Category: Peak Oil

For Anyone That Still Believes Collapsing Oil Prices Are Good For The Economy thumbnail Are much lower oil prices good news for the U.S. economy?   Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street.  Yes, lower gasoline prices are good news for the middle class.  I certainly would rather pay two dollars for a gallon of gas than four dollars.  But in order to have money to fill up your vehicle you have got to have an income first.   And since the last recession, the energy sector has been the number one creator of good jobs in the U.S. economy by far.  Barack Obama loves to stand up and take credit for the fact that the employment picture in this country has been improving slightly, but without the energy industry boom, unemployment would be through the roof.  And now […]

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Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem . If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem? Let me explain some of the issues: Issue 1. If the price of oil is too low, it will simply be left in the ground. The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics. If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price […]

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Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem . If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem? Let me explain some of the issues: Issue 1. If the price of oil is too low, it will simply be left in the ground. The world badly needs oil for many purposes: to power its cars, to plant it fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics. If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price […]

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On Feb. 1, 2011, oil prices rose above $100 a barrel. For the next three years, they largely stayed there, with few of the dramatic ups and downs that oil markets are famous for. So when prices began falling slowly in June of this year, most industry experts shrugged. Hundred-dollar oil was here to stay, right? That attitude has made the vicious plunge in oil prices over the past few months all the more shocking. U.S. oil production has been rising for several years; more recently, Libyan oil output has surged, too. Those increases collided with a weak global economy this summer to create a glut of oil. Late last month, members of the Organization of the Petroleum Exporting Countries (OPEC) announced that they would not cut their own production to compensate and stabilize prices. Oil promptly fell below $70 a barrel, down 40 percent from its June peak. […]

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How Low Can Oil Prices Go? thumbnail The price of oil in global markets has plunged by nearly 40 percent over the past six months. As a result, the price of a gallon of regular gasoline in the U.S. has dropped from an average of $3.68 in June to $2.74 this week. In June, the U.S. Energy Information Administration had projected that a gallon of gas would average $3.48 per gallon this month. What happened, and where might oil prices go in the next two to five years? What’s going on is that the world is awash in crude oil while the world economy is slowing down. Demand for crude has dropped, yet supplies are increasing; the predictable result is lower prices. A huge part of the glut in global production stems from the fracking boom in the United States that has seen domestic oil production rise from a […]

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As everyone knows, oil prices have fallen sharply and “unexpectedly” over the last few months, though this is not really unexpected to anyone who believes in markets or technological progress. But confidence in markets and technology does rule out a lot of liberals and virtually all environmentalists. As such, it’s fun to recall his Krugmanness declaring four years ago that “peak oil” was here to stay. In “ Our Finite World ,” Krugman demonstrated that what’s finite is his intelligence and imagination: Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months. So what’s the meaning of this surge? Is it speculation run amok? Is it the result of excessive money creation, a harbinger of runaway inflation just around the corner? No and […]

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What caused the recent crash in the oil price from $110 (Brent) in July to $70 today and what is going to happen next? With the world producing 94 Mbpd (IEA total liquids) $1.4 trillion has just been wiped off annualized global GDP and the incomes of producing and exporting nations. Energy will get cheaper again, for a while at least. The immediate impact is a reduction in global GDP and deflationary pressure. There is a lot of information to review and summarize and so this week and next we will present the story in stages culminating we hope with an oil market forecast scenario. Global Oil Production Figure 1 Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and […]

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Resilience Published on Resilience (http://www.resilience.org) The world economy is slowing down and the authorities are fretting. Japan, Italy, and Greece are all in recession. China is slowing down according to official statistics, and even more according to whispered accounts. Germany, France and the Netherlands are all at stall speed. According to the BLS, the United States is doing just great at nearly 4% growth for two straight quarters, but you wouldn’t know that either from the quality of the few jobs being created (which is low) or from consumer spending (also low). The worry, as always, has nothing to do with the central banks’ concern for you, your job, your children, the actual prices you pay, wealth equality, or the future, and everything to do with the simple fact that the stability of the banking system absolutely depends on a steady stream of new loans. The problem, as always, is that […]

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The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns. Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market . That is a dramatic rise from just 4 percent that energy debt represented 10 years ago. As is the nature of the junk-bond market, lots of money flowed to companies with much riskier drilling prospects than, say, the oil majors. Maybe drillers were venturing into an uncertain shale play; maybe they didn’t have a lot of cash on hand or were a small startup. Whatever the case may be, there is a reason that they couldn’t offer “investment grade” bonds. In order to […]

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