The Age of Gas

Oil & Natural Gas / Conventional Oil & Gas Resources / Economics

Date posted: 12/03/15

Chris Cook opines that 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. 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 U.S. economy outstripped the capacity of the U.S. people to repay it. Since then, the U.S. 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 the Chinese massive production boom. What he means 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. Readers of Trend may recall in October 2014 his accurate forecast of a further collapse in the oil price. He had in fact predicted a fall to $45 to $55 per barrel in March 2012 when the price was $110 per barrel, but misjudged how long U.S. Federal Reserve Quantitative Easing (QE) would last. In his analysis, the U.S. successfully engineered for reasons of energy security a five year oil market bubble. They inflated and supported the oil price above $80 per barrel using as capital a combination of passive (inflation hedging) private fund investment and Saudi and Gulf Cooperation Council (GCC) reserve assets. The necessary liquidity came from QE dollars printed by the Fed. Why on Earth would the greatest global energy user support high energy prices? The reason, as in 1973 after the Oil Shock, is that the U.S. is able to pay for oil in dollars manufactured out of thin air by their deficit-based $ banking system.