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150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy

Tyler Durden's picture




 

While the clear narrative forced upon the investing (and consuming) public is that lower oil prices are great for the economy - which is utter crap (as we have explained here and here) - the fact of the matter both primary and secondary effects are extremely significant... and already occurring. As Reuters reports, global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic as the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil. As one analyst notes, "at $70 a barrel, half of the overall volumes are at risk."

 

 

As Reuters reports,

Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.

 

As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.

 

...

 

Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

 

But with analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said.

 

“At $70 a barrel, half of the overall volumes are at risk,” he said.

 

Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.

 

Of those 20 billion barrels, around half are located in Canada’s oil sands and Venezuela’s tar sands, according to Nysveen.

 

...

 

Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.

 

...

 

Chevron’s North Sea Rosebank project is among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics, analysts said.

 

“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go,” said Bertrand Hodée, research analyst at Paris-Based Raymond James.

*  *  *

Still "unequivocally good"?

 

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Fri, 12/05/2014 - 20:34 | 5522477 stocktivity
stocktivity's picture

I'll take the lower gas prices.  The rich, fat, white oil men can go fuck themselves with their "projects" put on hold!

Fri, 12/05/2014 - 20:54 | 5522539 knukles
knukles's picture

Watch out for the fallout from the marginal producers... bank loans and high yield debt could be some problems.
Why?
Because the bankers assumed that $100 oil was in perpetuity.
Why?
I dunno.
No more than $60 oil gonna be in perpetuity.
Or lower.

Soon as Uncle cries Uncle, the Saudis will raise the price back and then after the carnage and the marginal producers gone...
Goooooly!

Another fabricated buncha poop is the reason prices falling like a rock is because we're energy independent, etc.
That's why the fell like a rock in one quarter.
We became energy independent so quick....
Goooooly!

Another reason:  I don't care.

Another reason:  Mrs K is happy then I'm happy and Mrs K is happy right now.

Know why Mrs K is happy?  Because she just did something good for needy people.  She went to the local El Cheapo Stuff Store and bought bags and bags of small toothpastes, toothbrushes, soap, combs, deodorant, tampons, nail clippers and a whole buncha other personal hygiene stuff to make into little packages to give out to the needy, poor and homeless at the local women's shelters.

And we just got a thank you letter of a big ass lotta digits donation to a local drug and alcohol recovery center.  Know why they need money so bad, just to run?  Because they can't get shit under newer government programs and policies.  As a matter of fact, real money for that kind of treatment is getting scarce.  All the money goes to paperwork and associated staff and paper processors ... bloated bureaucracy and nothing left for the tip of the spear.
People need help.
Badly.

That makes Mrs K happy.
It makes me happy.

It's about one's soul, not temporal crap.

Fri, 12/05/2014 - 21:05 | 5522575 Pareto
Pareto's picture

+1000 Knuckles !!!! he he heeeee - for this

 Another reason:  I don't care.

Another reason:  Mrs K is happy then I'm happy and Mrs K is happy right now.....says it all.  Congrtas as well to Mrs. K.!!!

Fri, 12/05/2014 - 21:09 | 5522582 Kitler
Kitler's picture

$25/barrel would be nice for the next ten years

 

Fri, 12/05/2014 - 21:15 | 5522595 James_Cole
James_Cole's picture

Still "unequivocally good"?

Yes. 

So what oil is tyler long anyway? Is it sprott asshat management energy fund?

Fri, 12/05/2014 - 21:30 | 5522629 MalteseFalcon
MalteseFalcon's picture

Enough of these fucking articles. 

Oil investers, oil producers and their bankers have had their say. 

Fuck them. 

They're taking one for the team.

End of story

Fri, 12/05/2014 - 21:32 | 5522640 ss123
ss123's picture

Peak Oil.

If it's not even economical to look for oil. It's peaked (which of course it did many years ago).

Oil works best when we can pump it from right on top of the ground.

Fracking, the arctic, and deep ocean drilling are simply scraping the bottom of the barrel.

The Saudis can still scoop it off the ground, but even their reserves are in decline.

Fri, 12/05/2014 - 21:45 | 5522678 espirit
espirit's picture

One hundred, fifty billion reasons to question why?

Can you even question the magnitude  

Fri, 12/05/2014 - 21:45 | 5522683 The9thDoctor
The9thDoctor's picture

$70 a barrel for oil is not "low"

Just a decade ago it was $30 a barrel, and in the 1990s it was $15 a barrel.

Let's put this in perspective. 

 

Fri, 12/05/2014 - 22:05 | 5522718 XqWretch
XqWretch's picture

Seriously, who writes these stupid fucking articles? I can think of plenty of reasons why HIGH oil prices are BAD for an economy, and they are all practical, real world examples that have nothing to do with loose monetary policy, idiotic junk bond buyers, derivative traders, etc. 

Sat, 12/06/2014 - 00:33 | 5523019 ss123
ss123's picture

That's the point I was trying to make but got junked.

You must have worded it better.

High Oil Prices = Peak Oil

Same with any fixed resource.

You get them cheap at first, and then it takes 4+ times the resources/money to extract the same amount as before.

Fri, 12/05/2014 - 21:41 | 5522670 AldousHuxley
AldousHuxley's picture

low oil prices not good for russian oligarchs and middle eastern kingdoms.

ironically also not good for green energy.

good for Chinese made hummers

Fri, 12/05/2014 - 23:32 | 5522934 SAT 800
SAT 800's picture

Fuck Green Energy.

Sat, 12/06/2014 - 11:46 | 5522992 caconhma
caconhma's picture
 Low Oil Prices Are Not Good For The Global Economy?

Well, America is at wars, specifically with Russia and Iran. Consequently, the conventional economic evaluation standards are not applicable.

At present oil prices, Russia will collapse in the next 3-6 months:

  • In Ukraine, Putin is in an open war where he and surrounding can only lose. Even a military victory over Ukraine will be a failure for Putin since he has nothing to offer to Ukrainian people except his own brainless oligarchy
  • Oil revenues are almost 75% of Putinstan GDP 
  • An finally, Russian Central bank is under total control by FED. Presently, when Russian's economy is going into depression, Russian Central Bank is aggressively raising interest rates.

 

PS

The truth is very painful and most ZH posters cannot take it.

Sat, 12/06/2014 - 12:08 | 5523676 Silver Short Seller
Silver Short Seller's picture

Well said. Everyone should know by now that according to ZH, oil prices going up is bad, oil prices goind down is bad... gee can you say permabears?

Sat, 12/06/2014 - 04:37 | 5523255 AmCockerSpaniel
AmCockerSpaniel's picture

If lower oil prices are bad, then higher oil prices must be great. I did not like the oil prices at the start of the year. So I'll just live with lower and lower oil prices.

Fri, 12/05/2014 - 21:21 | 5522606 FeralSerf
FeralSerf's picture

"bankers assumed that $100 oil was in perpetuity."

Don't worry about the bankers. The Fed can always buy any problem debt on their books.

Fri, 12/05/2014 - 21:40 | 5522661 shovelhead
shovelhead's picture

If they put all those damn druggies and drunks on the street there would be more money for for the aid staff.

"Good jobs at good wages", as Mike "Tankgunner" Dukakis would say.

 

Fri, 12/05/2014 - 23:30 | 5522930 SAT 800
SAT 800's picture

I'm so sick of hearing about the global economy; the global economy and  the billionaires it services can go fuck  themselves. Cheaper gas at the pump is fine with me; if some assholes bet in the big casino isn't going to pay off; oh, boo-hoo.

Sat, 12/06/2014 - 01:44 | 5523108 Canoe Driver
Canoe Driver's picture

The issue, whether one agrees that it's significant or not, is the JOBS created by the oil projects. The post does not suggest that losses to rich oil speculators are the problem. The savings for all of you Johnny Lunchpails, in price paid at the pump, should be more than offset by the widespread incremental unemployment resulting from the accelerating economic slowdown, triggered in large part by the oil project shutdowns. GET IT?

Sat, 12/06/2014 - 04:32 | 5523254 James_Cole
James_Cole's picture

should be more than offset by the widespread incremental unemployment resulting from the accelerating economic slowdown, triggered in large part by the oil project shutdowns. 

Even if that were true (it's not) it's still just part of the well established cycle - all commodities tend to follow boom / bust.

Especially with various tech innovations and diversified sources of energy fossil fuels are not a sure bet to stay at highly inflated prices. People setting up projects based on all time high expected prices are getting a well deserved smack-down. 

http://www.economicpopulist.org/files/u1/gdpindustry12.jpg

http://av.r.ftdata.co.uk/files/2012/04/120403-manu-1.jpg

http://cdn3.chartsbin.com/chartimages/l_oau_8c93a5dc1b778e56964b4ac6bc98...

http://tickersense.typepad.com/ticker_sense/images/copper.jpg

Sat, 12/06/2014 - 10:10 | 5523494 yellowsub
yellowsub's picture

Don't be surprised if your state like NJ is going to increase the gas tax by 10-40 cents.  You know the underfunded pensions, I mean road repairs need funding.

Fri, 12/05/2014 - 21:38 | 5522648 thenextboy
thenextboy's picture

my classmate's step-sister makes $61 /hour on the laptop . She has been out of work for 5 months but last month her pay check was $12417 just working on the laptop for a few hours. browse around this web-site... www.yelptrade.com

Fri, 12/05/2014 - 22:43 | 5522820 wendigo
wendigo's picture
She's not your classmate's stepsister, she's your mom. And she makes her money trading yelps on camera with a shingles infested midget. 
Fri, 12/05/2014 - 23:47 | 5522967 assistedliving
assistedliving's picture

they're not all rich, fat, white men but ur basically right.  Canada et al lose $150B 2015 investments but the ROW save $800B to invest/spend/buy

or save for whatever...and i'm in the patch

Sat, 12/06/2014 - 02:20 | 5523151 TheReplacement
TheReplacement's picture

I'm with you.

I'm sick of these 'low prices are bad' articles on ZH.  I mean, really?  What is wrong someone accepting less currency from us for their goods?

If your (Tyler) complaint is that these prices are going to hurt the shale plays after hearing how the shale plays were all based on bunk fundamentals then one has to ask, why don't you admit being completely inconsistent on this?  Besides, aren't you (Tyler) pulling for TPTB to take a bath in a system crash of their own making?

What gives?

Fri, 12/05/2014 - 20:39 | 5522480 J S Bach
J S Bach's picture

If a commodity is truly priced at its demand level then it's "good" for the global economy... period.  (These days... this rarely happens.)

Fri, 12/05/2014 - 20:40 | 5522494 F-Tipp
F-Tipp's picture

Couldn't have said it better. If real price discovery can exist that is.

Fri, 12/05/2014 - 21:09 | 5522561 Pareto
Pareto's picture

I agree.  I think levered plays are geting shaken out for one, and for two, global demand simply isn't there as this site has eluded to time and time again.  About 8 years ago, an NGL (or LNG for you international types) guest analyst appearing on Bloomberg contended that among other things, "there is so much natural gas around you can swing a baseball bat and hit natural gas particles."  Since then LNG hasn't left the land locked price of $3 - $5 range.  He was spot on.  While the duration of oil's apparent excess supply relative to demand may be different from  LNG, it is in fact not the first time we have seen this:  early 80's early 90's, 2000, 2002, 20008/09, and now the present.  Peak oil is a relative expression in my opinion - and we've been hearing that for well over 20 years.  That thesis really hasn't worked in my opinion and I think the FED's monetary policy of ZIRP has had more to do with the rise in supply than anything else.  I have seen a return to $30 oil at least 5 times in my life - there is no reason we won't see it again, or should I say potentially see it again.

Like all those years I identified - lower prices were indeed good for the economy, if by economy, you mean consumers and households.  It was shitty for the stock market, for it seems that where commodities go, the stock market ultimately follows if only because the demand for raw materials and inputs seems to correlate well with the demand for everything else.  The price of oil, while in part detemined by supply and availability, it is also determined by the end user.  and its not just automobiles.  Manufacturing consumes the lions share of oil demand, so,in my opinion a declining price of oil - all else equal - reflects a declining economy, but, this does not imply that it is bad for the economy.  Big difference!

Always, declining prices, while they may be signaling diminishing demand, or recession and so on, is not a bad thing for the economy.  For falling prices have always been the silver lining to a recession.  Falling input costs such as fuel is a benefit and will provide reduced costs to many parts of the economy, not just drivers of autos and highway tractors.  What I'd like to see, and what I hope to see is some return to affordability for all assets as a result - where specualtion - just for a while - takes a back seat to real durable demand - such as in housing.

I say for a while because the CB insanity will not end - and it will make every effort to correct this price decline.  And so like a recurring bad dream Central banks will continue with aggressive yield (and interest rate) suppression, thus again distorting capital allocation whilst ensuring I stay a poor man by continuing to fuck over my savings account with negative rates.  After 5 periods that I have personally lived through (and I am still young I think), this is what I know now - and not to expect anything different.

Fri, 12/05/2014 - 21:26 | 5522622 FeralSerf
FeralSerf's picture

LNG, liquefied natural gas, and NGL, natural gas liquids are not the same thing. LNG is liquefied methane (mostly). Natural gas liquids are higher molecular weight hydrocarbons, like natural gasoline, that are in the natural gas and are removed in the refining process and sold separately. They are one big reason gasoline is so plentiful and cheaper than diesel.

Fri, 12/05/2014 - 22:29 | 5522796 Pareto
Pareto's picture

thanks for the correction feral.

Fri, 12/05/2014 - 21:48 | 5522688 MalteseFalcon
MalteseFalcon's picture

"land locked price"

Heh, heh.  The real beauty of natural gas.

Sorry, energy "traders".

Fri, 12/05/2014 - 21:58 | 5522705 Wild Theories
Wild Theories's picture

cheap oil is good for consumers, bad for oil producers, pretty simple

 

however

 

earlier this year US became world's biggest oil producer(though still a net importer), and was on track to remain the world's biggest oil producer ahead of Saudi Arabia and Russia up till 2030 at projections earlier this year

here's the article from bloomberg in July, quoting IEA projections

it becomes a simple math question of costs vs savings, which side contributes more to the national economy? and can one make up for the loss of the other?

will the benefits from better-off consumers offset the lost incomes from less-profitable drillers?

(I don't know the answer btw, just pointing out this is the math we should be checking instead of rah-rahing one way or another based on sentiment)

Fri, 12/05/2014 - 22:28 | 5522793 MalteseFalcon
MalteseFalcon's picture

If energy "independence" means oil costs 2X, is there any point to energy independence?

Sat, 12/06/2014 - 12:39 | 5523736 TheReplacement
TheReplacement's picture

What good is being number one if you cannot sustain it?  What will happen after 2030?

Let the shale plays die out.  Leave the gunk in the ground.  Call it a strategic reserve.  Buy foreign oil until it is gone.  Then return to the shale plays and be the last man standing.

It would be nice if anyone would think about the future.

Fri, 12/05/2014 - 21:56 | 5522710 Wahooo
Wahooo's picture

Another way of looking at this is "Who wins?" The CBs with their petrodollars and the Saudis win. It's almost as if the Fed and the Saudis conspire to raise oil prices and then wipe out other suppliers, in an endless cycle.

Sat, 12/06/2014 - 01:28 | 5523083 virtualInsanity
virtualInsanity's picture

You got it. And, it happens in all industries taken over or started by the globalists.

 

"Competition is sin" - some dipshit demonic globalist

Fri, 12/05/2014 - 23:31 | 5522935 yrbmegr
yrbmegr's picture

Falling prices are not necessarily a signal of falling demand.

Fri, 12/05/2014 - 21:27 | 5522624 NoDebt
NoDebt's picture

Also agree, Bach.  I guess they're saying that since the Saudis/OPEC AREN'T cutting production this isn't a "normal level of supply".  Which is... a little silly, since global shocks to supply are VERY common in the oil markets for reasons of both war and politics.  Every now and then the house gets cleaned, drillers and explorers get hammered and the supply side rebalances after the previous years' excesses.  Yes, some go bust, yes their debt will be restructured or defaulted.  No, the wells don't disappear, they just get sold at pennies on the original investment dollar and somebody else finds a way to make money off them.

I guess the author's real point is that exploration and drilling are about the only place left where there is any real Cap Ex (not just share buy-backs) going on.  Yes, that'll take a hit.  What isn't discussed is that the lower oil prices will make other projects outside the energy sector more economically viable to invest in (admittedly with a significant time delay).

 

Sat, 12/06/2014 - 12:45 | 5523759 TheReplacement
TheReplacement's picture

I agree with you in theory but reality isn't quite like that.

This market is manipulated (FED/Opec).  They will be the ones who benefit from this squeeze when they or their pawns buy the wells for pennies on the dollar.  This is all a just a globalist play to deliberately create these shale assets using conjured-from-thin-air fiat so they can be scooped up after the bust. 

Imagine TPTB giving you a hand up just so they can kick you in the balls and steal your wallet once you've earned some cash.

Fri, 12/05/2014 - 20:42 | 5522487 ekm1
ekm1's picture

So if projects get put on hold, what are Canada and other oil countries going to export?

We are having high food inflation in toronto. How does the writer explain that?

 

 

Here is how it works.

If import prices rise faster than oil export price caused precisely due to that high oil price, then very high oil price is bad for canada.

 

It is that simple. 

Fri, 12/05/2014 - 21:02 | 5522565 Escrava Isaura
Escrava Isaura's picture

 

 

ekm1

This might make it even simpler:

"The dollar is our currency but your problem" 

John Connally, Treasury Secretary of the United States to its French counterpart in 1971 

 

Réveillez-vous, Buddy!

 

Sat, 12/06/2014 - 07:23 | 5523364 piratepiet
piratepiet's picture

"The dollar is our currency but your problem" 

that statement will sound more foolish by the day

Sat, 12/06/2014 - 04:14 | 5523233 Uber Vandal
Uber Vandal's picture

Perhaps one should refer one's question to the Agricultural Marketing Board in regards to food price inflation in Toronto, and Canada in general.

 

 

Fri, 12/05/2014 - 20:44 | 5522508 disabledvet
disabledvet's picture

Yeah, well...salt has been uneconomic for a hundred years.  Still have to pay for that?  Yep.

Oil is going...indeed has gone...the same way.  We have Tesla's now.  The only thing an internal combustion engine is good for is for generating electricity.

Long Honda Generators....

Fri, 12/05/2014 - 22:49 | 5522827 wendigo
wendigo's picture

In absolute peformance terms a TESLA does not equal an ICE car, and in relative terms based on purchase price it is even worse. 

Tesla is only profitable by selling emissions credits, which is a bullshit market to begin with. 

When Tesla can profitably make a sub $25,000 car with at least a 200 mile range, then I'll eat my share of crow. 

 

Fri, 12/05/2014 - 23:01 | 5522844 OldTrooper
OldTrooper's picture

Unfortunately Tesla hasn't made a conversion kit for my Ford 8N.  Seems I'm stuck with buying/using some gasoline for some time.

https://en.wikipedia.org/wiki/Ford_N-Series_tractor#mediaviewer/File:Ford_8N_Tractor.JPG

(Mine doesn't look as nice - but it does the work.)

Fri, 12/05/2014 - 20:53 | 5522536 new game
new game's picture

maybe a culling of the oil herd is in order. maybe this is why they make extraordinary profits at 100, ha, to endure sub breakeven and continue uninterrupted. geez, now we need a government interuption to fuck up normal business. oh, wait, isn't that what we are seeing? right now? with this plunge in price?

Fri, 12/05/2014 - 20:59 | 5522556 A Lunatic
A Lunatic's picture

Consolidation....

Fri, 12/05/2014 - 21:03 | 5522566 rickv404
rickv404's picture

No, inflation is what's not good for the global economy, and that's the real reason for pricey oil and gasoline for the last 11 years.

Fri, 12/05/2014 - 21:02 | 5522568 WhyWait
WhyWait's picture

No extrapolation past 2016 is worth the paper it's written on - except as part of the conversation that's driving the investors toward panic.

Fri, 12/05/2014 - 21:23 | 5522611 BeerMe
BeerMe's picture

Falling oil prices were the first thing I was looking for in a slowing economy.  Same thing was happening in 2008.  It may be good/great for awhile until it creeps into other peoples' sectors.

Fri, 12/05/2014 - 23:28 | 5522927 yrbmegr
yrbmegr's picture

How does increasing oil production augur a slowing economy?  This does not make sense.

Fri, 12/05/2014 - 21:37 | 5522652 rejected
rejected's picture

Since $60-70 p/bbl oil may crash the economy then it goes that  $500 p/bbl we might have a booming economy?

Sat, 12/06/2014 - 11:45 | 5523618 Hohum
Hohum's picture

Actually, oil has to be in a range (long term) that producers can profit and consumers can afford.  Problem is, there may be soon be no such range.

Fri, 12/05/2014 - 21:43 | 5522671 bitterwolf
bitterwolf's picture

so.... high oil prices equal good for economy...war equal peace...black thug equal innocent compliant citizen...ZH article equal incandescent factual  wisdom

bitterwolf equal for realz bro

Fri, 12/05/2014 - 22:00 | 5522720 Notsobadwlad
Notsobadwlad's picture

The author is full of crap. He is trying to compare cash flow with asset value and say they are the same thing.

Bzzzzzzzzt ... bullshit alert.

Lower gas prices widely distribute money in the form of savings, which can either be used to pay down debt or spend.

Who gives a damn about exploration for in ground assets that we do not need?

Sat, 12/06/2014 - 03:17 | 5523191 hedgiex
hedgiex's picture

YES. You can make an equal case on service economies in today's global economy who are less impacted by oil prices and have high dependencies on imports of necessities. The global economy does not comprise of only exporters of basic goods alone.

That's why plenty of savings get burned through all these retarded spins.

Fri, 12/05/2014 - 22:00 | 5522726 herbivore
herbivore's picture

Imagine, for a moment, that instead of oil it was food that Saudi Arabia and the Middle East in general had an abundance of. The US farmers grew all the food needed by the populace but Saudi Arabia could grow it more cheaply, in fact much more cheaply, and transport to US shores at a landed cost that was below the cost of production of US farmers. Furthermore, imagine that another country- say Russia- was able to produce all the armaments needed to protect the US at a cost that was much less than US arms manufacturers could manage.

Would it be a wise policy for the US people to say, yeah, sure, whoever can give me what I want at the lowest price, that's the best policy for me and the country.

The obvious point being: it's not necessarily a wise policy to be dependent on foreign entities for one's necessities; it's better to be independent, even if it means higher costs in the short run. Free trade is great for a lot of stuff, but maybe for certain categories of stuff that's really important, maybe we should be making it ourselves.

Fri, 12/05/2014 - 22:07 | 5522746 XqWretch
XqWretch's picture

If we did that the neocons wouldnt get to play with their billion dollar toys in the sand!

Fri, 12/05/2014 - 23:30 | 5522929 pgroup
pgroup's picture

What's that drip drip drip sound? Oh it's the drops from my bleeding heart hitting the floor.

/sarc

Fri, 12/05/2014 - 23:28 | 5522920 yrbmegr
yrbmegr's picture

Happily, oil is not food.

Mon, 12/08/2014 - 02:27 | 5527744 ersatz007
ersatz007's picture

In one of Kurt Vonnegut's stories it is. And watching people eat real food is porn.

Sat, 12/06/2014 - 00:07 | 5522988 spqrusa
spqrusa's picture

The make-it-ourselves-thinking fails when you have a military capable of taking whatever it needs.

Fri, 12/05/2014 - 22:06 | 5522741 shovelhead
shovelhead's picture

$60 oil for an extended period in this Bizarro World of overleveraged mountains of debt could be the first domino in a long chain.

 

Fri, 12/05/2014 - 22:09 | 5522757 AdvancingTime
AdvancingTime's picture

When financial problems occur in the energy sector it is often accompanied by political instability and sometimes her ugly sister war. As a rule the economy loves stability, bottom-line dropping oil prices means more risk for an already shaky world economy. All this is being complicated by the recently strong dollar.  The dollars strength and the rising American stock market could also be taken as a sign of an unstable global economy. 

When a strong shift in currencies occurs someone usually gets hurt and this can lead to bankruptcy, default, or contagion. A great deal of the shadow banking world overlaps and falls into the grey world of derivatives.  The total derivatives market has grown to a massive size. It includes hundreds of trillions of dollars in over-the-counter non-reported agreements and private contracts and is estimated to be over 20 times larger than the global economy. Everyone paying attention knows that even a slight problem in a market this size could collapse the whole economic system. The article below delves deeper into the problems caused by falling oil prices. 

http://brucewilds.blogspot.com/2014/11/dropping-oil-prices-increase-risk-to.html

Fri, 12/05/2014 - 22:32 | 5522803 MalteseFalcon
MalteseFalcon's picture

Most posters @ ZH expect an economic "collapse".  This and the happenings in Japan must be what the start of the collapse looks like.

So far so good.

Mon, 12/08/2014 - 02:32 | 5527749 ersatz007
ersatz007's picture

And, unless I misunderstand David Stockton, then let it the derivatives market crash; it's necessary.  The impact to main street will probably be much less than the douchebag PTB will have us believe.  Hopefully, this time, the public won't fall for the bail-out/ins.  Fuck the oligarch/bankster/financier's that want to take all the risk but not pay the price.  But what am I saying, they'll figure out a way to put my children's children's children's children on the hook for it. 

Fri, 12/05/2014 - 22:35 | 5522809 Joebloinvestor
Joebloinvestor's picture

High rent is good for landlords too.

Fri, 12/05/2014 - 23:00 | 5522847 yrbmegr
yrbmegr's picture

Of course low oil prices are not good for the oil industry.  We all get that.  You can stop shrieking about it.  It's doing no good.  Here is a fact for all you in the oil industry to absorb.  It is no longer true that, as goes the oil industry, so goes America.  Absorb that fact.  Believe it.  Learn it.  Live by it.  Adapt and prosper.

Fri, 12/05/2014 - 23:08 | 5522867 Amerikan Patriot
Amerikan Patriot's picture

On Zero Hedge, low prices are awful, high prices are awful and sometimes even Goldilocks prices are bad too.

It doesn't make economic or logical sense, but, well, it's Zero Hedge....

Sat, 12/06/2014 - 00:18 | 5522999 Shitgum Suicide
Shitgum Suicide's picture

The one thing that isn't and won't deflate is real estate prices.nits the one thing that is truly holding back any economic recovery. I say this because if food and energy all deflate and things get cheaper to buy, you still have to pay rent/ lease if you own a business and home prices have been becoming less affordable for the middle class.
The only real deflation in property values is if you live in places where nobody wants to livid, i.e. Detroit.
Also if you are a business owner and the products you use deflate people's wages do not so people are stuck with how to fix this duality property values and wages based upon ones ability to afford a place to live/ own

Sat, 12/06/2014 - 00:28 | 5523003 Amerikan Patriot
Amerikan Patriot's picture

Vlad's my hero.

 

Sat, 12/06/2014 - 01:26 | 5523080 Not Goldman Sachs
Not Goldman Sachs's picture

$150B...2 mos of control p.  No problem...there are no problems.

Sat, 12/06/2014 - 02:34 | 5523165 oooBooo
oooBooo's picture

Who did not know this would/could happen eventually?

Everyone with half a clue knew that there was a lot of oil in the world that was not extracted because oil prices had to cross a certain threshold in price to make it worth it. Everyone with half a clue knew that fear of the Saudi's using their cheap extraction cost oil to put these investments under water was a possibility. Everyone with half a clue knew that all these new sources of oil would result in more oil and prices dropping moderately.

Want to fix it? Get the US federal government out of the middle east. The foreign aid, the military, everything. Allow the full instability premiums to show up in middle east oil costs.

Sat, 12/06/2014 - 05:19 | 5523283 someup-somedown
someup-somedown's picture

I started buying bullion after viewing the thoughts of "Another".  Way, way out of my league of understanding.  But one thing I recall was that it was stated:

"Oil is the only commodity in the world that was large enough for gold to hide in".  

Is it hiding there?  I have no idea.  I have nothing further to offer other than the $usd decrease in the price of oil may be as a result of an alternate or "new" trading mechanism that is not apparent.  Was the short/long Gold/Nikkei apparent?.  There are many on this site that possess far wider and deeper knowledge and understanding than I and would enjoy any thoughts.

Sat, 12/06/2014 - 05:24 | 5523288 Fraud-Esq
Fraud-Esq's picture

I've got 1 trillion reasons it IS good for the "economy", meaning the middle class and lower class. How SOON we all forget, including the phony revolutionaries.

Sat, 12/06/2014 - 06:56 | 5523332 falak pema
falak pema's picture

The fact of the matter is that as far back as 1979 the world saw that we had reached a plateau of constant conventional oil given the THEN projections : of applying the US energy per capita statistics on the rest of the world. The world knew that a consumption pattern of that level was unsustainable both consumption and supply wise. 

Even then, we realized it would take many Cantarels, Alaskan finds and North Sea finds to feed the gluttonous demands of a world based on the automobile, air transport and plastics consumption. Even then, we knew that a population of 4 billion consumers was a major challenge. Even then, we knew that for every Oil field we found (in more and more hostile environments) we found more GAS than liquid oil. Which meant huge infrastructure projects of pipelines (where feasible to bring to a land based market) OR LNG type projects which required liquefaction, then transport via LNG ships (very costly), then regasification at market ports; all very expensive.

So for a commodity which was Oligarchy (Seven sisters) and state sector controlled (underground resources belong to the state in most nations of the world; unlike the USA), and which made the world go round  based on the prevalent US technological paradigm, there was NO WAY that it would be managed by a true free market/ enterprise system.

The gold of the Incas is too precious to confine to Mr Everybody. It belongs to the power structures of the Political cum Money elites of the world since time immemorial.

That is History's lesson. And nothing has changed in that respect.

So, given this background, it is only evident that Oil and energy should have been treated like precious gold and all Return on its exploitation should have been BALANCED against the increasing RISK  of its cheap availability in accessible locations (and the downside of thus looking for it in more and more hostile environments).

Today the US Oligarchs in charge of the world have taken the OPPOSITE route since Reaganomics were declared the global model of capitalism.

They have taken the EASY route  of unlimited resources of Mother Earth, having declared, like King Canute, that the oceans of the world were at the regal disposal.  

PIPEDREAM of awesome toxic consequence. And now having polluted the financial thread as well as the oceans and the atmosphere of the world, there will be pain of a size we have seldom seen.

Reaganomics has created its own Frankenstein, as it is essentially a Mussolinian construct : An alliance between big government and big business against the will of the people; against the Aristotelian legacy of Eudaimonia or its Jeffersonian version : life, liberty and the pursuit of happiness. 

http://en.wikipedia.org/wiki/Eudaimonia

 

Sat, 12/06/2014 - 07:19 | 5523354 piratepiet
piratepiet's picture

"PIPEDREAM of awesome toxic consequence. And now having polluted the financial thread as well as the oceans and the atmosphere of the world, there will be pain of a size we have seldom seen".

Prepping minds for Paris 2015 ?  You come accross as overly dramatic.  The climate change mantra seems, imho, politically inspired to serve largely non-ecological ends.  When guys like Paul Volcker and Hank Paulson show interest in ecology, all of a sudden apparently, you can see the writing on the wall ( global carbon TAX ). 

 

Sat, 12/06/2014 - 07:27 | 5523373 falak pema
falak pema's picture

Don't chase the shadow, chase the prey! The oceans of the world are warming at an alarming rate; El Nino now coming to Mediterranean.

By evoking Volcker and Paulson, by name-dropping these Oligarchy shills who have displayed their corrupt ineptitude in the past, you DIVERT the argument from its merits. 

Too easy that, you are like Reagan when he sang "bring that wall down Mr Gorby" (so that he and his kind could build the NSA wall of "big ears" and sinister Echelon power mantra). 

Come on, you can do better than that!

The Koch brothers are doing that all the time, as they--like Exxon-- have a vested interest in keeping the show going, the Oil bonanza ! 

Sat, 12/06/2014 - 07:56 | 5523385 piratepiet
piratepiet's picture

I do QUESTION the argument, I am showing that behind the debate are very powerful non-ecological interests .  And I doubt how solid the science is.   In order to do research you need funds, and in order to get funding you need to sing to the tune of politicians.  So you can expect to get politically desired research outcomes.  I am afraid too many scientists are regime whores.      

You mention "Ronny" Reagan constantly, probably shows you are a bit older , and probably wiser, than me. 

This very exclamation "Mr. Gorbachev tear down this wall !" I regard as the purest form of political theatre. The US had wanted the wall ( as did France ) to divide Germany and keep it weak.  This whole USA-USSR episode was possibly a giant case of good cop-bad cop.  Time for us Europeans to wake up to that.  Time for even better relations between Germany and France. ( I am not German btw, Ich bin kein Berliner ).

 

 

Sat, 12/06/2014 - 09:11 | 5523432 falak pema
falak pema's picture

The fact that you question it is quite respectable.

The fact that others hold the opposite view is also based on percieved facts. There is no clear cut argument on this issue in the public's mind but as far as the scientific community is concerned it seems that global warming induced by Man is now the DOMINANT meme.

So lets take politics out of this debate as it concerns all of humanity. 

Time for Europe to decouple with the US power structure and define its own geo-political model. Something which is now being questioned by its non-implication --as we see every day in the Brussels tower of Babel-- in its own trajectory as a coherent body.

But that's History's legacy as warring nation states who have not learned even today to speak with one voice to serve their people. 

What is now apparent is that the pendulum swings Eastwards. And that...

Sat, 12/06/2014 - 09:26 | 5523450 piratepiet
piratepiet's picture

Thanks

Sat, 12/06/2014 - 07:46 | 5523388 Leraconteur
Leraconteur's picture

Even then, we realized it would take many Cantarels, Alaskan finds and North Sea finds to feed the gluttonous demands of a world based on the automobile, air transport and plastics consumption. 

 

Except that Reality has refuted your premise.

China and India and parts of the developing world are creating ''gluttonous demands" based on the automobile and plastics consumption yet we are not out of oil and we are even shelving production of KNOWN recoverable reserves because demand is not high enough.

Your belief system would suggest that demand has outstripped supply - if true, prices would rise not fall.

I understand your pov and bias, but you are simply incorrect. 

We wil have plenty of oil for a century or longer.

Sat, 12/06/2014 - 09:05 | 5523439 falak pema
falak pema's picture

...We will have plenty of oil for a century or longer...

That is a thesis which does not meet the projections of the most optimistic in the Oil community.

That we have a two year hiatus in oil demand is a political ploy by Saud. As swing OPEC producer they call the shots and there is a temporary glut as the world economy slows down. 

It will be amusing to read you prediction in 2016/2017. In any case, the low hanging fruit have all been eaten up in the oil sector and the EI/EO ratio will inexorably grow making whatever is left become more expensive. Thats what the world understood then in 1979 as the longer term (remember oil field development takes 10 years from discovery to full output) and thats what the prediction is today, which is contrary to what you say! 

Your mindset portrays the ills of our age : short term thinking.



Sat, 12/06/2014 - 23:58 | 5525160 Leraconteur
Leraconteur's picture

You cannot see reality clearly. I compared 1975 to 2014. That is anything but short term thinking.

All of you share the same logical blind spot.

You assume what we know now, is the metaphysical extent of that field.

That's not true. Neither you, nor I, nor those making the projections in the Oil community, have a single clue how much oil is in the crust.

How about the prediction from 1975? We had 38 years of oil left then. I was a clever kid, followed that for fun. Looked up reserves, consumption, did the maths my self. No oil by 2012.

Now here we are 2014...and we have...wait for it...43 years of oil left.

If you cannot see the refutation of your belief system with those simple facts, then you are the adherent to a Religion and nothing more.

Oil is discovered over time. It has been since 1975 and it is logical to assume this will continue for the next 100 years.

That is not faith, belief, or wishful thinking, that is an extension of a 150 year old trend into the future that has a high probability of coming to fruition.

You all obsess about ''áll the cheap oil is gone'' but in order to support such a belief oil cannot drop in price and capacity cannot exceed demand.

My prediction in 2017 will remain the same.

I used to think like you until I compared my notes from 1975 to present reality.

Hey, plenty of oil - no need to worry about this.

It's also likely abiotic like a school of fish that drops to a lower production level but does not disappear.

We are fine, but you Peakers keep amusing the rest of us. It's fun.

You, your children and grand children will have more than enough oil, at reasonable prices, to do what you wish.

Find another hobby.

Sat, 12/06/2014 - 09:05 | 5523441 Bach's_bitch
Bach's_bitch's picture

yet we are not out of oil

That's not an argument against the contention that we will run out of it. Wikipedia has a wonderful article related to this:

http://en.wikipedia.org/wiki/Grammatical_tense

we are even shelving production of KNOWN recoverable reserves because demand is not high enough.

That doesn't mean supply can meet it if it *is* high enough.

Sat, 12/06/2014 - 11:31 | 5523593 Hohum
Hohum's picture

Leraconteur,

In 100 years, there will be at most a million barrels per day globally.  So I think.  Why do you think otherwise?  Because you'll be long dead?

Sat, 12/06/2014 - 23:49 | 5525148 Leraconteur
Leraconteur's picture

Your statement is a belief.

You cannot know what oil will be discovered and neither can I.

For you to make your statement, you would have to have knowledge of all the oil that exists inside the crust. Do you? I don't.

I am going to take a leap of logic and state that you are not omniscient and that you do not know how much oil is contained in all of the earth's crust.

Now you will mention that ''all the cheap oil is gone"", ignoring that innovations have occurred over time to make formerly unreachable oil recoverable and economicallly viable.

You are extrapolating the present into the future and assuming nothing will change in 100 years.

That is unwise and counter to history.

Sat, 12/06/2014 - 07:27 | 5523372 The Shape
The Shape's picture

No worry, Saudi reserves will increase again along with their stated production targets, as their output actually declines (the part no one in the media actually looks at).

Sat, 12/06/2014 - 07:44 | 5523384 Leraconteur
Leraconteur's picture

It seems that none of you understand that we don't need oil that we don't need and that if prices drop and consumption drops, the volume of oil needed will drop.

When, or if, the demand increases, the prices will increase, more reserves will become viable, and they will be built out and pumped out.

It is peculiar how that works, is it not?

Sat, 12/06/2014 - 13:19 | 5523852 Hohum
Hohum's picture

Only if it's profitable for the producer and affordable for the consumer.  A big IF.

Sat, 12/06/2014 - 08:42 | 5523427 Grimaldus
Grimaldus's picture

Ahhhh looks like bloody murdering progressive thieves are upset their war on cheap energy is glitching. Of course progressives don't want the the poor people of the world to have the better quality of life that cheap energy brings. Nooooooooo, can't have the dirt floor hard scrabble billions of poor having a better life can we? We must be able to run a carbon tax scam, oh yes!

These are the same progressives who lied about DDT when malaria was almost completely wiped out worldwide. They forced a ban based on false science and now millions upon millions are dead as a result. A million more die every year. Can't have some thin shells on bird eggs, can we?

There is no greater evil in the world than murdering thieving progressive evil.

Grimaldus

Sat, 12/06/2014 - 08:57 | 5523438 iamrefreshed
iamrefreshed's picture

So some gamblers are going to lose $150B, so what. I read that, at these prices, drivers are saving $600M daily getting to work. I opt for the drivers.

Sat, 12/06/2014 - 09:46 | 5523472 BeetleBailey
BeetleBailey's picture

This is a Public Service Announcement.....

 

Forex Kong – A LOUSY SERVICE AND A THIEF

 

This is to warn EVERYONE as to doing any sort of business with Forex Trading with Kong, or what ever he/she/it bills itself. I signed up to the “service” in May of 2014, and once on the site, the person proclaiming themselves to be Kong was in a maelstrom of trades – all down.

 

I found his combination of ranting about the markets, along with fuzzy and not explained or thought out trades was amateur at best. In fact, as a veteran trader, I took each and every trade of his on one of my demo accounts, with this “Kong” not spelling out as to whether trades he emailed on “alert” were short, mid or long term, and the ensuing results were hilarious. ALL down. I have the charts, and alerts he/she/it sent and the times  he/she/it sent them, and to say this “service” is even competent is a stretch.

 

I’d be happy to share these charts, trades ( I took screen shots of the demo account with the idiot Kong trades getting reamed) with anyone.

 

The REAL “fun” started when I canceled – or attempted to cancel, my less than one month old account with Kong. First, to sign up to the…service, I had to join PayPal, which I did NOT want to do. This Kong character cajoled me into doing so “It’s the only way I work” – something to that effect.

 

WELL…Kong and PayPal kept right on debiting me. I caught them. Kept right debiting me AFTER I CAUGHT THEM.

I have the emails, bank statements – all of it. The good thieves at Forex Trading with Kong know this, and can not refute one iota of what I wrote. They are arrogant, claim they “never had a refund” (gee…I guess so).

 

STAY AWAY FROM FOREX TRADING WITH KONG. BE FOREWARNED.

THE SERVICE IS ASININE, AND THEY STEAL YOUR MONEY.

JPHFOREX at Gmail dot com….I can back up everything I just wrote.

Sat, 12/06/2014 - 11:29 | 5523588 Hohum
Hohum's picture

Everyone here loves markets, right?  Well, a large change in price is either good for consumers and bad for producers or vice versa.   It cannot be changed.  I knew an alpaca farmer who had to deal with an 80% decline in prices.  Markets giveth and markets taketh away.  If you are in the alpaca farmer's shoes, you have quite a challenge on your hands.

Sat, 12/06/2014 - 12:33 | 5523721 Bemused Observer
Bemused Observer's picture

Who cares about the so-called global economy? It really doesn't exist for most of us, only the few at the top.

So FUCK the global economy! Why should all the rest of us be stuck paying more for everything just so these bastards can have their "skim"?

If you think the global economy is open to YOU, just TRY negotiating cheaper drug prices for yourself by shopping overseas...Over in India that 'cancer drug' costs a buck and a half...here in the US, you'll pay hundreds, if not thousands, for the same damned drug.

You see how that works? Globalization is NOT for the likes of YOU!

Sat, 12/06/2014 - 13:33 | 5523883 New American Re...
New American Revolution's picture

Yes!  "Still unequivocally good" because the worlds oil reserves are easily accessable and virtually without limit.  And so I have one word I would share with you.  SHAYBAH.

Do NOT follow this link or you will be banned from the site!