Sunday, April 30, 2017

The Inconvenient Truth About Ponzi Finance

Cheap capital rescued the insolvent oil industry in 2016, so now comes the real pain...

I for one admit that I am not a science expert so I have to fall back on basic facts such as insolvency leads to inevitable bankruptcy, when asset prices "correct". I will leave to those who suggest otherwise to find out the fun way.

I just read this denialistic bullshit indicating that electric cars can never scale up to replace internal combustion motors. Unfortunately, the author of the junk science blog better hope so, because the alternative thesis that cheap oil will indefinitely sustain the consumption-oriented lifestyle is a far bigger fantasy, imploding in real time. I will get into the advanced "science" behind ponzi finance in a moment. In the meantime, the real question on the table is can either electric cars or internal combustion cars save the inherently insolvent consumption oriented lifestyle from imploding? Of course not, only a total fucking moron believes that way of life can be saved from itself.

Meanwhile, ironically electric cars are already obliterating the petroleum industry by eliminating demand growth:

"The International Energy Agency forecasts that global gasoline consumption has all but peaked as more efficient cars and the advent of electric vehicles from new players such as Tesla Motors Inc. halt demand growth in the next 25 years"

The cresting of gasoline demand shows how rapidly the oil landscape is changing, casting a shadow over an industry that commonly forecasts decades of growth ahead. 

Here we go...

Through 2014, Peak Oil kept the price of oil above $100/bbl long enough to attract trillions in new capital for exploration and fracking technologies.

"Oil is not a free market. OPEC sets the price of oil"

When the price of oil collapsed in 2014, contrary to Econ 101, inventories rose, instead of falling, as production increased. Because trapped capital required increased quantity to offset lower price.

From 2014 forward, new capital poured into the industry throwing good money after bad under the premise that "the cure for low prices is low prices". Unfortunately, as we see above, that fantasy has only served to exacerbate the glut.

But, don't take my word for it:

ZH: Beware The Bakken
As analysts cheered the resilience of shale plays after the 2014 price collapse, nearly a billion barrels of Bakken oil were produced at a loss--about 40 percent of total production since the 1960s. Vast volumes of oil were squandered at low prices for the sake of cash flow to support unmanageable debt loads and to satisfy investors about production growth. The clear message is that investors do not understand the uncertainties of tight oil and shale gas plays.