oil collapse

OIL COLLAPSE

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note: BP, got your very generous PayPal donation-thank you very much!
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Yes, yes, I know sometimes I just annoyingly repeat myself.  Some days the blog entries are just rehashes or repeats or reminders.  I can’t be “on” every single day even if I do try to meet that impossible goal, nor can every day bring priceless nuggets of wisdom.  Some days you just need to glory in my vastly entertaining writing style and be content with that.  Today I’m covering Quick Oil Collapse.  Perhaps some of my New And Improved Army Of Loyal Minions ( newbies ) haven’t already read on my musing on this subject.  Otherwise, see the above proviso.  The one thing, amongst many, I hate about most other bloggers is their propensity to focus on only a VERY slow collapse of centuries, or ONLY a quick collapse which allows them to keep their well paying urban jobs until the very last second, the better to buy Yuppie Scum Survival Treats, with a then improbable recovery quickly following.  Quick Collapses are convenient.  Too much so.  Zombies, asteroid strikes and EMP’s clear out the deadwood quickly and allow intrepid survivalists freer reign to rule their kingdoms.

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Which is a bit too fantastical, obviously.  I tend to favor longer declines with a sudden collapse eventually, the Waterfall Collapse ( we‘ve been in one for fifty years, so the over the lip part should show up shortly ) followed by centuries of Dark Age.  Italian doomers call it the Seneca model.   But while improbable, quick collapses aren’t impossible.  Hence, the sudden oil collapse scenario.  Peak Oil didn’t turn out to be about running out suddenly but rather about rapidly decreasing net energy, but you can still get a quick collapse out of oil in other ways.  The PetroDollar is suddenly crushed or fails.  The Saudi fields halt production.  Economic collapse halts trade.  These are all very easily achieved, and have all already happened in embryonic form.  That obviously doesn’t mean they WILL happen, just that they CAN.  I don’t mean that you need to prep for this as much as I mean you shouldn’t listen to the idiots out there that assure you the oil can’t ever possibly run out.  Prepping for this is easy, AND saves you money rather than costs you any, but none of you want to make those sacrifices ( give up the car, reduce electrical use, build your own super insulated hovel, etc. ).

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The PetroDollar standard is where Saudi Arabia in the early ‘70’s agreed to price its oil in Dollars.  Everybody had to have dollars on hand to buy oil, since Saudi Arabia was at that time the swing producer.  There are not enough physical dollar bills printed to pay for tens of millions of barrels of oil trading hands every day, so US Treasury Bonds were used as trading currency.  And as we know, those suckers can be created at will.  In effect, foreign countries bought our debt to buy oil, and we started buying more and more imported oil with debt since that was cheaper than drilling for it ( not that we have much left to drill, to include Alaska and the Gulf Of Mexico ).  It was a sweet deal, free oil.  Well, as you might imagine other countries didn’t share our enthusiasm as they had to produce real goods to get those oil trading tokens.  So, we threatened the world forcing them to take those tokens ( invading Iraq was about Suddam threatening to drop the PetroDollar ) while at the same time the world has been trying to sidestep the standard.

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As it turns out, Libya was the last régime change to halt the Standard Rejection that was successful.  Since then, under the protective wing of a Chinese-Russian partnership, many countries have evaded or replaced trading in Treasuries for oil ( almost no one buys our bonds anymore-most of the activity is our own central bank ).  Our biggest oil import comes from Canada now, and that isn’t even for real oil but sand slop ( hence the very real threat to Net Energy Totals ).  We HAD to monetize the debt since foreigners no longer want the crap.  Not because we won’t repay-no one ever believed we would ( we just paid the interest ) but because they no longer NEED to pay the penalty incurred.  Buying oil in dollars was a cost, not a convenience.   Treasury bonds were NEVER a safe investment as the propaganda claims but a necessity for buying oil.  Now it no longer is mandatory for everyone.  It is only a matter of time before nobody props up the system.

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Why do you think that Saudi oil production is a god given right that is never allowed to cease?  Nobody has heard of entropy?  Nobody knows about Black Swans?  They have several problems over there.  Peak Production, population pressure, Arab Spring type dissent only silenced by welfare payments ( if American Blacks can shut down local areas in protest, why can’t poor Saudi’s? ) and centralized vulnerabilities.  Granted, Saudi oil is only a bit above ten percent of global production now rather than the old twenty percent or so, and right now oil demand is so low that Saudi oil disappearing at this time might actually be beneficial in the very short term, so the dynamic isn’t the exact same, but the fundamentals remain.  Saudi oil is less energy intense as it used to be, and economic contraction is killing oil demand, but Saudi oil is still some of the better oil available and it would have a disproportionate effect on the market if it disappeared.  Not everyone can distill the heavier more sulfur laden oil and prices going up right now would just kill more demand.  Nobody wins with no Saudi crude.  Before, without it the machines would grind to a halt from lack of fuel, but now without it more machines would be shut down from lack of affordable fuel.  Not a huge difference in the end.  I’ll continue and conclude tomorrow with detailing the Saudi chokepoints and talking about economics killing oil delivery.

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