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http://peakoil.com/publicpolicy/opec-boxes-itself-into-a-corner

In the comments section:

Davy on Mon, 29th Feb 2016 6:46 am

“This risk was highlighted by the IEA: “While oil prices should start to rise gradually once the market begins rebalancing….” “SHOULD” is not a scientific principal. The IEA “SHOULD” is really nothing more than the attitude that what happened in the past will happen again as if human economics is scientific truth. Rebalanced markets because of supply and demand does not have to happen with prices rising they could be dropping also.

There is no mention that an earlier supply and demand economic range may have already broke to a lower range and will never recover to previous levels. Absolute quantities do not matter here it is the combinations that yield healthy economics. We probably hit peak oil around now because we hit a combination of peak supply and peak demand.

The peak supply was oil that is affordable per the diverse requirements of the global economy. For some that means covering government budgets. For others it means market fundamentals of return on investment. For the global system as a whole it means high quality economic oil to power us through limits and diminishing returns that is approaching and or is here. The lack of this economic oil is causing the global system to degrade.

The peak demand is really just the huge global deflationary debt overhang. We have large global macro unfunded liabilities of expectations both social and economic. Socially we have a growing population of peoples wanting a better life and not getting it. Financially we have markets that have valuations that have no relation to reality. We see markets with expectations of future growth and returns that are just not real. In other words demand expectations are greatly inflated and the reality of demand is deflated.

Real productive activity has been greatly reduced. We have huge malinvestment, unprofitable development, nonperforming financial activity, and overcapacity of production. All of this “non-growth” growth is overhanging our global system as debt. This is not debt daddy knew. This is debt that is up against limits and diminishing returns of debt itself. This is debt that has become a drag on growth by being bad debt.

If you invest in something and it cost more to make than it gives you back you will go broke or starve if you are an animal. Society has gotten around this by various moral hazards of disregard for normal fundamentals of price discovery markets are so good at. Manipulation and corruption were used to obtain abstract results and now the system itself is systematically corrupted.

This demand that IEA thinks will come back is likely over at the level that will rebalance the markets as was once the case. Supply is there but not profitable supply that powers the global economy. If we are in a macro demand destruction process the rebalance the IEA should talk about is an economics of descent where decay, dysfunction and abandonment are the market principals.

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shortonoil on Mon, 29th Feb 2016 8:13 am

“There is no sense in wasting our time seeking production cuts,” Naimi said, adding that OPEC and non-OPEC producers would likely “not deliver” if asked to cut production.

No one is going to cut because if they did they would end up with less revenue than they had before they cut. Naimi babbles on, and on, over and over again about no one wants to cut. No one is cutting because they can’t; it would merely move their upcoming insolvency to an earlier date. It is the one thing that no one in OPEC, or any where else wants to admit.

No one wants to admit that the world of oil is not what it used to be, and never will be what it was again. Depletion has reduced oil’s ability to power economies, and as a result its price has gone down. “The price of oil depends on the strength of the economy, and the strength of the economy depends on oil’s ability to power it.” Reducing the supply of it, when it can no longer do what it previously did, is not going to solve the problem? Cutting production will only result in less oil, not more economy to provide a demand for it!

This is the quagmire the oil industry now must deal with; they must keep producing to stay alive as long as possible, and at the same time hide their dilemma from the world. Blaming the other guy is almost working; shale is dying because the Saudis won’t cut, and Venezuela is dying because shale won’t die! It has become a multi $trillion circle jerk. But, beating up on a straw man has its limits; eventually he loses his stuffing.

The world of oil is in serous trouble, and no one wants to admit it. The industry has been pumping the best it could find for the last 150 years, and now the best is not very good. As a matter of fact most of it is not worth pumping at all. It will never be able to sustain an economy that can supply a demand for it. In the mean time the Saudis will blame Shale, Shale will blame the Russians, and the Russians will tell stories about pumping oil out of the Arctic at $30/ barrel. No one is going to admit that it is over; because when they do – it will be over!