Thursday, November 13, 2014

Fraudulent Illusions, False Memes, Peak Oil & Crude Oil Update

There are a lot of stories on there about why oil has been cratering.  Most are just that.  Stories.  The reality is oil was only ever greater than $100 a barrel because of manipulation in the first place.  Mass manipulation as the amount of leverage, contracts and derivatives in oil futures lifted financial demand for paper energy contracts.  And the wall of useless rent-seeking money that has developed over the last few decades found a home in that leverage.  The high price of oil is an unsustainable monetary illusion just like everything else that has been distorted in our perceptions of reality.  Remember, it was just 1998 when oil was $10 a barrel.   By 2008 it had risen 1,500%.    Supply and demand driven in just ten years?  Not hardly.   In 1998 the price of oil was speaking to anyone who was listening just as it is now.  That is, it was foretelling a deflationary economic crisis in the U.S. and now it is in the early stages of  foretelling a similar but larger global deflationary crisis.  Just like gold was in 1998 as it imploded to $250 an ounce and again is headed the same direction as oil foretelling a global deflationary event.  Something I have noted many times regarding the future price of gold and oil. 

All financially-traded assets are benefiting from a fraudulent, unsustainable monetary illusion and have been for the last three plus decades.   Whether that is beef, housing, farm land, copper, stocks, bonds, art, diapers, oil, gold or toothpaste.   Especially since the second term of the Clinton presidency.  And, by the way, underlying demand for oil by BRIC nations is an unsustainable monetary illusion as well.   Just as their supposed economic miracles are nothing more than an unsustainable monetary illusions.   I’ll explain all of those statements in excruciating detail at some point.  But today I want to stay on topic.  Illusion is a global phenomena and those who believe the U.S. is somehow unique are in for a rude awakening as truth continues to reveal itself.  A long time theme on here is that the back end of this crisis will involve global chaos, most of which will be outside of the U.S.   At the time I first wrote those words, the global economy gave the illusion of being stronger than it had ever been.  Ever.   In half a dozen years that illusion is already well along in its collapse.  The entire world is in economic chaos and it is going to get much worse.

Canada’s economy, like most in the world, is also experiencing a massive, unsustainable monetary illusion.  Canada’s economy is very close to a pure play proxy for raw materials and oil just as Russia is.   And Canada is also a proxy for the energy and raw material needs of the U.S. empire.  This, because Canada is for all practical purposes controlled by U.S. political and corporate capitalist interests.  By the way, so too is Russia although to a lesser degree given its own capitalist oligarchs whose interests do not align with that of the U.S. and Europe.  That doesn’t necessarily mean direct U.S. purchases of Canadian energy and raw materials.  The U.S. empire is global.  But we know the Canadian dollar becomes more valuable as U.S. empire is in global expansion mode.  In other words, when the U.S. is flooding the world with dollars.   (All of Russia’s capitalist oligarchs were communist oligarchs just a matter of years ago who simply were in a position to grab sources when the Soviet Union collapsed under the past “ism” , communism, that those same oligarchs enforced.  It doesn’t matter whether the state enforces capitalism, communism, socialism or any other ism.  What’s the difference?  The Soviet Union-Russian paradigm of the same predators easily transitioning from one statist “ism” to another is a perfect proof point that the same pathological predators adapted perfectly from communism to capitalism; both systems of state violence.)

We see below, that the Canadian dollar, in red, peaked two years ago and has been declining quite substantially since.   The price of West Texas crude, in black, has tried to make new highs over that period of time but has now started following the direction of the Canadian dollar as both are driven by the same economic fundamentals developing in the world economy. (You will also note that the price movements upward and downward are highly correlated in the Canadian dollar and West Texas crude even though the overall trends in direction may be different.  That’s because these markets are manipulated by predatory algorithmic/computer trading that buy and sell both markets based on the same fundamentals.  Algorithmic trading is simply another extension of renter capitalist state violence against humanity.) 

Anyone who was paying attention could have accurately anticipated that oil was not going to make a sustainable new high while money was flowing out of Canadian denominated oil or (petro) dollars (weakening) for the past two years.  Where has that money been going?  Back into U.S. dollars as they world starts to implode.  Now, we see the mighty dollar is once again re-establishing its global dominance.    Over the years I have mocked the position of a collapsing dollar as not understanding how the world works.  If you can’t get that right, you have no idea what is really happening in the world and you certainly aren’t going to have any chance of accurately anticipating what global outcomes are going to come to pass.  Currencies don’t rise and fall because one state is corrupt and another is virtuous.  All states are wildly corrupt.  Currencies rise and fall based on supply and demand.  Period.  And supply and demand of every currency that matters is essentially controlled by the United States corporate empire.   BRIC nations are simply along for the ride.  The U.S. empire is massive and in many ways not understood by almost anyone, literally is the global economy.  I certainly don’t say that out of admiration.  But rather the level of U.S. political, corporate monetary, corporate military and overarching corporate capitalist violence that empire projects around the world. 

As noted on here ad nauseam over the years, the entire global capitalist (over)production system is in a massive bubble and the amount of slack in that system is enormous.  That is the real reason why oil is imploding.   (Any of that slack created since the advent of globalization essentially exists outside of the United States as written on here many times.  And that is why the entire world’s central banks are now fighting deflation.  And some may lose that battle eventually to hyperinflation.)   And why it is plausible that oil could very well return to 1998 levels of $10 a barrel.   In other words, the price before the contrived fraud of globalization and all of its overcapacity and artificial, unsustainable demand for oil was created.    That is, because future demand for oil is likely to implode as that massive slack eventually is idled, be it by collapse or natural forces or obsolescence or whatnot.    We see this in China, that has become the world’s biggest economic mess.   Ever.  The demand for petroleum, through Chinese government statistics has just about seen zero percentage growth this year.   That possibly means that true, non-manipulated year-on-year oil demand has turned negative in China.   Because if we look at electricity demand, it has actually fallen quite substantially to negative growth territory for this year.  This too is a global phenomena.  As noted on here years ago, Japanese auto sales peaked decades ago, as just one example of a deflating capitalist world.   This fall off in recent demand for energy coupled with the large increase in oil production in the U.S. is placing serious pressure on oil.   Oil, and all of its financial manipulation and contrived demand, is reacting to the global economy.  If all of that leverage in both the financial oil markets and underlying economies unwinds,  oil will experience a price rout.  Mind you, this has been a consistent theme on here even when oil was near $150 a barrel and the mindless blather of ignorance had already determined our fate to be in the very midst of running out of oil. 

Don’t get caught up in any of the false memes that are arising around the price of oil.   Peak oil’s myth is now waning just as is the human-caused global warming myth is.  These myths were created by elites and by class.  And have enslaved people who reject science, discovery and truth in lieu of accepting the fear-based control that pathological state predators seek to instill in them.  (As Obama signs a “historic” climate deal with China that allows China to continue to do as they wish unrestrained until 2030 while Obama and the state pass greater and greater unintended consequences of their ignorance onto the backs of the American people in the form of greater taxes, more lost production, more lost employment, more lost determinism, etc.   Cleaning up the world is a virtuous cause.  But doing so under this system as Obama is doing is simply creating future unintended consequences that political ignorance always creates.   All because of a false meme that the most abundant resource on our planet, carbon, is a toxic poison.  Are you ready to wake up to the myths created by your oppressors?)  Now new myths and memes are arising around oil to explain why it is imploding just as is happening with global warming now that the original myth is exposed as ludicrous.  Many are now stating that shale oil in the U.S. is a myth thus oil prices will eventually skyrocket.  And many are now noting that a collapsing oil price will stunt shale oil production.   Yawn.  These memes are irrelevant in the larger picture of what is happening.  Additionally, temporary or short term dynamics involving any means of production around the world doesn’t change the greater reality that the world is awash in excess oil and excess economic slack.  Temporary monetary shocks upward and downward as the state tries to save itself by trashing monetary systems globally may or may not affect production for a limited period of time.  But they don’t change the trend or the realities of the world around us.   So production dynamics may turn upside down temporarily based on illusory monetary dynamics but those will only be temporary.  Oil prices are very likely headed for a complete bust.  

 

oil

Phil Flynn is one of the better oil analysts out there.    He has penned a few pieces recently that are more relevant than many of the false memes surrounding peak oil and why oil is falling substantially.   The links to his remarks are below.

U.S. producers answer Saudi challenge on price

OPEC preparing for price war

Crude cold war coming?

What price war? Saudi Arabia cuts U.S. crude prices only.

The question I have is if the U.S. will in some way attempt to further subsidize cheap energy production in this nation if a global energy war does break out.   And, I suspect it will.  Because comparative advantage that is intrinsic to corporate capitalism is and always has been an endless price and currency war between nations.  Obviously various factions of the political oppressors in this nation have differing agendas.  Once again, as noted in prior posts, the U.S. economy has always been reliant on cheap energy.  And regardless of whether it is corrupt and toxic to the environment, the natural gas and petroleum booms in this nation are setting the country up again to be a low cost industrial goods producer.   Those who understand lean methods and kaizen, including the high energy costs (expense) and massive waste (expense) of global supply chains, already appreciate the cost of producing value-based industrial and even some higher-margin, big-ticket consumer goods in this nation is far cheaper than doing so in China.   Is this a planned outcome or simply coincidence or simply responses to comparative advantage when Asian production costs and supply chains become too expensive?   No one really has the transparency to say.  But we shall see how these dynamics play out in the global economy. 

posted by TimingLogic at 2:33 PM

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