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This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch.

Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.”

To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s.

Breadwinner Economy - Click to enlarge

Breadwinner Economy – Click to enlarge

That’s right. Two cycles of lunatic monetary expansion and what they have to show for it is two short-lived bursts of part-time job creation that vanish when the underlying financial bubble bursts.

Part Time Economy - Click to enlarge

Part Time Economy – Click to enlarge

So, yes, our monetary central planners forget nothing. It doesn’t matter what the actual results have been. Like the original Bourbons, the  small posse of unelected academics and policy apparatchiks which control the nation’s all-powerful central bank most surely believe they have a divine right to run the printing presses as they see fit—even if it accomplishes nothing for the 99% of Americans who don’t have family offices or tickets to the hedge fund casino.

Still, you would think that the purported “labor economist” who is now chair person of the joint would be at least troubled by the chart below. Even liberals like Yellen usually do acknowledge that that the chief virtue of the state is that it purportedly generates  “public goods” that contribute to societal welfare—-not that it is a fount of productivity and new wealth generation. For that you need private enterprise and business driven efficiency.

Well, then. How do our monetary bourbons explain that the gain in labor hours utilized by the non-farm business sector has been zero since the third quarter of 1999?  That is, nada, nichts, nothing, zip for the last 15 years!

The Fed forgets nothing because its involved in ritual incantation—-that is to say, the execution of religious doctrine. That’s why its pompous devotion to the “incoming data” is such a farce. There is nothing empirical and factually rigorous about what it does; it just changes the doctrinal spin as the bubble expands and the economic data grind-out transient noise one month or quarter at a time.

Even now that the official unemployment rate has occupied the 5-6% zone for several months, the FOMC simultaneously brags about its success in rejuvenating the economy while keeping its foot on the accelerator of “extraordinary” monetary stimulus.

As to the “success” part of the incantation, surely any one who spends even a few hours with the BLS’ U-3 unemployment rate knows it is not worth the paper it is printed on owing to the huge dislocation of the labor force participation rate. That is, the denominator is cooked and the resulting ratio is phony.

And forget about the baby boom retirement excuse. The chart below shows the employment rate for the civilian population 16-54 years old. It has crashed during the last two decades of egregious money printing. Specifically, the 16-54 age population has grown by 37 million since 2000, but the number of non-farm employees in that same working age bracket has grown by just 4 million. Yes, the Fed’s hyper-stimulated economy has generated jobs for just 10% of the prime age workers who have been added to the labor force.

Only a choir of doctrinal chanters would call that “success”.

Employment-16-54-Population-120314

On the other hand, the policy most surely has been “extraordinary”. We are now in the 72nd straight month of ZIRP, and there is absolutely nothing like that in the economic history of the planet. And this freakish spell of ZIRP is not even remotely attributable to some unprecedented ailment of the private economy, such as “deflation”. Zero money market rates have been manufactured lock, stock and barrel in the Eccles building.

Yet zero cost roll-over money accomplishes nothing constructive because if growth and wealth could be generated by free money we should have had it for the last 100 years, not just seven. The people who ran this country prior to the current monetary regime were not so stupid as to have overlooked a genuine economic elixir; nor were they so fatuous as to think that by hitting the “print” lever over and over and over that the hard work of production, labor, enterprise and growth could actually be accomplished without human effort.

So, too, our monetary bourbons learn nothing. ZIRP, QE, wealth effects, stock market puts and all the rest of the Fed’s toolkit of financial market repression and manipulation have one principle effect: they generate unnatural, unsustainable and unconscionable financial bubbles.

Yet the Eccles Building once again sees no bubbles when they are again palpable throughout the financial system. Consider the forgotten lessons of last time around. Right up until the 11th hour, the Fed and all its spokesman and magicians denied the possibility of a housing bubble. Bernanke famously said that it was “contained” as late as March 2007. And contrary to the fibs of her apologists, Yellen was sitting right there cautioning against monetary sobriety even as the following chart relentlessly unfolded.

There you see a parabolic rise if there ever was one. In fact, housing prices rose for 111 consecutive months between 1994 and 2007. Average home prices more than doubled during that interval.

But that spectacular surge self-evidently had nothing to do with the economics of scarcity. Anyone half awake could have determined that lumber prices and building materials did not rise by even a small fraction of that 2X gain during the housing boom, nor did construction wages, real estate brokerage commissions or any other factor of production.

Nope. At bottom, the leading edge of the housing mania was the implicit price of land. That’s what always get bid up to irrational heights when the central bank fiddles with free market pricing of capital and debt.

Even as land prices were being driven to irrational heights you didn’t need to spend night and day in arcane data dumps to document it. All you had to do was look at the stock price of the homebuilders.

As I documented in The Great Deformation, the combined market cap of the big six national homebuilders including DH Horton, Lennar, Hovnanian, Pulte, Toll Brothers and KBH Homes soared from $6.5 billion in 2000 to $65 billion by the 2005-2006 peak. Yet you only needed peruse the financial statements and disclosures of any of these high-flyers and one thing was screamingly evident. They weren’t homebuilders at all; they were land banks that did not own a single hammer or saw or employ a single carpenter or electrician.

Stated differently, the homebuilders’ soaring profits were nothing more than speculative gain on their land banks—gains driven by the cheap mortgage mania that had been unleashed by Greenspan when he slashed the so-called policy rate from 6% to 1% in hardly 30 months of foot-to-the-floor monetary acceleration between 2001 and 2004.

Indeed, that cluelessness amounted to willful negligence. DH Horton was the monster of the homebuilder midway—–a giant bucket shop that never built a single home, but did accumulate land and sell finished turnkey units by the tens of thousands each period. Did it not therefore occur to the monetary politburo that DH Horton had possibly not really generated a 11X gain in sustainable economic profits in hardly 5 years?

DHI Chart

So now we come to the current screaming evidence of bubble finance—–the fact that upwards of $500 billion of junk bonds ($200B) and leveraged loans ($300 B) have surged into the US energy sector over the past decades—–and much of it into the shale oil and gas patch.

Folks, you don’t have to know whether the breakeven for wells drilled in the Eagleville Condy portion of the great Eagle Ford shale play is $80.28 per barrel, as one recent analysis documents, or $55 if you don’t count all the so-called “sunk costs” such as acreage leases and oilfield infrastructure. The point is, an honest free market would have never delivered up even $50 billion of leveraged capital—let alone $500 billion— at less than 400bps over risk-free treasuries to wildly speculative ventures like shale oil extraction.

The fact is, few North American shale oil fields make money below $55/barrel WTI on a full cycle basis (lease cost, taxes, overhead, transport, lifting cost etc.). As shown below, that actually amounts to up to $10 less on a netback to the wellhead basis—–the calculation that drives return on drillings costs.

 

In short, as the oil market price takes its next leg down into the $50s/bbl. bracket, much of the  fracking patch will become a losing proposition. Moreover, given the faltering state of the global economy and the huge overhang of excess supply, it is likely that the current crude oil crash will be more like 1986, which was long-lasting, than 2008-09, which was artificially resuscitated by the raging money printers at the world’s central banks.

So why is there a shale patch depression in store? Because there is literally a no more toxic combination than the high fixed costs of fracked oil wells, which produce 90% of their lifetime output in less than two years, and the massive range of short-run uncertainty that applies to the selling price of the world’s most important commodity.

Surely, it doesn’t need restating, but here is the price path for crude oil over the past 100 months. That is to say, it went from $40 per barrel to $150, back to $40, up to $115 and now back to barely $60 in what is an exceedingly short time horizon.

Obviously, what we have here is another massive deformation of capital markets and the related flow of economic activity. The so-called “shale miracle” was not made in Houston with some technology help from Silicon Valley. The technology of horizontal drilling and well fracking with chemicals has been around for decades. What changed were the economics, and those  were made in the Eccles Building with some help from Wall Street.

As to the latter, was it not made clear by Wall Street’s mortgage CDO meth labs last time that when the central bank engages in deep and sustained financial repression that it produces a stampede for “yield” which is not warranted by any sensible relationship between risk and return? It should not have been even possible to sell a shale junk bond or CLO that was based on assets with an effective two year life, a revenue stream subject to wild commodity price swings and one thing even more unaccountable. Namely, that the enterprise viability of virtually every shale junk issuer has always been dependent upon an endless rise in the junk bond issuance cycle.

Stated differently, oil and gas shale E&P operators are drastic capital consumption machines. Due to the lightening fast decline rates of shale wells, firms must access more and more capital just to run in place. If they don’t flush money down the well bore, they die along with all the “sunk” capital that was previously put in place.

In the case of shale oil, for example, it is estimated that were drilling to stop for just one month, production in the Eagle Ford, Bakken and one or two other major provinces would drop by 250,000 barrels per day. After four months, the drop would be 1 million bbl./day and after a one-year, nearly half the current four million barrels of shale oil production would disappear.

That’s why all of a sudden there is so much strum and drang about “breakeven” pricing. Obviously, new drilling is not going to go to zero under any imaginable price scenario, but for all practical purposes the shale revolution could shut down just as fast as did the housing boom in 2006-2007. In effect, the shale financing boom presumed that both the junk bond cycle and the oil price cycle had been eliminated.

Needless to say, they have not. So the impending “correction” may well be as swift and violent as was the housing bust.

Indeed, in the short-run the shale crash could be worse. The fantastic, debt-fueled drilling spree of the past 5-years is now sunk and will produce rising levels of production for a few quarters until rig activity is sharply curtailed and some of the better capitalized operators stop drilling in order to avoid lease expiration writeoffs.

So as the WTI market price is driven toward $50/ barrel, recall that the netback to the producer is significantly less. In the case of the biggest shale oil province, the Bakken, the netback to the well-head is upwards of $11 below WTI.  Accordingly, cash flow will plunge and that source of drilling funds will evaporate with it.

But the big down-leg is coming in the junk market. This time around, Wall Street has been even more reckless in its underwriting than it was with toxic securitized mortgages. Barely six months ago it sold $900 million of junk bonds for CCC rated Rice Energy.  The latter operates in the Marcellus gas shale trend but that makes the story even more preposterous.

These bonds were sold at barely 400 bp over the 10-years treasury, and the issue was 4X oversubscribed. That is, there was upwards of $4 billion of demand for the bottom of the barrel securities of a shale speculator that had generated the following results during its 15 quarters as a public filer with the SEC. To wit, it had produced $100 million of cumulative operating cash flow versus $1.2 billion of CapEx. In short, if the junk bond market dies, Rice Energy is a goner soon thereafter.

Indeed, the case of Forest Oil, one of the early pioneers in the giant Eagle Ford play shows what happens when new funding dries up. Owing to the dearth of capital, this once high flier has now done an HR Horton and then some—having lost 99% of its peak market cap.
FST Chart

FST data by YCharts

Here’s the thing, however. Rice Energy is not an outlier. It is a poster child for the entire junk shale Ponzi.  Take the storied leader of the pack—— Continental Resources (CLR). Its principal owner and flamboyant oil patch entrepreneur, Harold Hamm, did brilliantly assess the North Dakota opportunity once it became clear that the central banks of the world were not going to tolerate the $40 oil plunge after the financial crisis.

Yet absent the massive outbreak of junk debt financing, he would not have had the billions for his divorce settlement or the $15 billion his stock is still worth after the 40% crash of oil prices and 60% plunge of CLR stock since mid-year. The fact is, during the last 9 years, CLR has generated $8 billion of operating cash flow compared to $14 billion of CapEx—most of it poured into the Bakken.

The wonders of cheap debt. CLR had $140 million of debt  back in 2005 when the shale boom was in its infancy. It now has 43X more or about $6 billion, and the bleeding is just getting underway.

Needless to say, the issue is not whether Harold Hamm can hold on to his billions. Instead, the question is whether the bourbons in the Eccles Building can possibly hold on to their credibility for another go-round.

As the global boom cools, oil demand withers, the junk market craters, and the shale patch tumbles into depression, someone might actually note the chart below.

Its been another central bank parlor trick. The job count in the 45 non-shale states last Friday was 400,000 lower than it was at the end of 2007. That’s right, not one new job—even part-time or in the HES complex—- for the last seven years.

All the new jobs have been in the 5 shale states. That is, they were manufactured by the Fed’s tidal wave of cheap capital and the central bank fueled global recovery which created the illusion that $100 oil was here to stay.

But it isn’t and neither is the shale boom, the shale jobs or the shale investment spike, which counts for a good share of overall CapEx growth since the crisis.

Yes, indeed. The monetary politburo did it again.


 

 

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Tue, 12/09/2014 - 21:37 | 5535022 Spungo
Spungo's picture

Fuck bread winner economies. I want a bath house economy.

Tue, 12/09/2014 - 21:53 | 5535072 Frolf
Frolf's picture

The caviar market has a better chance of surviving market contraction than those posted charts above.  

 

https://www.youtube.com/watch?v=tOW5eljyjms

Tue, 12/09/2014 - 22:00 | 5535097 Escrava Isaura
Escrava Isaura's picture

 

 

Frolf

Your idiot. Why do you keep posting the same stupid vegan video.

 

Wed, 12/10/2014 - 04:12 | 5535661 giovanni_f
giovanni_f's picture

Thx (+1)

Tue, 12/09/2014 - 22:37 | 5535194 max2205
max2205's picture

Great read....buckle up

Wed, 12/10/2014 - 01:48 | 5535542 ebworthen
ebworthen's picture

mmmm....caviar...

Wed, 12/10/2014 - 02:09 | 5535569 Villageidiot777
Villageidiot777's picture

You shall have a bath salt economy instead.

Tue, 12/09/2014 - 21:37 | 5535026 DoChenRollingBearing
DoChenRollingBearing's picture

A lot of people I know have gotten hammered lately in energy stocks (Seadrill, etc.).  It's ugly out there.  But, at some point oil will go back up.  There will be a nice time to buy energy stocks.

Tue, 12/09/2014 - 22:02 | 5535107 AldousHuxley
AldousHuxley's picture

I'd say boom may be over now. G20 elites saw the threat with Russia's rise combined with military ambitions, so they are forced to tell oil colonies to flood the supply.

Global warming "movement" will now carbon tax China's manufacturers to keep China's export machine financing Chinese military ambitions in check.

 

US made her wealth from oil...they know how the game works.

 

 

Tue, 12/09/2014 - 22:41 | 5535187 Escrava Isaura
Escrava Isaura's picture

 

 

Good post.

2nd paragraph is dead on the money.

 

By the way: On the 3rd paragraph: Add Coal (cheap energy for the real America and it’s industry) and Financing (dollar as the global reserve currency).

 

 

Tue, 12/09/2014 - 21:39 | 5535032 kliguy38
kliguy38's picture

malinvestment, dislocation, divergence, manipulation.........cognitive dissonance.....now back to the bong

Tue, 12/09/2014 - 21:47 | 5535058 MontgomeryScott
MontgomeryScott's picture

Don't blame 'Cognitive Dissonance' for THIS one...

Tue, 12/09/2014 - 21:40 | 5535037 KenShabby
KenShabby's picture

The Fed isn't ignoring it. They are well aware. They simply don't give a fuck. 

Tue, 12/09/2014 - 22:02 | 5535082 Escrava Isaura
Escrava Isaura's picture

 

 

Because it is not money. It is debt (bank money), stupid!

By the way, I am not calling you stupid. It is just a phrase.

 

 

Tue, 12/09/2014 - 22:33 | 5535186 KenShabby
KenShabby's picture

Sure sounds like you are calling me stupid? I may be an American but I sure as fuck am not stupid. 

Tue, 12/09/2014 - 22:53 | 5535226 Escrava Isaura
Escrava Isaura's picture

 

 

I was very clear about what I meant.

I use the word stupid to highlight ‘Debt-Money’ because ‘Debt-Money’ does NOT exist. That is why we have speculations and crashes.

 

Debt-Money is unsafe and unstable. And that is why Wall Street is a total Ponzi scheme.

 

How can you tell?

 

“If you add all the profits that the banks made from 1998 through 2008; in which the “ever-increasing” bonuses were paid from; 2008/2009 losses exceeded the ‘entire’ profit for those 10 years [1998 through 2008]” Simon Johnson of Baseline Scenario

 

Tue, 12/09/2014 - 21:51 | 5535071 Osmium
Osmium's picture

I bet that fkn hurt.

Tue, 12/09/2014 - 21:46 | 5535053 MontgomeryScott
MontgomeryScott's picture

WAIT.

WHAT?

Jeff Gundlach: "This Time It's Different" - Live Webcast

http://www.zerohedge.com/news/2014-12-09/jeff-gundlach-time-its-differen...

OH.

It's the same, but DIFFERENT.

The FED is calling the shots and rigging the markets and setting the rules, but some OTHER guy is telling everyone how he's gonna 'game' them all (while he tries to play their game using their rules).

O.K., Tylers, you're starting to become quite humorous.

 

Tue, 12/09/2014 - 21:48 | 5535062 Atomizer
Atomizer's picture

The caviar market has a better chance of surviving market contraction than those posted charts above.  

Tue, 12/09/2014 - 21:52 | 5535073 coast
coast's picture

when will people understand....THEY dont care about bubbles!!  All they want is world domination, as long as they got their bombs and the CIA, M16, and Mossad, they dont care how many die and starve, or bubbles, etc...they only want havoc...I swear man, I am not a bible thumper by no means, but the bible is starting to make more sense to me every day...All the wars in the old testament, blah blah...There is a good and an evil and if you havnt figured that out yet, whatever. People like the author of this article try to make us believe those in charge are human beings...They are not, they are probably those frigging fallen angels from hell etc...Sorry, i just had to get this out...love u all.

Wed, 12/10/2014 - 01:00 | 5535472 Seek_Truth
Seek_Truth's picture

Indeed:

"Put on the full armor of God, so that you will be able to stand firm against the schemes of the devil. For our struggle is not against flesh and blood, but against the rulers, against the powers, against the world forces of this darkness, against the spiritual forces of wickedness in the heavenly places. Therefore, take up the full armor of God, so that you will be able to resist in the evil day, and having done everything, to stand firm." - Ephesians 6:11-13

Wed, 12/10/2014 - 02:58 | 5535621 virtualInsanity
virtualInsanity's picture

I completely understand. I feel exactly the same.

Tue, 12/09/2014 - 21:52 | 5535075 pragmatic hobo
pragmatic hobo's picture

bernanke should be in jail.

Tue, 12/09/2014 - 22:15 | 5535146 jvetter713
jvetter713's picture

Jail?  Not appropriate.  I think he and Krugpuss, I mean Krugman, need to be in a cage Thunderdome style.  And of course, regardless of the winner, the big bear gets let in to have dinner.

Tue, 12/09/2014 - 23:13 | 5535278 Greenskeeper_Carl
Greenskeeper_Carl's picture

That would go down in history as the most pathetic fight ever seen. I'd be willing to bet money neither of them have ever been hit in the face by anything other than a dick.

Tue, 12/09/2014 - 21:53 | 5535076 Atomizer
Atomizer's picture

Escargot might have running second.

Tue, 12/09/2014 - 21:57 | 5535085 Wild Theories
Wild Theories's picture

bubble bubble, toil and trouble

witches' britches, up down on the double

 

sorry, Zimbabwe witches got stuck in my head, I'm turning into a newt...

Tue, 12/09/2014 - 21:59 | 5535095 Squid Viscous
Squid Viscous's picture

Drill, Drill, Drill!

-Larry Cokehead Kudlow

Tue, 12/09/2014 - 22:00 | 5535101 TuPhat
TuPhat's picture

I won't mind if a few billionaires lose their shirts.  I might not survive economically but someone will.

Tue, 12/09/2014 - 22:18 | 5535150 Bunga Bunga
Bunga Bunga's picture

Likely to be contained ... it's just a tiny part of the economy ...  and the job market is so strong

Tue, 12/09/2014 - 22:23 | 5535164 buzzsaw99
buzzsaw99's picture

the fed loves junk bond frauds, boom busts, pump and dumps, flim flams, etc..

Tue, 12/09/2014 - 22:32 | 5535182 ISEEIT
ISEEIT's picture

The fed isn't ignoring anything. These sociopaths have it mapped out for them.

The Human race is smarter than this.

Fucking Crows are smarter than this..

These shitheads live in their own little world, and their little world is getting smaller.

They have the firepower though. Bunch of assclown "J.V." wanna be punk-assed "Folk's"...

It's become so obvious now that it should frighten people who pay anything beyond a passing glance.

What should frighten them most?

I would say the truth.

That's what is in fact most frightening.

Tue, 12/09/2014 - 22:34 | 5535188 disabledvet
disabledvet's picture

I know this might he hard for a total retard like David "Stockman" to get through his peonic PHUCKING brain but...

WALL STREET CREATES BUBBLES NOT THE FED YOU PHUCKING IDIOT.

The only thing WALL STREET waits on after creating these things is for the Fed to do something about it...something the Fed simply cannot do right now for obvious reasons.

How did the Fed create a bubble in gold again?

"By keeping interest rates too low for too long"?

Bwhahahahahahaha.
STFU.

Tue, 12/09/2014 - 23:23 | 5535301 Greenskeeper_Carl
Greenskeeper_Carl's picture

Doesn't have anything to do with the 4.5 trillion created out of thin air and given to speculators near the monetary spigot for nothing huh? Nor those same people being able to borrow nearly limitless money for zero interest rates either? You are an idiot.

Wed, 12/10/2014 - 00:55 | 5535468 Bay of Pigs
Bay of Pigs's picture

Apparently he is drinking tonight.

Tue, 12/09/2014 - 22:41 | 5535199 WTFUD
WTFUD's picture

Recently half-watched a film called Compliance. A hoax caller ( policeman ) had the supervisors of a burger bar strip search and humiliate a female flipper claiming she had stolen money from a customers purse. The crux was that people ( ordinary working ) would literally bend over backwards to appease people in authority, sometimes obeying ludicrous demands.

My take is that the FEDRES critters and CONgress are only too willing to FUCK everyone over at their Overlords whim.

Tue, 12/09/2014 - 22:57 | 5535223 wrs1
wrs1's picture

The shale venom continues to be spewed from this site.  It's funny how all the authors yap about rates of decline but don't have any data to back up their vacuous claims.  They don't know what the average IP is for a shale well or what the average decline rate is and they never bother to compare it to the trickle that comes from "convetional" wells which were basically non-existent in terms of new drilling prior to the shale boom.  Go look at the oil rig counts back when oil was below $40/bbl and look at the production of the crappy wells that did get drilled.  It was pathetic and the reason that the US was importing so much oil to our detriment.   So what is it that these shale haters are comparing against?  A total energy wipeout in the US?  Yes, that is about what it was.  They would have us return to that and the commensurate dependence on the nutjobs in the middle east to keep us supplied with energy.

Tue, 12/09/2014 - 23:32 | 5535318 Greenskeeper_Carl
Greenskeeper_Carl's picture

This isn't venom directed at shale, it is merely pointing out the existence of a bubble. Same this done on here for stocks. Stockman is not bashing shale energy a much as he is pointing out this boom was fueled by central bank money creation and speculators desperately seeking yeilding, leading them to risking propositions like shale drilling that isn't profitable at current prices, which are declining due to lack of demand due to the global depression we are in.

Wed, 12/10/2014 - 07:39 | 5535787 viator
viator's picture

"About 80 percent of shale “oil production coming into the system in 2015 would be economic between $50 and $69 a barrel,” Yergin said. “I think there was an assumption among OPEC countries and, you know, Europeans and others, kind of below $90 the shale gas, the shale oil, would not be viable.” Daniel Yergin

"US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.

Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”

Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup."

Ambrose Evans-Pritchard

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