While we have been regaled with the ongoing unraveling and reconsolidation of the massive US mortgage market, the rise and fall of the oil market is delivering another casualty. As my readers know, I called both the price run up past $100 per barrel and the turn at $145 per barrel. This price move was necessary to force the public to pay attention to our serious exposure to the presently inelastic condition of the supply side of the oil equation. We now have a global consensus for shifting out of the fossil fuel business and demand has been visibly throttled. I now expect a return to $65 per barrel.
Prior to the oil price run up we had a huge price lift in commodity prices. This created a huge amount of credit and has thoroughly funded the metals industry in a way not possible for generations. The ongoing oil price decline appears to be collapsing that long lasting bubble.
To give my readers a meaningful standard to work with, I will share one fundamental idea. All commodities are normally sold at a price very close to the real cost of production. The rationale is obvious. Higher prices allow all producers to ramp up production and to invest in technologies and new operations that will bring costs down. The only real constraint to this behavior is the time needed to make this happen. Well, guess what? We have had the necessary two to three years to dust off every mothballed project from the past two generations and blast them through permitting.
And now the credit in the commodity markets is evaporating.
Up to about three years ago, all copper mines worked against a copper price of around $0.70 per pound. This had been the average since the sixties! This had actually driven new mine development out of North America. But all mines worked against an operational break even of around that seventy cent mark.
I address copper in particular because it continues to be the leader in terms of mining innovation and cost cutting. When I first got into the business in 1972, it was still possible to contemplate mining a several million ton deposit carrying twenty pounds of copper to the ton over several years. Today that represents a month’s supply in most major mines. Such scale has permitted mining grades to hang around eight pounds to the ton.
What I learned early on was that this technology ultimately came to every other minable commodity. I know of deposits in certain commodities that would idle every other mine in operation if brought on stream.
Returning to copper, we have a commodity that requires three or four years to ramp up but then can be produced for well under $1.00 per pound. Yet we have been forced to pay $4.00 per pound and now are back at $3.00 per pound. This I see returning to around $1.50 to put everything back in balance.
Of course there are an army of analysts who will argue vehemently that this is not so. Oh well!
We have just been through an old fashioned commodity boom and bust carried out over three years. All the producers are flush with cash and are bringing fresh production on stream. This is also happening throughout the global agricultural business. This next year we will be awash with huge surpluses and a rapid global business recovery driven be suddenly lower costs across the board.
Importantly, the market has decisively signaled the need to vacate the carbon business and governments are getting mandates to do just that. This is giving us the time to do it right.
As I have posted, the simple shift now from diesel to LNG in the USA alone will release half of our demand for oil. The advent of THAI will let North America become the globe’s strategic oil reserve with perhaps two trillion barrels of producible reserves booked before we are finished. That is twice all the oil produced to date.
Prior to the oil price run up we had a huge price lift in commodity prices. This created a huge amount of credit and has thoroughly funded the metals industry in a way not possible for generations. The ongoing oil price decline appears to be collapsing that long lasting bubble.
To give my readers a meaningful standard to work with, I will share one fundamental idea. All commodities are normally sold at a price very close to the real cost of production. The rationale is obvious. Higher prices allow all producers to ramp up production and to invest in technologies and new operations that will bring costs down. The only real constraint to this behavior is the time needed to make this happen. Well, guess what? We have had the necessary two to three years to dust off every mothballed project from the past two generations and blast them through permitting.
And now the credit in the commodity markets is evaporating.
Up to about three years ago, all copper mines worked against a copper price of around $0.70 per pound. This had been the average since the sixties! This had actually driven new mine development out of North America. But all mines worked against an operational break even of around that seventy cent mark.
I address copper in particular because it continues to be the leader in terms of mining innovation and cost cutting. When I first got into the business in 1972, it was still possible to contemplate mining a several million ton deposit carrying twenty pounds of copper to the ton over several years. Today that represents a month’s supply in most major mines. Such scale has permitted mining grades to hang around eight pounds to the ton.
What I learned early on was that this technology ultimately came to every other minable commodity. I know of deposits in certain commodities that would idle every other mine in operation if brought on stream.
Returning to copper, we have a commodity that requires three or four years to ramp up but then can be produced for well under $1.00 per pound. Yet we have been forced to pay $4.00 per pound and now are back at $3.00 per pound. This I see returning to around $1.50 to put everything back in balance.
Of course there are an army of analysts who will argue vehemently that this is not so. Oh well!
We have just been through an old fashioned commodity boom and bust carried out over three years. All the producers are flush with cash and are bringing fresh production on stream. This is also happening throughout the global agricultural business. This next year we will be awash with huge surpluses and a rapid global business recovery driven be suddenly lower costs across the board.
Importantly, the market has decisively signaled the need to vacate the carbon business and governments are getting mandates to do just that. This is giving us the time to do it right.
As I have posted, the simple shift now from diesel to LNG in the USA alone will release half of our demand for oil. The advent of THAI will let North America become the globe’s strategic oil reserve with perhaps two trillion barrels of producible reserves booked before we are finished. That is twice all the oil produced to date.
This all means that the economic rebound will be very strong for the next three years.
I have been in the mining business and know that the mines are happy breaking even on copper becaue most of them get to keep the gold and platinum the get along with the copper.
ReplyDeleteI have much information of global warming that I could send but you probably won't read it anyway so I will send you the back cover of the 350-page book I wrote on Ice Ages and what causes them. The data comes from Antarctic Ice core graphs going back close to three million years and benethic carbonate deposits on the sea floor going back 6-million years.
Back Cover Text From: COSMOLOGICAL ICE AGES
EARTH HAS BEEN IN AN ICE AGE FOR THREE MILLION YEARS WITH AN AVERAGE TEMPERATURE OF 32 DEGREES.
God gave us a brain and if we refuse to use it he will be greatly disappointed.
The authors solve the greatest mystery of all time by plotted our sun’s course from its birthplace in Orion. Little Sirius B with 1.5 times the gravity of our sun grabbed hold of us putting us into orbit around Sirius A. Our sun’s fortunate capture by the Sirius system took Earth out of a billion-year Ice Age with additional light and heat.
It took the power of a white dwarf putting out hundreds of times more UV than our sun to break through early Earth’s 1400 PSI C02 atmosphere and get life started on the surface of the waters. The invention of non-cyclic photosynthesis created eight times more food production that allowed predators to exist and gave us our free oxygen coal, oil and limestone made from carbon dioxide (Co2).
Global warming is a hoax. Our sun doesn’t have enough power to keep us out of Ice Ages otherwise we wouldn’t have them! We are in an Ice Age! During all previous geologic ages when the majority of the coal, oil and limestone were made from Co2 Earth’s average temperature was 50 to 60 degrees Fahrenheit. The average temperature on Earth is now 32 degrees. A stellar explosion three million years ago blasted our sun into an elliptical orbit where we go out to nine light years below the galactic plane.
Co2 is plant food! Without Co2 everything on the planet dies and you can’t grow food. Our atmosphere is depleted to .033 % Co2 and our government wants to take your tax dollars to pump it underground????
Given the fact that 90% of our atmosphere is gone and that the major producer of free oxygen “diatoms” are disappearing; will stupid humans keep on burning things? We need to get a handle on this and start using sources of energy that don’t consume oxygen like geothermal, solar, wind and tide.
This book is about the conscious enlightenment of humanity necessary to save itself from extinction. www.alaskapublishing.com
www.HankKroll.com