This page has been archived and commenting is disabled.
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.
»
- 25826 reads
- Printer-friendly version
- Send to friend
- advertisements -
the central banks dare not try to buy oil futures because the people would riot...this is the only asset they cannot manipulate
The FED has made a mistake blowing this bubble (junk bond energy sector), and it going to wreck a lot jobs, families and dreams.
I am an engineer, and if I make a mistake which loses one job, family or dream you get sued.
FED no responsibility, no care, complete scum!!! Where is their skill, they suppose to be economists.
happily Short!
Oil consumption in Europe is credit centric.
Coal and gas consumption more wage/ welfare centric.
We have not seen a collapse of oil consumption in Europe this year ,unlike the 2009 event.
Looking at UK energy trends publication September we see a collapse of nat gas use q2 by nearly 15 % but oil consumption steady because of booming car sales........
The goods produced in Europe are beyond the means of the national and local population to consume......
Oil price rises or falls have little meaning for the urban poor of euro land.
How fucked up are we. I'm at Ace Hardward when some 18 y/o punk and his tattooed slutty pregnant girlfriend come in, buy about $ 8.00 worth of stuff, pay for it with a $ 100.00 bill. Then the little cunt loads up a bunch of candy, and Soda from the machine and pulls out an Illinois Link EBT card to pay for it. LMFAO. Oh...we're fucked....make no mistake about it. Oh...Ace isn't set up to accept EBT yet.....they need to go to the gas station of Quick Stop for that. I'f I'd had a 9mm and a concealed carry....I probably would have pulled it out and shot the little useless fuck between the eyes.
I'm gettin' wood... Slow down there db...
You and I probably paid for the tatoos in some way or another. While I'm ranting, I see where our greedy, fat, white, out of touch politicians want to increase taxes on gasoline now that it's dropped. The greedy bastards want more of our money to spend on their perks. While I'm at it ...fuck you also greedy, fat, white bankers!
Right, you are oh SO upset because some people paid for some candy and soda with EBT but you dont seeem upset AT ALL that the USA government has spent 4 trillion dollars on fake wars of terror. Sure, exactly, you are SO righteus. Them dirty EBTers!
Bernanke Recommends Increasing Retirement Age to 108
/Jokes and humor.
If it were vital, with less than (2) weeks of planning, Saudi Arabia and the entire surrounding region could be brought to heel, if they are in fact, a major cause of this 'disruption'. It is only a matter of degree of importance to the status-quo, that they even remain a viable nation in terms of any geopolitical sway. Put differently, not a shot would have to be fired for Saudi Arabia to plead 'how high' to a 'jump' Wolfowitz doctrine command. We shall see.
Money is energy and energy is money.
The parasitic petro-banker vultures have just devalued the dollar to collapse debt and re-structure (seize) assets built by others.
Same as it ever was*
*hyper-deflation version
The bigger question is...What is this the set-piece for?
Little cash flow in europe means price has little meaning.......
More and more without access to credit means the few with credit can waste a larger % of the black gold.
Full costs of production / distribution reflected in consumption of goods ( not conduit goods such as cars)
Price has no real meaning and indeed never had.
Its all about the cash flow.
Russia has it.
Europe does not..........
Natural gas consumption UK
Y2008 -2013
A decline of 22%
Also between Q2 2013 & Q2 2014 a massive 9.5 % drop in consumption was observed.............
However oil consumption in the transport sector has seen a slight rise between Q2 2013 and Q2 2014 with a slight fall in overall oil demand ( home heating)
This is a common trend in almost all EU countries in 2014.
We have certainly not seen a crash in demand yet.
Yeah it's not that hard. Demand ain't dropped and the only country increasing production is the US.
I saw the price lose a couple of bucks this week on expectations of production from the US, but if you check the Bakken production figures they've already turned down.
Oil is in a deflationary decline that will last for a couple more years. However, it will find a temporary bottom soon...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
I keep seeing article after article talking about how cheap oil is bad. I think it actually benefits the vast majority of the people in the world like manufacturers, miners, transportation industry, people who have a car, etc. The benefits of cheap oil are not as obvious because they are spread out amongst more people whereas the benefits of expensive oil are concentrated to mostly the oil companies.
It IS good for most people. But our economy is so skewed that the benefit to the majority must be seen as evil, because it siphons the profits they need to keep the thing inflated. Any benefit that goes to any but the top is seen as 'anti-growth', and 'anti-investment'...
Am I wrong here, or does manufacturing use a considerable amount of oil?
Declining demand NOW must mean that these folks are anticipating slowing down their operations going forward, they aren't ordering 'stuff' for tomorrow, because they see slowdown today. Price drops don't just suddenly come out of nowhere...gotta look down the chain a bit for the causes.
So, we are seeing the results of something that has been happening, and is now starting to show up in lower, much lower, oil prices. Which tells ME that the future isn't looking much rosier either.
When the 'body' signals suddenly lower demand for 'blood', it usually means that some part of the body has either died or been written off, and gangrene spreads quickly.
And here's a thing...higher demand, and inflation, are pretty easy to manage in comparison with an entrenched DEFLATION. It's always easier to slow down an inflated economy than it is to restore blood flow to tissues too long deprived. They reach the point where they cannot be regenerated. Then they poison the rest of the system.
greedy camel jockeys making fewer billions...middle class americans saving more of their income?....oh the pain....the humanity!!!
Dont Be a Party Pooper! No Matter whos paying you! Keep it Real Buddy!
"We knew ISIS was selling at $30 or so"
Sorry but I still don't buy all that ISIS bullshit, too many faked videos and pictures for ISIS to be anything like as big as government pretends it to be.