Are we there yet..? revisited

Four years ago, I wrote a post with exactly the same title as this one, regarding whether we were at Peak Oil or not……  Then I wrote another two years later, about Peak Debt.  Well this one is about Peak Everything….. and the reason I’m writing this one is that….  well everything is going nuts out there in the Matrix.

First, this turns up on ZeroHedge:

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The entire economic and political structure is now dependent in one way or another on the continued expansion of financial markets.

The financial markets don’t just dominate the economy–they now control everything. In 1999, the BBC broadcast a 4-part documentary by Adam Curtis, The Mayfair Set ( Episode 1: “Who Pays Wins” 58 minutes), that explored the way financial markets have come to dominate not just the economy but the political process and society.

In effect, politicians now look to the markets for policy guidance, and any market turbulence now causes governments to quickly amend their policies to “rescue” the all-important markets from instability.

This is a global trend that has gathered momentum since the program was broadcast in 1999, as The Global Financial Meltdown of 2008-09 greatly reinforced the dominance of markets.

It’s not just banks that have become too big to fail; the markets themselves are now too influential and big to fail.

Curtis focuses considerable attention on the way in which seemingly “good” financial entities such as pension funds actively enabled the “bad” corporate raiders of the 1980s by purchasing the high-yield junk bonds the raiders used to finance their asset-stripping ventures.

Charles Hugh-Smith then says “This spells the end of the electoral-political control of the economy, as politicians of all stripes quickly abandon all their ideologies and policies and rush to “save” the markets from any turmoil, because that turmoil could destabilize not just the financial markets but the economy, pensions and ultimately the government’s ability to finance its own profligate borrowing and spending.”

Scared yet?  Read on……

A study, published in the journal Nature Climate Change, found that 75 percent of the planet’s “moderate daily hot extremes” can be tied to climate change. That figure means that heat events which, in a world without climate change, would occur in one out of every 1,000 days (or about once every three years) now occur in about four or five out of every 1,000 days, the study’s lead study author, Erich Fischer, told the Washington Post. Basically, climate change has upped the odds that these types of heat events will occur. http://thinkprogress.org/climate/2015/04/27/3651617/climate-change-hot-days-study/

But wait, there’s more…..

a new Financial Tsunami is beginning, this one, of all places, in the Texas, North Dakota and other USA shale oil regions. Like the so-called US sub-prime real estate crisis, the oil shale junk bond default crisis is but the cutting front of the first wave of what promises to be a far more dangerous series of financial Tsunami long waves.

Banking system vulnerability greater

I say more dangerous because of what governments in the USA, EU and elsewhere did after 2007 to make sure no repeat of that bubble-cum-collapse-of bubble cycle could repeat.

In a word, they did nothing. What they did do—explode US Federal debt and bloat the credit of the central bank to historic highs leave the USA in far worse shape to deal with the unfolding crisis.
First appeared: http://journal-neo.org/2015/04/17/the-next-financial-tsunami-just-began-in-texas/

And there’s more still…..

U.S. oil production decline has begun.

It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled.

The implications are profound. Production will decline by several hundred thousand of barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today.

Tight oil production in the Eagle Ford, Bakken and Permian basin plays declined approximately 111,000 barrels of oil per day in January. These declines are part of a systematic decrease in the number of new producing wells added since oil prices fell below $90 per barrel in October 2014 (Figure 1).

Figure 1. Eagle Ford, Bakken and Permian basin new producing wells by month and WTI oil price. Source: Drilling Info and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Deferred completions (drilled uncompleted wells) are not discretionary for most companies. Producers entered into long-term rig contracts assuming at least $90 oil prices. Lower prices result in substantially reduced cash flows. Capital is only available to fulfill contractual drilling commitments, basic costs of doing business, and to complete the best wells that come closest to breaking even at present oil prices.

Much of the new capital from junk bonds and share offerings is being used to pay overhead and interest expense, and to pay down debt to avoid triggering loan covenant thresholds. Hedges help soften the blow of low oil prices for some companies but not enough to carry on business as usual when it comes to well completions.

The decrease in well completions provides additional evidence that the true break-even price for tight oil plays is between $75 and $85 per barrel. The Eagle Ford Shale is the most attractive play with a break-even price of about $75 per barrel. Well completions averaged 312 per month from January through September 2014 when WTI averaged $100 per barrel (Figure 2). When oil prices dropped below $90 per barrel in October, November well completions fell to 214. As prices fell further, 169 new producing wells were added in December and only 118 in January.

Figure 2. Eagle Ford new producing wells (2 month moving average) and WTI oil prices. Source: Drilling Info, EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

Junk bonds

Since the shale oil boom took flight in 2011 Wells Fargo and JP Morgan have both issued shale oil company loans of $100 billion.There has been a huge rise in high risk high return bonds, so called “junk bonds.” They earned the appropriate name because in event of a company’s going bankrupt, they become just that—junk. The bonds have been issued by Wall Street banks to shale oil and gas companies since the bubble started in 2011. The US oil and gas industry share of junk bonds has been the fastest growing portion of the overall US junk bond sector of the bond market.

Now as oil prices hover around $49 a barrel, the shale oil companies that indebted themselves with junk bonds to finance more drilling are themselves facing bankruptcy or default more and more every additional day the US crude oil price remains this low. Their shale projects were calculated when oil was $100 a barrel, less than a year ago. Their minimum price of oil to avoid bankruptcy in most cases was $65 a barrel to $80 a barrel. Shale oil extraction is unconventional and more costly than conventional oil. Douglas-Westwood, an energy advisory firm, estimates that nearly half of the US oil projects under development need oil prices greater than $120 per barrel in order to achieve positive cash flow. 
First appeared: http://journal-neo.org/2015/04/17/the-next-financial-tsunami-just-began-in-texas/

And today, global share markets went down.  US quarterly growth was a mere 0.2% and the Fed still has not raised interest rates as promised.  They know we’re nearly there, I’m sure.  Not that it particularly fills me with glee now my ute and all our precious goodies we need to get on with the rest of our lives are parked almost 3000km away awaiting our house sale….  We sure live in interesting times.