> I mean, this happened just a few years ago back in 2015, right? And 2008, and 2001, and 1998

The point here is that sub $40 oil is becoming the new norm. While these countries can weather a 2-3 year drop in oil prices, those short term drops are more and more frequent and the bottom keeps getting lower.

Between electrification of transportation and reduced travel which may last for another 6 months (or much longer, it's not really clear), demand is down. On top of that, any time oil stays over $50/ barrel for a prolonged period of time, shale oil and oil sands production increases putting downward pressure on prices.

Any way you look at it, there is no good news for oil-dependent states.

Demand is temporarily down because of covid and the russia/opec dispute. Consumption was hitting records before that, and the EIA projects over 100m barrels/day next year: https://www.eia.gov/outlooks/steo/report/global_oil.php

Also take a look at this inflation adjusted crude oil chart: https://www.macrotrends.net/1369/crude-oil-price-history-cha...

You have a high period from 1980-85 and from 2005-14... but those are the exceptions rather than the norm. I'm sure they got spoiled by the high prices, but $40-50 is a normal price for oil.. and they'll learn to adjust like they have in the past.

The electrification of transportation is great and it'll eventually have the effects your mention... but right now, those effects are out weighed by the growth in developing markets. Very similar effect as renewables and coal. Coal use will keep growing through 2030, even though renewables are growing rapidly. The demand for these things (vehicles, energy) is much higher than what the clean economy can deliver at the moment.

Prices have dropped more frequently because of US shale oil. Electrification is a very small factor (yet).

Fair enough on all points.

Electrification is the longer term existential threat. Even if 20% of vehicles are electric, the impact on demand and oil prices will be profound.

You might sum it up as:

These countries weather boom/bust cycles in oil prices, waiting for a 'someday' to refill their coffers, and every year there are more and more things trying to put off 'someday' a little longer.

Essentially these countries have an antagonistic relationship with the rest of the world, as do quite a few corporations really. If you only get good news when everyone else gets bad news, then you've made an enemy of your customers. They just might know it yet. Lots of them will be working in an uncoordinated fashion to make their bad news a little better, making your good news worse and worse.

Once word gets around they'll start teaming up.

> Once word gets around they'll start teaming up.

They were able to do this fairly successfully until shale oil and spoiled their intermittently successful collusion.

They were only able to do it because Saudi Arriba was willing to take almost all of the cuts required. In the 1970s opec vot better compliance, but cartels tend to fail because it is the benifit of the individual to defect while everyone else makes cuts. Saudi Arriba is not able to make deep enough cuts alone though, and it is hard to see anyone else making them.

I've always wondered how much black market petroleum is state sanctioned. Unofficially, of course.

Eventually New England will also have to outlaw the use of #2 heating oil.

I know it is the southern end of New England but a friend of mine in Connecticut just switched to a pellet stove for heating his large home. He plans to pay for the stove in two winters worth of heating.

"The point here is that sub $40 oil is becoming the new norm"

Crude is currently $41.74 as of 1:10PM EDT.

Also a fair point, but since most of these countries need oil to be at $70-80/ barrel to balance their books, do you think they will care about how that hair is split?

Did I not hear that some of those high numbers either have to do with corruption or over-reliance of public services on socialized oil industry profits?

Last time this came up someone was trying to make the argument that the reason some countries need 50% higher oil prices has less to do with the costs of extracting and shipping the oil and more to do with the cost of doing business in that country.

If so, you may see some pressure to change the equation, for better or worse.

I highly doubt reform will be high on the list of priorities for a corrupt regime in decline. I would expect that the poor and middle class would suffer far more and first.

I did not mean to imply that the pressure would necessarily be orderly or civil.

Which is the highest WTI crude has been in months.

I don't think it's about demand. If oil price were regulated as a honest market, it would cost much lower. Oil price is regulated by OPEC cartel. They could make it $200 if they want. I think that they're manipulating price low enough to slow development of non-oil energetics as much as possible and high enough to stay profitable. Also they're interested to put a pressure on Russia and some other countries, because Russia spends much more to get oil from the earth, so their margins are much tighter.

No, they most likely can't really make it $200 for any significant amount of time. As everyone else at the moment they have to navigate the market, that now has more producers.

>If oil price were regulated as a honest market, it would cost much lower.

No, if oil was regulated as an honest market, it'd have the CO2 externality priced in to make it carbon neutral. That'd make the price significantly higher.

> Oil price is regulated by OPEC cartel. They could make it $200 if they want.

This is why oil prices have been high since the late 70s. Shale oil and oil sands have put a big damper on the OPEC's ability to set prices. The only control OPEC has on oil prices is by limiting supply. Limiting supply to control prices only works when you can reap the rewards. If OPEC drops prices and US shale oil companies turn up the volume, then OPEC only gets the downside of limiting supply while shale oil gets the profits.

OPEC just doesn't have enough pricing power anymore.

As they say in the oil industry: the cure for low oil prices is low oil prices. In any case, if the developing world is really to develop as much as hoped for and claimed they will need a lot of oil. Even if it is all renewables based (which is a fantasy) those renewables require large oil inputs to be manufactured (those 400 ton mining trucks won't be electrified anytime soon). So while I expect oil to be down over the next year or so, I think the long-term trend is upwards, for better or for worse.

The heavy trucks used in the mining industry are almost entirely electric. If a truck is going underground, much better for it to not be spitting fumes that will kill your workers, and if the mine is at the top of a hill, the regenerative braking from a loaded truck going downhill will charge the batteries so much that the trucks rarely, if ever, have to be manually charged.

Some of the trucks in question: https://www.komatsuamerica.com/equipment/trucks/electric

Those have diesel engines. You don't know what you're talking about. The electric drive is to make power transmission easier, and yes, to allow for regenerative breaking.

It allows regenerative braking in principle, I don't know if any mining truck actually has one. Imagine the size and weight of a battery to power a 200T truck (total weight up to 385 metric tons) for any significant time. These trucks use induction brakes, which do not give back any energy, for the same reason they use electric motors instead of a gearbox - a lone friction brake for such a heavy machine would be too heavy and wear out too quickly (they do have auxiliary friction breaks, though).

Yeah, you're right. I had two different Komatsu PR things open and one was talking about regenerative braking and the other was for these electric drive trucks. Doesn't look like they have any sort of battery. Just alternators to generate electricity from the diesel engines.

Thanks for the comment. I took the previous poster's comment at face value (seemed like common sense). My internal db has been updated.

The comment is wrong. Those trucks have diesel engines. It's even on the page they posted. The electric drive is for power transmission/traction control.

> those 400 ton mining trucks won't be electrified anytime soon

https://www.popularmechanics.com/technology/infrastructure/a...

I'm aware of these developments. I still don't think it's going to happen at scale. The economics are not favorable for electrifying these vehicles.

Mining trucks and industrial infrastructure don't really reflect the bulk of petroleum use. Something like 2/3 of the total US petroleum input goes to simple civil transportation alone.

Heavy industry and core infrastructure are the last things that people interested in renewables will be fighting over. The low hanging fruit of personal vehicles and electricity generation is what's killing the middle east oil cartel.

The passenger transport market drives the others. Engine development is not easy when you need to meet modern emissions. Switch passenger cars to electric and the others won't have enough money to do the basic research needed for the next engine.

Sure, my point is just that the developing world is going to use a lot of petroleum in order to develop. Mining was just an example of where it's used. No one commenting has refuted that, and the people talking about electric mining trucks don't know what they are talking about and have probably never been to a mine before.

> Sure, my point is just that the developing world is going to use a lot of petroleum in order to develop.

And mine was that it doesn't need to. The only reason it needs a ton of oil is if it wants to emulate the US obsession with private transportation, which even the US is getting away from. It's not like Civ 6 here: they don't need to invent the internal combustion engine for themselves.

There is no realistic path to development based on renewables without setting global living standards significantly below current developed world living standards. Just look at the number of countries that are developing. Look at their populations, and assume 50% of those populations get to 50% of European levels of energy use. Now look at the transition to renewables. Also note that 50%+ of "renewables" in Europe is biomass, which is arguably not renewable and environmentally destructive.

The idea that developing countries can develop without increasing global demand for oil is a fairy tale, and impossible to believe by anyone who thinks about the issue for more than a few minutes. Admittedly, there are in theory possible paths that would avoid an increase in fossil fuel demand, but I have never seen someone bring them up when discussing this, nor have I even seen an understanding of the basic problems that need to be circumvented.

The scenario is "without oil" and not "based on renewables".

My argument is oil dependence is a ball and chain on the aspirations of the developing world. The need of minor counties to buy oil in dollars chains them to the US and European dominated financial system with ruthlessly exploits them and savages countries that try to fight back. Once the leaders of those countries are confident they can do without constantly importing oil they're going to run for the exits as fast as they can.

I don't like it when people here downvote things they don't agree with.

For one, it makes it hard to find the counterarguments, which are often where the best parts of the discussion are.

I think the point about the cure for low oil prices is low oil prices stands on its own, but not as a virtue (not that I think you were implying that).

It's a warning. Low oil prices cause complacency, which means the next minor emergency we have to go crawling back to them whether we want to or not. Low oil prices are the anesthetic in the mosquito's saliva.

Mining trucks are easily electrified. Long distance transport is the challenge.

Trains would like to have a word.

With 10s of thousands of miles of lines, it would be pretty monumental to electrify the entire US train system. Considering how efficient modern diesel trains are, That should be pretty low on our list of things to convert.

Nuclear trains might make sense with some of the newer reactors... but we know that'll never happen.

> Nuclear trains might make sense

Modern steam engines!

But I guess they'd have to construct a lot of water stations. The stops to take on water might negate some of the advantages.

Diesel trains are already electric. Their drive motors are electric with big Diesel generators on top. Their efficiency is due to their hybrid nature.

True although even in Europe where almost all mainlines are electrified, many freight trains are diesel-electric. That's because often the the plant loading docks etc. aren't electrified.

Most freight is carried by diesel trains. While it is possible to use electric engines, the ecconmics don't work out and so only a minority of freight is on electric trains.

Are you talking about the world or the US? Living in europe, I‘ve never seen a diesel train and the economics are just fine for electric trains.

There are diesel trains in Europe. They tend to be more on branch lines, though, with the main trunks being electric. (Electrifying every branch is not economic.)

In the US, it could still be done (and has), but the economics are not as compelling because the price of diesel is lower.

I'm told that the big railroads in the US have a plan to electrify their main line. It remains a plan because the costs are more high enough that it isn't worth it. If they decide fuel costs will go up by enough they will dust off the plan and electrify.

Diesel-electric trains. They're basically Diesel generators with electric drive motors.

Even renewables need tons of fossil to lubricate moving parts. Generators in a turbine alone is a massive oil guzzler. The world will always need oil until a synthetic lubricant that isn't insanely cost prohibitive.

We know how to make lubrication oil from other sources. Natural gas is a molecule easy to make from organic sources, and from there we already have the industrial processes to may synthetic oil. It costs a lot more than regular oil, and making your own natural gas drives up the cost, but it isn't impossible. Note that we can also make synthetic gasoline, last I checked (long ago, gasoline was $1.30/gallon) you could buy drums for about $8/gallon, the only people who paid that price were on a track and good enough that a better fuel was the difference between win and loss.

Yes, but the amount surely matters. If machines or car only require oil for lubrication, for example, that's probably one or two orders of magnitude less of oil needed.

It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

Industry also won't form because of Dutch disease. Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

Sovereign wealth funds also don't really solve the problem because 1) they attract corruption like flies on shit and 2) they're vulnerable to confiscation from foreign governments if they decide they don't like your face (e.g. Venezuelan gold in London).

I suspect it could be that there is no simple solution to this. Potentially you are just fucked if you're a poor unstable country with oil and theres nothing you can really do about it. No leader will save you and no policy will help.

> It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

See also, The Dictator's Handbook, summarized well by CGP Grey's video "The Rules for Rulers" (https://www.youtube.com/watch?v=rStL7niR7gs).

It's an unstable equilibrium to run a country on a wide power base, if it has centralized resource-extraction economy; as any dictator who just plans on staging a coup to take the oil and then reward their few revolutionaries with it, will be able to win over pretty much anyone from the previous wide-base government, who was previously getting a much-smaller slice of the pie.

Norway kind of proves it is possible to make it work without the corruption. But Norway also proves that you need to lay the groundwork for that, before you lay any actual groundwork. I am not sure if these other oil producing states could reach a level of stability as Norway.

Norway used to be a relatively poor country by Western European standards but had a functional economy before oil. Homogeneity, a staunchly hard-working and independent population, being surrounded by lutheran economies, and "bondevett", is why Norway turned out well.

That's not really true, Norway was one of the richest countries in the world long before the oil boom. In Europe it was only behind Luxembourg, Switzerland and Sweden by GDP per capita in 1960.

You're right. I've lived in Norway and was repeatedly told by Norwegians the country used to be poor, something I believed (there isn't much in Norway that reminds of a wealthy past). Apparently it's just a myth [1][2].

[1] https://www.dnva.no/detskjer/2019/11/en-feiloppfatning-norge...

[2] https://www.aftenposten.no/meninger/kronikk/i/LM1L1/Hvorfor-...

Norway proves it's possible. However, without a second clear example it's difficult to prove exactly what it is about Norway that makes it possible. Is it culture? Wealth? The timing? Sheer good luck in governance? A combination? It's hard to tell.

The far right frequently claim it's something to do with a lack of colored immigrants, for instance.

Your racist characterization of the far right detracts from your point.

> Norway kind of proves it is possible to make it work without the corruption

The Norwegian state and identity were formed before oil.

I am not sure Francisco de Miranda and Simón Bolivar had oil on their minds when they effectively established Venezuela as an independent state from Spain.

Norway does not prove that at all.

Norway has almost no industry other than oil. If oil shut down tomorrow their sovereign fund could keep the country running for about 10 years.

10 years isn't really long enough to transition to other industries. It's barely long enough to educate the next generation in new technology.

(Source: Norway's imports per capita were $16.9k, and its fund is $195K per capita.)

Norway is hoping that oil will shut down slowly, giving them time to transition, using the fund as a cushion. But historically industries tend to shut down "slowly, then all at once".

Edit: I didn't see you wrote "work without the corruption". My reply is misdirected, my reply is about the economy. In regards to corruption I agree with you.

> vulnerable to confiscation from foreign governments if they decide they don't like your face

This should be a sign that the rule of law is in decline all over the world. What UK did and the US is doing is completely absurd, even when dealing with an authoritarian regime. Not only UK is holding gold that is not owned by them, but it is giving that gold to a pirate designated by the US.

And this is bad not just for the particular case, but it may also be used as precedent for similar illegal actions against other governments that don't subscribe to the US gospel.

"the rule of law" is different from "one world government".

"Foreign government" means "different laws".

https://www.bbc.com/news/world-latin-america-53262767

Interestingly, the first thoughts that come to mind on how to mitigate this problem fit Saudi Arabia very well (as far as I know, I am no expert). Invest in a considerable security force, try really hard to ingratiate yourself with a few powerful foreign allies that have a vested interest in your stability, and then fund education like mad, especially sending children to foreign universities, to try to raise the capability level of the country before the wheels fall off.

Those mitigations will help, but one of the fundamental problems the Gulf countries will have to address is the cultural expectation that their citizens won't do hard work. When it starts becoming infeasible to import the entire construction industry from India, Saudi citizens are going to have to start taking those jobs, and they're not going to be happy about it no matter how smooth the transition is.

Investing money into raising the capability level of these rich states usually has a very low success ratio mostly because their societies do not value labor but authority, power and money of which they have plenty.

This is what China's elite have been doing...

Their "hundred year plan" is fn' formidible and they really will be the super-power based on, not only, their implementation of it - but the lack of forethought from literally any other nation on the planet, save Norway.

Vancouver real estates begs to disagree!

> Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

So, import all the inputs you can and sell the output on the local market where everything is expensive.

Dutch disease is way more complicated than just "there's too much money coming from this source, the economy is fucked-up". I would really like to see any non-simplified study for a change.

The real cause of Dutch disease is not economical, but political. Political forces formed from the exploration of oil (and other resources, like banana-producing land in central America) will not allow for the formation of a diversified industry where they will have less ability to control the host country. These political forces are a combination of both external (developed nations) and small minorities that benefit from the maintenance of the status quo.

Dutch disease was named after the Netherlands where the phenomenon was first observed - with North Sea oil. It was a highly valued currency, not politics, that rendered Dutch exports noncompetitive and shrank foreign investment.

Imported Inputs into a GDP will always be SPOF...

Wont they?

Like you need to have serious incentives to import all your inputs.

Else, you are a leeching economy regardless of the value of your goods (Apple)

My comment was about a single factory. In theory all the factories could import all their inputs, because the commodity that is causing the Dutch disease will offset it, but on the micro-level, a company can take advantage of a low average salary yet high costs market that is characteristic of the disease.

So an upstart smartphone manufacturer could take advantage of the high local salaries to manufacture a local brand of overpriced smartphones solely for the local market?

I'm not sure that's viable nor helpful as an idea when you can just import iPhones from China.

They should vertically integrate while they can. Produce exportable goods and materials with the oil.

" too busy feasting off of the intermittent boom cycle to prepare their people constructively for the bust that comes later."

It's much worse than merely 'feasting and fasting' - the problems are very deep, another way of putting it, there was 'not much at all' in these places at all, then they had oil, and the absence of other parts of the economy isn't quite so much an artefact of dysfunction, rather, it never existed in the first place.

Many of these places had 3% literacy 2 generations ago, and much of the civic institutional infrastructure (I mean like 'laws' and 'Judiciary' and 'Governance' etc.) is as new as many of those shiny buildings.

Let alone the absence wide networks of useful artisanal know-how spread from generation to generation, or at least, such information that can be used to found industry.

If Oil permanently crashed, it would be very bad and there would be no recovery. The Gulf States would be the poorest states in the Middle East. Saudi Arabia would be like Yemen or Algeria.

1985...

Afghanistan, Iraq/Iran War, Balkans, Chechnya, Afghanistan again, Somalia, Iraq/Syria, Yemen.

KSA’s population has doubled in 30 years and they like to burn through excess youth by exporting them. They’re going to need another, bigger war or domestically they’ll be in trouble.

>Some of the leaders do know that they can't live on oil forever, so you see some sovereign wealth funds investing in things that their people can learn and use to build their society more resiliently

Do the Saudi's have the experience and culture to make this work? $90B invested in Softbank Vision Fund. [0]

[0] https://www.businessinsider.com/saudi-arabia-45-billion-with...

A long time ago on an island far away... called Nauru, they tried to invest their wealth from their natural riches (phospor fertilizer). It didnt work out, if I remember correctly.

It's a strategy that's worked well for Norway though

Doesnt Norway still produce oil? Naurus strategy also worked well as long as they were producing. (Although I am not worried about Norway, even if the investment were not to work out as intented, their economy seems sound)

However Norway was already one of the richest countries in the world before the oil boom. So there wasn't as much pressure on their government to spend that income immediately instead of investing it.

Its also worth considering that Norway has a highly educated, intelligent population and an open, protestant culture. Countries without these traditions or a less educated population are more prone to corruption and mismanagement.

Is that investment just finding a place to park money? Or does it do something good for the every day Saudi citizen? I don't follow the issue closely enough to know.

Following the list of Softbank "successes" seems like a decent proxy.

In the long run the cost of energy approaches 0 and ultimately heat dissipation and space (and hence, speed) will be more relevant. But short-termism and individual greed have reigned supreme in most energy rich companies. At least Canada has a diverse economy to take up all the petro-refugees, even if we didn't build a serious wealth fund out of our oil as the Norwegians did.

I will make the snarky observation that if there is one good thing about the Norwegians and their petro fund, it's that they seem to have a national culture of being a bit ashamed of having come into so much money, and are willing to have it hoarded away for them for some future while they live relatively "modestly". It takes some self-discipline to not pressure your government to give handouts left and right when you're rich.

Oil money comes with strings attached and to completely ignore this in your analysis seems either uninformed or disingenuous.

So called Petro Dollars, for example, can't be just spent on anything. It is so difficult to dig up information on this (which was US state secret for a while btw) but iirc KSA must at least spend a portion of "their" Dollars on US treasuries. Another portion of "their" Dollars must go to US arms manufacturers. In return, US backed (formerly UK backed) Saud family gets to play King in Arabia.

So that "leadership that is too busy feating off" is aka Puppets of Western imperial colonials cum American hegemon's vassals. Any efforts by locals to denude themselves of the said "leadership" is not looked upon kindly by the "interantional community".

> the oil handout

That's cute!

Well, it's more severe now and as you pointed out yourself, it's becoming increasingly common. Not to mention a shift to renewables (despite some developing countries continuing to rely on oil), which may add increasing pressure.

That is a very valid point, however, how long before the US can't get away with simply printing money during financial crises ? :)

Longer than those of us who oppose printing money would like. The US economy has many different parts that stand well on the world stage and so it can get away with things.

Agriculture in the US is something that the middle east cannot duplicate. They could duplicate some other industry, though some of it has historical roots that will be hard to overcome starting from scratch.

It feels like this time is different because of the ongoing lack of demand. International flights from the US are looking to basically be nonexistent until there's a vaccine. After that, it's very plausible the business travel economy won't ever recover fully.

I agree that some of the more foresighted countries are making some of the right moves (though Saudi Arabia is probably kicking itself for not moving forward with the Aramco IPO last year), but I really wonder what the effects will be on the political stability of places like Iran and Iraq - they're not in great shape to start with, and this kind of economic shock seems like about the worst possible thing to really exacerbate all the problems that exist already.

Flights account for very small single digit demand for oil. The main driver of the low demand is lower economic activity in general.

> International flights from the US are looking to basically be nonexistent until there's a vaccine.

But there's likely going to be a vaccine in less than a year. It will take several years to know to what extent it's really safe or effective, but people who travel a lot for business can get it right away if they want.

"Likely" based on what? And does an unsafe vaccine (whatever that could be) really qualify as a vaccine? What would make it something a person who travels a lot for business would want to risk?

Likely based on the fact that they're already in mass production, so as long as they don't seem to be immediately killing people they're going to get released even without longterm data.

And someone who would travel for business if there were a vaccine at least has a reason to be an early adopter of the vaccine, whereas for someone who never leaves their house anyway it would make more sense just to wait for other people to find out whether it's safe and effective or not.

Sure, but (and?) given the way things have been going here in the US, I can't think of a reason not to wait for other people to find out!

Oxford vaccine is supposed to be done by September...