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by Chris Martenson

How To Position For The Next Oil Shock

Friday, May 27, 2011

Executive Summary

  • Saudi Arabia’s reserve capacity is a myth
  • World oil demand is increasingly overwhelming supply
  • Why exports matter more than total world production
  • What the next oil shock will do to stock, bonds, commodities, precious metals, and real estate
  • What you should do to prepare

Part I: Past Peak Oil – Why Time Is Now Short

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: How To Position For The Next Oil Shock

Putting It All Together

Let’s review the situation in the KSA:

  1. Despite assurances of 12.5 mbd of total capacity, the KSA has not yet produced more than 9 mbd on a sustained basis in 2011.
  2. The IEA is begging the KSA to pump more.
  3. The KSA has turned to outside companies to help it begin to unlock heavy oil reserves that will take a lot of time, energy, and money to prosecute.
  4. The KSA has a vastly expanded rig count as they expand drilling operations to produce more oil (odd behavior for a nation with an alleged 3.5 mbd of spare capacity?).

The simplest and therefore most likely explanation for all of this is that the KSA does not actually have 12.5 mbd of total capacity, it is already at peak, and it’s now struggling to maintain even 9 mbd of total output on a limited basis.

Of course, there are other possibilities, but since those will not shake the world to its bones if they happen to be true, the safe course of action here is to go with the ‘KSA is at peak’ story.  Sooner or later it will be true, so there’s not a lot of harm in being early to it, while being late could be costly.

Now let’s move onto the last part of this puzzle: demand.

How To Position For The Next Oil Shock
PREVIEW by Chris Martenson

How To Position For The Next Oil Shock

Friday, May 27, 2011

Executive Summary

  • Saudi Arabia’s reserve capacity is a myth
  • World oil demand is increasingly overwhelming supply
  • Why exports matter more than total world production
  • What the next oil shock will do to stock, bonds, commodities, precious metals, and real estate
  • What you should do to prepare

Part I: Past Peak Oil – Why Time Is Now Short

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: How To Position For The Next Oil Shock

Putting It All Together

Let’s review the situation in the KSA:

  1. Despite assurances of 12.5 mbd of total capacity, the KSA has not yet produced more than 9 mbd on a sustained basis in 2011.
  2. The IEA is begging the KSA to pump more.
  3. The KSA has turned to outside companies to help it begin to unlock heavy oil reserves that will take a lot of time, energy, and money to prosecute.
  4. The KSA has a vastly expanded rig count as they expand drilling operations to produce more oil (odd behavior for a nation with an alleged 3.5 mbd of spare capacity?).

The simplest and therefore most likely explanation for all of this is that the KSA does not actually have 12.5 mbd of total capacity, it is already at peak, and it’s now struggling to maintain even 9 mbd of total output on a limited basis.

Of course, there are other possibilities, but since those will not shake the world to its bones if they happen to be true, the safe course of action here is to go with the ‘KSA is at peak’ story.  Sooner or later it will be true, so there’s not a lot of harm in being early to it, while being late could be costly.

Now let’s move onto the last part of this puzzle: demand.

by Dutch John
Wood Gasification: An Intriguing Emergency Fuel Source
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by Dutch John
Wood Gasification
by Dutch John
by Chris Martenson

"We are exporting our inflation to the rest of the world. We are forcing countries like Brazil and China to endure the pain that we should be enduring. Brazil’s interest rates are like 12% right now. China is doing something new every couple of days to scale back bank lending and consumer spending. They are countries where a big part of the population makes just a few dollars a day. Rising food and energy prices are devastating for these guys. They do not really control the global price of energy and food, yet they have to endure the pain of slowing their economies down and throwing people out of work. Have them have to spend more and more of their money on food and energy so we can keep on borrowing and growing.

Clearly that is unsustainable. At some point these countries are going to say “No, we want our currencies to depreciate, too. We want to be able to continue to export to you.” So what we will end up with is sort of like what happened in the Depression. Everybody was trying to cut the value of their currencies at the same time. What that leads to, obviously, is global inflation, instead of just localized inflation where a few countries are debasing their currencies. You have got everybody doing it at once. That is because the US, with the world’s reserve currency, basically controls this process. We have chosen to decrease the value of the dollar dramatically over the next few years. That is going to force the rest of the world to do the same thing or endure an overvalued currency and recession. No elected politician can put up with that.

So what’s out there? Maybe after a mini-recession or some kind of correction in the next year or two is another round — an even bigger round — of global inflation. Basically all the fiat currencies of the world start decreasing in value at an accelerating rate. At some point, the whole concept of fiat currency, of governments in charge of their own monetary printing presses is going to be discredited."

So states John Rubino, proprietor of DollarCollapse.com. In his eyes, the demise of the dollar and other world fiat currencies via inflation is now a sure bet. There is simply too much debt that needs to be repaid, and our political leaders are not going to willingly choose the short-term pain of austerity and/or default. Of course, the resulting collapse of our monetary system will be much more painful and destructive in the long run.

Click the play button below to listen to Chris' interview with John Rubino (runtime 45m:22s):

[swf file="http://media.PeakProsperity.com/audio/john-rubino-2011-05-20.mp3"]

Download/Play the Podcast
Report a Problem Playing the Podcast

Or start reading the transcript below:

John Rubino: Get Ready for Accelerating Devaluation of All Fiat Currencies
by Chris Martenson

"We are exporting our inflation to the rest of the world. We are forcing countries like Brazil and China to endure the pain that we should be enduring. Brazil’s interest rates are like 12% right now. China is doing something new every couple of days to scale back bank lending and consumer spending. They are countries where a big part of the population makes just a few dollars a day. Rising food and energy prices are devastating for these guys. They do not really control the global price of energy and food, yet they have to endure the pain of slowing their economies down and throwing people out of work. Have them have to spend more and more of their money on food and energy so we can keep on borrowing and growing.

Clearly that is unsustainable. At some point these countries are going to say “No, we want our currencies to depreciate, too. We want to be able to continue to export to you.” So what we will end up with is sort of like what happened in the Depression. Everybody was trying to cut the value of their currencies at the same time. What that leads to, obviously, is global inflation, instead of just localized inflation where a few countries are debasing their currencies. You have got everybody doing it at once. That is because the US, with the world’s reserve currency, basically controls this process. We have chosen to decrease the value of the dollar dramatically over the next few years. That is going to force the rest of the world to do the same thing or endure an overvalued currency and recession. No elected politician can put up with that.

So what’s out there? Maybe after a mini-recession or some kind of correction in the next year or two is another round — an even bigger round — of global inflation. Basically all the fiat currencies of the world start decreasing in value at an accelerating rate. At some point, the whole concept of fiat currency, of governments in charge of their own monetary printing presses is going to be discredited."

So states John Rubino, proprietor of DollarCollapse.com. In his eyes, the demise of the dollar and other world fiat currencies via inflation is now a sure bet. There is simply too much debt that needs to be repaid, and our political leaders are not going to willingly choose the short-term pain of austerity and/or default. Of course, the resulting collapse of our monetary system will be much more painful and destructive in the long run.

Click the play button below to listen to Chris' interview with John Rubino (runtime 45m:22s):

[swf file="http://media.PeakProsperity.com/audio/john-rubino-2011-05-20.mp3"]

Download/Play the Podcast
Report a Problem Playing the Podcast

Or start reading the transcript below:

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