Preston Pysh  05:25

That is phenomenal. And I’ll tell you, we’ve looked at your site. We know the numbers that are coming through your site. I mean, you’re throwing up some huge numbers of people coming through your site and reading your information and it’s not by a marketing trick or anything. It’s purely your content. It is phenomenal, Gail. It is.

Just to kind of tell our audience so Gail wrote a white paper and the name of the white paper is “Oil supply limits in the continuing financial crisis.” Brilliant writing. Absolutely brilliant. We’ll have a link to this in our show notes.

Stig, go ahead and fire off the first hard question that we have.

Stig Brodersen  05:59

So, Gail, Preston, and I have carefully studied the debt situation in the oil and gas industry. In an *inaudible of more than $3 trillion in just 10 years. For me, this is just concerning. And knowing that many of the hedging contracts that were written back when oil was said at 80 plus dollars to have just run out, it’s adding fuel to the fire. So how do you expect the debt burden will influence investors and the oil economy in the time to come?

Gail Tverberg  06:24

Well, the way I see it, energy is the foundation of the economy. Way back from the hunter-gatherer days, the way we distinguish ourselves from other animals was the fact that we could pick up sticks and burn them. And when we could burn them, we could cook our food. When we could cook our food, we no longer need the big heavy jaws and the big intestines. We could grow bigger brains.

So over the years, we gradually added more energy sources. Now as it went on, we found that we were burning down all the trees, and we got ourselves into fossil fuels. We got into coal, natural gas, and oil, but they have to be cheap. They have to not take too much of our own energy to do it.

Once you start getting a big debt burden, you suddenly realize that there’s something bad going wrong with the system. The energy products are the ones that should be throwing off lots of taxes. They should be allowing the governments to build roads cheaply, for example, but if instead, the energy products are the ones that are themselves generating debt. And you got debt upon debt upon debt upon debt, and everything starts looking like it’s going to topple over, that’s when the government suddenly says, “Oh, we’ve got to do something to stop our big debt situation.”

Stig Brodersen  07:55

And what should they do, Gail? I mean, if you were the CEO of an oil and gas industry if there was even a position, should they just start deleveraging? What should they do?

Gail Tverberg  08:06

Well, what happens is that they sort of automatically deleveraged by going bankrupt. And that bankruptcy passes on to a new owner who thinks with a new, lower basis price that they bought it. They say, “Oh, we can make it given the lower prices that we’re being charged right now for running a drill rig.” But they don’t realize that those prices are going to go right back up again if those oil prices go up, so they can’t make it at that lower price.

Stig Brodersen  08:39

Yeah, and Gail, I think it’s an interesting discussion. Now, I had the pleasure of speaking with Morgan Downey, who *inaudible before about this specifically. We kind of agreed that there would be a lot of turmoil in the time to come, but in the end, it will probably lead to less supply, which will in the long term have an effect on the oil price, *inaudible. Would you agree with that statement? Is that also how you see the debt burden play out?

Gail Tverberg  09:03

The way I see it is that ultimately the oil price is going to go down. It may spike up, but the general direction is down. And the thing that people miss is that demand depends on people having jobs to buy the oil. And for that, we need the middle class that’s been cut out to a bigger and bigger extent over the years. So we don’t have enough buyers for the things that we’re creating with this high-priced oil and this is what puts a cap on the prices.

I think the other thing is that the way prices are determined is based on a combination of wages, and how much that increases. So if your wages are going up a lot, you don’t need a big contribution from debt, you know? People go out and buy a car, if their wages are high enough. But if their wages aren’t high enough, then… I mean, they could save up for the car and there are cars that are cheap. No problem.

But if their wages aren’t high enough, they need debt. And if the price keeps going up, they need a longer-term auto loan and they need it at lower and lower interest rates so that they can sort of making it and it does kind of look like it works for a while. But of course, these poor people can’t buy another car very quickly, because they now have a seven-year loan or however long it is. And it takes forever to try to pay it down. And they need interest rates down near zero to keep the whole system going.

Preston Pysh  10:49

So whenever I think about the price of oil, I look at two main variables that are kind of dictating the price on it. The first one you’ve kind of hit out a little bit which is the supplying demand piece, whether you have a ton of producers kind of like what we have right now from the last credit cycle where you had this massive influx of producers because the cost of money was next to near-nothing. So you had all these people that flood the market and you got this oversupply situation versus the demand. So the supply and demand is one piece of that.

I think the other part of it that I don’t necessarily know a lot of people give enough credit to is central banks and the control of fiat currency, and how that currency is also playing a part in the overall price. So as credit expands and contracts, I think that really, the commodity versus currency thing kind of plays into that pricing portion as well as the supply and demand.

Those are the two variables that I kind of view the price of oil through. So I’m curious if you have a similar opinion. And I’m kind of curious to hear your opinions on this currency to commodity correlation.

Gail Tverberg  11:59

Well, as we’ve had a situation where the various countries have been trying to lower interest rates farther and farther, what we’ve had is quantitative easing and such things. And what we’ve also had is a lot of, quote, hot money running around from country to country, based on where the lowest interest rate is, and such things.

So we have kind of a funny situation that I had never thought about much before either. Back after 2008, we had a price spike in 2008. And then we had a big crash in 2008 in prices. But right before the turnaround in prices, that was when quantitative easing was introduced, that was to get the interest rates down to try to get more debt out there. And it would pump up the economy enough to bring prices back up again and bring the economy back up. again. In fact, it did sort of work. And so as long as the quantitative easing was in there, we gradually pumped things back up, I think 2011 was sort of the high point. And then, you know, the oil prices just started drifting down between 2011 and 2014. Just a little bit, but the general drift was downward.

Well, once we got to 2014, and the United States decided that it was going to just continue its quantitative easing, and it was going to raise interest rates, as opposed to the rest of the world not raising interest rates. Then we suddenly had a situation where the dollar started rising relative to other currencies. And it also affected hot money that was out there being lent out because the interest rate was so low.

So suddenly, instead of buying to lend out those dollars, that interest rate, they wanted to do something else. That’s what starts shifting everything around. And we ended up with $1, very much higher than these other currencies. And that’s when it wasn’t just oil prices that dropped away low. It was coal prices, it was natural gas prices, it was food prices, you name it, because these other currencies when looked at in dollars, could no longer buy as much oil. You know, on a day to day basis, practically what happens is as soon as the dollar starts rising again, and the price of oil and these other things starts going down, and then it reverses and you get the same effect.

Preston Pysh  14:48

So I kind of got a follow-up question where, and this one’s a little bit off the cuff, but I listened to an interview between T. Boone Pickens, who I’m sure you’re familiar with, we read one of his books, we weren’t impressed. But the interview was with T. Boone Pickens and Carl Icahn. And this interview took place right around Christmas, the timeframe of 2015. So just a few months back.

The two of them are sitting there and T. Boone Pickens I’m sure you’re well aware had been saying oil is going to be $70-$75 a barrel within by the end of 2015, which he was dead wrong on that. And in this interview that I was listening to him and Carl Icahn, he was still beating that drum that oil is going back to $75 a barrel.

And it was interesting to watch Carl Icahn, his response to T. Boone Pickens, both these guys are billionaires. And Carl Icahn said, “Yeah, you know, I don’t necessarily agree with you on that one.” And he was very skeptical. So Carl Icahn was saying, “I think it might even go lower than where it was at in December, at least hang around for quite a while.” And T. Boone Pickens was still beating the drum that it’s going back up to $70. So I’m curious of your opinion. Who do you side with Carl Icahn or Boone Pickens?

Gail Tverberg  16:02

Well, my view is that the oil price is not going to be able to stay very high for very long, you know, may bounce up a little bit, but I think that the general level is going to be under $50 a barrel. And in fact, it may go much lower.

Preston Pysh  16:19

So now we’ve got to put the time horizon that you kind of feel that that’s the case. I completely agree with you. That’s the same song and dance I’ve been saying for a year now.

Hey, Stig… I think Stig views it a little bit differently and he knows I’m kind of you to know to come after him a little bit with my comment but I’m not. Stig looks at things more from a value investing standpoint of “Hey, it’s it’s not a bad price. I’m going to buy it while it’s not a bad price because my holding period is forever.” Okay, so that’s his vantage point.

Now and I have a very similar vantage point, I guess I’m just not a buyer at this point because I have the same opinion as you. I think it’s going to kind of linger for a lot longer than people realize. But I think when you’re looking at that, when do you see that kind of timeline maturing, because I believe during the next credit expansion, which I think is going to be completely driven by quantitative easing and helicopter money, I think are the only tools that our government has left. I think when they go into that mode full blown, they’re just, I mean, going at it strong trying to create this next credit cycle. I think that oil is going to kind of shoot up and have a major recovery in a major way. Do you see that playing out? And we have no idea what time horizon this is. But let’s just say that this is a year two years from now, do you see that kind of coming back? Or do you see this lingering for a long period of time?

Gail Tverberg  17:43

I think that the helicopter money and more quantitative easing is maybe going to get it up to $75 a barrel, and maybe it’ll last for six months. Maybe it’ll last for eight months or something. But I think these negative interest rates are having a terrible effect on banks. The banks are doing badly, to begin with, these new Basel III rules are terrible from the point of view of increasing the overall credit to the economy. You know, there are a lot of things that people don’t realize that are counterproductive with things. They think they’re lowering risk, but they’re reducing the total growth rate of the world economy.

Preston Pysh  18:24

So I completely agree with you on that. But I guess this is why I think that maybe, and I’m not saying this in the next year by no means I think it’s going to get pretty ugly by the end of the year. But I’m obviously a big bear. But this is my mindset of why I think that maybe three years from now, you might see a recovery in the prices because I think that in the next year, to a year and a half, you’re going to see a lot of debt and destruction in the oil industry. I think you’re going to see a lot of companies go under. And I think that in the end, when that happens, and because this is a fight of market share. I think we all agree on that. Right now, this price action that’s kind of pushing it lower, it’s a fight of market share. You got every producer in the world fighting for this market share. Would you agree with that Gail, is that kind of get to the heart of the issue?

Gail Tverberg  19:12

I definitely agree that it’s a fight of market share that everybody needs to continue to maintain their market share. All of the economies depend on oil exports, all of the oil producers, economies depend on selling oil. So they will do anything to maintain this production. So don’t get the reduction in supply when prices go down as fast as you would expect. And of course, having derivatives in place to hold prices up helps that all the more and the fact that they have so much debt that they have to service makes it… They can’t just quit.

What happens when you have bankruptcy is these companies that buy them out don’t even stop production. So no matter what happens, that supply just keeps on at whatever price it is. They will just stand on their head to get out as much oil from the ground as they can. So the lower price doesn’t cut back on supply. What happens is that I think we end up with a much worse financial crash than what people are forecasting. Each person starts from a narrow view of “Okay, the oil thing will do this.” Okay, well, maybe it will. But if you take your Basel III rules, and you take your natural gas, you take your coal, and your electricity overall problem, and also the fact that you have the lower currencies relative to the dollar, all of this money that was borrowed, the US dollars that were borrowed overseas in dollars becomes so much higher and harder to pay back when these other currencies are lower. That creates another kind of a problem. So we’ve got so many different problems all at the same time that they start compounding.

Preston Pysh  21:08

And that’s a big point that Ray Dalio, your last point, there’s as far as all this dollar-denominated debt around the world. And as the dollar gains strength and becomes more valuable, it gets so much harder for all these emerging countries to pay back all those loans that they have in dollar-denominated debt, which is a huge issue. I think people don’t realize the magnitude of how much dollar-denominated debt there are, or pegged dollar-denominated debt that’s out there because that’s the other issue is how many currencies are pegged to the dollar. I don’t think people realize how big that behemoth is. So fantastic point. I’m going to throw it over to Stig for his question.

Stig Brodersen  21:46

So, Gail, I have to admit that when I started out, I was mainly focused on the demand side when it came to the oil market. And I had this thesis that as long as we’re growing demand for oil, and we do have a growing demand for oil… We are talking about an extra million to 1.5 perhaps a day, year by year. Well, then the price of oil would gradually increase, considering the crude oil reserves would be depleted. But after the recent crash in oil prices, I have to reevaluate my original thesis, at least for the short run and perhaps also for the long run after reading your material. After reading your material, I got a much better understanding of the supply side of it.

So, what you found is that price drop production increases, which is completely counterintuitive to conventional economic theory. And you briefly touched upon that point before also in your response, but could you please provide us with the most important points to understand the supply side of the oil market?

Gail Tverberg  22:44

Well, I think I was trying to explain that situation before that all of the current data that we have out there, the current derivative markets we have out there, companies are unwilling to cut back, especially while exporting Countries desperately need to keep up their oil exports, or they won’t be able to feed the large populations that they have today. They depend on the high tax revenue that they get. And so they can’t live with $50 barrel oil. They start having to get a lot of debt themselves.

Stig Brodersen  23:24

When I teach my students about microeconomics and I say, “Well, you have supplied, and when the price decreases, you will see less supply because people are not willing to supply in the market where the price is low.” And then I was digging into your material. Again, it was interesting to hear all of the different factors that need to be included when you see a price drop.

Another factor that you also hit on is that if I have an oil rig, and I might be producing at a deficit, it might still make a lot of sense to me to keep producing because if I don’t, I might lose my crude. So I might be losing in the short run. But I have to hope that in the long run, I could keep producing because prices pick up. So that was just one factor. I know that there are more factors out there that you’ve been looking at that well,  it kind of makes sense to keep producing at a deficit, because we hope price will pick up.

Gail Tverberg  24:19

Well, what happens, of course with well is that you drill a well, and a big share of your costs are upfront. So once you’ve already got this well in operation, you’re not going to go out there and physically cut it off. I mean, it’s going to cost you money to do that. And as you said, you also want to keep your staff. So what you’re going to do is you’re going to keep all of those wells going as long as you do because they’re going to throw off some positive cash flow.

So at least from that point of view, they may not cover all of your overhead expenses, but at least they will be providing something to do that and you have loan covenants that say you have to do such and such. So you’re going to keep them up for that reason as well.

Stig Brodersen  25:09

So Gail, when I look at the spike in production, especially since 2010, a lot of the extra supply in the market has come from North America, which might not be too surprising, since the marginal cost of producing here is a bit higher, especially compared to the Middle East. But where do you see this supply, this extra production go in the future? Do you see a decline in North America?

Gail Tverberg  25:34

Yeah, they can continue to produce from existing wells, but they can’t afford to undertake new projects that maybe 5 or 10 years from now. So right now, they’re working on projects that they started five years ago. You know, we’re doing our deepwater. I think we’re putting more production online for that because it started so many years ago. So that kind of counteracts part of the declines in *inaudible. So you get some mixture in it. But I think the general direction is going to be down. But I think also if there are lots of debt defaults, and so we’re saying and a lot of financial problems, I think that demand is going to go down at the same time.

Preston Pysh  26:19

Hey, Gail. So one of the things that Morgan Downey brought up when we had him on our show, and he had some amazing points. One of the things that he was talking about is how expensive it’s becoming, as time goes on. And he’s looking kind of more in the next 10 years and beyond.

As we look at these producers and where they’re pulling their reserves from, the locations that they’re using are getting more and more expensive. So like Saudi Arabia, being able to pull it out of the ground, you would know that number a lot better than I do, but let’s just say it’s $20 their cost to pull it out of the ground in Saudi Arabia. That’s slowly getting depleted. And as he was looking at it from a long term perspective, he’s saying that the price has to go up in the long run, because of the cost that’s going to take to pull oil out of the ground. So he was saying, like up in the Arctic, it might be $200 a barrel just to pull it out of the ground as we continue to deplete these reserves.

So my question for you is as we look forward, and we’re thinking more long term here, knowing that that cost is going to go up to the producers, but you’ve got this massive competition around the world to own the market share… Do you see the nominal price kind of slowly creeping up? And we’re talking very long term. Do you see that happening? Or do you see that the monetary policies of the world central banks at zero percent? And my understanding is that your expectation is that it would continue to persist… annihilates, any type of margin and it’s going to maybe keep the price a little lower than we might expect. Would it be the latter? Would that be a proper description of how you see the world moving forward?

Gail Tverberg  27:57

Well, there’s a whole lot of resources that would be available if we could get the oil price up to… I think the International Energy Association has one charge a figure, I think it’s 1.4 and the World Energy Outlook 2015 that shows oil prices going up to $300 a barrel. And with $300 a barrel of oil, there’s no doubt that there’s just a ton of oil out there. But the problem is that you can’t make the world run on $300 a barrel oil. It just makes the cost of products too high relative to people’s wages. And so I’m afraid that we’ve already hit that cap, hit $100 and then we started going back down. I think we’re going to have a hard time. You know, maybe we get it up to $75, but it’s going to fall back from that.

Stig Brodersen  28:54

So a few months ago, I wrote a blog post about how one could possibly calculate the intrinsic value of oil. And it was an article that I shared with Gail. It was interesting to get feedback on because I always go to Gail’s resources to be proven wrong. I’m smiling, as I’m saying this because I know I’m prone to confirmation bias. I know that I have a tendency to always find people that agree with me when I have a thesis. It’s no secret that I’m definitely more of a bull on oil than Preston and also Gail.

So when I see Gail’s material, and I can just read how well documented this is always interesting for me to get back on whatever thesis that might be. And one thing I would like to address in particular is that the philosophical discussion that many academics and I can’t wrap my head around is the presence of a dynamic intrinsic value of one barrel of oil. If possible, Gail, I would like to hear your thoughts about what you think is more realistic and sustainable price of oil over the next three to five years, especially given the discussion we had about affordability before.

Gail Tverberg  30:03

Well, I think what we’ve seen is that as long as debt can keep going up, the price can keep rising. You know, it’s a combination of what wages do and how much debt increases. But once the debt stops rolling, then you can’t get the oil price to go up. I mean, what you pay for has to be based on wages. You know, we can talk about the business sector, but the business sector depends on the workers. When it comes to the government, it depends on the workers as well. So if the wages of the workers are not rising enough, then you have to supplement it with debt and as long as you can keep the debt growing, and the whole system can work.

Preston Pysh  30:55

And Gail, just so our audience knows what debt is it that you’re referring to, are you talking about the overall credit in the economy? Is that what you’re referring to?

Gail Tverberg  31:03

Well, what we’re looking at, if we’re looking on a world basis, what happens is that as the dollar reaches relative to other currencies, that becomes a big problem for keeping the price of oil up.

Preston Pysh  31:18

I absolutely love the fact that you’re talking about that because one of the things that we’ve been talking about on our show a lot is kind of billionaire Ray Dalio with a net worth probably $16 to $19 billion. That’s his thesis. His thesis is that credit contraction and credit cycles are what’s driving the prices in all these markets. You know, we talked about his video… I don’t know if you’ve ever seen Ray Dalio’s video, Gail. But we’ll send you the link to it if you haven’t seen it after we’re done recording.

But that’s his big point is that debt spends just like a hard currency or your monetary baseline currency which only makes up a small portion of the overall economy and the overall spending. So he says whenever that credit starts to contract, it has this ability to manipulate and adjust all asset prices around the world.

So one of the things that I was watching and one of the reasons I kind of turned into a huge bear in the markets in general. And the main reason for that was looking at these credit cycles and quantitative easing ended in November, I want to say of 2014. And then you started seeing some changes there during that Christmas, timeframe of 2014. And at the start of 2015, where credit was starting to tighten, you saw this in the high yield market where it kind of had the lowest yields at that point in time and you’ve seen them slowly start to trickle up. And all these indicators that you’re talking about is exactly what Stig and I have been talking about a lot on our show. So refreshing to hear you say some of this stuff. This is just fantastic.

32:55

I’ve got a question that I want to throw at you. So in the past three months, and this is one of the indicators that I’ve been talking about on the show that I’m kind of looking for, for maybe a bottoming or assigns that the oil market is starting to show some changes, is the default rates in the oil sector.

So in the last three months, we’ve seen a number of defaults in the oil sector start to pick up. For example, in January, just this past January 2016, there was only $30 million in oil defaults. But by April of 2016, just last month, which was only three months later, there was nearly $15 billion in oil defaults. So my question is this, are we getting to the point where you’ve kind of already hit the fact that oil is going to… Your expectation is it’s going to remain below $50 for this year, but are we getting at a point where you think that those defaults are going to continue to increase and get worse as time goes on?

Gail Tverberg  33:54

I’m sure that we’re going to see more and more defaults. These companies have, you know, they’re trying to keep things together with the best they can. Each of them says, “I’m going to sell assets.” And your wonder, you know, where are you going to sell your assets to? Hedge funds? You know that there’s just not too many markets out there that want to buy these assets. When they do sell them, they’ve got to close them down and such things. The residual value is just not there. So it’s not worthwhile.

Preston Pysh  34:27

So November 2014, I was on the podcast and I said, “Hey, I think oil is going down in a major way and the reason why is there are this massive supply, demand, and balance and I think it’s going to, you know, crush the price.”

Three months later, Warren Buffett sold his Exxon Mobil position and you started seeing oil go way down. Here we are at May of 2016 and the price has had a slight recovery from as low as 26, which was crazy. It was there for just as a snapshot in time, hovered around 30 a little longer. Now let’s clear up 46 and so when we were out in Omaha, everyone was saying, “Hey, you know, it’s coming back, it might have made the turn and everything.” And I said you know, I think in the last year and a half, that the big thing has been the oversupply. But I think now moving forward, it’s going to be all about the under demand, because of the credit contraction. And I kind of see the global economy kind of turning in a bad direction. And I think that you’re going to see people start to cut back on their demand for oil.

Would you agree with that? Do you think that this story in the next nine months is going to be all about demand?

Gail Tverberg  35:36

It’s been much more about all about demand so far than people realize, and I think it’s going to continue to be all about the demand that we just don’t have the demand there. If we were selling $20 a barrel oil, there would be plenty of demand. It’s what happens is that you just cannot keep the demand up, if you go to $100 a barrel. If you go to $150, $200, or $300 a barrel od oil, there’s no way that demand is there.

Stig Brodersen  36:04

I think that’s an interesting discussion because, Gail, what are you saying is that the price of oil has to be somewhat low, otherwise we can’t afford it. And then you would have other people, including me. And that’s also why it was so good speaking to you, Gail, because I want my thesis to be tested here.

Say that we don’t have any more oil left at $30. Say that it’s not profitable not to produce at these levels, which is is not for many companies. So say that oil kind of has to go up to call it $50, $60 or $70, and people can afford it. Well, what would happen because you can’t just replace a barrel of oil with a windmill? It doesn’t have the same chemical properties. So what are the alternatives here? Where do you see this going?

Gail Tverberg  36:46

Well, unfortunately, if we go back through history, we find that lots of civilizations have collapsed, and what they have collapsed from is a too low return on human labor. And that too low return on human labor is human labor leveraged with whatever kinds of energy supplies you have. And what’s happening now is the same thing that happened before the wages of workers are not high enough. And if the wages of workers leveraged with energy supplies were higher, we’d be better off. But once the price of oil goes too high, it becomes too expensive to use to leverage the wages of workers. It’s not just oil, but it’s coal and all these other things. So what has happened in the past is that the economies eventually have collapsed. It couldn’t collect enough tax money basically. But also the workers wages were too low.

Preston Pysh  37:51

So Gail, a person who’s listening to this podcast that their thought right now has to be, “Well, how does this happen? How did we get in this position, that these are the circumstances that we’re dealing with?” Why do you think we’ve arrived at this situation? Why are we here this at this juncture?

Gail Tverberg  38:08

I think the reason we’re here at this juncture has to do with the fact that we’ve taken out most of the cheap to extract oil. I mean, if you stop and think about it, Saudi Arabia, even if their price theoretically is $20 a barrel to get out, you still have to take care of all of these millions of people that need a high tax base from this oil, besides getting the oil out of the ground.

So what’s happened is that our cost of oil production when you take into account all of those roundabout costs, has gone up so much, that we’re in a position where it’s hard to make the whole cycle work anymore. The workers are not getting enough out of it. We’re ending with a situation where students get out you know, they’re in college forever, then they have lots of debt that’s hard to buy new houses. So that makes the building industry contract. You have all of these things going in so that the economy just doesn’t grow the way it should. Debt is kind of keeping things back and the fact that we’ve sent so much work to the parts of the world where the wages are so low.

Stig Brodersen  39:21

That’s an interesting discussion, Gail. And Preston and I have tossed on this issue with the middle class and us few times before, and it’s like an obviously, it’s a politically loaded question. And I don’t want to say whether or not it’s right or wrong, but it’s not good for the consumption. That’s one thing that’s for sure in the US, where it accounts for approximately 70% of GDP. So obviously that’s a big issue that we have this problem with the middle class.

But I’m curious to hear your thoughts on this globally because you have said a few times that even though that you might see a rising middle class, for instance, China, and you also see that in India, they still have much lower wages than in the US. So do you see that in time that the oil demand would be in turn, also the oil price will be supported by the less developed countries? Is that the way you see it? Or do you simply see that is it will take too long and would not be sustainable for those countries to support the oil price?

Gail Tverberg  40:19

I’m not convinced that those countries can do it alone. I mean, we need… Our economy is very much tied into the oil while China has tried to develop its economy around coal and India also is heavily into coal, not quite as much as China. It’s hard to see that that’s going to work and I’ve been to India, I’ve been to both China and India. India so far behind *inaudible can’t believe it. But it’s hard to see that India can grow on its own or Africa. They need a cheaper energy source. Oil is just terribly expensive relative to coal. And coal was what the industrial revolution started with. And coal is what China started with. And you have to have a cheap energy source to make things work.

Stig Brodersen  41:15

Okay, so before I ask the last question, I just want to encourage everyone out there whenever they read some of the material, and they sent me an email saying,” Oh, thank you, Stig. And now I think I understand the oil market.” Please go to Gail’s material also, because she has a different opinion than me. So whenever you read some of the material that we have on the podcast, or I don’t want to drag Preston to this, but some of the material I know that I have put in there that are more bull on oil, always make sure that you have a second opinion. I would definitely recommend Gail’s material. But Gail, where can people find your material?

Gail Tverberg  41:48

Well, I have a blog which is called ourfiniteworld.com, and so I have some large number of posts, 270 or something like that. And go back and you can read individual ones of them. You can search for words. I also have a page where I’ve made PDFs on a few of them.

Preston Pysh  42:10

All right, Gail, fantastic. And for people that are listening to the show, we’re going to have the link to your website on our show notes. We’re also going to have the link to that white paper that you wrote called “Oil supply limits and the continuing financial crisis.”

Gail, thank you so much for coming on our show. This was such a pleasure to talk to you about a debate that Stig and I have been pretty much having for almost two years now. So it was fun to bring you on and hear so much conversation where you agreed with my position because I needed this. But thank you very much for your time. We appreciate it.

All right, so that’s all we have for you guys. And we’ll see you guys next week.

Outro  42:47

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