Thursday, January 7, 2016

Oil and Deflation in 2016.............AN ABSOLUTE MUST READ!

Oil and Deflation in 2016

The oil picture has bamboozled both the broad public and the smaller cohort of supposedly sentient observers. I maintain that the deflationary contraction underway worldwide is largely due to the fact that the world has run out of a particular form of oil: affordable oil. 

Turns out the peak oil story is still true, just playing out differently than a lot folks predicted. 

We're at the mercy of a pretty basic equation: 

oil over $75-a-barrel destroys industrial economies; 

oil under $75-a-barrel destroys oil companies. 

There is no "just right" Goldilocks place on the gradient at this point, the price of oil is either too high or too low, there is no middle ground because of stupidity, greed and debt.

The public got bamboozled by the Ponzi scheme of shale oil. 

It seemed like a fabulous techno-rescue: the "fracking miracle!"  And desperate, stupid people believe stupid things. 

It operated by converting mountains of cheap leveraged capital into a very rapid bump-up in US oil production. It got full traction after a couple of years of $100 oil squashed economic activity — and then squashed demand for oil. Whoops. The problem was that shale oil was very expensive to produce even if reduced demand drove the market price very low. Back at $100-plus a barrel, hardly anyone made any profit on shale. At $40 a barrel shale was a laughable loser. Stupid, greedy, people! I warned anyone that would listen.

So, in 2015, the shale oil companies laid off thousands of workers, idled the drilling rigs, and kicked back to pray that the price would go back up. Which it didn't. Incidentally, all kinds of associated ventures went bust with that. The landscape of North Dakota is littered with unfinished garden apartment complexes that may never be completed, and the discharged construction carpenters and roofers drove back to Minnesota ahead of the re-po men coming for their Ford F-150s. Sad, I know….

The rapid ramp-up in shale oil production from 2010 to 2014 was intended as a demonstration project to convince Wall Street to stuff ever more investment capital into oil companies. 

It was also part of an enormous PR campaign to allow the people running things in business and government to pretend that America's oil problems were behind us. 

The "shale miracle" was going to make us "Saudi America," It was going to boost us into "energy independence." It played into the Master Wish beneath all the wishful thinking in America: Please, God, let us be able to drive to WalMart forever. It wasn't so much an evil conspiracy as a feckless collective effort in denial and self-delusion by Stupid, greedy, people!

It happened that a lot of that Wall Street finance came in the form of high-yield (junk) bonds issued by the oil companies — with fat commissions for the big banks to cream off in creating the bonds. So when the price of oil crashed below $50, a lot of oil companies — especially the smaller ones with no cash flow — couldn't service the interest / debt 
payments. 

What lies ahead in 2016 is a debacle of bond defaults and corporate bankruptcies in the US oil patches. 

What's more, because of the peculiar geology of shale oil and the rapid depletion of the fracked wells, it is necessary to incessantly drill and frack new wells to keep production even level, let alone rising. That calls for evermore rounds of new financing. But since the current financial obligations can't be serviced, new financing will not be not forthcoming. And so neither will additional production. 

All of which means that shale oil production is going to crash in 2016 when the backlog of previously-drilled but untapped wells runs out. 

I'll predict that US oil production will go down a million barrels a day before 2017. That includes the roughly 5 percent annual decline of conventional oil.

Some might suppose that such a crash would drive prices back up again as the supply falls. Th
ere are a couple of problems with that supposition. One is that the previous round of $100-plus oil did a lot of permanent damage to the economy, in particular to small businesses and households (i.e. middle-class workers). That damage looks more and more permanent, meaning a smaller aggregate economy and still-shrinking demand base as businesses and citizens go broke and stay broke. READ THAT AGAIN, IT IS A 
VERY IMPORTANT PIECE OF THE PUZZLE.

If oil prices do return to a level that would justify exploration and production of expensive, hard-to-get oil, (probably north of $110) it will only crash industrial economies again — and there are only so many times this can happen before the system is so damaged recovery is no longer possible. !!!!  IT COLLAPSES!

Another problem is that the oil price crash has done significant damage to the oil industry itself, including its credibility as a viable target for investment. Contrary to hopes and expectations, current low oil prices are doing nothing to re-stimulate economic activity. It all has the look of a self-reinforcing feedback loop, a downward spiral in a global complex networked system getting clobbered by the diminishing returns of its principal activities.

Hence I would predict that the price of oil will fall further in 2016, below the $30 mark, and that it will lead to more carnage in the oil industry, in banking and debt defaults, and to new manifestations of geopolitical trouble that could lead to profound oil scarcities and rationing. 

We can't seem to face the fact that our techno-industrial paradigm was designed to run on cheap oil, which is just no longer available. 

HOW WE DETERMINE THE VALUE OF THINGS IS VERY IMPORTANT. CONTROLLING PERCEPTIONS IS THE KEY AND OUR GOVERNMENT,THE FED, AND WALL STREET KNOW THIS AND SPEND THE MAJORITY OF THEIR TIME DOING JUST THAT, MANAGING PERCEPTIONS. SO THE PRICE YOU PAY FOR ANY ASSET IS VERY VULNERABLE TO CHANGES IN PERCEPTION AND PERCEPTIONS CAN CHANGE VERY QUICKLY.

THE FACT THAT THE PERCEPTION OF VALUE OF MOST ASSETS AT THIS POINT HAS BEEN SKEWED SO BADLY TO THE UPSIDE BY A GREED INDUCED POPULAR NARRATIVE THAT PROVIDES COMFORT TO THE IGNORANT MASSES IS SELDOM RECOGNIZED AND THE FACT THAT THIS NARRATIVE IS MORE FICTION THAN FACT MATTERS NOT TO EITHER THOSE IN POWER OR THOSE BEING DUPED. THIS REALITY DESCRIBES A VERY GREEDY, DYSFUNCTIONAL SOCIETY HEADED FOR A NASTY FALL.

NOTHING IS MORE DANGEROUS TO THIS FALSE NARRATIVE AND THE POWERS THAT BE THAN INDEPENDENT, FREE THINKING, SELF EDUCATED, PEOPLE. THE VERY DISRUPTIVE AND DESTRUCTIVE FORCES THAT ARE UPON US ARE UNRECOGNIZED BY MOST, AND OUR PROBLEMS ARE TOTALLY UNSOLVABLE WITHIN THE ENVIRONMENT OF THIS DELUSIONAL, MISGUIDED, INTENTIONALLY FALSE NARRATIVE. UNDERSTANDING THE FACTS AND FINDING THE TRUTH WILL SET YOU FREE TO MAKE BETTER DECISIONS FOR YOUR FUTURE.

AS YOU READ WHAT FOLLOWS KEEP IN MIND THAT THOSE IN POWER BELIEVE THEY HAVE A SINGULAR PURPOSE. THAT PURPOSE IS TO MAINTAIN THE FALSE NARRATIVE, THE STATUS QUO, A STATUS QUO FROM WHICH THEY DERIVE THEIR POWER AND WEALTH. THEY WILL LIE, CHEAT, STEAL, MANIPULATE, CONTROL, AND KILL, IN ORDER 
TO DO JUST THAT. THIS HAS BECOME THE BUSINESS MODEL FOR OUR LEADERS, THE FED, CORPORATE EXECUTIVES AND WALL STREET. 

WHAT EVER IT TAKES, MAINTAIN THE LIE! AND AS A RESULT THE VALUE OF EVERY ASSET IS SKEWED TOWARDS FICTIONAL LEVELS BY THIS NARRATIVE. VALUATIONS IN THE STOCK MARKET, REAL ESTATE, AND THIS TIME VERY IMPORTANTLY BONDS ARE ALL MIRAGES THE PUBLIC WANTS TO SEE AND THOSE IN POWER WANT THEM TO SEE. POOF! THE MIRAGE IS GONE!

NOW,BACK TO OIL,BECAUSE WITH OUT STABLE, CHEAP OIL THE WHOLE DECEPTION COLLAPSES.

IN ORDER TO UNDERSTAND WHAT HAS HAPPENED TO OUR ECONOMY OVER THE PAST TWO DECADES, AND WHAT LIES AHEAD, YOU HAVE TO UNDERSTAND OIL. HERE IS A VERY BASIC SUMMARY OF THE PERTINENT FACTS AND LIKELY OUTCOMES.

OUR ENTIRE INDUSTRIAL / TECHNOLOGICAL ECONOMY IS UNDERPINNED BY ACCESS TO CHEAP OIL. NO OTHER SINGLE RESOURCE ASIDE FROM WATER IS AS NECESSARY TO OUR WAY OF LIFE. AN ECONOMIC FACT!

OUR ENTIRE BANKING SYSTEM DEPENDS ON DEBT CREATION AND DEBT MUST INCREASE WITH EACH PASSING YEAR OR OUR ECONOMY WILL FAIL / COLLAPSE.  ALSO AN ECONOMIC FACT!

CHEAP OIL DESTROYS THE BUSINESS MODELS OF OIL COMPANIES. PRODUCTION DROPS AND PRICES RISE BECAUSE OIL DEMAND IS FAIRLY STABLE AND GROWING YEAR BY YEAR. THEY MUST KEEP PUMPING REGARDLESS OF PRICE.

EXPENSIVE OIL DESTROYS THE BUSINESS MODELS OF A SIGNIFICANT PORTION OF THE COMPANIES THAT MAKE UP OUR ECONOMY. DEMAND FOR OIL FALTERS AS OIL PRICES RISE. PRICES OF ALL PRODUCTS EFFECTED BY MORE EXPENSIVE OIL RISE. TRANSPORTATION COSTS RISE AND CONSUMERS PULL BACK ON THEIR SPENDING. OUR ECONOMY FALTERS.

A DEPENDENCE ON EVERMORE DEBT AND ASTRONOMICAL DEBT LEVELS AT EVERY LEVEL OF OUR ECONOMY AS WELL AS THE GLOBAL ECONOMY,EXACERBATE AND ACT AS CATALYSTS FOR EACH CYCLE OF THIS FEEDBACK LOOP BETWEEN HIGH AND LOW PRICED OIL.

OUR ECONOMIC PROBLEMS OVER THE PAST TWO DECADES OR SO HAVE BEEN A DIRECT RESULT OF THE ABOVE EQUATION. INFLUENCED HEAVILY BY GREED AND OUR PROCLIVITY TO DELUDE OURSELVES AND AVOID THE UNCOMFORTABLE TRUTH,WE ARE LEFT WITH FEW COMFORTABLE SOLUTIONS AND A VERY HIGH PROBABILITY THAT COLLAPSE IS THE LIKELY OUTCOME, PERHAPS THE ONLY OUTCOME.

THIS PUSH AND PULL BETWEEN OIL PRICES BEING TO HIGH OR TO LOW AND OUR PROCLIVITY TOWARDS GREED AND DEBT, COMBINE TO ACT AS AN ECONOMIC SHREDDER, DESTROYING BUSINESS MODELS, CONSUMPTION PATTERNS, JOBS, AND IN TURN THEY HAVE A VERY NEGATIVE AND LASTING ECONOMIC IMPACT ON OUR ECONOMY AND SOCIETY.

THE SHALE OIL DELUSION WAS AN ACT OF DESPERATION BY A DESPERATE OIL INDUSTRY SPURRED ON BY THE AVARICE AND GREED OF BANKERS FOOLISH ENOUGH TO BELIEVE THE FANTASTICAL LIES OF THE SO CALLED OIL INDUSTRY EXPERTS. THE ECONOMIC SHREDDER IS RIGHT NOW,HARD AT WORK IN THE OIL PATCH DESTROYING EVERYONE AND EVERYTHING EXPOSED TO THIS LIE. TRILLIONS OF DOLLARS, MANY BUSINESSES AND BANKS AND A LOT OF LIVES ARE GOING TO BE DESTROYED SIMPLY BECAUSE SO MANY REFUSED TO ACKNOWLEDGE REALITY.

OIL PRICES WILL REMAIN LOW FOR A LONG PERIOD OF TIME DESTROYING A GREAT DEAL OF THE OIL INDUSTRY, MANY JOBS WILL BE LOST, MANY INVESTORS WILL BE WIPED OUT AND THEN CONSOLIDATION WILL BEGIN AND THE INDUSTRY SURVIVORS WILL NEED HIGHER PRICES, SO PRICES WILL RISE BACK TO AN ECONOMIC LEVEL, LETS SAY $80 TO $120. THESE HIGHER PRICES WILL ONCE AGAIN SHRED OUR ALREADY WEAK, DEBT RIDDLED 
ECONOMY. THIS VERY NEGATIVE FEEDBACK LOOP, FROM HIGH TO LOW AND BACK AGAIN WILL CONTINUE OVER AND OVER AGAIN IN THE COMING YEARS UNTIL OUR ECONOMY IS DESTROYED.

THERE IS VERY LITTLE ECONOMICALLY VIABLE, ACCESSIBLE OIL LEFT IN OUR WORLD. THAT IS AN ECONOMIC FACT, A VERY IMPORTANT VERY NEGATIVE FACT! THE SOONER WE ACT AND BASE DECISIONS ON THIS REALITY THE SOONER REAL AND WORKABLE SOLUTIONS WILL BE FOUND AND PUT IN PLACE. I WOULD NOT HOLD MY BREATH AS THE POWERS THAT BE ARE DEPENDENT ON THE STATUS QUO, AND THE LIES AND DELUSION THAT MAINTAIN IT. THEY WILL BE VERY SLOW TO ACCEPT THE TRUTH AND RECOGNIZE THE REALITIES. IT WILL TAKE A LONG TIME TO GET HEADED IN THE RIGHT DIRECTION, A LOT MORE ECONOMIC PAIN LIES AHEAD SIMPLY BECAUSE MOST IN POWER PREFER THE COMFORTABLE LIE TO THE UNCOMFORTABLE TRUTH. THEIR POWER AND PAYCHECKS ARE DERIVED DIRECTLY FROM AND DEPENDENT UPON THEIR FANTASY VERSION OF THE FUTURE.

THE WORLDS CURRENT GEOPOLITICAL SITUATION ADDS LAYERS OF UNCERTAINTY AND NEGATIVE PROBABILITIES TO THIS EQUATION.

THE WOBBLY GLOBAL ECONOMY ALSO ADDS LAYERS OF UNCERTAINTY AND NEGATIVE PROBABILITIES TO THIS EQUATION.

IF YOU ADD ALL THIS UP THE WORLD IS AT A VERY IMPORTANT CROSSROAD WITH FEW SOLUTIONS, A PARADIGM SHIFT LIES AHEAD. BUT FIRST OUR LEADERS MUST STOP LYING TO US AND PROMOTING THE DELUSION THAT WE CAN CONTINUE ON INTO THE FUTURE AS WE HAVE IN THE RECENT PAST. WAR, FIRST REGIONAL AND THEN WORLD WAR ARE ALSO HIGHLY PROBABLE. A LOT OF PAIN LIES AHEAD AND IT WILL TAKE DECADES TO FIX WHAT IS BROKEN. BUT FIRST WE MUST STOP DELUDING OURSELVES AND UNDERSTAND THE TRUTH.

THE VERY REASON THE PAST DECADE OR TWO HAS BEEN SO CONFUSING AND VOLATILE IS BECAUSE THE OLD PARADIGM IS DYING AND THE NEW PARADIGM CAN'T EVEN BE CONCEIVED BY OUR SO CALLED LEADERS LET ALONE THE POPULACE. IN FACT, BOTH GROUPS BELIEVE THEIR OWN LIES AND ARE COMPLETELY DELUDED BY THEIR OWN BULLSHIT. THEY BOTH BELIEVE THEY HAVE ANSWERS FOR A PROBLEM THEY DON'T EVEN BEGIN TO UNDERSTAND AND SO WE CONTINUE ON DOWN THE PATH OF LEAST RESISTANCE, THE FAILING STATUS QUO, THE PATH THAT MAINTAINS THE POWER AND WEALTH OF OUR LEADERS AND THE ELITES, NOT THE PATH THAT OFFERS VIABLE SOLUTIONS. THEY ARE VERY WRONG IN EMBRACING THIS APPROACH, SADLY YOU CANNOT EXPECT BLIND FOLKS TO SEE.

IN A SITUATION SUCH AS THIS, A SUDDEN COLLAPSE BECOMES THE MOST PROBABLE OUTCOME. WE AREN'T THERE YET, BUT WE ARE VERY NEAR THE POINT OF NO RETURN, AND COLLAPSE IS COMING.

OIL JUST HIT A FRESH 14 YEAR LOW......TEMPORARILY, VERY GOOD FOR YOU AT THE PUMP, VERY BAD FOR OUR ECONOMY LONG TERM.

 






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