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Oil Price Slide – No Good Way Out
Submitted by Gail Tverberg via Our Finite World blog,
The world is in a dangerous place now. A large share of oil sellers need the revenue from oil sales. They have to continue producing, regardless of how low oil prices go unless they are stopped by bankruptcy, revolution, or something else that gives them a very clear signal to stop. Producers of oil from US shale are in this category, as are most oil exporters, including many of the OPEC countries and Russia.
Some large oil companies, such as Shell and ExxonMobil, decided even before the recent drop in prices that they couldn’t make money by developing available producible resources at then-available prices, likely around $100 barrel. See my post, Beginning of the End? Oil Companies Cut Back on Spending. These large companies are in the process of trying to sell off acreage, if they can find someone to buy it. Their actions will eventually lead to a drop in oil production, but not very quickly–maybe in a couple of years.
So there is a definite time lag in slowing production–even with very low prices. In fact, if US shale production keeps rising, and Libya and Iraq keep work at getting oil production on line, we may even see an increase in world oil production, at a time when world oil production needs to decline.
A Decrease in Oil Prices May Not Fix Oil Demand
At the same time, demand doesn’t pick up quickly as prices drop. We are dealing with a world that has a huge amount of debt. China in particular has been on a debt binge that cannot continue at the same pace. A reduction in China’s debt, or even slower growth in its debt, reduces growth in the demand for oil, and thus its price. The same situation holds for other countries that are now saturated with debt, and trying to come closer to balancing their budgets.
Furthermore, the Federal Reserve’s discontinuation of quantitative easing has cut off a major flow of funds to emerging markets. Because of this change, emerging market demand for oil has dropped. This has happened partly because of the lower investment funds available, and partly because the value of emerging market currencies relative to the dollar has fallen. Again, a decrease in oil price is not likely to fix this problem to a significant extent.
Europe and Japan are having difficulty being competitive in today’s world. A drop in oil prices will help a bit, but their problems will mostly remain because to a significant extent they relate to high wages, taxes, and electricity prices compared to other producers. The reduction in oil prices will not fix these issues, unless it leads to lower wages (ouch). The reduction in oil prices is instead likely to lead to a different problem–deflation–that is hard to deal with. Deflation may indirectly lead to debt defaults and a further drop in oil demand and oil prices.
Thus, oil prices are likely to continue their slide for some time, until real damage is done, perhaps to several economies simultaneously.
The United States’ Role in the Oil Over-Production / Under-Demand Clash
The United States is the country with the single largest increase in oil production in the past year. This growth in oil production seems not to have stopped, in recent weeks.
Figure 1. US Weekly Crude Oil Production through Oct 24. Chart by EIA.
At the same time, the US’ own consumption of oil has not increased (Figure 2).
Figure 2. US oil consumption (called “Product Supplied”). Chart by EIA.
The result is a drop in needed imports. A number of oil exporters have been hit by the US drop in imports. Nigeria extracts a very light oil that competes for refinery space with oil from shale formations. Our imports of Nigerian oil have been reduced to zero (Figure 3). (The amounts I am showing on this and several other charts are “net imports.” These reflect transactions in both directions. Often the US imports crude oil and exports oil products, sometimes to the same country. In such a case, we are selling refinery services.)
Figure 3. US Net Petroleum Imports from Nigeria. Chart by EIA.
Our imports of oil from Mexico are way down as well (Figure 4), in part because their oil production has been falling.
Figure 4. US Net Imports of Petroleum from Mexico. Chart by EIA.
It is only in the past few months that US imports from Saudi Arabia have started to be significantly affected (Figure 5).
Figure 5. US net oil imports from Saudi Arabia. Chart by EIA.
Saudi Arabia, like other oil exporters, depends on the sale of oil revenue to provide tax revenue for its budget. While it has a reserve fund for rainy days, over the long term it, too, depends on revenue from oil exports. If Saudi Arabia’s exports to the United States decrease, Saudi Arabia needs to find someone else to sell these would-be exports to, or revenues to fund its budget will drop.
Alternatively, it can reduce the price it charges to US refineries, to influence purchasing decisions–something it has just done. Lowering its price to US refineries tends to push the world price for oil down.
Of course, the US also talks about allowing an increasing amount of crude oil exports, as its oil from shale formations rises. This increase would make the surplus of oil on the market worse, and world prices lower, if oil demand does not pick up.
Depending on Saudi Arabia and OPEC
In the West, we have been led to believe that OPEC in general and Saudi Arabia in particular exert great control over oil prices. We have been told that several OPEC countries have spare capacity. Several of the Middle Eastern countries claim that they have very high reserves, and we have been led to believe that they can ramp up their production if they invest more money to do so. We have also been told that these countries will reduce oil production, if needed, to hold up oil prices.
A very significant part of what we have been led to believe is exaggerated. Saudi Arabia’s oil exports were much higher back in the late 1970s than they are now (Figure 6). When they cut oil production and exports in the 1980s, they likely did have spare capacity.
Figure 6. Saudi oil production, consumption and exports based on EIA data.
But where we are now, the situation has changed greatly. The population of the Middle Eastern oil producers has risen. So has their own use of the oil they extract. Their budgets have risen, and the countries need increasing revenue from oil taxes to meet their budgets. Some countries, including Venezuela, Nigeria, and Iran, require oil prices well over $100 per barrel to support their budgets (Figure 7).
Figure 7. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP.
If oil prices are too low, subsidies for food and oil will need to be cut, as will spending on programs to provide jobs and new infrastructure such as desalination plants. If the cuts are too great, there is the possibility of revolution and rapid decline of oil production. Virtually none of the OPEC countries can get along with oil prices in the $80 per barrel range (Figure 7).
Most of OPEC’s actions in recent years have looked like actions a person would expect if OPEC countries were not all that different from other oil producers–their oil supplies were subject to limits and they tended to act in their own self interest. When oil prices were rising rapidly in the 2007-2008 period, they ramped up production, but not by very much and not very quickly (Figure 8). When oil prices dropped, they dropped their production back to where it had been, before the big ramp up in prices.
Figure 8. OPEC and Non-OPEC Oil Production, Compared to Oil Price. (Production is Crude and Condensate from EIA.)
Another situation occurred when Libya’s production declined in 2011. Saudi Arabia said it would increase its own supply to offset, but it could only produce extra very heavy crude when light oil was what was needed. In fact, even the increase in heavy oil is somewhat in doubt.
Furthermore, the dynamics of OPEC have been changed considerably in the last few years. Part of the problem relates to fact that both oil prices and the quantity of oil exports have been approximately flat in the period between 2011 and mid-2014. In such a situation, revenue from oil exports tends to be flat. OPEC members have found this to be a problem because their populations continued to grow and their need for water and imported food has continued to rise. These countries need ever-more tax revenue, but oil revenue is not providing it. At a minimum, OPEC countries have a strong “need” to maintain their current level of oil exports.
The other part of changing OPEC dynamics relates to increased oil production volatility. The bombing of Libya and sanctions against Iran have both produced unstable situations. Oil exports from both of these countries are lower than in the past, but can suddenly rise as their problems are “fixed,” adding to downward price pressures.
Another issue is the significant attempt to raise Iraq’s oil production in recent years. If Iraq’s oil production (plus US shale production) is too much to satisfy world demand for oil, should the rest of OPEC be the ones to try to “fix” the problem?
Figure 9. US net imports from Iraq. Exhibit by EIA.
Figure 9 seems to indicate that US imports from Iraq have increased in recent months. Of course, if we import more from Iraq, we will likely need to cut back on imports elsewhere. This doesn’t create good feelings among OPEC exporters.
Shouldn’t the United States Take Some Responsibility for Fixing the Problem?
One might ask whether the United States should be cutting back in its oil production, in response to low prices. Of course, as indicated above, US oil majors (like Shell, Chevron, and Exxon) are cutting back on investment in new fields, and this is eventually likely to lead to lower production. The question is whether this will be a sufficient change, quickly enough.
It is less likely that shale drillers will intentionally cut back quickly. The shale drillers have taken on leases on huge acreage and are reluctant to step back now. For one thing, part of their costs has already been paid, reducing their costs going forward on acreage already under development. They also have debt that needs to be repaid and many contractual arrangements with respect to drilling rigs, pipelines, and other services. Some may have futures contracts in place that will soften the impact of the oil price drop, at least for a while. Because of all of these factors, there is a tendency to continue business as usual, for as long as possible.
Whether or not shale drillers intentionally plan to cut back on oil production, some of them may be forced to, whether or not they believe that the production is likely to be profitable over the long run. The problem is likely to be falling cash flow because of lower oil prices, if the price drop is not mitigated by futures contracts. Because of this, some companies may be forced to cut back on drilling quite soon. Another alternative might be to ramp up borrowing, but lenders may not be very happy with such an arrangement.
We notice that some companies are already in very cash flow negative situations–in other words, in situations where they need to keep adding more debt. For example, Capital Resources, the largest operator in the Bakken, shows rapidly growing outstanding debt through 6/30/2014, without seeming to take on significant new acreage (Figure 10).
Figure 10. Selected figures from SEC filings by Continental Resources.
When companies are already in such cash flow negative situation, there may be more problems than otherwise.
If Lower Oil Prices “Hang Around” for Months to Years, What Could this Mean?
We are in uncharted territory, in such a situation.
One of the big issues is potential deflation. The issue seems to be not only lower oil prices, but lower prices for many other commodities, as well. The concern is that wages will drop, as will government receipts. Lower wages already seem to be happening in Spain. Unless governments figure out a way to “fix” the situation, this situation will make debt repayment very difficult. Lower debt will tend to reinforce the low prices of oil and other commodities.
If low prices become the norm for many kinds of commodities, we can expect major cutbacks in production of these commodities. This would be the situation of the 1930s all over again. Ben Bernanke has said he would send helicopters of money to prevent such a situation. The question is whether this can really be arranged, given that the United States (and several other countries) have already been “printing money” since 2008. At some point, it would seem like the arsenals of central banks will get used up.
If there is a cut back in debt and cutback in production of commodities, many goods we have come to expect in the market place will disappear, as will many jobs. There are likely to be breaks in supply chains, leading to more cutbacks in production.
With all of the debt problems, there is a question of how well international trade will hold up. Will would-be explorers trust buyers who have recently defaulted on their debt, and don’t look likely to be able to earn enough to pay for the goods that they currently are ordering?
The discussion has been mostly with respect to oil, but liquefied natural gas (LNG) is likely to be affected by low prices as well. Reuters is reporting that likelihood of US exports of LNG to Asia is down, for a number of reasons, including the discovery that costs would be higher than originally expected and the regulatory process less smooth. Another reason LNG exports are likely to be low is the fact that Asian prices dropped from a high of $20.50/mmBtu in February to a low of $10.60/mmBtu in August. Without sustained high LNG prices, it is hard to support the huge infrastructure investment needed for LNG exports.
Can Oil Prices Bounce Back?
If we could somehow fix the world’s debt problems, a rise in the price of oil would seem to be much more likely than it looks right now. As long as the drop in demand is related to declining debt, and the potential feedbacks seem to be in the direction of deflation and the possibility of making defaults ever more likely, we have a problem. The only direction for oil prices to go would seem to be downward.
I know that we have very creative central banks. But the issue at hand is really diminishing returns. Prior to diminishing returns becoming a problem, it was possible to extract and refine oil cheaply. With cheap oil, it was possible to create an economy with low-priced oil, inexpensive infrastructure built with that low-priced oil, and factories built with low-priced oil. Workers seemed to be very productive in such a setting, in part because low-priced oil allowed increased mechanization of production and allowed cheap transport of goods.
Once diminishing returns set in, oil became increasingly expensive to extract, because we needed to use more resources to obtain oil that was very deep, or in shale formations, or that required desalination plants to support the population. Once we needed to allocate resources for these endeavors, fewer resources were available for more general uses. With fewer resources for general activities, economic growth has become inhibited. This has tended to lead to fewer jobs, especially good-paying jobs. It also makes debt harder to repay. History shows that many economies have collapsed because of diminishing returns.
Most people assume that of course, oil prices will rise. That is what they learned from supply and demand discussions in Economics 101. I think that what we learned in Econ 101 is wrong because the supply and demand model most economists use ignores important feedback loops. (See my post Why Standard Economic Models Don’t Work–Our Economy is a Network.)
We often hear that if there is not enough oil at a given price, the situation will lead to substitution or to demand destruction. Because of the networked nature of the economy, this demand destruction comes about in a different way than most economists expect–it comes from fewer people having jobs with good wages. With lower wages, it also comes from less debt being available. We end up with a disparity between what consumers can afford to pay for oil, and the amount that it costs to extract the oil. This is the problem we are facing today, and it is a very difficult issue.
We have been hearing for so long that the problem of “peak oil” will be inadequate supply and high prices that we cannot adjust our thinking to the real situation. In fact, the two major problems of oil limits are likely to be shrinking debt and shrinking wages. The reason that oil supply will drop is likely to be because customers cannot afford to pay for it; they don’t have jobs that pay well and they can’t get loans.
In some ways, the oil prices situation reminds me of driving down a road where we have been warned to look carefully toward the left for potential problems. In fact, the potential problem is in precisely in the opposite direction–to the right. The problem gets overlooked for a very long time, because most of us have been looking out the wrong window.
For more on this subject, read my last two posts:
WSJ Gets it Wrong on “Why Peak Oil Predictions Haven’t Come True”
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We survived gasoline at over $4.00 without severe dislocation. Gasoline is now down below $3.00 (regular unleaded) in many parts of the country.
Something like 50% of the gasoline price is TAXES anyway...
Let the free market do its job.
* * *
Build the Keystone Pipeline while we're at it!
Much of the price of oil is massive profits from the people who sell / lease the equipment. We did a job for a company that leased the pipe in the Dakota's they were printing money. Good for them but prices can go down.
"Something like 50% of the gasoline price is TAXES anyway..."
That's just the pump price, not the actual cost. And this was eight years ago:
http://www.evworld.com/news.cfm?newsid=11520
The fall in oil prices in the short term is purely political.
Over the next decade the age of oil will end.
Electric cars and cars that run on natural gas will hasten the end.
Oil was necessary for Britain's fleet and America's army. That kind of warfare is over.
So peak oil is irrelevant.
Wall St. contributed to this mess with an opaque oil market filled with derivatives. Those derivatives are about ready to explode!
Gas was under $2.50 this morning in the VA piedmont for the first time in a coon's age.
Let her rip.
Same here in Arkansas.
Let's not kid ourselves.
Prices are down so that they can heard the masses to the Black Friday sales, all to help retail.
Without all that money flowing to the gas tanks they hope the idiots will once again fill up on cheap plastic trinkets from China.
Why were they promoting Christmas well before Halloween?
Hell, The Hallmark Channel was showing Christmas movies in July, they're now practically showing cheesy Christmas movies non-stop every day.
But, not to worry, both Kmart and Walmart are offering lay-way without any fees.
So stock up, and max out the credit cards.
Don't worry, you can pay it all back next year by hawking your Obolaphone.
93 million working age adults out of work cannot buy any gas at any price. perhaps this is why your seeing $2.50 gas.
supply and demand.
I take his point to be that prices will stay down in support of Christmas fleecing. I see that as likely.
"We survived gasoline at over $4.00 without severe dislocation."
Who the fuck is "we?"
Given a short enough time frame ANYTHING can be made to look good. Take a good look around and you'll see that things are NOT "surviving."
It's amazing how one can try to misdirect things using the "taxes are the problem" argument(?). I suppose in a narrow-thinking way anything is possible... On the wider-thinking side of things the picture shows that those "taxes" are also used to create and maintain the very infrastructure that provides for the "production" of that fuel. We can argue until we're blue in the face as to whether "private" business could manage the infrastructure creation and maintenance/operation better, but the fact remains that there is still a significant cost here, one that "it's a problem of taxes" thinking tends to miss (always handy to externalize costs to make an argument more profitable). NOTE: funny that in 50s the US had its highest level of taxes and highest level of productivity; not saying there's a correlation here at all, just that the "taxes are the problem" isn't the slam-dunk reason that you and others might think it is: it does serve well to sidestep the issue of declining inputs for growth.
* References:
http://taxfoundation.org/sites/taxfoundation.org/files/docs/fed_individu...
http://2014s.net/irs-historical-us-corporate-tax-rates-by-year-ebooks (see Corporation Income Tax Brackets And Rates, 1909-2002)
Yes, there's total tax burden (local to add), but it's still less the source of the problem than is being made out (there's MUCH bigger forces at play, which Gail makes clear [if one takes the time to read and comprehend things rather than resorting to simple-minded phrases]).
"Build the Keystone Pipeline while we're at it!"
Drill baby drill! Strength through exhaustion.
Again, however, and as Gail CLEARLY states, this is a demand problem and not a supply one.
Regardless, perpetual growth on a finite planet is NOT possible. Continuing with our growth Ponzi can only result in collapse. But, keep pushing your bearing business because, well, maybe the solution to solving our growth problems will be found in bearings; I'm not, however, wagering on it.
BTW - There is NO "free market." That slogan is nothing but a mask for human deception/hubris: used to cover up the FACT that all is being based on the totally impossible- perpetual growth on a finite planet.
If there is a US and that US needs oil and money. Then that US should attack and take over Saudi Arabia because they waged war on the US when they took down the World Trade Centers. And that US should also arrest Rumsfeld and Cheney for helping the ARABS do it.
I never reay understood why America never just took over the Isrealy way.
LOL. You really think that the likes of Rumsfeld and Cheney would be commanded by Saudis? As much as I detest these two characters I'll state that they are FAR smarter (knowledgeable, and able to use it) than any of the Saudis. These guys were put in charge by the globe's primary/top rulers. They represent(ed) the country that controls the globe financially and militarily: these measures are, for sure, clearly in decline (happens to ALL empires).
Nice! So will there be a Saudi revolt when their citizens don't get their free food and oil anymore?
The royals better have a jet on standby!
Nice seeing you here, and nice comment, SD.
The Saudi Royal Family better have a bunch of such jets, there are 5000 of them... That would be over ten 747s even if they would accept flying in "steerage"...
:)
We should shoot them down and blame it on Iran
This has been anticipated for a LONG time by the US/CIA. I suppose that one could put up the theory that the US has been working toward that outcome and that the "terrorist" angle is actually a controlled "opposition," in a similar way that Hamas was basically supported by Israel as the "opposition" of choice (http://richardedmondson.net/2014/09/19/the-origins-of-hamas/).
Two facts exist:
1) Stasis is, at the maximum, only a wink of the eye, and at the minimum, but a concept;
2) ALL empires collapse- setting aside stasis leaves us with "rising" or "declining," and, clearly, the US and many other countries, is in decline.
"The royals better have a jet on standby!"
I think everyone will need that! (and the real big players, TPTB, have been trying to gain an even greater distance from the masses by way of rocket ships [unfortunately, for them (and therefore maybe for the rest of us)], that's not appearing as though it's going to materialize*.
* Reminds me of the episode of Twilight Zone: http://www.imdb.com/video/hulu/vi1490855705/ (grounded dead/ghosts)
Ugh, I think that's the wrong movie. It's this one (I believe- seems many people recall seeing a slightly different movie, but this is as close as is available [several were based on the real life story of the mystery of the crash of Lady B Good]):
www.youtube.com/watch?v=onMYEyKEacE
Listen Zero's.
You can always guess when "THEY" are long. All the posts point to positions.
FUCK YOU dweller.
Listen Zero's.
You can always guess when "THEY" are long. All the posts point to positions.
FUCK YOU dweller.
Why don't you to FUCK YOURSELF SIDEWAYS YOU ANNOYING MOTHERFUCKER.
I've been reading your empty, bullshit screeds for about 2 months too long now dickhead.
Seems like it would be easy to jack up oil prices to counteract deflation, either by a contrived event, taxes, etc. It's one commodity.
Build huge "pick up trucks" and "SUV's."
" ... easy to jack up prices"
Easy indeed. You forgot printing.
It's about MARGINS (and affordability). "Prices" are more one-dimensional (not dynamic enough to convey the real forces at play).
Another complete pile of shit from Gail, who clearly does not understand cost accounting or economic incentives.
MC = MR Ring any bells?
Most costs for producers are fixed and/or sunk and not relevant to production in the short run. As long as revenue exceeds lifting costs, essentially transportation and maintenance on the rigs, they should and will pump.
This is the most ridiculous, convoluted, politicized nonsense use of Break Even analysis I have ever seen.
Beyond that, the whole series is incoherent and blows goats.
Don't be absurd-- you have ignored the fact that the producer can keep the oil and gas in the ground in anticipation of higher prices.
Even that costs money as the producers lease the land. How long can they keep it capped and their equipment sitting there? Oil prices took almost 20 years to recover from 1985-2005
I'd wager that governments would provide some sort of subsidy here. Figure that "in the interest of national security" will be the reason, that the notion of too big to fail comes in to play. Of course, none of this can alter the course that we're on.
Buckaroo, you're party right. I don't dismiss (no down-arrow from me) what you say here, but I think that the more appropriate metric would be higher margins (at least not negative!) rather than "prices." I don't, however, see any clear path toward increased/increasing margins; perhaps in the short-term (buy-outs/consolidations), but over the longer-term it doesn't seem possible.
They are drilling to make money! On a gamble that they can get it out of the ground and sell it for more than their costs. They cannot afford to hold it. They have debt that needs to be serviced.
Maybe you should go buy a house with a mortgage on spec that you will sell it in the future for a profit.
Oh ya you dont have to make any monthly payments on that mortgage ie service the debt until then. Keep dreaming.
Might want to reconsider the "never happen" picture here. Three words: Negative Interest Rates. Rather than take larger losses it might come down to folks taking smaller ones as the game of "going down the drain slowly" keep playing on...
Commodities/natural resources have always been the basis of everything else. If one doesn't park wealth in them then there's really no future is there? (no growth means everything goes negative, because, the entire system is based on expansion, "returns")
As Gail and others are trying to get across to the thick-headed, the old models are moot in our "new" environment/big picture.
What if the revenues can't cover the LOE and interest expenses because the financial analysts didn't budget for $60/bbl?
Bankruptcy
Ho Hum
Haven't I been saying this for years? The sub-prime bubble was designed and executed to distroy the demand for oil. Not immediately, but over a period of 4 or 5 decades.
Plenty of time for the US to borrow $20 trillion which it won't have to pay back and print another $10 or $20 trillion which it won' tell any ...... but who's counting?
And build 20 aircraft carriers. And as many overseas military bases as overseas McDonald's
And lucky us, we get to see if Washington will pay the piper. After all hasn't Washington called the tune these past 70 years?
But will the Piper take the US dollar?
IT IS THE EMPEROR'S NEW, OLD CURRENCY.
did I forget to say there is a lot less proven reserves in the world today? that the government lied about that the way they lied about EVERYTHING else?
If we're doomed either way, I'd rather be doomed with $40/bbl oil.
Oil and the price structure that supported it were dependent on a system that is now collapsing. Collapse is chaotic. Abundance is accelerating for some while privation is accelerating for the majority. Tankers full of oil may very well go for pennies on the dollar and once that is sold, they may never be refilled again. I fear a debt jubilee is coming. It will not be because of a righteous uprising, it will be because of default. Force majeure may be the new normal.
Cloud
Not if Big Brother has anything to say about it.
+1,000,000! (and that's not due to hyperinflation!)
"Tankers full of oil may very well go for pennies on the dollar and once that is sold, they may never be refilled again."
Economies of scale (in reverse). I think that drop-offs in volume will start collapsing margins and wiping a WHOLE lot of shit out. I suspect, however, that we'll first see a LOT of ships abandoned (sunk/scrapped), then we see the final "last" tanker runs. All the while: "there be pirates in them thar waters!"
I'm going to miss diesel...
The boy's own an OCEAN of oil under Alaska. Do you think the boy's are going to stand by and watch all that crude turn in to worthless sludge?
Once again Supply and demand!
93 Million working age Amerkans out of work
50% youth unemployment in spain... Greece...Italy... germany...portugal...Emerging markets with no funding ie growth...
Oil consumption way down. World wide recession! oil consumption way down!!!! Jobs Way Way Down!
It doesn't matter how much or little you have in a world wide recession!!! An Item is only worth what some can afford to pay for it!
Once again Supply and demand!
93 Million working age Amerkans out of work
50% youth unemployment in spain... Greece...Italy... germany...portugal...Emerging markets with no funding ie growth...
Oil consumption way down. World wide recession! oil consumption way down!!!! Jobs Way Way Down!
It doesn't matter how much or little you have in a world wide recession!!! An Item is only worth what some can afford to pay for it!
As the other person here replying put it, without the consuming masses the necessary scale of production to get even a drop out for TPTB ain't going to happen. The masses, the "middle class," was the mechanism to create the volume necessary to subsidize TPTB's consumption. Further, when it's clear that everyone is fucked I hardly doubt that people will retain a sense of duty to TPTB: without loyal servants TPTB are pretty much gonners.
Just as high prices are the solution to high prices, low prices are the solution to low prices. Sovereign debt levels requiring prices higher than market to service obligations are an entirely different problem.
Just so. Does an employer care about student loans, credit card debt or a mortgage? I think not.
That's just one of about a dozen things wrong with that "break-even" chart.
This article is fucking stupid!
"If Lower Oil Prices “Hang Around” for Months to Years, What Could this Mean?
We are in uncharted territory, in such a situation."
Oil price avg, 1985-2000 = $20 barrel.... uncharted territory? Right.
I agree! Uncharted? We've been to $10 in 1990.
Every dollar lower in crude means LESS GDP.
And adjusted for inflation? And then there's the little issue of all the trillions sitting out there propping up the banking system, ready to flood back out on us.
Good luck with your bet!
The same could be said of grain markets. Right now the consumer is "eating well" and grains need to nearly double to recoup production and labor costs. We're at a STHF moment right now in the Ag Sector.
"grains need to nearly double to recoup production and labor costs"
Isn't that that old saying that one is going to make up for one's losses by increasing volume/production?
Grains are going to stay down and here's why:
1) Much is used to feed livestock, and meats and such are becoming increasingly less affordable to an every-expanding number of people (China has picked up some of the slack in consumption, but that won't hold as they continue to stall out);
2) Diabetes- grains = carbs, carbs are discouraged for folks with diabetes; there are LOTS of diabetics running around (probably a LOT that have yet to be identified as such).
Also add in things like this:
Kior Inc., Biofuel Company, Files Bankruptcy, Plans Salehttp://www.bloomberg.com/news/2014-11-10/kior-inc-biofuel-company-files-...
NOTE: I remember GW educating us on the wonderful prospects that lie ahead for "switchgrass," but I don't think that this was one of the things he mentioned. Of course, I KNEW better: it takes a LOT of energy/work to deal with large volumes of stuff, growing, grooming/weeding, cutting, sorting, hauling and processing (also includes disposal of a HUGE amount of "waste"). If folks don't get this they need to go out to the country and watch the harvesting of grains and grasses.
Oil is so last year .
https://www.academia.edu/9160541/Laundry_Economics_
http://andreswhy.blogspot.com/2009/03/ancient-babylonian-information.html
http://andreswhy.blogspot.com/2013/04/petroleum-price-and-clathrates.html
Outstanding presentation https://www.youtube.com/watch?v=0uKihKkx0eY
Consider the low price of oil as economic warfare against Russia. This book "the Oil Card" came out after the sudden drop of the price of oil after Russia invaded Georgia in 2008:
The Oil Card: Global Economic Warfare in the 21st CenturyChallenging the conventional wisdom surrounding high oil prices, this compelling argument sheds an entirely new light on free-market industry fundamentals. By deciphering past, present, and future geopolitical events, it makes the case that oil pricing and availability have a long history of being employed as economic weapons by the United States. Despite ample world supplies and reserves, high prices are now being used to try to rein in China—a reverse of the low-price strategy used in the 1980s to deprive the Soviets of hard currency. Far from conspiracy theory, the debate notes how the U.S. has previously used the oil majors, the Saudis, and market intervention to move markets—and shows how this is happening again. This compact and unorthodox analysis will appeal to a broad audience—from energy consumers puzzled by intractably high oil prices to producers wondering how long windfall prices can defy gravity.
Your argument would have a lot more punch IF THE WORLD WAS NOT IN A DEEP 1930'S STYLE RECESSION!
Russia did not 'invade' Georgia. They repelled an invasion by Georgia of an ethnically Russian region.
Russia did not 'invade' Georgia. They repelled an invasion by Georgia of an ethnically Russian region.
BUT what about global warming.... we gotta save the F-ing whales n shit ... oh my goodness what will we do with the oil ...... sky is falling
http://www.businessinsider.com/crude-oil-cost-of-production-2014-5
This spin is still anchored along the thesis that oil prices in today's steroid global economy that production, demand/supply shall determine prices.
So many divergent interests among producers, global consumption decline in the real economy, logistics systems under continuing disruptions, etc in a G Zero World. In fact, the less influence that the past hegemonic power of US has on the Oil, the better it is. It hands the pricing power to Traders.
Such spins assume that Traders do not exist to arbitrage. For further proofs, just look at all the steroid and hyped papers in the markets on the shale oil and gas. The price of these papers really reflect demand/supply and production costs ?
Heard of the 1% in physical oil space as a diversification to another store of value.
Wouldnt a sustained low oil price bring deflationary pressures on the Euro and the banking cartel? the very same deflationary pressures that are not included within the latest round of 'stress tests'?
i thought $70 oil was good for russia?
Has this guy ever heard of Israel?
http://www.tradingeconomics.com/charts/israel-gdp.png?s=wgdpisra
No oil, no water.
I find it very interesting when you look at the OPEC breakeven and then look at other governments that rely heavily on oil and gas revenues to pay for their ever increasing public spending. Look at Alberta, with the Conservative government needing oil at $95 in order to cover their spending. Governments have relied too much on oil at very high prices in order to justify their budgets. It should be interesting and could be scary for a lot of people when prices remain lower than what the governments are budgeting for.
And, it will get even scarier when the oil producers reduce their investment which then reduces the need for the support services related to oil and gas production. The lenders to the thousands of small businesses that provide support to the oil and gas industry are going to be in trouble if their books are exposed to the industry.