Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

In fact, as I write this, Brent oil price is currently quoted as $60.48, which is back in the range of December 2018 and January 2019 low prices. Also, reducing production doesn’t seem to be reducing inventories. Figure 3 suggests that they are now higher than they were before the reduction in oil supply took place.

Figure 3. Figure from the OPEC Monthly Oil Market Report for August 2019 showing OECD commercial oil stocks.

Why aren’t oil prices rising and oil inventories falling, if oil production has fallen?

The basic issue is that the economy is very much interconnected under the laws of physics, because energy is required for every activity that is considered part of GDP. Energy is required for any kind of heat or any kind of movement. Energy is even required for electricity. Without energy from the sun, food can’t grow; without supplemental energy of some kind (such as using electricity to heat an electric stove or burning animal dung or sticks), it becomes impossible to cook food or smelt metals.

One strange phenomenon that arises from the interconnected nature of the economy is the fact that the prices of all energy products (including those not listed on Figure 4) tend to move together.

Figure 4. Comparison of changes in oil prices with changes in other energy prices, based on time series of historical energy prices shown in BP’s 2019 Statistical Review of World Energy. The prices in this chart are not inflation-adjusted.

This strange phenomenon arises because energy products are well-buried within every part of the world economy. A person’s job requires energy consumption. The tasks that governments do, such as building roads and schools, require energy consumption. Both transporting and cooking food require the use of energy products. Refrigerating food requires energy products. These energy uses, as well as many other everyday hidden uses of energy, aren’t things that we can easily cut back on.

Consumers often think, “I will drive less, and that will cut back on my energy consumption.” Unfortunately, in the whole scheme of things, whether or not individuals cut back on their optional use of gasoline doesn’t get the world economy very far. Gasoline accounts for about 26% of world oil consumption, or about 8.7% of total energy consumption, based on the most recent BP energy data. Cutting back on the optional use of gasoline would not reduce total consumption very much. If it were possible to reduce gasoline consumption by 10% by voluntary cutbacks, it would still reduce world energy consumption by less than 1%.

The strange pattern of the price changes shown on Figure 4 indicates that there is something affecting energy prices of many kinds, simultaneously. I would describe this as “affordability.” It has to do with how affordable finished goods and services are to the population in general, much more than it does scarcity. (Economists call this affordability issue “demand.”) If finished goods and services are affordable to a large number of consumers, as they were in 2008 and in 2012 and 2013, prices will be bid up to very high levels (Figure 4). If finished goods and services aren’t very affordable, a drop-off in prices, such as that experienced in November and December of 2018 (Figure 2), is likely to occur.

When OPEC decided to cut back its production of oil in response to the low prices in late 2018, this cutback in oil production didn’t help the affordability of finished goods and services. In fact, this cutback probably made the worldwide total quantity of affordable finished goods and services a little lower. This happened because, with the cutback in oil production, the governments of OPEC countries were able to collect less tax revenue on the smaller quantity of oil that the countries were selling. In fact, this smaller quantity of oil wasn’t even being sold at a higher price.

With lower revenue, governments of OPEC countries are being forced to cut back on funding of new projects such as roads and schools. These projects will use fewer energy products, and the would-be workers will have less money to spend on goods made with energy products. Thus, these cutbacks help to lower the world’s “demand” for oil and other energy products and thus help lower the price of oil.

The fact that the economy is interconnected in this strange way makes shifting prices upward much more difficult than if scarcity were the primary issue. In effect, the whole stack of energy prices in Figure 4 must somehow be made to rise. This is difficult to do because it is the lack of wages of the many poor people around the world that is holding back “demand” for energy products. If, somehow, higher wages could be sprinkled on the many poor workers of the world, including those in India and Africa, then oil (and other energy) prices would tend to rise. With higher wages, these poor people would be able to afford items such as nice homes, cars, and air conditioning, pulling world food and energy demand upward.

One difficulty with rising oil (and other energy) prices: They don’t translate into rising wages.

Rising oil prices tend to cause recessions and layoffs. We can see this from historical data. Average wages, considering layoffs, tend to fall rather than rise during times of spiking oil prices. In fact, the chart seems to suggest that the big increases in average wages tend to occur when oil prices are under $40 per barrel. A growing supply of cheap energy thus seems to be the magic ingredient that shifts wages upward.

Figure 5. Average wages in 2017 US$ compared to Brent oil price, also in 2017 US$. Oil prices are from BP’s 2018 Statistical Review of World Energy. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

Because of this difficulty with spiking energy prices, high energy prices tend not to last for very long. One issue is that regulators quickly raise short-term interest rates to solve what they perceive as “the problem of rising food and energy prices.” Once recession sets in (gray bars in Figure 6), regulators find that they need to lower interest rates and raise the level of debt to stimulate the economy again. With lower interest rates and more debt, major purchases (such as homes, cars, and factories) become more affordable, because purchases bought on credit have lower monthly payments. With greater affordability, food and energy prices again rise, to again encourage more production.

Figure 6. Three-month and ten-year interest rates through July 2019, in chart by Federal Reserve of St. Louis.

So we end up with an endless see-saw of energy and food prices. In fact, the peaks have tended to fall lower and lower since 2008, as can be seen in Figure 7, showing monthly average prices.

Figure 7. Monthly average Brent Oil prices since January 2000, based on data of the US Energy Information Administration.

Monthly average peaks started at $132.72 in July 2008. More recently, peaks have fallen as follows:

  • Peak of $125.25 for the month of March 2012
  • Peak of $109.54 for May 2014.
  • Low month average price of $30.70 in January 2016.
  • Most recent average peak was $81.03, for the month of October 2018.

From this pattern of falling peaks, we can see that the stimulus being used recently (which includes Quantitative Easing in some parts of the world) has become less and less effective at stimulating demand for food and energy products.

It looks as though growing debt at ever-lower interest rates is becoming a less effective workaround for the economy’s real need, which is a need for a rapidly growing supply of under $40 per barrel oil and other low-priced energy products.

Oil prices can be a problem in two different directions: (a) Too high for consumers or (b) Too low for producers.

From the Point of View of the Consumer. Many people have had the “Ah Ha” moment, in which they have figured out that high oil prices are a problem from the point of view of consumers. In part, they have deduced that these high oil prices may mean that we are “running out” of cheap-to-extract oil. Processes are becoming more complex, and as a result, consumers need to pay more to cover the higher cost of extracting and refining the oil.

But there is a related issue: Higher oil prices are likely to cause recession. If oil prices rise, the prices of many different types of goods and services (such as food, goods transported by truck or airplane, and vacation travel) rise at the same time. Wages don’t rise as quickly, in part because it is the true energy content (measured in Btus, barrels of oil equivalent, or something similar) that the economy requires. If the economy needs to dedicate a larger share of its resources to producing energy products, this is an issue that is akin to growing inefficiency. There are fewer resources remaining (such as human labor, metals, fresh water, and energy products) for investment that might provide goods such as new homes, cars, clothes and air conditioning.

With fewer resources to use, the economy reacts by shrinking back. I think of the situation as being akin to the way a chemist might “make a smaller batch,” if the quantity of one necessary reagent is low. An adequate supply of energy products is what makes the economy operate as it does; if buying an adequate amount of energy products becomes too expensive for consumers, a cutback in the buying of discretionary goods is forced on the economy (Figure 8). Lowering interest rates tends to make the debt repayment portion on new purchases lower, helping to alleviate the squeeze.

Figure 8. Chart made by author in 2010, to illustrate a talk called Peak Oil: Looking for the Wrong Symptoms.

From the Point of View of the Oil Producer. There are oil producers of many kinds, including:

  • Tight oil producers from shale operations,
  • Heavy oil producers in places such as Canada and Venezuela,
  • Producers of oil from deep water such as Brazil and Angola, and
  • Middle Eastern oil exporting countries that seem to have a very low direct cost of oil production.

Strange as it may seem, Middle Eastern oil exporting countries are among the most vulnerable to problems associated with continued oil low prices. The reason why these countries are so vulnerable is because their entire economies are oriented toward oil and gas production. They often have large populations with inadequate income unless the government provides them with handouts or with programs that provide jobs. If these governments need to cut back too much, there is a real danger that the governments will be overthrown. In fact, the population may break down into warring factions. Oil production may stop because of internal disorder.

It is because of issues such as these that the OPEC countries have cut back on oil production, in the hope that prices would rise to more acceptable levels for their countries. Fiscal Breakeven prices, relating to the level of oil prices that are needed so that each government can collect sufficient taxes for its budget, are published from time to time.

Figure 9. Chart published by the Arab Petroleum Investments Corporation (APICORP) giving Fiscal Breakeven Prices estimated to be needed for 2013.

Now that oil prices have been low since late 2014, Middle Eastern countries won’t admit to the true level of oil prices that are needed to operate their countries in the way that they have in the past. Their populations have been rising faster than their oil production, so it is hard to believe that the oil prices that the countries truly need, if they do not cut back on programs, are any lower than the amounts shown in Figure 9. At about $60 per barrel, the current Brent Oil price is clearly far too low for the major oil producers of the Middle East.

Shale and heavy oil producers are often less vulnerable than Middle Eastern producers, because the entities funding their operations (that is, buyers of shares of stock and providers of debt) believe that “of course” oil prices will rise in the future because of scarcity. Because of this, they are willing to provide additional funding, even when a recent owner has gone bankrupt from low prices. Middle Eastern oil producers have less of this benefit. If the money isn’t available for major programs, they are forced to cut back. Growing debt is unlikely to cover more than a portion of the shortfall.

There are other producers in the energy price “stack” in Figure 4 that are vulnerable to collapse or bad outcomes from continued low energy prices. One example is coal producers in China. China seems to be experiencing Peak Coal because of continued low coal prices; While new mines have been opened, they do not act to increase the total quantity produced, because so many mines needed to be closed because they were losing money at current low prices.

Figure 10. China energy production by fuel, based on 2019 BP Statistical Review of World Energy data. “Other Ren” stands for “Renewables other than hydroelectric.” This category includes wind, solar, and other miscellaneous types, such as sawdust burned for electricity.

If the world economy is hoping for China’s increasing demand to pull the world economy forward in the future, it is likely kidding itself. China cannot expect imports to make up for its lack of growth in coal production. China’s lack of adequate energy supplies likely underlies the tariff issue that we hear so much about. There is a need to pull back production of goods from China, if China doesn’t really have the energy resources to continue in the role it has been playing.

The big question is how high oil prices will be in the future

The contention of the IEA and many others is that energy prices can rise arbitrarily high. For example, the IEA showed the figure I have numbered Figure 11 in its World Energy Outlook 2015 .

Figure 11. IEA Figure 1.4 from its World Energy Outlook 2015, showing how much non-OPEC oil can be produced at various price levels.

The big groupings in Figure 11 are

  • Conventional Crude (such as from the Middle East and perhaps deep water like Brazil),
  • Tight Oil from Shale, and
  • Extra Heavy Oil and Bitumen (such as from Canada and Venezuela).

Evidently, in 2015, the IEA believed that $300 per barrel oil prices were not too high to show as a possibility on a chart. With $300 per barrel oil, there would certainly be enough oil. At such a high price, it might be possible to move the city of Paris, France, out of the way and extract the tight oil from shale underneath it!

Unfortunately, in the real world, prices cannot rise this high. Market prices are set by the laws of physics. The economic limit we reach is a price limit that pushes the economy back into recession. We have seen in Figure 7 that this price limit seems to be dropping lower and lower, over time. In fact, I am one of the coauthors of an article published in the journal Energy called, An Oil Production Forecast for China Considering Economic Limits. This 2016 article makes the point that the economic limit we are reaching is a limit on how high oil prices can rise. I am the lead author of Section 2, which discusses this issue at length. If prices cannot rise high enough, the vast majority of the oil that seems to be available based on published reserve amounts and geological surveys cannot really be extracted.

Whether there are ways to raise oil and other energy prices higher than they are now remains to be seen.

Why don’t standard models forecast low oil prices in the future? 

Economists have put together a simple model of how the economy works. In their model, there are always substitutes. The only thing that goes wrong seems to be that prices rise, if there isn’t enough supply. These rising prices encourage greater supply and substitution. The type of chart a person typically sees is a Supply and Demand curve as shown in Figure 12.

Figure 12. Supply and Demand model from Wikipedia.
Attribution: SilverStar at English Wikipedia CC BY 2.5 (http://creativecommons.org/licenses/by/2.5)%5D, via Wikimedia Commons

They have never considered a situation where energy products are deeply buried within essentially all goods and services that are made. If there isn’t enough supply, a “smaller batch” of the world economy is made. We think of this as recession, but it can take on other forms as well:

  • Depression
  • Wars
  • Epidemics
  • Defaulting debts; falling prices of assets
  • Failing governments and intergovernmental organizations
    • Collapse of the central government of the Soviet Union in 1991
    • UK’s decision to leave the European Union
  • Increasing conflict between political parties and between countries
  • A reduction in globalization
  • Ultimately, the collapse of a civilization

Economists have not understood the connection between physics and the economy. There is a need for a sufficient quantity of affordable energy products every moment of every day. In fact, we seem to need a vastly increased quantity of inexpensive-to-produce energy supplies right now if we are to fix the world economy’s problems from an energy point of view. The “lower interest rates and more debt” way of hiding problems seems to be reaching an end point. If nothing else, interest rates today are close to as low as they can go.

Is the economy approaching a singularity?

In physics and math, a singularity is a point at which a function takes an infinite value. We end up with a situation that seemingly cannot exist. It is like dividing the number 1 by the number 0. No matter how many times that the number 0 is added together, it will never equal 1.

The economy seems to be reaching an equally strange situation. It is not a situation where we are running out of oil; it is a situation of too much wage disparity, and this wage disparity makes the prices of many commodities too low for producers of these commodities. For example, farmers cannot afford to pay their mortgages. And prices for all fossil fuels and many metals are too low for companies extracting these materials to make an adequate profit for reinvestment and taxes. The problem is not simply low oil prices.

This situation of excessive wage disparity is related to globalization, with many workers around the world earning very low wages, so that they cannot afford goods such as homes and cars. It is related to the increased use of robots substituting for manual labor. It is also related to wage disparity within countries as jobs become increasingly specialized.

As this situation plays out, energy prices fall when common sense would seem to suggest that they should rise. In fact, the problem of falling prices extends to more commodities than fossil fuels and food; it extends to minerals of many kinds, including copper and aluminum.

In such a situation of falling commodity prices, we can expect many related problems. For example, governments of countries that depend on the revenue of these exports may fail, leading to Balkanization of these countries in some cases. A wide range of debt defaults can be expected, leading to failing financial institutions that need to be bailed out. Rapidly changing relativities among currencies are likely to put markets for derivatives at the risk of failing. Needless to say, stock markets are likely to be adversely affected. So-called renewables will quickly fail because they are currently dependent on fossil fuels for repairs and the electric grid. In fact, it is hard to see any aspect of the world economy that can continue unaffected.

How does what appears to be an approaching calamity play out?

Perhaps it is fortunate that we don’t really know. Collapses of early economies seemed to take many years, typically over 20 years. Today, the world economy depends on global supply chains and the electric grid. The financial system is also very important. It is hard to believe that the overall system can stay together for many years, but perhaps, in parts of the world, it can. We just don’t know.

Given how connected the economy seems to be, and how widespread the problems seem to be at the singularity we are reaching, it almost appears that there is a plan behind what is happening. From what we can observe, there seems to be some literal higher power behind all of the energy flows that we observe in the universe. This literal higher power seems to have put into place all of the laws of physics. This literal higher power seems to also be behind all of the self-organizing elements within the universe, including humans, ecosystems and economies. I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.

 

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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1,469 Responses to Debunking ‘Lower Oil Supply Will Raise Prices’

  1. Harry McGibbs says:

    Great stuff, Gail, as always.

    This looks like the big story today:

    “The U.S. manufacturing PMI (purchasing managers index) was 49.9 in August, below the neutral 50.0 threshold for the first time since September 2009, according to IHS Markit.

    “New orders received by manufacturers dropped the most in 10 years, while the data also showed export sales tanked to the lowest level since August 2009, the data show.”

    https://www.cnbc.com/2019/08/22/manufacturing-sector-contracts-for-the-first-time-in-nearly-a-decade-according-to-ihs-markit.html

  2. Niels Colding says:

    Thank you, Gail, one more wonderful piece, also including the hidden hand.

    • Karen Longmore says:

      This may be the “Hidden Hand” that has deemed that several planetary/solar cycles, including the Grand Solar (the Eddy this time around) Minimum should play out at this time in history too. This of course will bring ruination to post industrial countries through biblical magnitude crop losses, plagues of locusts etc. We may be just beginning a civilisation-crushing 2000 year episode, if we’re lucky a 200 year Minimum like the Dalton.
      Either way, we do all need to start ( immediately ) gardening and prepping generally !

      • Livescience says the following: Global Warming vs. Solar Cooling: The Showdown Begins in 2020.

        The sun may be dimming, temporarily. Don’t panic; Earth is not going to freeze over. But will the resulting cooling put a dent in the global warming trend?

        A periodic solar event called a “grand minimum” could overtake the sun perhaps as soon as 2020 and lasting through 2070, resulting in diminished magnetism, infrequent sunspot production and less ultraviolet (UV) radiation reaching Earth — all bringing a cooler period to the planet that may span 50 years.

        The last grand-minimum event — a disruption of the sun’s 11-year cycle of variable sunspot activity — happened in the mid-17th century. Known as the Maunder Minimum, it occurred between 1645 and 1715, during a longer span of time when parts of the world became so cold that the period was called the Little Ice Age, which lasted from about 1300 to 1850.

        There seem to be various write-ups of a recent analysis by Professor Valentina Zharkova, which seems to suggest a cooling period may be ahead.

        https://electroverse.net/professor-valentina-zharkova-breaks-her-silence-and-confirms-super-grand-solar-minimum/

        https://tallbloke.wordpress.com/2019/06/25/zharkova-uses-solar-planetary-theory-in-new-paper-predicting-earth-temperature-rise-to-2600-following-imminent-grand-solar-minimum/

        The second link quotes directly from the conclusions section of the paper. It says (among other things):

        “Furthermore, the substantial temperature decreases are expected during the two grand minima to occur in 2020–2055 and 2370–24156, whose magnitudes cannot be yet predicted and need further investigation.”

        So it is not clear that she is yet making a very specific prediction.

        • Karen Longmore says:

          Thanks Gail for your comments and links to and about Prof Valentina Zarkova , they are much appreciated!
          The Ice Age Farmer has a thought- provoking platform which I follow on YouTube ; he regularly details the worldwide crop failures occurring this year, which rarely hit the mainstream media. Olives in Italy for example —its interesting that the U.K. government has recently listed olive oil amongst common foods which may be rationed as a result of a no-deal Brexit!!!!
          I’ve noticed that popular economists like Celente and Kaiser don’t pay much attention to the world’s food supply. I remember you Gail commenting some time ago that economists seem to be isolated from the practicalities of energy supply; in the same way they seem to be ignoring, given the changing climate at present, the looming failure of “modern “ industrialed farming to continue to service the world’s FOOD SUPPLY needs …when this particular just- in- time supply chain goes belly-up, governments can’t just print more food! Empires tend to fall when they run out of food…

          PS I’m not an Economist or a scientist or an academic, just an older lay person concerned about her family, and how we should all be adapting, not sticking our heads in the sand!

      • Tim Groves says:

        If this latest Grand Solar Minimum finishes more quickly that its proposers expect, I suggest we call it the Fast Eddy Minimum. 🙂

        John Allen “Jack” Eddy (March 25, 1931 – June 10, 2009) was an American astronomer who published professionally under the name John A. Eddy but much of the content referencing him can be found under his nickname Jack which he preferred to use. In 1976 Dr. Eddy published a landmark paper in Science titled “The Maunder Minimum”[2] where, using the Nineteenth Century works of Edward W. Maunder and Gustav Spörer, he identified a 70-year period from 1645 to 1715 as a time when solar activity all but stopped.
        In making the case for the anomaly, he gathered and interpreted data from a wide variety of sources, including first-hand accounts from extant historical observations of the Sun going back to the telescopic observations of Galileo and other contemporary scientists of the 17th and early 18th centuries; from historical reports of the aurora borealis observed in past centuries in Europe and the New World; from visual observations of sunspots seen with the unaided eye at sunrise and sunset in dynastic records from the Orient; from existing descriptions of the eclipsed Sun; and from measurements of carbon-14 in dated tree-rings. In the last of these, which can be used as a proxy indicator of solar activity, he found evidence of other similar periods of solar quiescence in the distant past, the most recent an even longer 90-year span, from about 1460 until 1550, which he named the Spörer Minimum.
        Both the Maunder and Spörer minima fell during the coldest parts of the Little Ice Age, which suggested a meaningful connection between the longer term behavior of the Sun and of the Earth’s mean surface temperature. In advancing the theory that the Sun is a variable star Eddy observed:[2] “It has long been thought that the Sun is a constant star of regular and repeatable behavior. Measurements of the radiative output, or solar constant, seem to justify the first assumption, and the record of periodicity in sunspot numbers is taken as evidence of the second. Both records, however, sample only the most recent history of the Sun.”

        https://en.wikipedia.org/wiki/John_A._Eddy

        • Kowalainen says:

          The sun isn’t a gaseous nuclear reactor driven by temperature and compression. Gases does not gravitationally collapse thus exerting work on themselves. It’s a thermodynamic no-no and any such theories must be discarded since the contradict experiment.

          The surface of the sun consists of metallic hydrogen with a clearly defined boundary. Transmutation and fusion reactions are due to the enormous currents which flows through its plasma atmosphere, creating a massive nuclear reactor driven by electric currents in its plasma atmosphere.

          By the way, gases does not form radial waves:

  3. theedrich says:

    Today’s grotesque, planeticidal materialsm must end.  Man must start with a fundamentally different and new understanding of his own origin and being.  Otherwise nihilism will bring about the complete failure of this planet’s attempt to produce intelligence.  The following is my effort to show how our existence is the very opposite of meaningless.

    At the end of their massive tome, Gravitation (S.F.: W.H. Freeman & Co., 1970-71, p. 1208), astrophysicists Charles W. Misner, Kip S. Thorne and John Archibald Wheeler derive the concept of an ultimate Mind behind the physical universe as a “calculus of propositions,” a form of logic which considers all possibilities for a cosmos, and  chooses for implementation the one(s) which will produce biological intelligence.

    “Little astonishment there should be, therefore, if the description of nature carries one in the end to logic, the ethereal eyrie at the center of mathematics.  If, as once believes, all mathematics reduces to the mathematics of logic, and all physics reduces to mathematics, what alternative is there but for all physics to reduce to the mathematics of logic?  Logic is the only branch of mathematics that can ‘think about itself.’”  (pp. 1211f.)

    Misner, Thorne and Wheeler further suggest that the REASON for the vast size of universe is “Because only so can man be here!” (pp. 1216f.)

    If, now, we understand the essence of “physical” nature as being in fact rooted in mind operating through morphic resonance as explained by Rupert Sheldrake (in Morphic Resonance: The Nature of Formative Causation);  and if, further, we recognize the history of biology on our planet as the epistemlogical evolution (i.e., evolution as a learning process) of life culminating in the emergence of biological intelligence from basic physics;  then it would seem that biology is actually a fractal reproduction of this cosmic logic — logic which MTW conceive of as a “calculus of propositions.”

    Further yet, despite the fact that Wheeler himself rejected the entire notion of the paranormal, the abundant and overwhelming (non-Hollywood) evidence for it makes it clear that even intense human emotions (as in the experience of traumatic violence, etc.) can modify physical chemistry so as to “imprint” it with the memory of an event, thereby producing the phenomenon of “haunted” houses, etc., where psychically sensitive individuals can perceive that memory as “ghostly” visions or sounds.

    In other words, this kind of “mnemonic” effect is of the same kind as, albeit much weaker than, the effect of the infinitely powerful cosmogonic logic which generates the universe.

    As for memory itself:  as many researchers have determined through rigorous experiments, brains (or cells, even bacterial) are not the same as the memories which they remember.  This discovery is quite contrary to the common materialist dogma that nothing exists except what is “physical,” however defined.  The ability of a brain to “tune into” a memory (e.g., a learned activity) seems to be widely distributed throughout all of the cerebrum, while each section, no matter how small, has that ability, just less strongly and clearly.  In other words, this ability functions as if in a hologram.  (Depending on the researcher or philosopher, the realm of memory may be called “transform space,” “hologramic mind,” or some other term.)  And some, extrapolating this finding, consider the entire universe to be a hologram.

    This is relevant not just to the concept of morphic resonance, but to what is popularly called “reincarnation.”  For information, e.g., on how birthmarks and birth defects often correspond to the death wounds of a previously deceased personality, see Ian Stevenson, Where Reincarnation and Biology Intersect.  It indicates that the interplay between a physical organism and a corresponding memory is not just a one-way street.  Memory guides the growth and behavior of a similarly structured, later individual.  One may feel confident in asserting that it determines the shape and behavior of the most basic physical particles:  the reason all electrons have the same shape, mass and spin is because they are all “identical twins,” remembering one and the same memory.

    And at the root of it all, though far from Christian or other theology, is the cosmogonic logic, or mind, which is popularly called God, and which in Old English pre-Christian Germanic peoples called wyrd (“fate”), the etymological ancestor of modern English “weird.” Moreover, its teleological direction is utterly opposed to the meaninglessness so fervently embraced by the materialists and nihilists now in power in the West.

    • As I keep saying, there seems to be a great deal more predetermination in the way the world operates than I would every had imagined. Everything self-organizes in a way that in some sense maximizes its dissipation of energy. Our ability to control this is very limited.

      There are many things we don’t really understand. This is a rather strange You Tube video from 2014 in which Christine LaGarde (then managing director of the IMF) seems to use numerology to suggest that a change in policy in 2014 might allow with the hope that the past “seven miserable years” can be followed by “seven strong years.”

    • Kowalainen says:

      Yes, we must comply with the natural order. Our monkey brains aren’t suited for developing large scale civilizations because the inherent traits which makes a monkeys successful isn’t the same as which will make civilizations eternal. What is needed for mankind is implicit and emergent rules for its affairs which mimics those of nature, and by extension IS nature.

      Heavy handed intervention by social engineering programs eventually ends in dystopia and suffering, which is evident throughout human history where dogmatism and confusion between equal opportunity and equality of outcome gets in the way of practical solutions and corrupts the civilization in which it depends upon. Concluding in perpetual war, suffering and untold misery.

      Luckily this will inevitably happen with the introduction of artificial intelligence and large scale computer networks, where the problematic traits will be quickly dispatched with to the benefit of natural order. It is the most efficient method of information transmission, storage, raw material and energy exchange close to the theoretical limits of the Carnot Cycle and Information Theory.

      Now we have the choice of complying with this process or face the consequences. Squashed like ants by the process we have created and still fail to understand.

  4. Rodster says:

    “it almost appears that there is a plan behind what is happening. From what we can observe, there seems to be some literal higher power behind all of the energy flows that we observe in the universe. This literal higher power seems to have put into place all of the laws of physics. This literal higher power seems to also be behind all of the self-organizing elements within the universe, including humans, ecosystems and economies. I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.”

    I have a few good friends who are devout Jehovah’s Witness who truly believe that the Bible says that in the time of the end “critical times hard to deal with” would appear. It does appear that over the decades we have put ourselves in a “checkmate” position.

    • And as I have pointed out, the Book of Revelation (which many people seem to equate with end time prophesies, but they may also related to the fall of Rome) points out the collapse of Babylon in Chapter 18. The chapter talks about everything losing value, even slaves (the energy product of the day)(v. 13).

      • Harry McGibbs says:

        It is fascinating that the collapse described features gluts of unsold products as opposed to scarcity, suggesting that affordability is the issue.

        Plus it is rapid:

        “In one hour such great wealth has been brought to ruin.”

        And irreversible:

        “No worker of any trade will ever be found in you again”.

  5. Yoshua says:

    Kremlin said that the low oil price was caused by the Fed’s rate hikes and QT. The strong dollar and dollar shortage globally doesn’t of course help oil prices or the global economy…neither does tariffs and sanctions.

    So…Rosneft will now switch from the dollar to the euro.

    Not sure if this will do any good though…

    https://mobile-reuters-com.cdn.ampproject.org/v/s/mobile.reuters.com/article/amp/idUSKCN1VB15J?amp_js_v=a2&amp_gsa=1&usqp=mq331AQEKAFwAQ%3D%3D#aoh=15664924283111&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fwww.reuters.com%2Farticle%2Fus-russia-rosneft-tenders-euro-idUSKCN1VB15J

    • Thanks for the link. Yes, it could be theoretically interesting development, countries producing something of value (EU – consumer and industrial goods, tooling ; Russia delivering energy carriers + security shield) coming together finally. But I very much doubt such marriage could be achieved and sustained with the substandard material like Macron and Angela (and her incoming clone).. Finally the bottom line – that would imply the US has been completely written off into the future by the global CBs cartel, I doubt very much we are there yet, who knows..

    • We will see. Of course, the Euro isn’t necessarily doing all that well either now, with the problems the EU is having.

      I think that the US raising interest rates is definitely part of the lower oil prices. Quantitative Tightening is likely part of it too, as well as the things these changes do to currency relativities.

      The model economists have regarding how the economy operates (at least as I understand it) is too unrefined. Besides making a smaller batch, there is also the possibility of changing currency relativities. This affects how everything works out as well.

      • Sorry for cross posting it here from Surplus discussion, it’s an important reminder that Orlov made few years ago interesting combo of ZIRP->NIRP-> ? pathway explanation and prediction, summary here: http://cluborlov.blogspot.com/2019/08/going-negative.html

        So far so good, however the next phase shift threshold, i.e. NIRP-> ? stage is likely going to crash into some sort of tangibles level again. I’d tend to speculate it could center on energy flows in the most optimistic scenario while more realistic seems a mere relapse into more primitive forms of social order where the guns people take over control.

        • Thanks for posting a link to Dmitry Orlov’s post. He has many good insights, and an interesting way of putting things.

          I agree that for countries doing as poorly as most of Europe, there is no point to positive interest rates. The future is shrinking, whatever happens, so make the money supply gradually disappear.

          I don’t think we know what brings about the final collapse. We seem to have a lot of candidates.

  6. Chrome Mags says:

    “The economy seems to be reaching an equally strange situation. It is not a situation where we are running out of oil; it is a situation of too much wage disparity, and this wage disparity makes the prices of many commodities too low for producers of these commodities.”

    I think part of the wage disparity in the West is due to a shift from decent middle class wages in the 60’s/70’s to use of labor to the lowest wage people will take yet still remain working for the company long enough to substantiate their training period. In other words the workers are now really just cogs in the wheel. This shift has occurred due to a political feedback in which the wealthy support the conservatives and in return special lower taxes have become policy as well as other ways to help reduce companies outlay to workers.

    We got an earshot of that when Mitt Romney spouted off about the very topic during his presidential bid and it was caught on video by a catering worker. That let the cat out of the bag that what I’m explaining above is accurate, particularly in regards to the philosophy that the rich now see it as their right to jilt the workers at every opportunity provided by the conservatives, and Mitt was talking to them at that event to let them know he would be in their corner.

    IF, and that is an IF that is purely hypothetical because it doesn’t exist, but IF wealth was more equitably shared with workers the $40 a barrel inflection point could by higher, like 45 or even 50. But of course it isn’t and won’t be, but IF it was, it would buy us more time on the way down on this other side of the Seneca cliff.

    • I am not sure the wealth is really available to share. A self-organized system works strangely. Even if a decree went out that the maximum pay for the top person could only be 10 times that of the lowest paid worker, I think the flood of low-paid wealth would be more than the system could really handle.

      One thing that has struck me is the fate of recycling plastic and other low-valued recycling. Recycling is marginal in terms of adequate return, even when oil prices are fairly high. When oil prices are around $60 per barrel for Brent, I cannot imagine that there is much benefit at all. China eliminated this recycling as of January 1, 2018. I believe that they eliminated even more later. No doubt many lost their (low paying) jobs in China, helping to destroy world demand for goods and services.

      As this recycling has tried to shift elsewhere, it has brought lower pay to workers in other countries, such as India, who previously made their living collecting recyclables. The price per kilo or pound of recycled material has fallen dramatically. Where there is a market for a little recycled material, here is not for a lot of recycled material, especially when energy prices are low. So these other countries are trying to get rid of recycling low valued material now as well. It just doesn’t pay. I think that there are a lot of jobs that don’t really add much value now, especially with all of the subsidized renewables.

      Also, as long as there are other countries where wage levels are much lower, it is hard to raise US wages for comparable jobs. If wages are raised, the prices of goods simply become too expensive to sell on the world market.

      • At least in Europe, some of this stuff is now reprocessed and added into road asphalt mix, the new surface has apparently gained several advantages it’s more silent and easy on the joints (jogging – walking – likely the same for suspension of cars).. Not sure how tiny or not could be this application in the grand scheme of things..

        • I hadn’t heard of that application of recycled material. I suppose one of the big questions would be, “How well does the new road material hold up under traffic?”

  7. Pingback: Debunking ‘Lower Oil Supply Will Raise Prices’ | Our Finite World – Enjeux énergies et environnement

  8. Ger Kort says:

    For the first time in human history all the people are living in a world with debt-economy’s. There isn’t a single country with a sound economy. Apparently other economic laws apply in such a large debt environment. Maybe there is no reverse possible before the whole thing implode. Such as in the vicinity of a black hole where normal natural laws also change.

    • Kowalainen says:

      What is not sound by using debt to circulate an ever increasing amount of goods and services?

      Running out of money and having financial collapses is like arguing that we are running low on millimeters and that no new roads can be build because a lack of millimeters and inches. What is such a statement even suppose to mean?

      The money required to circulate the tangible wealth in the economy will simply be created out of thin air as credit/debt isn’t that what Gail is trying to put forward?

      The total money supply is thus a book keeping operation for the economy. It is an ancient method of keeping checks and balances. In a situation of resource constraints, however, the amount of goods and services is naturally reduced, or diluted, no matter how much new money is being printed.

  9. Mike Roberts says:

    From what we can observe, there seems to be some literal higher power behind all of the energy flows that we observe in the universe.

    Could you expand on this? It doesn’t appear to add any value to the discussion. Indeed, such a proposal could render all discussion on energy flows pointless. What have you observed that suggests some higher power, whatever that means, is controlling the universe (ultimately, everything is energy flows in some form or another)? Is it possible to hypothesise about what causes energy prices to rise or fall when some other power is controlling all of this?

    • The laws of physics are what is important. These are what determine prices and how the economy self-organizes and grows. They determine how evolution works.

      I am suggesting that someone/something created these laws of physics that underlie the way the Universe works. If you don’t like the explanation, come up with a different one of your own. Perhaps, “A big bang caused the laws of physics,” or something like that.

      • Robert Firth says:

        Gail, you are welcome to my explanation. Let us begin by supposing that many well documented phenomena do not lie, and that the universe is indeed designed. So who or what designed it?

        We can suppose a Designer, but this has a problem: the Designer must be more complex than the thing designed, just as a watchmaker is more complex than a watch (Thank you, William Paley and Richard Dawkins). But, by the same argument, the Designer must have been designed by a Super Designer, and he/she/it then demands a Super Duper Designer, and so on in an infinite regress.

        Let’s take a step back. The (very) early universe was designed, and by something more complex. What do we know that is more complex than the early universe? Why, of course, the later universe. That closes the system: somebody up there ahead of us is using advanced action to “fix” the parameters just after the Big Bang. The laws of physics are time symmetric, so advanced causality is just as feasible as retarded causality. It’s just that, except on the very small scale of Wheeler’s “delayed choice” experiment, we don’t know how to do it. (For the experiment see Vincent Jacques, Science vol 315 pp 966 to 968)

        Hope that helps. On the rather different question of a Designer who sits outside the universe, I agree with Carl Sagan: “The Cosmos is all that is, or ever was, or ever will be”. Yes, I am a Pantheist.

      • Mike Roberts says:

        Well, that’s right; there could be many opinions on what “caused” physics, as our scientists have discovered it. However, you then went on to write, “I cannot help but wonder whether there is some plan for what is ahead that we don’t understand.” So, having analysed the situation by relying on physics, you then speculate that, instead, there is some plan for how this unfolds. In this case, it doesn’t matter how much we try to analyse and understand how the situation might unfold, since that will not help us determine anything.

        So I don’t see how the ending statements are at all relevant to the pages of analysis that went before. Those pages made a lot of sense but some ethereal plan that can’t be understood would scupper all of that. And, of course, there is always the thorny question of some even higher power that has a plan for the higher power you mentioned, and so ad infinitum.

  10. milan says:

    Given what Paul Craig Roberts speaks about in this important essay next to your above essay well you Gail Tverberg should have been employed as an advisor to Mr. Trump and why your not is telling is it not? Wow, just wow! The ignorance and idiocy of it all is staggering?

    One consequence of Washington’s universal economic ignorance is that the financial media has concocted the story that “Trump’s tariffs” are not only driving Americans into recession but also the entire world. Somehow tariffs on Apple computers and iPhones, Nike footwear, and Levi jeans are sending the world into recession or worse. This is an extraordinary economic conclusion, but the capacity for thought has pretty much disappeared in the United States.
    In the financial media the question is: Will the Trump tariffs cause a US/world recession that costs Trump his reelection? This is a very stupid question. The US has been in a recession for two or more decades as its manufacturing/industrial/engineering capability has been transferred abroad. The US recession has been very good for the Asian part of the world. Indeed, China owes its faster than expected rise as a world power to the transfer of American jobs, capital, technology, and business know-how to China simply in order that US shareholders could receive capital gains and US executives could receive bonus pay for producing them by lowering labor costs.
    Apparently, neoliberal economists, an oxymoron, cannot comprehend that if US corporations produce the goods and services that they market to Americans offshore, it is the offshore locations that benefit from the economic activity.
    Offshore production started in earnest with the Soviet collapse as India and China opened their economies to the West. Globalism means that US corporations can make more money by abandoning their American work force. But what is true for the individual company is not true for the aggregate. Why? The answer is that when many corporations move their production for US markets offshore, Americans, unemployed or employed in lower paying jobs, lose the power to purchase the offshored goods.
    I have reported for years that US jobs are no longer middle class jobs. The jobs have been declining for years in terms of value-added and pay. With this decline, aggregate demand declines. We have proof of this in the fact that for years US corporations have been using their profits not for investment in new plant and equipment, but to buy back their own shares. Any economist worthy of the name should instantly recognize that when corporations repurchase their shares rather than invest, they see no demand for increased output. Therefore, they loot their corporations for bonuses, decapitalizing the companies in the process. There is perfect knowledge that this is what is going on, and it is totally inconsistent with a growing economy.

    https://www.paulcraigroberts.org/2019/08/21/what-globalism-did-was-to-transfer-the-us-economy-to-china/

    • China could give the world a growing supply of cheap coal energy. It also had low wages and many hard-working citizens. All the hoopla about climate change gave a perfect excuse for transferring manufacturing to China. If manufacturing wasn’t within the walls of your own country, the CO2 didn’t count toward official calculations. There certainly was no tax on imported CO2. Of course, sending manufacturing to China sent CO2 through the roof. The trend line shows where CO2 emissions seemed to be headed, before China joined the World Trade Organization.

      Sending the production to China had a multiplier effect on its economy. With the help of growing debt, it could greatly ramp up the energy consumption of the Chinese people as well.

    • I’m afraid it’s a bit more nuanced situation, simply “the Washington” is a mere subset or host entity for the perennial globally operating CB cartel. Occasionally, against the plan not completely “trustworthy lackey” gets into the gov-political office and these tensions bubble on the surface, e.g. Trump’s soft yet publicly done attacks on the FED..

      The de-industrialization of the US was carefully executed activity for several past decades as the high tech sphere (aerospace, military, semiconductors) of the mil-industrial complex got and kept the highest priority and inflow of funds and talent (often sourced from abroad). However, such imbalances of overall deteriorating economy and few selected islands of skill can’t last forever, eventually it all blends and falls apart, we are probably very near this threshold, e.g. US not able anymore to produce reliable passenger jet, long term allies-vassals (Gulfies) already hedging for the post US world situation etc..

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