to see evidence of some of the same problems associated with earlier collapses: growing wage disparity, growing debt bubbles, and increasingly war-like behavior by world leaders. We should be aware that today’s low oil prices, together with these other symptoms of economic distress, may be pointing to yet another collapse scenario on the horizon.

Oil’s Role in the Economy Is Different From What Many Have Assumed

We have heard for a long time that the world is running out of oil, and we need to find substitutes. The story should have been, “Affordability of all commodities is falling too low, because of diminishing returns and growing wage disparity. We need to find rapidly rising quantities of very, very cheap energy products. We need a cheap substitute for oil. We cannot afford to substitute high-cost energy products for low-cost energy products. High-cost energy products affect the economy too adversely.”

In fact, the whole “Peak Oil” story is not really right. Neither is the “Renewables will save us” story, especially if the renewables require subsidies and are not very scalable. Energy prices can never be expected to rise high enough for renewables to become economic.

The issues we should truly be concerned about are Collapse, as encountered by many economies previously. If Collapse occurs, it seems likely to cut off production of many commodities, including oil and much of the food supply, indirectly because of low prices.

Low oil prices and low prices of other commodities are signs that we truly should be concerned about. Too many people have missed this point. They have been taken in by the false models of economists and by the confusion of Peak Oilers. At this point, we should start considering the very real possibility that our next world problem is likely to be Collapse of at least a portion of the world economy.

Interesting times seem to be ahead.



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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1,594 Responses to Low Oil Prices: An Indication of Major Problems Ahead?

  1. Baby Doomer says:

    Monkey see, monkey do..

  2. Dennis L. says:

    Healthcare automation:
    At a visit yesterday for a routine eye examination at the main Mayo Clinic from check in to check out 30 minutes, no dilation. A machine scanned the retina , eyesight was measured by a machine both operated by a technician, all data automatically entered in an electronic health record, the physician came into exam room, confirmed the results, visually examined both eyes and it was over with approximately 5 minutes of physician time.
    As I was checking in with a human at the desk I noticed kiosks with a slot for what appears to be a future cc type slot with various instructions implying it was a replacement for the receptionists at the front desk. Add a robot to escort you to the correct examining room and enormous costs are removed and quality of care improved. The electronic records are excellent and Mayo is now offering a general genetic test which could lead to treatments specifically tailored to the patient. Billing is automatic with the correct deductions and payments from insurance computed and only the balance appears on the statement.
    As I mentioned in an earlier post, I was a dentist and at the end of my career ran a very large public health dental clinic, all records electronic; this stuff works when correctly integrated.

    The computing power and effective use there of gets better and better.

    Dennis L.

    • Or worse and worse. We need jobs that pay well for people, even without a lot of education and training. Robots add lots of debt, and lots of capital ownership for the already well-to-do. The whole set-up pushes the system toward collapse.

      • Hubbs says:

        As a now forced into retirement orthopedic surgeon who has had to slog through many Electronic Medical Records (EMR) and Electronic Hospital Records (EHR) such as Nextgen, Medicus, and a host of others, I can get on my rant.
        Electronics work well for some areas of medicine where the diagnoses ICD-10 are actually few in a specialty and the billing codes (CPT) also fairly straightforward. You may be right for opthalmology, but in orthopedics, the codes are myriad.
        The simple fact is that most computer programmers cannot write decent software because they are computer “geeks,” not doctors or engineers. But is their simple failure to even recognize the logical need to merge the two disciplines confirms they are “geeks,” caught in their own microcosm belief that it’s all about computer code. (This is like economic theory that lives in its own word, failing to recognize the limit of resources, especially energy).

        Thus the programs are doomed from start from lack of recognition of common sense required in recognizing the need to merge the two in order to write a successful, logical, expedient functional program which makes your task easier, not more difficult.

        My three brothers, who are all mechanical engineers agree on this one.

        In another twist my brother who worked at General Dynamics Electric Boat division In Groton Connecticut (nuclear submarines) left in disgust as the computer programs were so outdated, he couldn’t perform the necessary design requirements which he could accomplish with the Abacus? software.
        On most programming now, especially in medical records, the program writers no longer follow the simple logical sequence:
        The guy is a doctor. He goes to the hospital. He logs on to the computer, what do you think he wants to do? Maybe see his list of patients? He clicks on a patient. What do you think he wants to do? Maybe look at some lab or diagnostic tests? Instead, there is an orgy of extraneous information and distracting options, layer after layer. It’s due to what I call programmer anxiety. The programmer doesn’t know how a rational person in that profession logically thinks, and so the programmer throws every conceivable function and unrelated option on every window, just in case, so he doesn’t miss something.

        Microsoft’s Windows and Word programs have been so complicated and buggy that it is a hassle sometimes to use. I accidentally hit a wrong key and the whole page spins off into some unrelated function, multiple inserts, or I get interrupted with a new message.
        There should be two levels of functionality headlined on Word: basic and complex.
        Gee, a guy wants to write a simple letter. Now, what could he possibly need in order to do that, 99% of the time?
        Let’s see: Font, size, line spacing, margins.
        Instead of having a simple binary option basic or detailed at the start, the user is confronted with a plethora of useless options which I have never used, but keep paying for with every new program with the Windows operating system. Windows 95, 98, 2000, Vista, Windows 7, and now whatever it is today which is buggier than 95. Useless and needless complexity as a vehicle to sell you something you already own, or really don’t want.
        And all these troubleshooting options. Let’s just shorten that description to “trouble.” I don’t think I have ever successfully used one of those to solve a problem. Windows was unable to find a solution to your problem Pure fluff to make you think if that if the need arises, you have help at your fingertips. You don’t. You have more trouble. I have to email the company and hope that I’ll get a response.

        You think I must be a dumb ass to make these complaints?
        Remember, the simplest behavior science experiment is when the light goes on, the rat presses the lever to get the cheese. (positive reinforcement). This is essentially what is going on with computers and cell phones. You press a key to get a reward, or in a more complex variation, you learn the maze just like the rat, to locate the lever to press in order to get the cheese. No problem solving ability, critical thinking or higher level intellectual functioning required. Just the realization that we are all treated like rats in the maze, having to mindlessly learn the path to get our “reward.” This is exactly where the cell phone users and deep state masters want us. Blindly looking into our cell phones as we walk into traffic or wasting time on useless poorly designed EHR and EMRs.

      • Dennis L says:

        I have no solutions to the job issue, but thanks for reading my comment, your time is appreciated.

        In the dental clinic we measured outcomes and our surfaces restored per patient declined, our extractions per patient declined and our percentage of patients getting regular routine care with a hygienist went from zero to over fifty percent in eight years. Our biggest problem was the income per encounter constantly declined which was great for the state as their costs declined, but made it a challenge to run a clinic. Without digital records, digital x-rays, and digital photos this would have been impossible. The capital costs were trivial compared to storage for physical records, physical records get misplaced. It can take an eight hour day to find a misplaced record if one is lucky. If there is a fire, they are gone, digital records are backed up at two distinct physical locations.

        Much of many professions is becoming less and less an art and skill as optimal solutions are found. Even in the arts, dance for example, it is becoming difficult to improve technique as it has been studied to perfection. This is emotional.

        Is it possible the reason capitalism works is pareto’s principle and the 80% really don’t have a way to add true value? How many even well intended procedures add value to the patient? There is no way to sort this out without digital records. Do you want targeted treatment based on statistical learning or best guess based on prejudice of the practitioner whose income is dependent on procedures? Something about a wallet getting between knowledge and belief as I recall. What if only the top 6 surgeons out of 100 can do the procedure well with good outcomes, do you want number 7? It is not that hard to measure anymore, the bottom 94 in this case are going to yell pretty loudly.

        You are an actuary, you did the same thing all your working life, seat belts save insurers of automobiles money, they cost trauma surgeons income. What would you advise your company to support, belts or surgeons? Going to extremes, for the injured bed pans are a necessity, are those jobs of bed pan attendants worth not having seat belts? Before any of you start complaining about extremes, it is a simple, understandable example with extremes of income and talent between two groups, surgeons and the keepers of the bed pans.

        Trivia: Television habits are heritable, not environmental to a first approximation. Genes are older than TV, go figure.

        Dennis L.


        • DJ says:

          You dont need digital records to conclude- dont smoke, wear a seat belt, dont get disgusting fat, the rest is mostly genes and luck.

    • JesseJames says:

      Sounds like it works very well for the eye doctor and clinic, and the automation providers. Doubtful anyone else will really benefit. Savings will be pocketed by the elite. Your laundry list of greatness flowing down from automation is a typical…”high technology solution will improve everything argument”. What is not on your list are all the other unforeseen effects…usually negative for society, that always accompany the trotted out technology solution. Eventually there is no eye doctor anymore…just a robot. Eventually, when freely flowing money (energy) no longer supports the supply chain, and the automation breaks down, we go back to eye doctor.

      • Dennis L says:

        Why are we so certain automation is going to break down? As for medicine, my eyesight is failing, one eye is no longer 20/15 but is now 20/20, both were 20/15 a few years ago, must be passing through my 72 birthday that did it. Without high technical cataract surgery some years previous to retirement my reply to Gail above would not have been possible, it was high technology measurement of the eye that made Rx of the lens possible, it is high tech materials that made the lens possible, I enjoy greatly not needing glasses, reading and seeing this beautiful world. It seems to me it was done for about $1K per eye, a bargain to me. What negative for society? I restored 56,000 surfaces in my last years of practice. I had the privilege of working until I was almost seventy, what a wonderful gift my eyesight gave me, I was useful.

        Dennis L.

        • aaaa says:

          surfaces of what?

          • Dennis L. says:

            A tooth has five surfaces, top(occlusal), front(mesial),back(distal), outside(buccal or facial depending on tooth) and inside(lingual). One through five surfaces can be restored on each tooth. We could have calculated the number of teeth restored, we were more outcome based and wanted to see a decrease in surfaces per encounter over time. Part of this was a result of doing the teeth with the most decay first(population issue), part was the effect of patients being seen regularly and requiring less dental work over time. In our case the caries(decay) followed a form of a depletion curve, each year there was less and less work to be done even in patients not previously seen in the clinic. I also was determined to get all the decay removed in a relatively short period of time so the patients would not lose interest; if they showed for the typical maximum of four appointments, all their work was complete and they went to regular yearly checkups, there too the decay tapered off over time assuming they followed through which many did. This is an economic issue for dentistry and it does not have easy solutions if the population that can afford treatment is not increasing on a per capita dentist basis. The capita gets you every time.

            Dennis L.

        • jupiviv says:

          Automation will break down because it can’t work without the larger energy system, and it’s not possible for automation to be implemented identically in a very specific use case and also the rest of BAU.

    • zenny says:

      My last MRI was all done by touch screens Scan your insurance card prompted to follow yellow line. Change and put stuff in locker 18 follow blue line to room 3 and take a seat.
      Results available next day on net. Never talked to a doctor although she got the report.

      • Dennis L. says:

        Results on net are mandated by HIPA, we never did that in our clinic, it was coming. My biggest concern was security of the data, it was a huge responsibility which was taken very seriously. Here it seems to me that cloud computing is probably better but I am not a security expert. Complexity sometimes does make things easier and better.

        Dennis L.

        • doomphd says:

          anything put out on the cloud is available for someone to hack and see.

          • zenny says:

            True you cant hide we even have software that scans all nets for face pics and then digs.
            My health insurance has everything about me on file I see a health professional about 2x a month I even have a Registered Dietitian raid my kitchen once a year.
            It is not all bad but privacy is out the window.
            Tomorrow I get a glass of wine and a full body rub…I just love the peppermint foot rub.

            Having kids is free for all and you get paid for a year even if you adopt.
            Canada btw..

            PS never had a vaccination or flue shot so I am part of that study

      • DJ says:

        No wonder US has twice the healthcare costs and half the results.

  3. Duncan Idaho says:

    62.51 USD +0.61 (0.99%)

    Still flat- up about 1

  4. Fernand Naudin says:

    Dear Gail,
    I just read Antonio Turiel’s blog and Philippe Gauthier’one.
    They express the same idea:
    • Old quality field production (without sulfur) reduces.
    • There is more and more poor quality heavy oil (like Alberta’s one that has a lot of sulfur).
    • Shales are too light to produce diesel.
    • Las but not least in 2020, ship’s heavy fuel with sulfur engines must disappear.
    Refineries have 3 choices.
    1. To use only good quality heavy oil that will increase prices.
    2. To invest in new coking plant 1 billion $ each, and increase their prices and sell what is now garbage oil coke to power plants (so instead of having pollution on the sea we will have it in land).
    3. To close
    All the solutions imply an increase of prices.
    But according to your model, the world cannot offer it. So the world will face a lack of diesel.

    • The issue is an affordability one. This happens here and everywhere else.

      There are lots of fossil fuels available. In fact, there are a lot of alternatives available. The number (1), (2), and (3) problems is that none of them are affordable. The economy operates on a growing supply of affordable energy supplies.

      IEA creates lots of scenarios, in denial of the reality of the physics of the situation. We cannot get along on either (a) a shrinking supply of energy or (b) high-priced energy. The issue we are up against is collapse, not peak oil.

      • Volvo740 says:

        Demand is a funny word. Could mean “want” or “can afford”. Which one does the IEA mean?

        The new chart (forward projection of supply and demand) has no concept of price. Of course demand depends on price. An elasticity analysis would make more sense.

        • Greg Machala says:

          I think demand used to be a well defined economic phenomenon. Expecting increasing demand for energy products was reasonable – when energy was cheap. So, the word demand was well defined and understood. But the current economy is out of the bounds in which classical economics works. So, demand no longer means anything. I think we should discard classical economics at this point. Economics seems to be ridiculous assumptions with no basis in reality. We are now in the period where diminishing returns, deflation, un-affordability and collapse are no longer things that can be ignored. These are things that classical economics does not handle well or ignores outright.

        • Everyone seems to assume “demand” means “want.” It makes no sense, however, unless it means “can afford.” IEA hasn’t figured out that there is difference. Prices compared to wages of the non-elite workers are terribly important.

    • wratfink says:

      There are a few different mixtures for oil sands production. The recent preferred mixture seems to be dilbit using light tight oil or NGLs from the northern US. US refineries are set up for heavy oils. The dilbit generally goes to a refinery at Chicago. I recall seeing pictures of enormous piles of petcoke posted somewhere. Also, Canada has refineries to make syncrude and they have upgrading facilities using local natgas resources.


      • The US has benefited from refined products made from oil from the oil sands. With the way our refineries are set up, we can handle dilbit at not too high a cost. Cracking may be needed, but with cheap natural gas, it is not very expensive. We end up with not very expensive diesel and gasoline.

  5. el mar says:

    Greetings from Fast Eddy who is still alive.

    Music from New Zealand:


  6. Uncle Bill says:

    Exxon strikes it BIG

    Judge threatens CVS-Aetna merger, UAW challenges GM, Netflix focuses on India
    ExxonMobil’s Massive Oil Discovery Keeps Getting Bigger
    Matthew DiLallo, The Motley Fool
    Matthew DiLallo, The Motley Fool
    Motley FoolDecember 4, 2018, 8:43 AM EST
    ExxonMobil (NYSE: XOM) and its partners Hess (NYSE: HES) and China’s CNOOC have found a treasure trove of oil off the shore of Guyana over the past four years. The companies recently unveiled the 10th discovery on their jointly held acreage position, which they now believe contains more than 5 billion barrels of recoverable oil. That reinforces Exxon’s belief that the partnership can produce more than 750,000 barrels of oil per day (BPD) from the region by 2025.

    It just keeps getting bigger
    Exxon’s latest discovery at the Pluma-1 well, when combined with further evaluation of previous finds, led the company to boost its resource estimate from more than 4 billion barrels of oil equivalent (BOE) up to over 5 billion BOE. That’s enough resources to support at least five floating storage, production, and offloading (FSPO) vessels capable of producing more than 750,000 BPD.

  7. Duncan Idaho says:

    Wow, you go out for a little while, and the DOW:
    -731.59 (2.83%)

  8. Uncle Bill says:

    But I want my CAKE and EAT it TOO
    Dow tumbles nearly 800 points as Tuesday losses gain steam; 10-year yield hits 2.88%
    Mark DeCambre
    Mark DeCambre
    MarketWatchDecember 4, 2018, 1:44 PM EST
    The Dow Jones Industrial Average and the broader stock market on Tuesday skidded sharply lower, relinquishing all of Monday’s post-G-20 rally–and then some. The Dow was down 754 points, or 2.9%, at 25,076. The S&P 500 index was off 3% at 2,707, while the Nasdaq Composite Index retreated 3.4% at 7,190. A day ago, the stock market climbed with risk appetite as President Donald Trump and China’s leader Xi Jinping forged a momentary pause in trade hostilities at the sidelines of the Group of 20 summit in Argentina. However, investors have grown doubtful that a real deal in the long-run is possible. On top of that, the 10-year Treasury rate has extended a drop toward a three-month low at 2.88%, with that move also narrowing a closely watched spread between that benchmark government debt and the short-dated 2-year Treasury note . That spread is the tightest since 2007 at 10 basis points, with a tightening, or flattening, spread between the short-dated and longer-dated bonds, generally reflecting that bond investors harbor a downbeat economic outlook.

  9. Sven Røgeberg says:

    Yes, we can! And on a global scale! The belief in the power of politics never seems to cease.

  10. Yoshua says:

    The U.S treasury yields have started to invert. The Fed’s rate hike party is over.

    The oil price has collapsed from resent highs. The stock markets are neurotic. And the global debt bubble is starting to look shaky.

    Meanwhile Paris is burning and the people are chanting: We Want Trump!

    People are going nuts!

    • Trump is now the answer
      to all our ills and woes
      seen now as a saviour
      as we slip into death’s throes

      but unlike Captain Smith
      (of wide Titanic fame)
      he will not go down with ship
      without licensing his name

    • Regarding the inverting treasury yields, the WSJ says:

      The yield on the benchmark 10-year Treasury note fell to a recent 2.948%, according to Tradeweb, from 2.990% Monday. The yield has fallen from a seven-year high of 3.232% reached Nov. 8. Yields, which fall when bond prices rise, continued Monday’s decline.

      The gap between yields on the two- and 10-year Treasury note yields narrowed to 0.123 percentage point Tuesday, the smallest difference since 2007. Investors closely watch the distance between the shorter- and longer-term yields because short-term rates have exceeded long-term ones before every recession since 1975, a phenomenon known as an inverted yield curve. The gap two- and five-year yields inverted Tuesday, following Monday’s inversion of the spread between three- and five-year yields.

      The inversion is important because banks make their money by “borrowing short and lending long.” If there is not enough spread between what they are paying for money, and what they are lending money out, they have a problem making loans.

      Of course, it is not just the banks that then have a problem. The economy needs growing debt, but if the banks can’t make money making loans, they make many fewer loans, pushing the economy downward.

      • Yoshua says:

        So, back to zero rates and QE?

        • Uncle Bill says:

          Yes, yes….SAVED BY ZERO….the 80’s were the Fabulous….oh…if we only could go back

          The FIXX…great tune to trott

          • Uncle Bill says:

            Lyrically, “Saved by Zero” is a reference to the Buddhist mantra Śūnyatā. Fixx frontman Cy Curnin reflected on its meaning in a 2008 interview:

            “It was about looking at your own life, not so much about amassing material things but about experiences that lend you to be blissful… The song was written from the point of view of the release you get when you have nothing left to lose. It’s sort of a meditation. It clears your head of all fears and panics and illusions and you get back to the basics, which is a Buddhist mantra, which I practiced back then, and which I still do.
            Back to ZERO

            • xabier says:

              Wonderful philosophy – on a full stomach and in good health……

              I incline to Stoicism: you do feel fear, because there is much to fear, and pain is real, but you muster the courage to go on.

              This is also the ethic of Old Germanic and Norse culture: you fight, even in defeat.

      • xabier says:

        I was told a good story by a Greek businessman about Greek banks – with the encouragement of the government – faking business loans to make their books and the economy look good to Brussels.

    • Greg Machala says:

      Even presidents are not immune to the effects of diminishing returns.

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