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"Massive Correction" In Energy Stocks Coming; Why The US Won't Bail Out Its Oil Industry
Having predicted oil prices below $80 in 2014 at the beginning of the year, Saxobank's Steen Jakobsen has a leg or two to stand on when he warns of a "massive correction" in energy stocks andthe drop in prices will rapidly become a headwind for the US economy, adding that "it will subtract 0.5% from GDP, bare minimum." He further notes that due to the strategic importance of the oil industry to America, he suspects the government will attempt (a likely highly unpopular) bailout of the Shale sector. However, as Raul Ilargi Meijer notes, there is a problem for any bailout (aside from public angst), in that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil...And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.
An economist who correctly predicted the fall in oil price this year has told CNBC that the U.S. government could look to bail out its energy sector in 2015 as the commodity’s low price starts hitting the country’s economy. “The U.S. energy sector is clearly important,” Steen Jakobsen, the chief economist at Danish investment bank Saxo Bank, told CNBC Wednesday. “They are paramount to the long-term strategic issue that the U.S. will be self-dependent on oil.”
[..]
Jakobsen believes the lower [US energy] could soon become a headwind despite gas becoming cheaper at the pump for U.S. citizens. “It will subtract 0.5% from GDP, bare minimum,” he said. “There’s a precedent here, back in the 80s we also had an oil crisis and that led to bank recoveries.”
He added that oil companies are in for a “massive correction,” similar to the downtrend seen in mining stocks, explaining that exploration was getting “hugely expensive” with energy majors having little free cash flow available. The S&P 500 index has clocked gains of around 11% so far this year but the energy sector within the benchmark is currently down nearly 12%.
One of Jakobsen’s “outrageous” predictions this time last year was for the commodity to drop below $80 per barrel which was achieved in November with oil now trading at around $65. BP sounded the alarm on Wednesday morning by saying that it is implementing a cost-cutting program due to the tumbling prices. Any potential bailout for the sector, or even the banks that lend to them, would prove vastly unpopular in the U.S.
As The Automatic Earth's Raul Ilargi Meijer explains, a bailout remains unlikely...
I don’t think public anger would be the major issue, and I also don’t think the industry is not “systemically important enough” (that seems a bit ignorant even for a ‘senior economist’, the entire edifice runs on oil).
I think the problem, the reason why America cannot bail out its oil industry, at least not overtly, lies elsewhere. Bailing out the US housing industry is one – expensive – thing. Bailing out Wall Street banks is another – closely related, and infinitely more expensive – , but still close. The latter involved bailing out foreign banks, but they’re still primary dealers, or in other words, part of the ‘family’.
Oil is a whole different piece of cake. The Fed or Treasury could try and lower exploration costs, or something in that vein, but in the end the only measure that would be really effective is raising revenue, and that can only be accomplished with higher prices. And since oil prices are set globally. that in turn means that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil. And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.
It’s of course a ‘curious conundrum’, to find that by helping your own you also help your ‘enemy’. But it is, from where I’m sitting, a very real issue when it comes to oil. On top of that, there’s of course the fact that the US shale oil industry is already falling to leveraged bits, and has never been a viable industry, just a land speculation Ponzi. And how or why could the US bail out that kind of scheme out, and at the same time, don’t let’s forget, save the whole financial world from the fall-out of what’s happening to oil? What to do when that plunge starts to infect stocks and bonds, which seems an inevitable next step?
I am of course ready to stand corrected, but I simply don’t see what Steen Jakobsen suggests. Oil is too shattered an industry within the US, and also, though in a different way, globally, to be bailed out and saved by the Fed’s bell.
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Because they have so many tax breaks already and still have record cash flow?
A guess...................
yawn. Theyll just replace the oil money missing from the GDP print with cocaine and hookers like in Europe. Problem solved. the show must go on
I am still saving money heating my home with coal and have a oil burner as a backup.
Considering the fossil fuel industry has been endlessly bailed out worldwide by .govs of all stripes since the dawn of time, seems rather unlikely they won't continue to be.
They saved auto companies, insurance companies, and TBTF detested banks. Why not big oil? I don't think the sheeple will revolt until they "save" lawyers. The ABA.
Great question. One I find very interesting considering all the time my brothers and sisters in arms have spent protecting the interests of the global oil cartels.
I need more popcorn.
They will not bail because...
No Tribal Money at risk.
Gotta save those Apaches;)
"No Tribal Money at risk." --- LOL.
Define money.
Full faith and credit.
A correction is coming? For F sake Man, look at your Bloomberg ... Energy related equities are already down HUGE ... thanks for nothing
Exactly...
when the shoeshine boy has investment advice...
Follow the money. Trace the Jews.
An American, not US subject.
what really pisses me off is how these dick wades talk like there is this entitled money from thin air for any select group for a bail out. really? and where does this money come from? merica is so fucking broke it is unbelievable that this ponzi is still stripping the world by selling treasuries. a true spooner with entitlement stamped on his forhead. another ivy leaguer from another reality-fed reserve entitled money for nothin thinker...
this fucker is goin down-tic toc, ha...
"...where does this money come from?"
Theft. Actually, it is more of a question of where the production that they steal comes from: You, me, we and our plow.
Given a certain amount of production against a certain amount of money, prices will generally be whatever they are. If the money supply can be expanded, "printed," then those doing the "printing" can take and consume production, wealth, ahead of those that actually do the producing.
This shows up as price-inflation in the economy.
An American, not US subject.
Maybe, just maybe, they are trying to shake out "weak" hands on the oil trade. Not sure who that entails, but is as good a guess as any.
Seriously, the marky could blast back up to the 90's in a few weeks. Sometimes the more dramatic the fall the quicker the slapback.
The fall,leaves a "liquidity vacuum" of weak resistance going back up. No points of control or reasonable volume by price, so the retracement might be the next best something for the big trading firms to pay the boners, I mean bonuses to.
"Oil is too shattered an industry within the US, and also, though in a different way, globally, to be bailed out and saved by the Fed’s bell."
The Fed won't save the shale industry (not the big ones and definitely not the jillions of small ones), THEY WILL SAVE THE BANKS, should the impact start to threaten them at a systemic level (or even an "oh, we're scared so give us moar" level.
And they'll do that no matter how politically ugly it might be.
Interesting. Get ready for the "main event" as these cronies canibalize themselves.
In the Wall Street corner, give it up for the primary dealers and their accountants and lawyers...
In the consumable calorie corner, fresh out of neverending wars, please give a big hand for the MIC and their Marines and mercenaries.
It's time to ruuuummmmmbbbbllleeee!!!!!!
I don't think any of them will begin canabalizing themselves while there is still any wealth and savings (more easily accessable consumable calories) to steal from regular working people to steal and squander. I think we are still a pretty good ways away from the 'main event'
Yep.
The MSM will just call it some think else.
And we the sheeple will continue to safely graze.
Heating with coal? Terrorist!
Large Intermountain West city trying to ban wood burning stoves to "save the environment".
Wouldn't have anything to do with the Electricity/Natural Gas monopolies in town of course.
*cough*
actually 'wood smoke particulation' is some nasty stuff. people with wood stoves should have good filters; if only for the sake of their neighbors. burning wood in a rural environment is one thing. in the cities it really makes for some nasty outside air.
If you know how to run your stove correctly, there is absolutely no need for filters, catalytic convertors, etc.
The problem is that most people do not understand basic combustion principles and just let the stove smolder with a load.
Just look at all the unnecessary chimney fires or the air quality during an inversion.
HAHAHAHA!!!! ROTFLMAO!!!!
You'd had better believe that a bailout is coming....it's being planned right now. With Republicans coming on board in the Congress like a red tsunami and marginal Democrats who survived in the energy states....you bet'cha inflated Yellin dollar that a bailout is a'brewin' !!
There'll sure as shit wrap it up in the flag and throw a patriotic name on the bill like...."The National Energy and Security Act".....or other such bullshit.
But mark my word.....when we hit recession next year and banks are failing and Sears and other Big Box retail stores liquidate.....the oil and gas bailout is coming.
I have to agree and add when has Ilargi been right about anything?
the oil industry is hugely subsidized by the military industrial complex, the welfare state, and the fascist banking establishment. saying that there will be no bailout is laughable.
Yep. The bankers would sooner get the shaft than these guys. Just think about the minions of each group. The Bankers will send out their accountants and lawyers to do battle, while the MIC sends out their Marines and Mercs (former Marines now at "private" security firms).
Like I said above, I need more popcorn for this one (hey, at least this is a "circus" I want to see).
God, what bullshit.
There are billions of dollars of private equity and public company capital (Exxon, Chevron etc) ready to replace the high-yield debt and bolster the equity of worthy energy companies in the US.
Thsoe who have "mal-invested" in $90/bbl-production cost shale plays are fucked. Those who have good projects but poor capital structures will be "rescued" by private means. This hysteria is just unwarranted. Texans have been going bankrupt on stupid projects my whole career, yet the Coyboys still travel to Philadelphia on Sunday.
The American economy is a fat sow smothered by the piglets of failed industry trying to latch onto her bloated teats.
Everyone gets a bailout! Most are kept secret though. You will know they got bailed out when the CEO's all start to appear on TV acting extra smug. That's how you know they have attached to the gubmint titty. "This administration is so anti-business(suck, suck, suck, suck). They just hate innovation(suck, suck, suck, suck...nap)."
all while saying "if the gubbermint would get out of the way things would be great!" agreud, 4-teated "udder" bs.
B7 GramRocks , haha... sadly, they only allow one up arrow
Whats to stop the FED from doing QE4, printing money out of thin air and covering the banks losses due to lower oil prices??
http://www.zerohedge.com/news/2014-12-11/house-votes-11-trillion-cromnib...
I would not bet against the US Gov's intentions - i.e. energy safety.
Of course they'd bail them out!
Much cheaper to nuke Saudi.
Russia will take care of the Sauds
Russians take their revenge served as cold as winter.
Bless them. Funny how we rely on Russia to revenge 911.
If anyone follows Mr. Oil, I wonder how Mr. Pooplava is faring?
Raise the oil and gas depletion allowance! For example, enough so it becomes a negative income tax.
Sorry Raul, the current administration won't bail out the shale industry (the current big oil guys don't need a bail out) because it NEVER endorsed the shale industry. That industry grew IN SPITE of the EPA, White House, Dems and greenie efforts to scotch it. So, the Pres et al will gladly watch it slowly burn, appeasing their base and shrugging their shoulders (which, BTW, would be a free market 'accident' for these clowns, but it would be the right thing to do IMHO becuase that is what Risk/Reward is all about)
of course the companies will get a bailout. national security etc.
the common peasant will have no such luck.
A massive correction in energy stocks is in the offing? Umm, like, where has Rip Van Winkle been since August? A massive correction has occured and is ongoing.
the big tbtf international banks .gov got your back, manufacturing energy go fuck off.
"The Fed or Treasury could try and lower exploration costs, or something in that vein..."
come again?
So now they can use EBT for the geophysical expenses?
yeah, he is making no sense
I thought that having bailed out the banks the US G had learned its lessons : no more bail outs!
Right????
This proves that Raul is clueless:
...since oil prices are set globally. that in turn means that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil. And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet...
Dude, buy a vowel or something.
Eerie . . . USO (and, even more, the equity indices) seemed to bottom the minute this thread was published, will be interesting to see if it was a temp short stop run thru 3:30 before an ending plunge, or if the bastard algos end in the middle of today's silly, silly range . . .
There is that silly term again... GDP.
The definition changes quarterly and tends to include hookers, cocaine, and sloshed around recycled welfare money.
The USG could conceivably subsidize shale oil production. That woud of course lower prices a lot further, hurting all the western supermajors in the process. It's a very slippery slope.
The other option is to knock out a few oil producing countries here or there. Russia is far and away the toughest target out there. So, maybe the infrastructure of Iraq could go out of business through ISIS, but that would anger the Chinese (who extract most of Iraqi oil nowadays)
WWIII is coming in all probability.
what a mess
any attempt to subsidize shale would drive oil down ... and, hello, unrest in Saudia Arabia and rest of mideast
imo any bailout would be part of "Shock Doctrine"
and politically possible ONLY if the stock market lower ... much lower
I can't prognosticate about what the lunatics will do.
Obviously we need QE4.... duh.
Oil industry bailout would require a moderate republican in the white house.
Somehow I think jeb bush's campaign coffers just got a lot heavier.
No bailout. Or if there's a bailout, it'll be for the banks that own the HY debt.
Just like no homeowners were "bailed out" by the gov buying up MBS.
Nope. They let this fall. Let the smaller players go tits up and the majors will pick their bones. Industry consolidation.
No brainier.
all the players are so leveraged that this controlled demolition might end up not so controlled. they are playing with fire.
Exxon, chevron, BP, shell, total all are no where near being over leveraged. XOM could pay off all their debt with cash now.
They're terrible companies when credit is cheap. They live for the spreads in the energy sector blowing out.
I hear BP is the most leveraged of the majors
by players i meant the banks et al. this thing might have consequences that will reverberate all across the board and then the genie is out of the bottle even if all the banks are bailed out, again. or worse, bailed in.
my point is, central banks can hardly manage this shitshow even with all this free money conjured out of thin air. i just don't have FAITH the government will have more success in controlling the situation when things go really volatile. there's no difference in their track-record, as your government is as federal as federal reserve.
Where was this idiot two months ago -- before many of the oil stocks CRASHED! Why come out of hiding now with most of the oil services stocks sitting at 52 week lows -- and call for a CRASH! In my mind the crash has already been let out of the barn door -- when I see this type of thing I can only conclude that this guy wants to BUY oil stocks. So I grabbed some OIH today. We are either going to get buyouts and mergers in this sector, or see the oil price back at $80 by next spring, or we will see the entire global financial markets collapse. As long as Al Gore flies around in his private jet, drives around in his big SUV, and turns the lights on in his huge mansion -- there will be a need for oil!
The contest is: Will the petrodollar break before Russia in the Zionist west's bankster war.
I think the answer lies in the run up of the dollar, as it enables the connected and "chosen" ones to increase the value of their wealth as they move it overseas, especially to Europe.
2015 is going to be "redonkulous."
An American, not US subject.
"I see dead sheeple."
Umm...coming oil stock crash? Things can always fall more but most of my energy positions have already tanked, See ECA for one
Will we see a "Cash for Gass" program?
off topic
How much effective US Aegis Ballistic Missile System is compared to other alternatives by Russians ?
Don't know. Maybe the captain of the USS Donald Cook has an idea.
got it .
Low price of OIL is geopolitics related to Wolfowitz doctrine
Vietnam War deficit spending causes excess dollars to flow through Asia to then return to U.S. to buy Gold.
Nixon pulls out of Bretton Woods in 71 going off Gold standard, and daring Europeans and others to buy American goods with their surplus dollars, instead of depleting American Gold stocks.
Floating of currencies between countries then comes into existence leading to dollar depreciation. Oil becomes more expensive.
In ‘71 OPEC states they will price oil against Gold.
In ‘73 Pan Arab’s launch strike against Israel in Yom Kippur war. War ends in Oct of this year.
Kissinger goes to Saudi and signs Saudi- American Oil deal. The petrodollar system is born.
·
It increases global demand for U.S. dollars
·
It increases global demand for U.S. debt securities
·
It gives the United States the ability to buy oil with a currency it can print at will
·
Saudi’s must recycle their petrodollars into Western Banks and Markets.
·
Saudi’s get front line military gear, access to markets, and guaranteed trans-shipment via U.S. military, especially the Navy.
·
OPEC is allowed to Cartelize
Petrodollar strategy is closely related to Z. Brezenski and Wolfowitz (NeoCon) doctrine. Eurasian political and military linkage must not occur. Europen Asian land mass must remain divided.
Russia must be broken up into smaller pieces, and their economy turned into one of mineral/energy extraction and dependency on foreign currency, especially with increasing foreign denominated debt.
Petrodollars recycled into western banks increases bank capital position and thus allows hypothecation of credit loans, and hence money power to control western civilization. Saudis get to buy goods worldwide as part of the deal, thus bribing their population into compliance.
Saudi’s are going to keep prices low because they are part of Petrodollar system, and said petrodollars are critical to American hegemony. Petrodollars flow into Western Zionist Banks, and hence Israel benefits. Petrodollars going into western banks and markets is the most important aspect of Saudi American deal. Note Pan Arabism has died concurrently with Petrodollar’s rise.
See link. He gets it mostly right, except does not understand bank /credit connection:
http://www.financialsense.com/contributors/jerry-robinson/the-rise-of-the-petrodollar-system-dollars-for-oil
Today, excess overseas dollars flow into U.S. Treasuries buying debt instruments (perceived as assets) instead of buying real goods directly from Main Street.
NIGHTMARE SCENARIO:
Why bail when they can Nationalize it?
If they pull that off, TEAM_USA will be able to generate enough Cash to balance their Budget; and maybe pay off their Debt...
Scary thought; but since they've a PetroDollar scheme going on, figure the US Bankers may make a run for the OilCos down the road.
Then all that's left are the KSA and its Petrodollar Partner, USA, effectively contolling OPEC and the Industry.
Don't give em any ideas!
Yep, 1) nationalize the oil cos by having the fedrill gubnant by all the common equity
2) then stiff the oil bondolders (serves the muppets right for not chasing higher risk under the fed ponzi)
3) Then a massive QE program a few months ahead so that the primary stealers can get paid to sell the gubnant's stake to the market.
SUCCESS!!!!
Steve Keen, in one of his Youtube Lectures, presented a Economic Simulation Model of our present System where it eventually collapses hard.
Wage Earners bit the dust first, then they followed by the Capitalists(which was a surprise) leaving Bankers as the sole "functional entity" taking everything.
I liked the idea of Public Banks featured by Ellen Brown in her book Web of Debt - w/an e.g., on ND's Bank supporting their own. Public/National(non-profit gouging) Banks andd Credit Unions started looking much more attactive to me since.
Tangental Topic; but just saw this on FB; BMW is going to
1) Make Plug-in Hybrid options available for all Models; and ...
2) Possibly put to production a Tesla Killer. 250~650 HP Gas/Electric Hybrid (like an i8) with a 350Mile range.
I'm sure with Toyota and Honda rolling out Hydrogen FCVs - probably cheaper than Teslas, BMW may do the same.
That should give us an outlet to be a bit less dependent on the Gasoline Line of Business for most of our daily driving needs, if the Oil-Overlords get greedy after wiping out cheap producers.
How many months will it take after Events #1 and the FCVs' roll out for Tesla to crash?
they could easily bail them out without helping foreigners by just subsidizing them with the diffeence between an artificially set oil price ($80 for example) and today's prices. i think thats how some agricultural subsidies work.
The military can subsidize "preferred" suppliers, by over-paying for strategic reserve replenishment.
Just enact a 10% oil import fee and se what happens.
No bailout needed just a $25/bbl tariff on OPEC oil imported to the US. Nothing wrong with that at all.
Correction coming??? My WLL shares are down 70%. I'd say that's pretty fucking corrected.
U.S. shale oil is being 'bailed-out' all the time with cheap zero interest rate loans. So what are we exactly talking about here?
I dont have the answer but you can bet whatever the solution is, its part and parcel to getting a giant dildo up the ass of the average american
"Bailing out the US housing industry is one – expensive – thing. Bailing out Wall Street banks is another – closely related, and infinitely more expensive – , but still close. The latter involved bailing out foreign banks, but they’re still primary dealers, or in other words, part of the ‘family’. "
as often, the Dollar Nexus hides behind the "foreign" primary dealers label. for US domestic propaganda purposes, and even the very critical author falls in this trap
stop this view. if anything is a UST primary dealer, then it's part of the Dollar Nexus. with two exceptions, they are all transnational megabanks
one exception is BoA which is a megabank but not that transnational, the other is... China
rant end