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The Oil Market Actually Works, And That Hurts
Submitted by Raúl Ilargi Meijer of The Automatic Earth
The Oil Market Actually Works, And That Hurts
Please allow me to revert back again a little to what I wrote earlier today in Will Oil Kill The Zombies? I think we need to be clear on what’s going on here. The oil market actually works. And that’s a rarity in today’s world of manipulated everything, of no mark to market, of huge stock buybacks financed by zero interest rates, you know the story.
We know that the market works because of for instance this article from CNBC:
Oil Pressure Could Sock It To Stocks
“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.”
”It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.
“Bakken is probably about $54.”” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday.
“In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.
It’s not about where WTI and Brent are at any given moment. Even if WTI is down another 3.60% today so far at $57.79. Whatever WTI tells us, the real world out there trumps it by a mile and a half. The prices at which oil actually sells in the real world are way below WTO and Brent standards, a very big and scary development. There are tons of parties that will sell at any price they can get. There is no better way to drive prices down further, it’s a vicious circle down a drain.
The market is setting future prices as we go along, that’s the – inevitable – mechanism. It’s called price discovery. We knew ISIS was selling at $30 or so, but tar sands at $30 and both Canada and Venezuela heavy crude at $40, that’s way more than an outlier. At WTI standard prices, too many can’t move nearly enough product anymore, and with credit having been slashed, moving product is the sole way to survive. How much of this ongoing process would you think we have we seen to date?
Here’s one of the first oil-producing countries about which serious alarm bells are raised. It’s not Venezuela or Nigeria, it’s Canada. From MarketWatch:
Falling Oil Threatens Canada’s Bulletproof Banking System
While the U.S. financial system – as well as many international banks – has gotten hopped up on a wide assortment of financial opiates and stumbled through more than a dozen bank-fueled crises through the decades, Canada boasts a stellar track record of banking sobriety. However, a spectacular death spiral in crude-oil futures – West Texas Intermediate settled Thursday at $59.95, a more than five-year low – threatens to deliver a serious shock to the banking system of the U.S.’s northern neighbor, according to a research note published Thursday by Pavilion Global Markets. Canada ranks as one the world’s five largest energy producers and a net exporter of oil, according to the U.S. Energy Information Administration. So, a big drop in oil would pose several risks to Canada’s oil-dependent economy.
“The drop in oil prices, as mentioned above, will have wide-ranging implications on the Canadian economy,” Pavilion strategists Pierre Lapointe and Alex Bellefleur said in the note. It’s not just that Canada’s banks will find themselves saddled with souring loans from underwater energy producers. The problem, Pavilion argues, is that Canada’s employment rate could suffer as oil-related businesses are forced to close.
Here’s how they put it: “In this context, the risk to Canadian banks doesn’t stem necessarily from a narrow view of loans to oil companies, but morefrom a broad macro risk perspective. As employment in the oil industry declines, a negative income and wealth shock to many households will take place, impacting a variety of loans (credit card, mortgage) on Canadian bank balance sheets.”
This is what I’ve been hammering on for weeks: the benefits of cheap oil are no match for the destruction that touches on a thousand different parts of our economies. It doesn’t help that much of both Canadian and American oil, especially the unconventional kinds, were drowning in debt even before oil turned south with a vengeance. But that’s not even the most crucial part.
Our entire economies revolve around oil, it’s not just something that you put in your car, oil is everywhere, it’s built our world and it maintains it. And therefore the effects of a sudden 40% price drop – and counting – will be felt everywhere. What we’ve seen so far can still be labeled ‘orderly’, but that’s not going to last. Still, look at the bright side: at least you can say that for once in your life you’ve witnessed a functioning market.
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for once in your life you’ve witnessed a functioning market.
OK, I am now convinced that falling oil prices have nothing to with America's undeclared war against Russia and Putin. And Saudis dropping pricing to $10 in 1986 had nothing to with the collapse of the Soviet Union.
Gold and silver prices over the last 5 years also represent a functioning market too. And insanely high stock prices in the land of the free. Only free and fair markets exist in the home of the brave since are regulators are on the job.
The Soviets time had come. They were too corrupt and inefficient, like the USSA.......oh......wait......
Can anyone be more corrupt than Saudi Arabia? How many deaths and wars have been engendered by Saudi Arabia? When will their time come?
When will their time come?
When they have no more oil and they ride camels again.
This is what happens when everything has been collateralized and rehypotheciated by the banks, feasting off free money courtesy of those to whom they pay campaign contributions and offer lavish jobs.
Ah, Caesar and his Mafia at work.
BRING ON THE DEFLATION - I'M READY TO BURN IF I CAN BURN THE BANKERS TOO! FUCK THE MIC, THE BANKERS, AND THE IVY LEAGUE!
first by deflation,then by inflation. Then one day your children wake up..................................................................................................................................................slaves
we dont need no water...
Here's a view on just how the oil market is actually working:
http://www.equedia.com/why-oil-prices-are-falling-the-secret-deal-betwee...
Well done, PM Stephen Harper, for tying Canada's economic fortune to endlessly rising oil prices. Well done!
What has Harper got to do with it? Our oil industry predates him by a century. Even the Alberta oil sands projects date to the seventies. Canada's resource extraction policies were in place long before he was elected.
"This is what I’ve been hammering on for weeks: the benefits of cheap oil are no match for the destruction that touches on a thousand different parts of our economies."
Bzzzzt! My BS meter just went off. The benefits of cheap energy greatly out-weigh the "destruction". This civilization is built on technology and affordable energy.
And the things getting destroyed are uneconomical and should be destroyed.
And hopefully it will cause a contagion and destroy non-oil related uneconomic things. But that remains to be seen.
So far, so good. Burn it down.
Weve been getting a daily dose of bullshit about how BAD low oil prices are lately. Yeah, theyre bad for all the parasitic derivative traders and junk bond buyers... boo fucking hoo
JPM AND GS should be given the Nobel Prize for Manipulation for keeping oil above $90 for so long without any demand.
Fucking crooks
Progressive murderers will leave no stone unturned in their war on cheap hydrocarbons and the poor people of the world. They are desperate and are trying hard to "brainwash some folks" into believing cheap oil is bad.
Sick twisted fucks.
Grimaldus
The bankers are squealing. When oil was going up, they constantly printed Peak Oil articles saying "Get used to it", as in get used to it debt slaves. Now, all these BS articles about the negativity of falling oil prices are meant to set the stage for the next round QE. Stocks fell yesterday and they blamed it on falling oil prices! I can remember when that was actually called a good thing because of lower costs. Heads the bankers win, tails the taxpaying consumer loses.
that points to another couple of big lies: that inflation in stocks and housing = good, and inflation in everything else (except apparently oil now) = bad.
In the long run, lower oil prices are better for an economy. Energy equals work and the cheaper the energy the greater the surplus at the end of the process for which the energy is used.
In the short run, however, oil is effectively a collateral support of a chain of leverage that behaves very similar to fractional reserve banking. Lower prices hurt producers and related servicing companies whose bonds sit on the balance sheets of other companies who themselves are leveraged to the hilt and so forth.
ZH has played it both ways. They had plenty of articles eulogizing the consumer when gas prices soared. But the author is nonetheless correct. Thanks to Fed induced leverage, the dollar you save at the pump is leading to five to ten dollars with of economic destruction elsewhere.
In the short run it is also good. I'm saving over $2K in gas next year.
Your oil investment is a total loss?
LOL.
A working market? A "Free Market"? Bullshit. FREE MARKET...RIGHT!!! NOT!!!
Yes falling Oil Prices are bad for the Banks whom made loans to these entities in the first place.
Actually this is great news that Oil Prices are collapsing as it will make those financial institutions INSOLVENT as they cannot collect on those OIL SUB PRIME LOANS.
When they create a bubble then it will be sure to pop. This bubble is no different than the Housing Bubble and is wider in scope.
This is just another unintended consequence of QE. If the Banks did not have the easy currency to lend then those loans would not have been initiated in the first place.
So the burden of bailing out those loans will be placed upon the shoulders of the taxpayer. Thank the Omnibus Bill and your Government for that.
Yes you may get your cheap gas at the pump today. You will be paying a lot more for BOTH Taxes and the Government Bailout tommorow. Gasoline Prices will boomerang and overcorrect to the high side after all of the wells are capped and excess supplies are burned off.
We have been on borrowed time. Now we are on borrowed CHEAP OIL...Oil manufactured from fracking is a direct result of borrowing as it would never have been produced without the incentives of low interest rate cheap currency.
Enjoy the benefits of the short term low energy prices as the damages caused to the long term will devastate most.
BURN IT DOWN.
Obviously, you've never lost your job in an oil-industry downturn. Good jobs, good people, legitimate activities that the economy will need sooner or later, are all disrupted and destroyed - pointlessly - because short term signals from the economy don't comprehend long term needs of society. Another shortcoming of our current brand of capitalism.
The things that you talk about being destroyed are things that we will need; and the destruction is a byproduct of Obama messing around in issues he needs to stay out of anyway (Ukraine), so what is the silver lining to all this destruction? His sanctions are destabilizing Europe, destroying American companies. He is frittering away our legitimacy on a non-US issue.
And any perceived benefit to these lower prices won't hold up much if the tidal wave of loan defaults (from a tidal wave of bankruptcies in the oil patch) wreck the banking system. I don't care about the banks themselves, but they can take the rest of us down with them.
Steven in Dallas
"...This is what happens when everything has been collateralized and rehypotheciated by the banks"
I agree, I don't see cheap oil as the problem. I think using oil as a financial instrument is the real problem. when I was a kid, oil was very cheap, everyone had boats, cars and airplanes... And were making money, raising families (1 wage earner) and taking vacations and still had time for drugs, sex and rock n' roll.
My Great Grand Father rode a camel
My Grand Father Drove a Mercedes
My Father Drove a Mercedes
I drive a Bentley and Mercedes
My young son will drive a Land Rover or Lamborghini
His son will drive a Mercedes
But my great grandson will drive a used Mercedes and his son a camel
Saudi Sheik
Hopefully soon. The most evil, corrupt. cruel and hypocritical country on earth.
best use of their oil now is to lubricate their camels' butts. Good news is they have lots for that and plenty of camels.
Yes, the jackboot is on the other foot this time.
What a difference 25 years makes.
Yes, many refuse to accept it, but the USSR was near total collapse in the early 80's. The future was even grimmer, the KGB and Organs of State Security had access to the real economics numbers, not the public ones. These showed collapse of the entire Soviet economy only years away. Wanting to survive and profit, the Security Servics and Government went to work in a public declaration of the end of communism, the end of Soviet Empire and a rapid move to market economics and parliamentary elections. In the course of this, Party and Security Officials took care of themselves and their friends, BUT, the real reason was survival, they had no choice, a total economic collapse would benefit nobody. So a peaceful end to communism and the empire took place, the Red Army and KGB used the threat of armed force to make this happen, and it did. Oil prices at the time helped push the economy lower, but the rot had already done it's work. I visited the USSR just 2 years before they declared the end of the USSR, I was pretty young, but I could easily see that collapse was setting in, in every sector. I traveled Russia great European Rivers, from the Moscow canal north, south and back north again to Leningrad. This is Russia's major highway, and it was nearly devoid of traffic, no ships on Russia's most import transport route? I saw a couple sand barges, for concrete making, a several loaded timber barges, but that was all in a 2 week river journey. I put two and two together and concluded they we locked in a deep, deep depression, and all elese I saw confirmed it.
The revolution came from above, not the streets, the streets were safe and quiet, even at night. Nope, it was in KGB headquarters where truth was the driving factor, not the Party Lies. KGB knew everything from their networks, how factories ran, the mood of the workers, the state of military morale, the food production on the collective farms. KGB had the facts and made them know to the Party, they had no choice, none at all. The Security State was important in letting the air out of the USSR in a slow controlled way, and left the Russian Federation, devoid of it's USSR empire. East Europe was freed without a shot, all republicas were given free elections and allowed to declare independence. The Baltics, and all! People are just too simple minded to be able to look back and see how and why the USSR was taken apart without a war or a revolution. It was in fact, one of histories great peaceful revolutions, one carried out by the verry peak of the leadership, giving away earth's largest empire at the time. Would the USA even give it's empire away freely? I wonder? Would we ever change the crony corrupt system we have now, where bankers rule the state, and war is a way of life, would our leaders revolt and end this madness? I think not. So before you condem Russia for everything, remember it was the leadership in the central Moscow state region that engineered the end of the USSR, they were happy to return, without empire to the Russian Federation, free, capitalist, parliamentary. Since they did their part in ended cold war madness, did repaying their actions by pushing NATO right to within a few hundred miles of Moscow make sense?
I agree! Gorbechev and his policies saved millions of lives in the bloody revolutions that would have taken place as the former Soviet Union broke up.
We know how it worked in the USA when the south tried to leave the Union. The buildup of the federal occupying forces in recent times suggest an even bloodier war if a secession is attempted again.
America liked to say that they spent the Soviet Union into oblivion. By forcing an expensive arms race, they sent the USSR broke.
Looks like that shoe is on the other foot now, and the MIC will now send America broke.
BooYaa, eternal war, and Cold War 2... (until the money runs out of course).
Would the USA even give it's empire away freely? I wonder?
What, Puerto Rico?
"Carthago delenda est" stays the perennial motto of predatory empires.
The neo-cons are sons of old Cato !
The difference now is that the US despiratly needs recycled oil profits to buy debt.
What? The US monetises debt and still do, they just contract it out to cooperating QE nodes. <cough! japan cough!>
They have a mark to make-believe-model accounting system as well, so they sure aren't constraining spending via something as tawdry, low-brow and old-fashioned as 'investing' to obtain honest to goodness profits to finance national mega deficits.
That's so 1971 Mary Tyler-Moore's Boss's level of thinking.
Not to mention that they also hide 3/4 of the deficit via just calling it something else. i.e. there's no federal budget any more, hasn't been for years, they gave up on that. Peter Orszag quit because he was bored shitless, he had nothing to do. They just make up all those .pdfs each year out of habit now, plus politicians need props to quote crap from.
Element, Indeed! The Government of the USA has also declared an open and ruthless war on workers and savers. Work is punished by tax rates for the middle class that amount to open theft. The war on savers is using the nuclear option! Negative real interest on savings, charging people for depositing savings from wages.
The attacks are meant to force all Americans to retreat into the only place offering returns, the manipulated stock markets, or junk bonds issued by fraackers.
Indeed! Work is too hard! Savings deposits from earned, wealth creating, income is too hard! Industrial based economics is hard work!
So we live in the financialized world of Banker dictatorship. Only possible because of King Dollar's property of infinite printing and acceptance world wide as a store of wealth. We, in the USA, can print green electrons from the semit conductor silicon chips, and have nations send us food, energy, consumer goods and white collar labor services and tech services in return. All the nations that provide resources, manufactured goods and service sget in return are "Green Electrons". This system still works as designed. But that can't last, producers and worker nations are catching on to the fact that "Green Electrons" are, in their basest forms, without value.
"... Negative real interest on savings, charging people for depositing savings from wages. ..."
G'day Jack, when I was five I got my first savings book and made my first deposit with mum and dad, we handed over the money and my book got an entry and a cool stamp on it from the Commonwealth Bank. So I naturally asked, why did we give them the money? Dad explained to me that it was a lot smarter than it appeared, and explained the effect of interest, and that when I took it out again there would be more money than what I'd put in.
What?! Ok, what else?
Well, the more you put in and the longer you put it in, the more you'll get out (real interest rate inflation effects were of course not discussed, we are after all just suckers and there are in fact no free lunches from banks).
This seemed bizarre, but hey, at least it now made sense to give it to a bank teller, when I'll always get more back.
So, if we did the same thing today and your child naturally asked why we're giving the money to the teller, what the hell could one tell them that did not leave you looking and sounding extremely stupid?
You have no reason to do that, and nor will your child.
The 'solution' for the banks is simple, don't use cash, so nothing is ever handed over or handed back. But there's then nothing the banks are doing or providing that a computer can't do, so who needs a bank or a teller?
Welcome to the negative interest ATM, which to add insult to injury, charges you fees to even access your balance.
Your kid's are going to grasp in about 1/4 of a second that bank = scam.
A well functioning market doesn't drop 40% in 4 months. A well functioning market would have seen this surplus coming and prices would have been moderated all along the past few years.
OPEC has distorted the market for decades and now has stopped doing so due to forces beyond its control. The market has reacted exactly as it should.
Properly functioning markets can be volatile as well as stable.
It be the "Audacity of Functioning Markets."
Oil has always been a manipulated market. Over the last few weeks some of the manipulation that maintained phoney, higher prices was removed.
That's all.
That is exactly what a well functioning market does. It reflects reality and responds to changing conditions.
It is a peculiarity of oil that a small discrepancy between supply and demand, can lead to large price swings one way or the other. Because it costs a lot of money to bring a new oil well into production, but once it is producing, costs very little to pump the oil out.
Remeber not long before this big drop obama went to see the Saudi king hmm this is all planed. They cant start a war so blame the collapse on oil maybe????
When I think of all the brave men and women in the SEC who are out there protecting all of us from corruption I have to wipe a tear from my eye...
Let it tank so I can fill my tank.
Governments will let it tank just long enough to jack up gasoline taxes then we get stuck with even higher gasoline when collapsing prices cause reduced supplies.
"...the benefits of cheap oil are no match for the destruction that touches on a thousand different parts of our economies. It doesn’t help that much of both Canadian and American oil, especially the unconventional kinds, were drowning in debt even before oil turned south with a vengeance..."
Well perhaps they shouldn't have bid (read manipulate) it so much higher than it deserved. So now the "creditors" will foreclose on the operations used as collateral I suppose.
Another example of "free money" being printed by central planning accomplices to the crime.
Rain on the scarecrow, blood on the plow.
We may have hit Peak Insanity here. Manipulating gold markets is one thing (Putin just bought 50 more tons) but oil markets are markets because they Ares so huge AND they're a relatively minor component of the energy complex in general.
As with gold "the biggest consumer is Government" which says to me you have to watch out for the Government boom/bust cycle too.
In short the War About Oil is winding down....there go oil prices.
We have had collapses in energy prices in the USA many times in the past. This time is NOT different. I don't understand the surprise. Having said that the biggest beneficiary of The War About Oil has been Government (through huge price increases, higher taxes, great spending) so perhaps we should be surprised the war is winding down at all.
Certrainly the plan remains the same as it has for a thousand years.....
Just another credit-fueled crack-up boom gone bust.
Mises beats Keynes yet again.
Now don't start blaming 'free money' as the source of giant market distortions and mispricing of assets. Free money works just fine, the problem here was clearly its misapplication to an inappropriate use, not the free money itself. I think if we can all just agree that this oil situation is a case of 1 bad apple, then everyone can relax and we can all go back to trusting our central bankers and buying the dip with free money. What stocks were up yesterday? Surely they're the ones to be buying right now.
Yes Al,
it's never a good idea to thumb you nose at god.
teacher i will be honest, i didn't read the article. any quotes from nature magazine or save the dolphins magazine? i will go back and read it if you tell me there are....promise
Good time to rotate my stored $4+ fuel, thank you bye bye come again.
Gold Bitchez...I pick up pennies
What's to stop the fed and company from simply supporting the paper price with printed money? We keep expecting them to lose the game when they're making up the rules as they go.
The whole petrodollar recycling scheme is on the chopping block this time.
The outflows from UST's and the resultant influx of dollars is not something they can stop,
short of capital controls.GRC status dies either way.
I want to believe you, but so far what‘s the one thing that everyone flocks into when there is panic like Pavlov ringing the damn dinner bell? US debt right?
A star goes supanova as it dies.
This one feels more like a red giant to me, slow and painful way out.
exactamuno. all those reserves held by petro producers in the form of USTs will be cashed out to prop up their collapsing budgets. as the revenue shortfalls dig in over the next couple months, the markets will be awash in both oil and USTs. the flood of USTs will also place considerable upward pressure on the yield. I wonder if the Fed has enough dry powder left to support such a market to keep the yield down.
the collapsing oil price could be the harbinger of the much broader financial crisis all the chicken littles have been crowing about.
Where have you been sleeping the past 5 years? Obviously the fed can/will CONTINUE TO buy up the entire treasury market.
You should read zero hedge some time. It's a pretty good site.
It's going down and it will never stop!
Can't wait until they pay us to take it off their hands.
I've sold most of the barrels I was storing in my back yard. Next week I'll be draining the gas tanks and offloading that. Dumped all my pm assets, including jewelry, wedding rings and fillings long ago (tagged the 1140 price, which is a bit of a bummer but better safe than sorry, right?) Traded them all in for a PRETTY NICE number on my B of A E-Statement, AND a hundred shares of TWTR, which I'm sure is poised to rally any day now.
At least you chose a TBTF bank, the only ones left standing after the next credit/derivatives implosion.
I await Monday opening with interest. Down, or intervention fuelled upswing? hmmm.
It may not be monday but chances are it will be green for Christmas. I think they will divide the dollar by zero before they seriously let things fail.
There is nothing free market about a monarchy/dictatorship not pulling back the reigns on oil supply when they are getting a bad price. Oil going from $100 to $56 over a few percent is an intentional orchestrated take down. If you are an oil producing country there is no benefit to you unless you are some reprehensible head chopping oppressive regime like Saudi Arabia playing geopolitical games.
I also wouldn't be surprised if the banks are trying to shove this derivative legislation through so they can get bailed on oil crashing.
<yawn>
price adjusts to the production cost of the marginal producer. this is a demand driven sell off (as in no demand). this notion that the lowest-cost producer, saudi (with lifting costs of what? ~$3/bbl?), should adjust to keep the higher-cost producers in business is absurdly non-market. the cuts in production should naturally come from shale, deepwater, arctic, etc. i am so sick to death of people screaming about the non-market aspects of the most obviously market-driven event i've seen since the start of QE4eva.
market, i'd like you to meet ZH readers. ZH readers, i think some of you may have met market a long time ago. he's been away for a long while, but i think he is back in town for at least the season. no, he hasn't changed at all. maybe you should get your lenses adjusted. seriously.
the "market" working again should be a cause for celebration on this blog....
You got it alpha! This is what we should have expected - not just oil, but any market that has been financialized beyond belief. The financial system is broke and the real market will resume programming....do not adjust your screen.
You got it alpha! This is what we should have expected - not just oil, but any market that has been financialized beyond belief. The financial system is broke and the real market will resume programming....do not adjust your screen.
Incredible that congress gave them derivative protection .....must be viewed by historians as the very nadir of so called democratic goovernment
Listen asshole! If you don't pay me $10 a pound for these carrots that cost 30 cents to produce, then I'm just going to stop planting carrots. And then you won't have any carrots. See how you like that fuckface! It's not that the $10 was an unrealistic price, it was the price that I felt was appropriate to maintain my lifestyle of gold houses and my fleet of flying machines. You just don't understand economics!
I live in a small city. The overiding principal dominating small business in this area is:
Sell $50,000 worth of product, and make $150,000 doing it.
Is that still legal ?
Only if Obolo's crew can slap a 85% tax on it.....
Hope, Hope and Change!!!
And thats wholesale. Imagine how bad weve been getting fucked retail. Not to mention the insane fees u pay to get compliance- if your not in their speacial club that is.
LOL, you nailed it. All these fucking crybaby mouth pieces writing these articles for oil corporations and banks... as if 99% of people on the planet give a fuck what happens to either one of those industries.
If a collapse in oil causes bankrupties that cause the banks to lose on their derivative bets, then the government could end up with a $100 trillion bailout, then when your money loses 90% of its purchasing power overnight, maybe you'll care.
Nope , not me. I have AG, food and critters, and a 30-06....but i would appreciate it if 1000 trillion in derivative debt make the rest of the sheeple wake up and fight back.
The last bank bailout didn't result in any velocity, so no loss of purchasing power. However, the monetized budget deficit does get spent - so that is where your purchasing power is being robbed.
Similiar to what happened to corn when ethanol drove prices to $ 8.00. Problem was the greedy cocksucker suppliers of fertilizer, seed and chemicals (Monsatan, Agrium et al) tripled their prices. IN order to make up for margins, farmers attempted to grow additional bushels to make expenses. Now, Corn and Soy are priced at below COP. Everyone bitching about food prices....well with grains in the tank now for 18 months, how come grocery prices aren't 60% lower? huh? Mother fucking traders and government intervention again...and only ones profiting are Goldman and their ilk....milking it going both ways....while we as farmers and consumers get ass fucked with no lube.
Until someone gets pizzed off enough to revolt against these assholes, and hang a few or guillotine....we're just totally FUBAR. The train has left the track....but MOnday morning the Fed and Central banks will have throttle full speed ahead to the scene of the crash.
Just wait until land crashes back to less than half it's value....that will be the next shoe to drop. Corn is barely profitable at $ 2,500/acre in most places given COP. Most places it is selling @ $ 12,000.00/acre or more.
i studied farm economics for a time in school because the profs kept arguing that the farmers needed .gov subsidies to survive because of special farming economics. when i looked at farm economics the most obvious impression was farming does not have special economics. farming is the most exposed to real market economics where ebbs and flows in supply and demand expressed in price at the market daily. the free market is volatile.
they can't fix the price of the goods but they can fix the price of the services. all the middleman services skim the volatility not the farmer.
the buying center hold of commodity giants, and retail chains in food making, can throttle down the RM agri prices paid to small independent farmers, unless they do niche plays, where buying center has no control.
Its called using a financial chokelock. And the only way is to go cooperative and specialize.
The answer is HEMP! Doesn't matter what the question is...
:-)
besnook
Great observation.
Our education system is very good at creating managerial-control (parasites). And you can clearly see that on tech solutions that is counterproductive to income and job opportunities; and which, by the way, you are not supposed to say that. But, if you pay attention, it is staring at you.
Anyway, I think you will find the information below interesting:
In 1984 New Zealand's Labor government took the dramatic step of ending all farm subsidies, which then consisted of 30 separate production payments and export incentives.
This was a truly striking policy action, because New Zealand's economy is roughly five times more dependent on farming than is the U.S. economy, measured by either output or employment.
Subsidies in New Zealand accounted for more than 30 percent of the value of production before reform, somewhat higher than U.S. subsidies today. And New Zealand farming was marred by the same problems caused by U.S. subsidies, including overproduction, environmental degradation and inflated land prices."
As the country is a large agricultural exporter, continued subsidies by other countries are a long-standing bone of contention...
http://en.wikipedia.org/wiki/Agricultural_subsidy#New_Zealand
since 1971 oil price movement has been the most reliable predictor of equity market movement. i guess it is easy to tell what january is going to look like. time to go into biotech.
Certainly wasn't true in the 80's but hey, this is what makes a market.
Even at a dollar there will still be a buyer of oil.
the only exception was the iran hostage price spike that coincided with the volcker crash. a price drop preceded the 1987 crash the 1992 recession, the internet bubble, the 2008 crash and the 2015 crash.
Basically all the poster is saying is that Oil's impact on the financial thread today, and its over-extended speculative plays in N.American production in non conventional energy, has a bigger impact on a teetering US $ debt infested construct than its role as essential commodity in the real economy.
The finanicial economy risk thru volatility/instability outweighs the supply demand risks of key commodity in a world trying to battle with asset bubbles and economic deflation.
Jack's financial Beanstalk is more fragile than China's and Bric's growth momentum in global plays.
One thing to weigh in this conundrum is that this OIL price slide has all been engineered by the Sauds UNILATERAlly, based on their role as SWING producer; manifestly because they have a regional political agenda that is more important to them than temporary economic hardship.
But, the reality is that these prices have fallen on Saud's bluff of opening further the tap if others close it. And the real physical glut is 1-2 millon BPD product; aka PEANUTS compared to overall demand of 90 million BPD oil and gas xtracts.
Once the financial world starts to slide into deeper deflation, ALL it takes to change the Saud short is for them to brutally close that tap overnight. THat glut then becomes future shortfall in a market of 90 million BPD consumption.
It could swing that price up again brutally, and having killed the financial bubble in the USA around Shale oil plays, it could then rebuild its margins from say end 2015 onwards.
That's how awesome is this unilateral command of King Commodity that Saud's current (and unexpected) short demonstrates as it plays out today.
At a drop of a hat we could be back from 50$ to 100$+ swings if that short were reversed.
And hey presto a US economy on its knees after two years of bleeding, a Euro group and Japan economy up the spout in currency deflation blues, a Putin with his nuts shrunk to peanut size, Saud could then impose its political will once again in an enfeebled multilateral world where King USA would have to eat humble pie before Riyadh's oil clout.
Just think of that... from between now and in 2016.
Are we seeing the KEY imperial surrogate and ally --turned rebel momentarily and apparently -- now showing the Emperor is truly naked?
What the torture report has exposed about the Neo-con mindset, the Saudi rebellion could ring its death knell !
"Not only were you criminal you were ineffective and COUNTER PRODUCTIVE !" ---History bites back !
"One thing to weigh in this conundrum is that this OIL price slide has all been engineered by the Saudis UNILATERAlly, based on their role as SWING producer;"
1. Does Saudi Arabia have military bases in and around the USA or is it the other way around?
2. Is the USA busy filling the Strategic Oil Reserve with cheap oil and supporting the price of oil so that the American oil patch is not completely decimated?
this isn't the first time the saudis have been upset at the usa. the first time was after the 1973 war in the mid east. the saudis were upset that the usa came to save israel from sure defeat. i only mention that as a precedence for your argument. i don't buy your argument, yet. the saudis have always controlled the price of oil as the marginal producer with the most ready extraction capabilities at the cheapest cost of extraction.
the sauds have always protected their revenue in these downturns so that is their first consideration. as for political gain, it is difficult to see their goals here. for all the political subterfuge there is little to gain for the sauds. the usa is not their market anymore. china and europe are most important. i think japan may get more oil from the sauds than the usa. what do they gain from crushing the usa oil shale products? in a world with increasing oil demand? when they are still too tied to the dollar to gain from bashing it?
i think these wackos decided russia is way too big a threat to the system to allow him to continue his quest for a multipolar world. from past and present partnerships the price of russian oil extraction is probably well known and is the target.
don't forget, however, the sauds can't last forever either. they still have some obligation to their opec members and much of their advantage in extraction costs have become bling costs.
"i think these wackos decided russia is way too big a threat to the system to allow him to continue his quest for a multipolar world. from past and present partnerships the price of russian oil extraction is probably well known and is the target."
That became obvious when they took down MH17.I still say oil is the strawman.
The elephant we ignore is the alternate energy technologies that were declared classified to keep the oil empire in power. Over 4000 patents classified that would reduce or eliminate our oil usage. Would free energy shakeup the economy? sure, but when oil is used, the product lost. In the long run we are better off with an economy that doesn't need oil.
What commdity market players ignored was the collapse in natural gas prices a couple years back. That has set the stage for the biggest commodity collapse to date...with a lot more to go.
Governments just create debt now. That's not good for growth. That is BAD for commodity prices....especially in dollar terms.
You won't get a consumption boom because Government is the biggest consumer and they're cutting back/cutting off (hence the riots.). There is of course always another war but as they say "the next war is never fought like the last one."
Horseshit. The other sources are dirty, expensive and inefficient. The big players will always make their money in the least risky and most profitable way. They will buy any patent that is more profitable than what they are doing now.
That's why fossil fuels are still king and will be king for a long time. Despite govt subsidies the other types of energy can't cut it on the profit and dependability/affordability scale.
A gov. controlled by big oil(remember Rockefeller, Bush, Cheney, etc.) is going to intentionally subsidize poor alternatives to oil to mislead market participants and to buy votes(ethanol). Mainly to buy votes, welfare style. Good technology doesn't require subsidies. That's why the patent office has shut them out since the 1950's (the decade of the interstate highways), when big oil essentially took over the US gov.
When one considers the amount of money and lives spent to capture and hold fossil fuel resources, it is clear that oil is the MOST subsidized form of energy for the last 100 years.
World Wars One and Two were both fought for control of oil resources as were the Iraq and Afghan wars.
He says as he types on his plastic keyboard made from...oil.
SA between a rock and hard place. Their oil for conjured dollars no longer makes sense. Will depeg from USD soon. Move to Rial or gold for oil. US continuous failures in the ME, Russian influence in Turkey, Iran and India leaves them no choice.
Insinuating that the Saudis are just kicking the USA in the nuts, on the way out the door.
Its Machievelliian enough to be right.
Tick tock.
Just observing, heres an observation for you my friend.
If you think the Saudis are corrupt, they have fucking nothing on the filth stains on the face of humanity that ruin right here in Blighty. The Saudis are amateur pikers by comparison. The dirty bastards that run this shit-house of a cuntry enjoy nothing more than raping kids and ruining millions upon millions of lives in the process, and the buggers thoroughly thrive on it.
Dirty Cunts
Why do you have to bring Hillary and Pelosi into this discussion?
I just paid my car repairs in a few hundred liters kerosene today:) Fuck fiat money.Hehehe
That's one way to skin the cat, set it on fire and collect insurance.
Kerosene is liquid gold. I light my house with it. Fuck electricity.
Once again we need to be clubbed over the head with the reality that, money loaned at interest is the achilles heal of the entire world economy. As such, it is subject to the machinations of the issuers of loans.
Someone is benefitting GREATLY from this carnage in the oil sector, and it isn't John Q. Public.
Once the endgame of rigging oil prices to artificially low prices is achieved - the collapse of the Russian economy, destruction of all renewable energy initiatives, the bankruptsy of fracking and oil sands operations, the collapse of the Venezualian economy - once all of these things have come to pass, the prices will go right back to where they were to $100+ a barrel. This is soooooo predictable. Only a fool would think otherwise.
See below.
V
V
V
Those goals would seem perfectly reasonable to any self respecting member of the sociopaths 'r us club. But there are always unintended consequences and attendant confusion so we shall all just have to wait and see how this actually plays out. I don't expect wti to stay under $100 for any meaningful duration but I hope it does cause oil is in everything and that means I can earn more stuff with less work (trade value that the energy component does not bleed away).
Look at the Macroeconomics’, rather than microeconomics. North American Union is still on the front stove burner. Some days it sits on simmer, then set to high heat. Backing it off to simmer again.
Wall of Voodoo - Mexican Radio
Article made the point of how screwed Canada is, anybody happen to notice that?
Yes
"Article made the point of how screwed Canada is..."
Yet failed to point out how screwed Mexico is. You think the flood of illegals is troublesome now, wait until that rat hole collapses.
I remember from US history class the Great Depression being called 'The Plague of Plenty'...
"The Oil Market Actually Works, And That Hurts"
Is the oil market actually working, when Saudi Arabia has the pedal to the metal, in the face of falling demand? With slack demand, companies normally cut production.
Someone forgot to take a hard look at the demand numbers and the bottom fell out. They were believing their own Bartiromo bullshit and got caught with their wee wee's in someone's arse. Don't worry I'm sure the majors are even now bellying up to their congressmen for another TBTF bullshit bailout with something along the lines of Oil companies are critical to the national defense some way or other.
You can't hide millions of barrels of excess crude.
For a brief moment I read that as you can't hide millions of barrels of crude excesses.
No, actually, the oil market does not work. What you see right now is a period of hypercompetition by the cartel. They do this every once in awhile to close down some marginal producers. The rest of the time, the oil market is anti-competitive, which is why you see $100 oil. This is not a market that works.
Yep. The multi-year average between the FED-subsidized highs, and the cartel-created lows, is the closest thing to a free market price that we can hope for.
Once the market shakes out the nervous nellies, the oil market will stablize and we be in the beginning of a major bull market. Cheap energy is a beautiful thing except for the weak sisters in the energy industry and banks. Those selling stocks in panic right now are going to be very sorry in six months.
Why? Do you need your binky and mommy blanket to snuggle a collapsing portfolio?
downsize the world a bit.
get the slaves riled up enough to revolt.
maybe bankrupt the war machine a bit.
didn't rocker feller say he was getting out of oil a couple of months ago and getting into renewables?
coincidence, no doubt. lol
Riled up about what? You lose your free shit bandwagon? People start taking you out because they know a parasite when looking them into their eyes. Poor DNA!
We'll have more fun with Eric Holder. :)
A million ways to bend this but all I care is I love $2.00 a gallon gas. However oil has come down to a reasonable price is OK by me. Keep doing what your doing.
Nigga in Chief didn't build this, OPEC did. Obama pressed for windmilll, electric cars, solar, etc. The shoe or egg will be on his face!
So $2.00 gas is Obamas fault. God bless Obama.
He didn't build it. Do you remember, The American Recovery and Reinvestment Act of 2009 (ARRA)
Read through it and get back with me.
http://www.recovery.gov/arra/About/Pages/The_Act.aspx
Obama pushed the climate agenda so far, people decided to throw him under the bus. Keystone Pipeline. Ring any bells?
Here I am talking about loving $2.00 a gallon gas and you are off to the Moon. Get a grip.
Frequent HuffPost follower?
Yeah, we didn't financialize and over leverage the oil industry, they did it to themselves.
Fuck em.
Aaah, your intellectual horizon ends at the fence of the ranch?
It's been approximately one year since Chinese housing prices started going down... Think 2007-2008. That's why fuel is going down. The Saudis haven't done anything except not cut production... This is demand driven. Plague of plenty ala Great Depression. Everything crashes, except cash not in a bank. Don't believe a single word out of China. Or Europe or the US for that matter... Think about it, who's in cash right now? Nobody. The central bank has you buying everything except LEGAL TENDER... What can you go out and buy with gold? How will a cashier be able to tell if that gold is real? When the banks collapse, everyone is going to need to sell their precious metals for There will be a devaluing, have some cash and some gold, is what I think. But have some cash!!!
Agreed. Due to the wild overvaluation of stocks in general, my investments are split pretty evenly between silver and cash. The other important elements are having a roof over your head and no debt, though debt may be worthwhile if you can secure good terms in the near future.
There are going to be bargains out there.
Agreed. But, have no debt.
Have at least 6 months' worth of cash to cover the cost of your personal survival.
Raúl Ilargi Meijer can kiss my ass.
This is all about exposing the lie of peak oil, which was a lie when it was first presented, has been a lie told over and over again (mostly by oil companies, big banks and governments) and is still a lie.
Like nat gas, there's plenty of oil around, and lots of it is still pretty cheap, and, getting cheaper. The truth is that there is plenty of oil and always has been, and the oil market, like just about every other market in the world, has been manipulated for years in the futures markets.
Now, anyone who believes Saudi Arabia is hurting by selling crude at $50 per barrel, or $40 or even $30, does not understand history or economics. The Saudi wells - and those of many other well-established drillers - have been producing for years at a very low extraction rate and will continue to do so for quite some time. I'll leave it at that, since I'm not an expert on oil per se, but, I cannot imagine the House of Saud would crimp the price of their revenue source if they were running out of it.
What cheap oil will do is usher in phase two of the deflationary depression that the Fed short-circuited in 2009. Not to sound coy or cute, but there will be blood, and it will be on the hands of the banks which financed deals based on oil at too high a price. Those investors are already being fucked and the fucking will continue until the market is satisfied the mal-investment has been purged.
At the same time, the rest of the world will be purging itself from the bogus, Fed-induced inflation of the past what? 20-30 years. Think about prices falling to levels last seen in the 1980s, on everything from housing to food to shoes to internet access.
Many companies, in all fields, not just energy, will be unable to keep profits up with falling prices if they plan to survive. Of course, there will be winners: those companies that are not excessively leveraged, haven't done stock buybacks and can prosper in a low-energy-cost environment. We've already seen the airlines benefitting and await the eventual price wars.
This is all about liquidity, in the oil fields and in financial markets, and the two are working in opposite directions. Money is going to tighten up (that's already started) as oil prices fall.
After stocks crash (within six months to a year and possibly sooner), there will be companies worth investing in again. The likes of JC Penny, Radio Shack and Sears will be gone. Those are just off the top of my head. The companies I'll be looking to invest in, come 2016 or 2017 or whenever, will be those with solid management, strong fundamentals and businesses that can survive any environment. Lots of tech companies come to mind.
There will be carnage, but prices have to come into equilibrium with wages eventually. A business I'm seriously looking into is lowering assessments. If housing dives like it should, the savings for taxpayers from lower assessments should be worth homeowners' shelling out some money for honest, fair-market appraisals.
When the deflationary cycle has played out, some banks shut down, we might just get back to the way things used to be. Is that even possible?
And, if we can get government off our backs, there might just be a chance to save the good old USA.
Well said. The other morons don't understand taxpayer induced Federal Reserve bubble cycles.
Also, the whole Climate Change, Carbon Credit BS is an attempt to shut down competitors and monopolize oil profits.
Lowering Assessments? LMFAO. You need some serious mental health evaluation. In 2008 during the crash, our tax assessments NEVER went down. This past year they went up 40%! How in the fuck do you think bloated government and municipalities will keep up their union wages and pensions....and W T F....we just built a new school here (K-8)....putting 4 buildings of munchkins under one roof...and fuck me....we now have 4 cocksucking principals making $ 200K each under one roof.....in a town of 5,000 people. Fuck it...this thing is over. Just a matter of time....I hope I live to see the revolution so I can join the fray and eliminate a bunch of leeches so my grandchildren can get a fresh start if they survive.
You Nailed it!
Actually my assessment did go down a few years ago and the mortgage company (USAA) that had wiitheld too much in taxes each month sent me a check for several hundred dollars and lowered the monthly payment.
"Now, anyone who believes Saudi Arabia is hurting by selling crude at $50 per barrel, or $40 or even $30, does not understand history or economics."
Some questions:
What percentage of SA national income is from sale of oil?
What price per barrel do they need to balance their national budget?
What percentage of their income is from US treasuries, and what rate of return do they get on a historic basis relative to oil income?
What is their rate of return on other investments, bearing in mind ZIRP and other income reducing policies?
What is the actual (not stated) amount of SA oil reserves?
What is the rate of growth of SA population, and what is the cost of maintaining existing social policies?
"The Saudi wells - and those of many other well-established drillers - have been producing for years at a very low extraction rate and will continue to do so for quite some time."
You're sure of this? Given that every government on the face of the planet lies to further their own agenda, do you really believe the Saudis are telling the truth as regards their ability to act as world swing producer - or are they simply coasting on the assumption that the rest of the world still believes that?
" I'll leave it at that, since I'm not an expert on oil per se, but, I cannot imagine the House of Saud would crimp the price of their revenue source if they were running out of it."
Perhaps they have no choice? Perhaps global demand has fallen to the degree that they see no net benefit from curbing production regardless of how much remains in reserve? Perhaps they're so over-extended financially - so caught up in dollar based investment schemes that are now going bust that they've no choice but to keeps pumping or face a budget crisis that could undermine the already fragile legitimacy of the regime?
Notice, everything I've said above ends in a question mark. One thing I've discovered from asking these questions is that a general pattern is emerging, which indicates that SA's position may be slipping and that retaining it may present real difficulty in the years ahead. I don't know that for sure, but the data does seem to point that way.
To summarize, when I look at Saudi Arabia, I see a nation that threw away the greatest opportunity ever presented to anyone anywhere at any point in history, and where some very angry chickens are now coming home to roost.
"Ozymandias"
I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed:
And on the pedestal these words appear:
'My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
P.B. Shelley
to freenewEnergy:
oh boy, you are SO wrong on so many points. But let's address a few:
cheap, easy-to-get oil is mostly gone. I dont know where you get your fantasy that there is plenty of cheap easy-toget oil. Yes there is plenty of oil but thats' deep inside and is neiter cheap to extract nor to refine. Cheap oil is running out, that is why fracking was supposed to save us all.
Saudi Arabia's oil fields are mostly exhausted. That is why USA removed their bases from SA, there was no need for the Saudis no more. I have NO idea where you get that SA fields will be producing oil for years to come. Wrong. They have been at it sicne 1940s and are tapped out.
1980s prices? Keep on dreaming pal. Inflation in USA is running at at least 12-15 %. Been to the supermarket lately? My effing Internet just went from 39 to 50 dollars this month. You will NEVER see 1980s prices ever.
As oil falls so will pricing at the supermarket.
Seriously.
Saudis doing a Kamakazi run on Iran, Russia, Canada and the US?
Oil prices are a short term killer but the real long term killer is the debt behind those other oil producers that they needed to be in the game.
Who benefits? Saudis obviously, but the US tries to cripple Russia and hold up the petro-dollar.
The rest is collateral damage. This is not a market that is operating like it should but looks more to me like a market that is being manipulated to be a death machine.
Who knows, except the guys in the back rooms.
Or I could be becoming a little nutty from hanging out here in ZH land.
Shovelshite, you’re becoming nutty on the fact that you don’t understand geopolitics. Keep watching, become a master to see thru shit.
So tell us Obi Won. The REAL story.
Or you can do your usual horse-in-a-corral dropping circular horseshit.
See? I can see through you.
Yawns.
The Great Depression was called a 'plague of plenty'...
My car is running idle out back. Ya know, to support the oil price!
Every two weeks or so, start up three cars to blow Co2 out of the garge and make sure the battery wasn't sucked off by all those electric monitoring devices. Good thing GPS signal dies and owner has to drive in a circle or wait 20 minutes for it to reconnect,
We are truly laughing at these Central Planners.