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For Anyone That Still Believes Collapsing Oil Prices Are Good For The Economy

Tyler Durden's picture




 

Submitted by Michael Snyder via The Economic Collapse blog,

Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street.  Yes, lower gasoline prices are good news for the middle class.  I certainly would rather pay two dollars for a gallon of gas than four dollars.  But in order to have money to fill up your vehicle you have got to have an income first.  And since the last recession, the energy sector has been the number one creator of good jobs in the U.S. economy by far.  Barack Obama loves to stand up and take credit for the fact that the employment picture in this country has been improving slightly, but without the energy industry boom, unemployment would be through the roof.  And now that the “energy boom” is rapidly becoming an “energy bust”, what will happen to the struggling U.S. economy as we head into 2015?

At the start of this article I mentioned that much lower oil prices would result in “collapsing capital expenditures”.

If you do not know what a “capital expenditure” is, the following is a definition that comes from Investopedia

“Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.”

Needless to say, this kind of spending is very good for an economy.  It builds infrastructure, it creates jobs and it is an investment in the future.

In recent years, energy companies have been pouring massive amounts of money into capital expenditures.  In fact, the energy sector currently accounts for about a third of all capital expenditures in the United States according to Deutsche Bank

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex.

These companies make these investments because they believe that there are big profits to be made.

Unfortunately, when the price of oil crashes those investments become unprofitable and capital expenditures start getting slashed almost immediately.

For example, the budget for 2015 at ConocoPhillips has already been reduced by 20 percent

ConocoPhillips is one of the bigger shale players. And its decision to slash its budget for next year by 20% is raising eyebrows. The company said the new target reflects lower spending on major projects as well as “unconventional plays.” Despite the expectation that others will follow, it doesn’t mean U.S. shale oil production is dead. Just don’t expect a surge in spending like in recent years.

And Reuters is reporting that the number of new well permits for the industry as a whole plunged by an astounding 40 percent during the month of November…

Plunging oil prices sparked a drop of almost 40 percent in new well permits issued across the United States in November, in a sudden pause in the growth of the U.S. shale oil and gas boom that started around 2007.

 

Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October.

If the price of oil stays this low or continues dropping, this is just the beginning.

Meanwhile, the flow of good jobs that this industry has been producing is also likely to start drying up.

According to the Perryman Group, the energy sector currently supports 9.3 million permanent jobs in this country

According to a new study, investments in oil and gas exploration and production generate substantial economic gains, as well as other benefits such as increased energy independence. The Perryman Group estimates that the industry as a whole generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation.

 

The ripple effects are everywhere. If you think about the role of oil in your life, it is not only the primary source of many of our fuels, but is also critical to our lubricants, chemicals, synthetic fibers, pharmaceuticals, plastics, and many other items we come into contact with every day. The industry supports almost 1.3 million jobs in manufacturing alone and is responsible for almost $1.2 trillion in annual gross domestic product. If you think about the law, accounting, and engineering firms that serve the industry, the pipe, drilling equipment, and other manufactured goods that it requires, and the large payrolls and their effects on consumer spending, you will begin to get a picture of the enormity of the industry.

And these are good paying jobs.  They aren’t eight dollar part-time jobs down at your local big box retailer.  These are jobs that comfortably support middle class families.  These are precisely the kinds of jobs that we cannot afford to lose.

In recent years, there has been a noticeable economic difference between areas of the country where energy is being produced and where energy is not being produced.

Since December 2007, a total of 1.36 million jobs have been gained in shale oil states.

Meanwhile, a total of 424,000 jobs have been lost in non-shale oil states.

So what happens now that the shale oil boom is turning into a bust?

That is a very good question.

Even more ominous is what an oil price collapse could mean for our financial system.

The last time the price of oil declined by more than 40 dollars in less than six months, there was a financial meltdown on Wall Street and we experienced the deepest recession that we have seen since the days of the Great Depression.

And now many fear that this collapse in the price of oil could trigger another financial panic.

According to Citigroup, the energy sector now accounts for 17 percent of the high yield bond market.

J.P. Morgan says that it is actually 18 percent.

In any event, the reality of the matter is that the health of these “junk bonds” is absolutely critical to our financial system.  And according to Deutsche Bank, if these bonds start defaulting it could “trigger a broader high-yield market default cycle”

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.

 

A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialized,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

If the price of oil stays at this level or continues to go down, it is inevitable that we will start to see some of these junk bonds go bad.

In fact, one Motley Fool article recently stated that one industry analyst believes that up to 40 percent of all energy junk bonds could eventually go into default…

The junk bonds, or noninvestment-rated bonds, of energy companies are also beginning to see heavy selling as investors start to worry that drillers could one day default on these bonds. Those defaults could get so bad, according to one analyst, that up to 40% of all energy junk bonds go into default over the next few years if oil prices don’t recover.

That would be a total nightmare for Wall Street.

And of course bond defaults would only be part of the equation.  As I wrote about the other day, a crash in junk bonds is almost always followed by a significant stock market correction.

In addition, plunging oil prices could end up absolutely destroying the banks that are holding enormous amounts of energy derivatives.  This is something that I recently covered in this article and this article.

As you read this, there are five “too big to fail” banks that each have more than 40 trillion dollars in exposure to derivatives.  Of course only a small fraction of that total exposure is made up of energy derivatives, but a small fraction of 40 trillion dollars is still a massive amount of money.

These derivatives trades are largely unregulated, and even Forbes admits that they are likely to be at the heart of the coming financial collapse…

No one understands the derivative risk positions of the Too Big To Fail Banks, JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs or Morgan Stanley. There is presently no way to measure the risks involved in the leverage, quantity of collateral, or stability of counter-parties for these major institutions. To me personally they are big black holes capable of potential wrack and ruin. Without access to confidential internal data about these risky derivative positions the regulators cannot react in a timely and measured fashion to block the threat to financial stability, according to a National Bureau of Economic Research study.

So do we have any hope?

Yes, if oil prices start going back up, much of what you just read about can be averted.

Unfortunately, that does not seem likely any time soon.  Even though U.S. energy companies are cutting back on capital expenditures, most of them are still actually projecting an increase in production for 2015.  Here is one example from Bloomberg

Continental, the biggest holder of drilling rights in the Bakken, last month said 2015 output will grow between 23 percent and 29 percent even after shelving plans to allocate more money to exploration.

Higher levels of production will just drive the price of oil even lower.

At this point, Morgan Stanley is saying that the price of oil could plummet as low as $43 a barrel next year.

If that happens, it would be absolutely catastrophic to the most important industry in the United States.

In turn, that would be absolutely catastrophic for the economy as a whole.

So don’t let anyone tell you that much lower oil prices are “good” for the economy.

That is just a bunch of nonsense.

 

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Wed, 12/10/2014 - 20:31 | 5538746 localsavage
localsavage's picture

It has to crash at some point ...we might as well get it over with.

Wed, 12/10/2014 - 20:36 | 5538762 insanelysane
insanelysane's picture

Oil is just re-coupling with gold and silver prices.  Stocks to follow at some point.

Wed, 12/10/2014 - 20:50 | 5538789 bunzbunzbunz
bunzbunzbunz's picture

This article brought to you by the Russian Federation for lower priced prostitutes.

Wed, 12/10/2014 - 20:57 | 5538811 Bangin7GramRocks
Bangin7GramRocks's picture

The first "market" to break free from the upward manipulation and people bitch about the damage it will do. HA! Wait until reality hits housing! You people will be puckering up with tears in your eyes begging for the gubmint to expose her heaving bossom to you. You all are a bunch of fucking welfare queens masquerading as free market capitalists.

Wed, 12/10/2014 - 22:16 | 5539050 MalteseFalcon
MalteseFalcon's picture

The price of oil has been manipulated "up" for the past 40 years, and the industry has made $ zillions during that time.  Now that the manipulation is ending the whining is deafing.  Just take your $zillions and get lost.

It's over.

Wed, 12/10/2014 - 22:39 | 5539108 TruthInSunshine
TruthInSunshine's picture

Yeah, I'll call it - regardless as to who is more wrong between the U.S., Russia, Saudi Arabia, etc., the constant pining on ZH lately (even by guest authors) about low oil prices being catastrophic should more honestly state that low oil prices are bad for oil producers/drillers (companies and countries - including Russia).

It's getting old. Fast.

Fuck the oil drillers, producers and oil nations, who've raped consumers for so long now that they just can't bear the thought of even a relatively short rape-less season.

Wed, 12/10/2014 - 23:16 | 5539236 TheReplacement
TheReplacement's picture

Amen and pass the bullets.

Wed, 12/10/2014 - 23:56 | 5539324 TruthInSunshine
TruthInSunshine's picture

#FuckOilDrillersProducersNationsOPEC
&EspeciallyWallStreetIntermediaries
"Trading"Oil&TheHorseTheyRodeInOn

All Fucking Criminal Motherfuckers- Let Them Suck A Gas Pipe

Thu, 12/11/2014 - 00:33 | 5539392 MontgomeryScott
MontgomeryScott's picture

I'll just sit here, waiting for the inevitable reposession of the fully-loaded 4x4 vehicle from the guy who thought that going to North Dakota to make a fortune quickly was the correct path for the future of his family. I TRIED to warn him...

THIS, and the blatant and inalienable dumping of all the fracking waste into the aquifiers across the former 'breadbasket of the world' by those who were seeking a 'quick fix' to the 'ECONOMIC ISSUES' by raping the gut-rock for a night in Vegas.

The bones are truly being picked clean, now.

The best intentions, when misdirected and not well-thought out, lead to all types of unintended consequences. It is NOT a reason to curse the people who bought the lies, though.

Ron Paul thought that working 'within the 'system' could be somehow successful. He was obviouslyWRONG, but I do not CURSE HIM for his frailty and false faith. RATHER, I tend to think that he could not believe the enormity of the lies that he and everyone was being told.

 

 

Thu, 12/11/2014 - 00:48 | 5539418 ThirteenthFloor
ThirteenthFloor's picture

Falcon -> lower oil combined with arbitrated gold and silver prices starting in Feb. clean the toilet of some US oligarchs shit quite nicely. Could that be a plan from some off shore group.

Wed, 12/10/2014 - 20:39 | 5538770 ultimate warrior
ultimate warrior's picture

Exactly! Malinvestment has infiltrated the energy sector and it needs to be corrected. The consequences of reckless FED intervention has caused these malinvestments and the sooner they are corrected the better. Unfortunately people will go out of work but eventually the chickens come home to roost as they say.

Wed, 12/10/2014 - 22:18 | 5539051 F-Tipp
F-Tipp's picture

Every time I see one of these articles on ZH I just imagine how much oil exposure the author has in his portfolio. Maybe we'll all be saved if oil prices could just get up to $200 per barrel. Think of all the economic stimulus this would create!

edit: Also - remember oil was $140 per barrel in 2008, dropped and rose back to $110. This is far from over.

Thu, 12/11/2014 - 07:29 | 5539689 TruthInSunshine
TruthInSunshine's picture

Oil fell to $33/barrel in 2009.

Oil fell to $10/barrel in 1999.

Wed, 12/10/2014 - 21:04 | 5538823 Thom_333
Thom_333's picture

Who told you economic warfare or warfare in general would be a picnic in the park. Creative destruction may not be all that is it made out to be.

Wed, 12/10/2014 - 21:44 | 5538935 stant
stant's picture

Uber prostitutes!

Wed, 12/10/2014 - 22:00 | 5538995 americanspirit
americanspirit's picture

What all the high priced planners don't get is that almost nobody has a stake in America anymore. Hey - lose 9 million well-paid jobs? I don't have one of them. Stock market crashes - I've been out since 2008. Government tax revenue base collapses? The government does nothing for me - what do I care. All I really care about is seeing this whole system come crashing down, with the hope that something better might arise. Good luck to us all on that front.

Wed, 12/10/2014 - 23:15 | 5539230 TheReplacement
TheReplacement's picture

Exactly.  How long has ZH been complaining about rigged markets and CB manipulation?  Well, if $1/B oil breaks it all up then bring on the cheap dinosaur bones baby.

ZH, you are getting what you want.  Stop being a bitch.

Wed, 12/10/2014 - 20:32 | 5538747 Paveway IV
Paveway IV's picture

"...Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street..."

Wait a sec... we already have all of those. Is this some kind of trick question?

Wed, 12/10/2014 - 21:33 | 5538906 Usurious
Usurious's picture

bingo..........and isn't that we have been waiting 5 yrs for??

its their system. I hope it crashes into nothing......from there, we can build a new system.......

Wed, 12/10/2014 - 20:33 | 5538749 nmewn
nmewn's picture

"Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street."

So you're saying there is an upside ;-)

Wed, 12/10/2014 - 22:11 | 5539031 noben
noben's picture

Yes, Virginia. Potentially there is a Santa Claus.

Wed, 12/10/2014 - 22:52 | 5539149 nmewn
nmewn's picture

Yes, Ponzi-Claus...lol.

There was never any immediate reason for oil to be $100 a barrel, the speculative oil price bubble has now burst. Another example of a closely watched, highly regulated crash into a wall.

And no one saw it coming ;-)

Wed, 12/10/2014 - 20:33 | 5538752 AdvancingTime
AdvancingTime's picture

Dropping oil prices add a new surprising new dimension to the stability of the world financial system. While often heralded as a godsend to the economy and the end consumer we must remember lower prices hurt both producers and those in the business of oil exploration, drilling, and sales. 

 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. The money flowing in from other countries in search of a safe home screams of a bigger problem! When a strong shift in currencies occurs someone usually gets hurt and this can lead to bankruptcy, default, or contagion.  

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

Wed, 12/10/2014 - 20:37 | 5538766 Rentier88
Rentier88's picture

Good for me as it is one of highest expenses per month and even then is only at about $150 a month I spend on gas.

Wed, 12/10/2014 - 20:47 | 5538784 cowdiddly
cowdiddly's picture

Say hello to Mom and Dad for me.

Wed, 12/10/2014 - 20:55 | 5538804 FredFlintstone
FredFlintstone's picture

Maybe he has a Winnebago

Wed, 12/10/2014 - 21:21 | 5538850 SHRAGS
SHRAGS's picture

"When I was eight years old, my home ran away from me!"

 "Ah, don't you mean you ran away from home?"

"No, we lived in a covered wagon, and I fell out the back"

Ringo Kid & Dr Tex Rorschach, Frontier Psychiatrist, Wayne & Shuster [mp3]

Wed, 12/10/2014 - 21:22 | 5538864 FredFlintstone
FredFlintstone's picture

Reminds me of a certain Mel Brooks movie

Wed, 12/10/2014 - 21:32 | 5538889 SHRAGS
SHRAGS's picture

If you like that, try their other famous skit: Rise the Blood off my Toga. [mp3] It still cracks me up every time!

Wed, 12/10/2014 - 21:47 | 5538951 FredFlintstone
FredFlintstone's picture

Danke

Wed, 12/10/2014 - 20:49 | 5538791 dirtyfiles
dirtyfiles's picture

what is good about spending less and have less income to spend less?

Wed, 12/10/2014 - 20:40 | 5538769 ebworthen
ebworthen's picture

Trying to watch NBR (National Business Report) on PBS and it has morphed into CNBC.

Tyler Matheson, Becky D'Angelis, all the stock pumpers - and sponsored by Street.com (Jim Cramer and Stephanie Link).  How sad.

Guess they are eager to get all that progressive government employee money into their stock portfolios.

The price of oil could not be sustained because the worldwide economy sucks ass.

Wed, 12/10/2014 - 20:44 | 5538776 i_call_you_my_base
i_call_you_my_base's picture

It's funny, I occassionally listen to NPR on my commute and they are among the biggest US economy / stock pumpers in all of media.

Wed, 12/10/2014 - 20:48 | 5538783 ebworthen
ebworthen's picture

Oh yeah, true.  They really appeal to the progressive crowd with cushy .gov jobs in big cities - and the rose colored glasses perspective that together - government and the corporatocracy will make our lives better.

Guess you can believe that if you make +$100K for shuffling papers and disappearing emails.

NBR used to be independent and a no-nonsense jounalism approach to business reporting.

Since CNBC took it over it is a re-hash of the CNBC market pumping of the day.

Wed, 12/10/2014 - 20:59 | 5538815 i_call_you_my_base
i_call_you_my_base's picture

Absolutely. The NPR demographic is wealthy city-dwellers, largely on the female side. All people with 401Ks and investment portfolios. And when they cover business, they'll talk about non-profits and bullshit apps that no one wants. That's those supposed 'intelligent' peoples' perspective of "business". A complete distraction from the reaity of corruption and malfeasance. The amount of horseshit is incredible.

Wed, 12/10/2014 - 20:56 | 5538805 disabledvet
disabledvet's picture

This actually makes sense to me. "Falling oil prices are bad because they show the recovery to be a fraud."

To argue "falling oil prices is bad" just means you're some coked up day trader who needs to move a shit ton of debt.

There is no such thing as too much oil at too low a price for an economy. Just look at 1986 as an example. Was the market complaining when oil hit eight bucks a barrel? Nope.

Nor was the economy.

We were producing 800,000 jobs per report back then. Now we're supposed to be overjoyed at 300,000.

Bwhahahahahahaha. "Low oil prices are bad." The entire energy complex has collapsed....not just oil. Why is oil so special? I say "only in your mind." Oil is quickly heading to 30...and then three.

Interesting that gold and silver are rallying...

Wed, 12/10/2014 - 21:03 | 5538822 i_call_you_my_base
i_call_you_my_base's picture

All true, although back then, before financialization, GDP from finance wasn't 20%.

Wed, 12/10/2014 - 21:06 | 5538829 Bollixed
Bollixed's picture

This whole article is whacked.

Since it seems every corporation on the planet is doing nothing but stock buy-backs this whole "lower oil prices are bad" meme makes little sense. In a world where corporations no longer expand via capital expenditures used as fertilizer for growth, relying soley on the energy sector for growth is a fools game.

Bring on the low prices and let the real economy try to get some legs under it for a change.

Wed, 12/10/2014 - 22:02 | 5539002 logicalman
logicalman's picture

Hey, maybe we could try 'supply and demand' instead of 'speculate and leverage'

 

Thu, 12/11/2014 - 00:21 | 5539369 fuu
fuu's picture

BOOM!

Wed, 12/10/2014 - 21:53 | 5538967 Freddie
Freddie's picture

TV and Zollywood is for retards who support their serfdom by watching the brainwashing electrons.  Get a clue.

Wed, 12/10/2014 - 20:49 | 5538790 boattrash
boattrash's picture

The price drop is not good for Boattrash's economy!

Wed, 12/10/2014 - 20:50 | 5538795 foodstampbarry
foodstampbarry's picture

Last one out of the tar sands in Alberta turn off the lights.

Thu, 12/11/2014 - 18:15 | 5541836 Abbie Normal
Abbie Normal's picture

I guess my RCMP buddy was smart to turn down the 6-figure job as rent-a-cop up there.

Wed, 12/10/2014 - 20:56 | 5538806 Caveman93
Caveman93's picture

Hyper-deflation.

Wed, 12/10/2014 - 21:18 | 5538854 venturen
venturen's picture

actual capitalism will sort it out. Having oil go up 500% and then think only good can come from it...is delusional 

Wed, 12/10/2014 - 21:26 | 5538881 Calmyourself
Calmyourself's picture

Followed by.... class, class....

Wed, 12/10/2014 - 20:57 | 5538810 Kreditanstalt
Kreditanstalt's picture

"Are much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street."

 

If those are cheap money-induced misallocations of capital, bring it on...!

Wed, 12/10/2014 - 20:59 | 5538812 directaction
directaction's picture

C'mon, man!  No list?  

Wed, 12/10/2014 - 21:10 | 5538839 Calmyourself
Calmyourself's picture

"Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street"

Starting to sound like globull warming, if prices rise unemployment, crashing economies, if prices fall same..  Could someone give me the perfect price please?

Wed, 12/10/2014 - 21:19 | 5538857 himaroid
himaroid's picture

You lose your damn lube just when you really need it.

Wed, 12/10/2014 - 21:39 | 5538921 cornflakesdisease
cornflakesdisease's picture

Energy was the one shining spot in the US economy.  Bye bye.  Say goodbye to new housing in Texas, Canada, the Dakotas, etc, furniture sales, remodeling, car sales, and on and on.  All toast.

Wed, 12/10/2014 - 21:41 | 5538924 q99x2
q99x2's picture

Guess that nuclear hissy fit between Obama and Russia is real. All I want to do is to get a job teaching in Alaska. Now the world is ending. Just my luck. I never get to finish anything. Well except for the 3 wives. At least I completed them pretty much. Although that one that was falling out of the garage rafters...never did find out what happened to her.

Wed, 12/10/2014 - 21:40 | 5538927 Amerikan Patriot
Amerikan Patriot's picture

'Economically astute' Zero Hedgers prefer high prices. 

Everyone else likes low prices.

Thu, 12/11/2014 - 00:07 | 5539345 silverer
silverer's picture

Then there's the crowd that are "entitled".

Wed, 12/10/2014 - 21:46 | 5538943 db51
db51's picture

Bye Bye Mother Fuckers.....and maybe the $ 4.40/gallon diesel required to run our business.

Wed, 12/10/2014 - 21:51 | 5538961 Leraconteur
Leraconteur's picture

So now Tyler thinks that the Financial Markets should be protected from low oil prices, or else we will all suffer?

Wed, 12/10/2014 - 22:05 | 5539008 logicalman
logicalman's picture

Don't move, or the n**gg** gets it!

 

Thu, 12/11/2014 - 00:15 | 5539362 Ginsengbull
Ginsengbull's picture

Do what he say!

 

Pleeze do what he say!!!

Wed, 12/10/2014 - 22:10 | 5539025 Freddie
Freddie's picture

No.  I think Tyler and the ZH community would like to see a free market not manipulated by traders, govts plus in the case Saudi Arabia.   A free market with real price discovery is less volatile.

This is designed to destroy Russia and push Putin out.  Then the Suaids can clear out Syria and run their gas pipeline through Syria.   Why now?  I think it is because the Saudis oil fields are starting to go into terminal decline.  The Saudis are highly dependent on oil revenue and nat gas will not carry them when Ghawar dies which may be soon.

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

When Ghawar dies then the House of Saud is dead meat.

Wed, 12/10/2014 - 21:58 | 5538979 Jack Burton
Jack Burton's picture

Oddly enough, a desire to sink Russia, may have been a bit too clever by half. The Neocon Zionists in Washington forgot that the only real economy recovery in the USA was the Oil and Gas sector, feeding off of fracking made possible by 100+ dollar oil and ZIRP Capital. Indeed, Russia is in a tail spin having now seen income slashed, yet the USA had also become an energy producer of some note. Fracking produced the good paying jobs, ladies left bar jobs and drove water and sand trucks for north of 60K a year!  The only real economy growth was energy related, now it is in danger. No matter the fairly tails people long fracking may tell here, sub 60 dollar oil meaning way sub 50 dollar well head, just doesn't even allow frackers to service their massive junk bond debt! High yield! Remember, much fracking debt is High Yield Junk! There you go, tens of thousands of jobs, maybe 100K plus jobs in the crapper.

Wed, 12/10/2014 - 22:11 | 5539032 Mr_mud
Mr_mud's picture

Not just jobs, high paying jobs.

Thu, 12/11/2014 - 00:12 | 5539353 Ginsengbull
Ginsengbull's picture

Temporary.

Wed, 12/10/2014 - 22:15 | 5539044 Freddie
Freddie's picture

Well a lot of Republicans got a wake up call today by getting sold out by the GOP.  The are the same as the Dems and Obama.

Frackers are dead meat.  This happens in cycles in energy.  Wells and machinery will dry up because drillers and others will go broke.  It will take a year or two but prices will start coming bacl. 

Frackers hoping to wait it out will lose because global demand is soft.  If we had normal demand then the bottoming process would be faster followed by a rebound.  I do not see a fast rebound because demand is down.  If China's ponzi scheme starts to fall apart like BABA then demand could go lower.

Wed, 12/10/2014 - 21:58 | 5538985 Mr_mud
Mr_mud's picture

I'm pretty confident that most of the commenters that disagree with the article didn't read it.  It's not that lower oil prices are bad per se, but the way we got there (a 40% decline in a couple months) does not allow businesses to adjust and deal with the change before it creates big problems.

Wed, 12/10/2014 - 22:17 | 5539058 fzrkid
fzrkid's picture

Comapnies had to adjust s the prices were increasing UP, they can adjust on the way DOWN as well.

Thu, 12/11/2014 - 00:08 | 5539349 Ginsengbull
Ginsengbull's picture

Adjustment is a cost of doing business.

 

They should adjust their attitudes while they're at it.

Wed, 12/10/2014 - 22:24 | 5539079 slowimplosion
slowimplosion's picture

Sure, it's ok for prices to RISE at a fast clip, but not ok for them to fall that way.

 

the article doesn't bother to mention the non insubstantials benefits, nae HUGE benefits to the economy of falling energy prices.  I'll trade a few jobs for a boatload of cash in consumer pockets rather than energy company pockets any day.

Thu, 12/11/2014 - 00:08 | 5539343 Ginsengbull
Ginsengbull's picture

Well boo-muther-fucking-hooo for the businesses.

 

Are they going to credit back their fuel surcharges?

 

Oh, too late, they already spent that on STOCK REPURCHASES.

 

They want all the money, and all the oil.

Thu, 12/11/2014 - 00:16 | 5539359 silverer
silverer's picture

I think he means businesses like the local plumber, barber shop, carpet companies, pizza places, you know. Not the top 10%. People with no money or jobs stretch out their haircuts, don't buy new carpet, etc.. It's a trickle to hell effect they don't talk about on TV, because you might not want to support Marxism anymore.

Wed, 12/10/2014 - 22:14 | 5539039 Arthur Schopenhauer
Arthur Schopenhauer's picture

Right now some members of Congress are once again doing Wall Street's bidding – and putting the economy at risk. They’re taking advantage of a must-pass budget bill to attach an amendment that would let the banksters go back to gambling on derivatives. You guys know all about that, don't you? The exotic financial instruments that blew up the economy in 2008? The thing that stuck all the taxpayers with the bill for cleaning up Wall Street's mess? This latest amendment was literally written by Citibank's lobbyists. You may have heard that a bipartisan budget agreement is now moving through Congress. But there is still time to tell your representative to stand up and stop this dangerous attempt to rig the rules for Wall Street.

The main switchboard is 202-224-3121

Or just be patient... and wait for it to happen.  Then you can blame the poor for defaulting on their 30k mortgages for the next 50 years.

Wed, 12/10/2014 - 22:16 | 5539047 Freddie
Freddie's picture

Well Congress or the Republicans sold out Replican voters today to on Obaal's amnesty.  Liars and traitors - all of them in Congress and the White Hut.

Wed, 12/10/2014 - 22:21 | 5539068 fzrkid
fzrkid's picture

Lower energy costs are good for the market. Is the author telling me oil at ZERO would be bad for the economy? Imagine free gasoline, I think the transports would like it..

 

The speculators are the ones crying not the rest of us. THis may disrupt some folks but it will take the speculators out and let energy prices stabalize

Wed, 12/10/2014 - 22:22 | 5539071 The Shape
The Shape's picture

Meh, they'll just print again and we'll still all be here holding our johnsons expecting the big one. And then they'll print moar.

Wed, 12/10/2014 - 22:32 | 5539092 rickv404
rickv404's picture

This is absurd. This is not a collapse in the price of oil. It's deflation, courtesy of the Fed, which is what we need. Oil producers will charge what they need to charge to remain in business. Unfortunately, it's not going to last, because Washington keeps on spending. Early next year, prices are going to climb again as the real threat to the economy returns in full force - inflation. A 1.1 trillion dollar spending bill has to be paid for. You let inflation collapse this economy, oil producers truly will be hurting, from a sudden lack of customers. 

Thu, 12/11/2014 - 00:06 | 5539340 silverer
silverer's picture

Deflation is not a bad thing, except when you are 18 trillion in debt. The plan was to pay off borrowed money with cheaper dollars via inflation going forward (that also sucks, as it drains the value of money anyway, but is sustainable if not beaten to death as we have witnessed). But deflation makes those loans absolute monsters. It's gonna be interesting. For sure.

Wed, 12/10/2014 - 22:42 | 5539120 I Write Code
I Write Code's picture

Piffle.  So it was a bit sudden.  It's also not over.  I'll let you know in about a year.

Wed, 12/10/2014 - 22:48 | 5539143 Nue
Nue's picture

In life the why matters more sometimes than the what for example. A Woman wakes up in a hospital bed and the doctor stands over her and says "Good News and bad news Mrs. Smith. The good news is you've lot 40 pounds. The Bad news is we had to amputate both your legs."

Wed, 12/10/2014 - 23:05 | 5539192 flyonmywall
flyonmywall's picture

One of the very last steps before collapse of Nazism and Communism, and most despotic regimes, was the fact that the people in charge started believing they were omnipotent, and started believing their own rhetoric and lies. The masses had been duped long before.

And so it will be with the Neocons, because they are actually starting to believe their own bullshit, and nothing else apparently matters.

It will be fun to watch.

 

Wed, 12/10/2014 - 23:21 | 5539247 theyjustcantstop
theyjustcantstop's picture

perfect timing, in 18-24 mo.'s, the newly amnestied will be hired by the BIS/saudi frac. oil corp..

 

Wed, 12/10/2014 - 23:23 | 5539254 TheReplacement
TheReplacement's picture

Gave the article a 1.  Woulda gone lower, much lower, if possible.

Wed, 12/10/2014 - 23:37 | 5539283 Porous Horace
Porous Horace's picture

Hmmm... lower oil prices are bad for the economy? OK. Any fool can see that higher oil prices are also bad for the economy. So, the price of oil where it was before the latest decline, and only that price, is good for the economy. Who would have guessed that the price of oil has so much in common with military spending?

Thu, 12/11/2014 - 00:01 | 5539332 silverer
silverer's picture

It was never the price of oil that hurt us when the economy was in good shape. Oil prices over the years have not been that far off inflation. $0.48 in 1970 is now $2.94 according to the inflation calculator using gov. stats. The pain comes from allocation of resources to non-productive sectors and all the financial games played by gambling away the value of the dollar. That bill is the biggie, not the oil.

Thu, 12/11/2014 - 00:04 | 5539335 Ginsengbull
Ginsengbull's picture

Gas should be free.

 

Oil was supposed to pay for the war in iraq.

 

"No blood for oil!"

 

Well, you got your blood, now where is that oil?

 

Don't tell me you spilled it in the gulf.

 

Refine that crap, and deliver the good stuff. 100+ octane. Free.

Thu, 12/11/2014 - 00:27 | 5539381 Serenity Now
Serenity Now's picture

Do none of you understand what a deflationary spiral is?  You hate businesses and seem to want them to suffer, but you completely ignore that businesses employ people.  When businesses suffer, people lose their jobs, and therefore their income, which means they won't have money to spend at the next business, etc.  It will be devastating to the economy.

That being said, economics doesn't care whether it's good or bad for the economy.  It simply is.

Peak oil occurred around 2006-2008 (hence the crash).  We are living in the collapse, right now, although the down slope is a jagged one and might last a really long time.  There will still be ups and downs, because the business cycle will still apply.  But overall, deflation is the new normal.

I wish CrashIsOptimistic was here.

Thu, 12/11/2014 - 05:55 | 5539642 Leraconteur
Leraconteur's picture

You Peakers read all data as proof of thesis.

If there is excess oil, oil has Peaked.

If there are shortages, oil has Peaked.

If oil DROPS in price, oil has Peaked.

If oil RISES PARABOLICALLY in price, oil has Peaked.

Your stupid, it burns.

Thu, 12/11/2014 - 01:21 | 5539467 Dingleberry
Dingleberry's picture

FUCK THEM ALL!!!

Oil was too high for too long.

(Sarcasm alert) The fed said there was NO inflation, and hasn't been for YEARS...so how in the fuck can oil rise like it did? 

Somebody is fucking lying up in here!!!

They stole from all of us, and wall street levered the shit to the moon.

They can all burn in oil for all I care.

Thu, 12/11/2014 - 03:25 | 5539567 Solio
Solio's picture

No companies will be in business to clean up the chemical mess that they have left everywhere. The polluted aquifers won't heal.

Thu, 12/11/2014 - 07:14 | 5539677 RECISION
RECISION's picture

"Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street."

You say that like it is a bad thing.

And anyway... I thought they were raising money for "capital expenditure" via QE. 

Money for nothn and yer chicks for free...

Thu, 12/11/2014 - 07:43 | 5539700 matagorda
matagorda's picture

Of course in hindsight it seems perfectly clear that any sector with well-paying entry level jobs must be obliterated.

Thu, 12/11/2014 - 07:48 | 5539708 LoveInflationLo...
LoveInflationLoveVolatility's picture

Well I am anyways being paid peanuts, taxed on whatever little I earn & some more on whatever little I spend. So if it is cheaper to fuel my car and bike it is a small but useful consolation. Al Maktoums of this world keep reminding all the alternative energy sectors that it still costs them 1$ to produce oil. So screw you Tyler I would love to see crude below 10$/barrel. Let people cry "They took our jobs, key kook kour kobs, ku-kuch-ku"

Thu, 12/11/2014 - 10:08 | 5539986 Ms No
Ms No's picture

People will care if the cantagion evaporates everyones 401K and their job is gone, not one minute sooner. 

Thu, 12/11/2014 - 10:08 | 5539987 Last of the Mid...
Last of the Middle Class's picture

That is the purest of propaganda form and for the elite to tell you that oil prices should be higher. Right up there with we need a weak dollar to stimulate international trade. Even if the whole thing crashes, artifically held higher prices have nothing to do with a strong economy. The whole fucking point is to let the weak and inefficient die off such that in their place stronger companies form. TBTF in another fuck me dress is all this is.

Thu, 12/11/2014 - 10:17 | 5540005 DonGenaro
DonGenaro's picture

you had me at "total nightmare for Wall Street".

i'm tearin' up.

Thu, 12/11/2014 - 10:34 | 5540060 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

You can't even have this conversation without talking about the slowdown in China.  They are stockpiling oil like crazy right now. 

When (if?) their economy really hits the skids, oil prices will have a VERY hard time catching a bid for a long time.

Thu, 12/11/2014 - 14:13 | 5540815 hedgiex
hedgiex's picture

Yes. Oil is the crucible to real developed economies. It now depends on how the financial economy/global markets is going to play it. Either it exacerbates the pains in the real economies or it conterbalance the deleterious effects.

Current market sentiments do not appear to have the testicles to long oil when it can suck the juices from the immediate fallouts into the shale space and other peripheries. This is evident in the short time frame of a 40 plus % decline. (No significant countervailing support).

Arguably, this is more than just a sectoral creative destruction. A further bonfire to the vanities of the paper creators. At best, a slow tortuous downward spiral that makes Japan past 25 plus years looks like Hollywood.

 

Fri, 12/12/2014 - 07:45 | 5543498 Billy Bob101
Billy Bob101's picture

Our only hope is higher oil prices?  Somehow that doesn't compute.  Supposedly, we have a market for oil and that should allocate the oil at an acceptable price to the users.  No?  I guess we have a TBTF economy.  What about the rest of us?

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