Gas for oil and currency implications

Explanations for the plummet in oil prices vary: the fall may not be a fundamental reaction to supply and demand forces but has been manipulated by the Fed to prop up the US dollar, in similar manner to the Fed's manipulation of the gold price. There is also the geopolitical significance of the meeting in September 2014 between US Secretary of State, John Kerry, and the Saudis to raise oil production to exert pressure on Russia and Iran. Saudi Arabia may also have been attracted by a secondary motivation, to drive oil shale producers in the US out of business; on the surface, it may appear counter-intuitive that the US would shoot itself in the foot but it is important to remember that much of US foreign policy serves the interests of the bankers and the Structural Elite rather than US citizens and industry. In the febrile atmosphere of geopolitical conflict, it is dangerous to claim certainty for any of these interpretations of events and we should remember William Engdahl's recent cautionary note relating to Goldman Sachs telling their clients that oil is heading lower (to $20) from current, already depressed levels. On past form, Goldmans could be betting on a price rise.

However, there may be an alternative, rational explanation for plummeting oil prices: the switch from oil to gas (one indicator is Shell's recent acquisition of BG, formerly British Gas) and a fundamental shift in the manner and means by which oil and gas are traded. Such a shift will further impact the US dollar's reserve status which is already under threat from oversupply (of dollars issue by the Fed) and moves by Russia and China to trade in their own currencies.

The Age of Gas by Chris Cook
The former Saudi oil minister Zaki Yamani famously said that the Stone Age did not end because of a shortage of stones, and the Oil Age will not end because of a shortage of oil.
Peak Debt and Peak Demand
Global markets are now at the second of two major inflection points. The first of these – the point of Peak Debt - was the collapse of Lehman Brothers in October 2008 at which point the burden of debt on the US economy outstripped the capacity of the US people to repay it. Since then, the US economy has been, and will remain, after the approaching global recession hits home, a Japanese-style 'zombie' economy.
The second is the point of Peak Demand, leading to the ongoing deflation of China's massive production boom. What I mean by Peak Demand is that resource costs – and specifically the energy costs of producing the fuel and other commodities needed by China and its Asian Tiger competitors – have now reached a level which the shrinking purchasing power of the developed world can no longer sustain.

The balance of probability is that lower oil prices are the new reality but irrespective, in the same way that decentalisation of political and economic power is essential for survival, decentralisation and localisation of energy production and supply is essential if we are to build resilience and self-reliance within communities. So while we may start with food, focusing on energy conservation and alternatives, to traditional centralised power generation, within communities are important steps towards building an alternative political economy in the face of impending collapse of the existing paradigm.


0 #2 Clive Menzies 2016-02-14 15:06
I tend to your view Jimmy but nothing is certain today; there are so many variables and unknowns. If the US dollar collapses, as seems likely, the oil will rise in dollar terms but what it will cost in non-dollar terms who knows?

To further complicate matters, Rob sent this article recently. which can't be dismissed without further investigation.
0 #1 James Walter 2016-02-14 09:56
Peak demand has NOT been reached. There are over 1 Billion, each, Indians and Chinese. Add 400mm Indonesians. All of these people, if their governments will directly fund them, can start to consume. The problem in the US is the religious like aversion to socialism. The rich have pocketed all the money, not spent it. Hence the current deflationary spiral, which will be increased by negative interest rates.
As for oil. The Russians and the Saudi's are competing for market share. As for gas, of course this has an impact as the pipelines and tankers come online. But make no mistake, bankrupting Shale and Deep oil was the Saudi's PRIMARY goal. In a shooting war, the Russians will overrun the Middle East in a few days and take out the cruel, terrorist supporting dictators in the Middle East. The Saudi's know this.
And what about off-shore oil. The UK and US off-shore oil is also now not economical. The UK is losing money at these prices.

Please register to post comments