Falling oil prices, a new form to understand the collapse.

For sure, the last month was a big good news for regular people. Each time they went to the gas station they could save an important amount of money filling their gas tank up. But, is this a good news in the long term? I am afraid not. I'll try to explain it schematically in a few points. I'll write a post for each point below, giving data and links, as this is my first post, I want to make a light reading of it.

• Oil is the most important commodity in the world.  Without oil, economic growth cannot be achieved.
• Low oil prices causes disinvestments. As the conventional fields are declining their output between 3% and 5% per annum, energy companies decided to explore and drill the huge reservoirs of shale gas, tight oil and tar sands to compensate that decline, which requires expensive (but not new) techniques, that needs a price above 100$ in the best of the cases. 
• Even with high prices, most of the big oil companies had to make enormous write off on these projects.
• Some mainstream media commentators explained several reasons on why the oil prices fell so quickly, the most famous is that the world is swimming in oil and there is oversupply on the market.
• Policy makers and central planners seems to ignore the signs even though their energy agency, recognized on their 2012 Energy Outlook the world reached the so-called peak oil.
• Most of the oil companies are mired in debt.  The collateral of this debt (oil) was valued at a market price of 115$ or so, now the lenders and investors such as banks, hedge funds and pensions funds have seen how they lost more than 50% of the value of their investment.

At this stage, knowing that this situation can unleash another financial crisis, we are still thinking that economic growth to solve our problems, without taking in consideration that the fuel what makes the  economic growth possible is in deep trouble.

ERB.