Oil is worth $120,000 per barrel. Not a typo.

Helicopter money and why it won't work

By now, all economists know that creating more billionaires with QE doesn't accomplish anything for the real economy. So we will hear more about pushing money to main street.

They are trying to solve financial debt. If they use printed money to do this, it is really just more of the same. The correct way to solve debt is default, but the bankers and billionaires will try to avoid this as much as possible.

What is not being discussed is the debt to the biosphere. The world has copied the US system of autos and sprawl. This is a subsidized, unsustainable system. Even if oil price goes to zero, the system draws most of its subsidy from the destruction of the biosphere. This cannot be paid with money, printed or otherwise.

Regardless of price, oil costs more joules to get a joule every day. The only way to address this is by degrowth. We are already in degrowth, the question is, will we fight it to save the rich, or will we work with it to save the biosphere.

Bring us your rich, your energetic, your masses of cyclists

Heaven forbid some energetic child should jump on a fare-free bus. Or a rich person. Horrors!

Trolls are now pushing this line:

"Free transit doesn't work because new riders are mostly pedestrians and cyclists"

Who cares? They are welcome. They can change habits quickly. But gradually, car owners will change their habits... then this is what happens.

A city of 1 million in the US spends $3.6 million per day on gasoline. A 1% increase in weekday ridership on public transit would save the city dwellers $5 million/year. A 10% increase would save $50 million a year.

This is why the trolls are out in force.

Shale drillers "need a miracle"

Earlier this week the chief executive of Schlumberger said as much. Speaking to Reuters on the sidelines of an industry event in Saudi Arabia, Olivier Le Peuch said he expected growth in U.S. shale oil production to slow down to 600,000 to 700,000 bpd this year and further to just 200,000 bpd next year as low prices continue to take their toll.

https://oilprice.com/Energy/Crude-Oil/Shale-Drillers-Need-A-Miracle-To-Keep-Production-From-Falling.html? 

Oil is not a commodity

Transport --  ships, trucks, trains, planes, and cars all depend on liquid fuel.

The cost of oil is a value-added tax that trickles through every transaction, and every physical activity, in the real economy. Cheap oil production peaked in 2005. Every day since, it takes more joules to get oil to wheels, propellers, and assembly lines than it did the day before. This is a built-in drag on the world economy.

Sitting above the real economy, central banks make up the difference by creating money on their keyboards. This increased debt creates additional economic drag by extracting interest from the real economy.

Any threat to oil-demand is a threat to the bankers. This is why they will attack free public transit.

They want to make riding public transit an unpleasant experience.

Expect attack. Expect intimidation. Expect sowing of doubt and uncertainty.

Expensive tight oil has peaked, debts defaulting, demand sagging, second correction overdue

The plateauing of conventional crude oil production in January 2005 was one of the triggers of events leading to the 2008 global financial crash, according to the report. As debt built-up in the subprime mortgage sector, the crude oil plateau drove up the underlying energy costs for the entire economy making that debt more difficult to repay—and eventually resulting in catastrophic defaults. The report warns that “unresolved” dynamics in the global energy system were only temporarily relieved due to "Quantitative Easing"—the creation of new money by central banks. A correction is now overdue, it warns.

https://www.vice.com/en_us/article/8848g5/government-agency-warns-global-oil-industry-is-on-the-brink-of-a-meltdown 

Oil industry, already desperate for customers, hit by #coronavirus

China’s oil demand amid the coronavirus outbreak is likely inflicting the worst oil demand shock to markets since the financial crisis of 2008-2009, with Chinese demand plunging by 20 percent compared to the typical demand for the season, sources with inside knowledge of the Chinese industry told Bloomberg.

https://oilprice.com/Energy/Crude-Oil/Coronavirus-Could-Cause-Chinas-Oil-Demand-To-Plunge-By-20.html#

Oil price already too low for producers, now, a new threat. Expect more money-printing and bank bailouts. Oil industry is made up of steel and cement. If these assets run under capacity, something has to give.

Deepwater oil/gas projects hit a record 10m boe/d

woodmac.com

Oil desperate for customers as demand projections not being met

The Head of Oil Market Research at Rystad Energy, Bjørnar Tonhaugen, said, “We have a clear message to the OPEC+ countries: A ‘roll-over’ of the current production agreement is not enough to preserve a balanced market and ensure a stable oil price environment in 2020.
“The outlook will be bleak if OPEC+ fails to agree on additional cuts.”
According to Rystad Energy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day in the first half of 2020.
“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period,” Tonhaugen said.
“In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd – a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels – given our forecast for demand, non-OPEC supply and the impact of new IMO 2020 regulations on global crude runs,” Tonhaugen added.

https://punchng.com/oil-may-fall-to-40-experts-warn-opec/

Official world debt is $255 Trillion, falling oil demand a huge fear

Since 2005 there has not been a good price for oil. Any price is too high for consumers or too low for producers. Oil is NOT a commodity. It runs through every transaction in the economy. Without oil, there is no transport, without transport there is no economy.

All oil in the ground is borrowed against, and in many cases re-hyphothecated. Shale in the US is collapsing after running negative cash-flow for ten years. Why so much debt? Because the oil industry is more than rigs and tankers, it is roads, highways, suburbs, cul-de-sacs, DIY stores, ... in other words, sprawl. There is no quick way to get out of this commitment to hard assets.

Hard assets can not be allowed to run at a low percentage. They have to keep pumping and burning or else take huge losses.

Oil industry now is desperate for customers.

Private Equity vultures already feeding on shale corpse

PE is seeking to take advantage of depressed or under-appreciated asset valuations in a buyer’s market where, for strategic reasons, sellers are looking to release capital.

https://www.woodmac.com/news/the-edge/private-equity--big-buyers-of-oil-and-gas-in-the-downturn/ 

Offshore oil will peak soon, shale is ending, Brazil auction fails

(Bloomberg) -- Offshore oil production is expected to hit a peak in 2020 before joining the shale industry in a slowdown that could dramatically rewrite market supply predictions.

https://www.rigzone.com/news/wire/offshore_oil_to_peak_in_2020_then_slow_down-12-nov-2019-160308-article/?

It was billed as the largest oil auction in history, one expected to produce a windfall. But analysts say a high signing bonus scared away bidders.

https://www.nytimes.com/2019/11/06/world/americas/brazil-oil-auction.html

A few high-profile shale executives say the glory days of shale drilling are over.

https://www.nasdaq.com/articles/the-drilling-frenzy-is-over-for-u.s.-shale-2019-11-07?

How should we interpret this. There is a temporary glut of oil, but the long term is shortage. But there is no proper price because any price is too low for producers and too high for consumers. This is why there is such an attack on public transportation. Oil companies are producing on borrowed money and are desperate for customers. Meanwhile wars for oil are raging. 

Piñera suspends the rise in the price of the subway and the Army decrees curfew for Santiago

The president of Chile recalls after an unprecedented wave of violence in the capital and the rest of the country. The Army has decreed curfew for the Chilean capital...

...The military that took control of Santiago de Chile this morning has failed to stop the violent protests in different areas of the city, which over time have spread to different regions of the country. Twenty-one hours after decreeing the state of emergency for the capital, which restricts citizens the freedom of transfer and assembly for 15 days...

Look. See how important this is to the elites? They need us to buy and burn oil. They can't stand it when we use public transportation. This is because banks are leveraged out too far on oil. They want to raise fares -- -NOT TO GET MONEY --- but to reduce ridership and get more people driving.


Link to story: https://elpais.com/internacional/2019/10/19/actualidad/1571506476_320721.amp.html?

Oil and debt

Why has Chile declared a state of emergency to enforce a fare hike?

In 2005, conventional [easy-to-get] oil peaked. Every day the world's massive oil-dependent, fixed-asset, infrastructure depends more on difficult oil, expensive oil.

This infrastructure: highways, refineries, pipelines, suburbs, shipping, etc., is resting on huge amounts of debt that was created with the idea that oil would always be cheap.

Now the end of cheap oil has created a cul-de-sac. Oil price is too low for producers, but too high for consumers. But the oil-dependent infrastructure, if not fed, will bleed money.

They need people to use cars more and public transport less. So they raise fares.

They are literally beating up school girls to save the banking system.

End of cheap energy means no more profits

Price of energy too low for producers, too high for consumers. The gap has been filled by debt. But debt is a bet on future profits, but there is no more cheap energy, so there won't be any future profits.

Our problem is not just that oil prices that are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.
...
The world economy seems to be running out of truly productive uses for debt. There are investments available, but the rate of return is very low. The lack of investments with adequate return is a significant part of what is preventing the economy from being able to support higher interest rates.

https://ourfiniteworld.com/2019/09/12/our-energy-and-debt-predicament-in-2019/

Falling net energy, capitalism, and harsh degrowth

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. https://ourfiniteworld.com/2019/08/22/debunking-lower-oil-supply-will-raise-prices/

Since 2005, when conventional oil peaked, we have been in a situation where energy prices are too low for producers and too high for consumers. A normal biological reaction to less energy input is to reduce growth. But because of capitalism, the human species tries to violate this principle and continue growing. This can only be temporary until the laws of physics enforce harsh degrowth.

 

Oil wars and oil glut, no contradiction

There has not been a good price for oil since conventional (easy-to-get) oil peaked in 2005. Any price is too high for consumers and too low for producers.

Oil still is the blood of capitalism. There is no easy substitute. Trillions of dollars of infrastructure and systems are dependent. Things like millions of square miles of sprawl can not be converted quickly enough.

The owners of this infrastructure have decided to squeeze it until the last dollar and if the biosphere goes down, oh well, too bad. They don't really have much choice given they are locked in a dog-eat-dog system of competition.

There is still some conventional oil in Iraq, under Kirkuk. So war is raging over that. All the profits have been borrowed-against, but the oil is needed just to keep the whole debt-ridden system working for another decade.

It's no longer about profit, it's about interest on debt -- survival of the billionaires.

Oil glut IS #peakoil

Easy-to-extract oil peaked in 2005. It is now declining at about 6% a year. Hard-to-extract oil is replacing some of the loss, but at a price that is too high for consumers and too low for producers. This is why the price seems to fluctuate out of control.

There is a hot war over one last large reserve of easy oil under Kirkuk, Iraq. More money will eventually be spent on this war than can possibly be recouped in profits -- but profits are just a small part of oil. Oil is blood to modern society. Whoever controls it has tremendous power.

So we are in the impossible situation that money is being borrowed and lavished on getting oil, while the market is in a glut.

You can imagine how threatened the bankers are with all the debt that is in danger of default if they don't get the easy oil, or if recession deepens and demand falls even more.

Here are some of their nightmares.

• reduced energy demand due to recession
• free transit (notice how quickly they shut down the idea in Paris)
• falling birth rates 
• rebellion (which they call terrorism)
• default 

Kirkuk has plenty of "easy-to-extract" oil, hence, #waronislam

Why energy prices are ultimately headed lower; what the IMF missed | Our Finite World: "It takes energy to make goods and services.
It takes an increasing amount of energy consumption to create a growing amount of goods and services–in other words, growing GDP.
This energy must be inexpensive, if it is to operate in the historical way: the economy produces good productivity growth; this productivity growth translates to wage growth; and debt levels can stay within reasonable bounds as growth occurs.
We can’t keep producing cheap energy because what “runs out” is cheap-to-extract energy. We extract this cheap-to-extract energy first, forcing us to move on to expensive-to-extract energy.
Eventually, we run into the problem of energy prices falling below the cost of production because of affordability issues. The wages of non-elite workers don’t keep up with the rising cost of extraction.
Governments can try to cover up the problem with more debt at ever-lower interest rates, but eventually this doesn’t work either.
Instead of producing higher commodity prices, the system tends to produce asset bubbles.
Eventually, the system must collapse due to growing inefficiencies of the system. The result is likely to look much like a “Minsky Moment,” with a collapse in asset prices.
The collapse in assets prices will lead to debt defaults, bank failures, and a lack of new loans. With fewer new loans, there will be a further decrease in demand. As a result, energy and other commodity prices can be expected to fall to new lows."

Economy Runs On Energy, Not Money

Seeking Alpha: "By the end of the 20th century, Berman explained we had gone through most of the easily accessible, cheap oil available around the world. As a result, production has been driven to explore for, more difficult to extract deposits.

"Those are all perfectly legitimate sources of oil, but because of the environment, the depth, the risk of the cost, all of a sudden oil got a lot more expensive," he said.

This is the heart of the issue, as oil prices are the determining factor when it comes to peak oil. In the 1990s, in terms of 2016 dollars, oil was around a third to a quarter the price it costs today to find and produce, Berman stated. As a result, the cost of everything that comes from oil is three or four times higher than it was just a couple of decades ago.

"From my perspective, the economy runs on energy, and money is nothing more than a call on energy," Berman said.

Oil is the master resource right now, he explained. The current weak economic growth we see around the world is a direct result of this, Berman added."