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I read this interesting article the other day and I'm starting to think more and more that it is probably correct. This is especially striking me as more and more probably as oil prices continue to sink lower and lower and OPEC continues to sit on the sidelines as the Saudis pump the market full of cheap oil. $20 oil is the new prediction and the likelihood of it hitting this low seems greater and greater. Let's look at the article quote:The math is clear: there is a fossil fuel bubble. There is more coal and oil in the ground than we can safely burn. In this framing, the Paris climate conference is really an economic conference, perched on the brink of a market crash in the fossil fuel sector. The solution is to leave the fuel in the ground, and set up a price signal to allow a managed retreat from an obsolete industry, and protect the public by sending climate dividends back to households. The concept here is that the worlds elites have realized that we have in essence run out of safe ways to use oil and as a result the drop in prices are a very real response to the realization that the value of oil in the long term future is very small. Since we as a human race can not continue to use it to the extent we have been using it without causing our own extinction the world economic powers have come together to find a solution to negotiate a way out of the global warming crisis and to save their energy industries by transitioning to clean power. The indications here would be that the Saudis have caught on to this before anyone else and are dumping as much oil as they can while they still can so they can invest in future technologies. There seems to be indications that they are already investing heavily in solar, One of the biggest issues this raises is the economic stability of the developing world; much of which relies on oil to prop up their currencies. We are already seeing major devaluation of world currencies throughout South America, Africa, and Asia due to the strong dollar and the collapse of oil values. These countries are not ready to develop renewables in any way or form and as a result could see massive collapses in their economies if oil does reach $20 a barrel or lower. One of the biggest question too would be how the right wing in america reacts once oil completely tanks.
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Dec 10, 2015 06:59
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CalmDownMate posted:One of the biggest question too would be how the right wing in america reacts once oil completely tanks. Well you can look to Alberta to see what's happened to a region that was heavily dependent on (an expensive form of) oil extraction. Food bank usage in the province is up 23%, unemployment is ahead of the national average, and suicide rates are up 30% in the last 7 months or so. Needless to say, any party in power is going to face some serious challenges, be it right-wing or left-wing. I'm not sure about how many states are involved in oil extraction, but those sectors will certainly be affected and can look to pretty brutal downturns.
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Dec 10, 2015 07:56
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Saudi pumping is not related to Paris. Paris is where a new form of wealth tax is applied but only to countries who agree to the tax. For countries who do not sign, they effectively gain a windfall. Saudi pumping and OPEC abandoning the quotas is a response to Russian/Iranian market share dominating their export markets to India & China. All comdty's are tired to inflation, interest rate hikes are tied to inflation demand. 20 dollar oil is a supply glut and a global balance sheet recession, and has nothing to do with Paris either. 20/bbl oil is only tied to the supply clearing, which we are already starting to see out of high margin places like GOM & Alaska throttling down, just like what happened in the 80-95 period. On average, a Paris accord carbon tax will simply be passed through, ad valorem to the downstream; just like the US highway tax is actually 57% of the gasoline ROB price you pay at the pump, and at the airport. Ethanol subsidies are another pass-thru. Using round numbers for the Alberta implementation, taking the Carbon Metric Ton price from 50 to 180/MT will approximately add about 1.00/gal to Brent linked gasoline's in the USA, and about 1.57/gal to German blends. In this scenario the Paris accord will make personal utility & transport cost prohibitive to most undermployed Americans & Europeans, which is great because it will force OECD consumers to shift their consumption towards mass utility transport, ride sharing. This is expected to lead to a windfall in discretionary spending unless public transport & rideshare simply jack their prices to meet the new shift in transport demand. Paris is actually a huge wealth transfer to industrializing countries where they are being paid to continue on their path to industrialization at the subsidization of industrialized countries which are seeing stallspeed growth thanks to developing markets moving from export manufacturing goods -> import service/luxury consumption to domestic consumption + domestic service generation economic models. Given what happened with healthcare premiums post-Obamacare, the likelihood of retail urban consumers being forced to burden a highway price hike, which evaporates all windfalls from abandoning car ownership is 100% likely.
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Dec 10, 2015 08:54
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quote:The concept here is that the worlds elites have realized that we have in essence run out of safe ways to use oil and as a result the drop in prices are a very real response to the realization that the value of oil in the long term future is very small. Since we as a human race can not continue to use it to the extent we have been using it without causing our own extinction the world economic powers have come together to find a solution to negotiate a way out of the global warming crisis and to save their energy industries by transitioning to clean power. To my knowledge, the drop in price has been mostly due to a strong supply (increased exploitation in north america, and Saudia Arabia refusing to cut back production) during times of slowing growth (china). Who do you see cutting back production?
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Dec 10, 2015 14:53
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