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Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next
In space, no one can hear you scream... unless you happen to be Venezuela's (soon to be former) leader Nicolas Maduro, who has been doing a lot of screaming this morning following news that UAE's Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output "even if oil prices fall as low as $40 a barrel" and will wait at least three months before considering an emergency meeting.
In doing so, OPEC not only confirms that the once mighty cartel is essentially non-existant and has been replaced by the veto vote of the lowest-cost exporters (again, sorry Maduro), but that all those energy hedge funds (and not only) who hoped that by allowing margin calls to go straight to voicemail on Friday afternoon, their troubles would go away because of some magical intervention by OPEC over the weekend, are about to have a very unpleasant Monday, now that the next oil price bogey has been set: $40 per barrell.
Luckily, this will be so "unambiguously good" for the US consumer, it should surely offset the epic capex destruction that is about to be unleashed on America's shale patch, in junk bond hedge funds around the globe, and as millions of high-paying jobs created as a result of the shale miracle are pink slipped.
According to Bloomberg, OPEC won’t immediately change its Nov. 27 decision to keep the group’s collective output target unchanged at 30 million barrels a day, Suhail Al-Mazrouei said. Venezuela supports an OPEC meeting given the price slide, though the country hasn’t officially requested one, an official at Venezuela’s foreign ministry said Dec. 12. The group is due to meet again on June 5.
“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.
And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.
The above only focuses on the (unchanged) supply side of the equation - and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year. The answer: much lower.
OPEC's unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.
And while the bankruptcy advisors and "fondos buitre" as they are known in Buenos Aires, are circling Venezuela whose default is essentially just a matter of day, OPEC is - just in case its plan to crush higher cost production fails - doing a little of the "good cop" routing as a Plan B.
According to Reuters, OPEC secretary general tried to moderate the infighting within the oil exporters, saying "OPEC can ride out a slump in oil prices and keep output unchanged, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators."
Ah yes, it had been a while since we heard the good old "evil speculators" excuse. Usually it appeared when crude prices soared. Now, it has re-emerged to explain the historic plunge of crude.
Speaking at a conference in Dubai, Abdullah al-Badri defended November's decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.
"We agreed that it is important to continue with production (at current levels) for the ... coming period. This decision was made by consensus by all ministers," he said. "The decision has been made. Things will be left as is."
Some say selling may continue as few participants are yet willing to call a bottom for markets.
There is some hope for the falling knife catchers: "Badri suggested the crude price fall had been overdone. "The fundamentals should not lead to this dramatic reduction (in price)," he said in Arabic through an English interpreter. He said only a small increase in supply had lead to a sharp drop in prices, adding: "I believe that speculation has entered strongly in deciding these prices.""
Unfortunately for the crude longs, Badri is lying, as can be gleaned from the following statement:
Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November's decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.
"Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said.
Well actually... "Saudi Arabia's oil minister Ali al-Naimi had told last month's OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister."
And as Europe has shown repeatedly, not only is it serious when you have to lie, but it is even worse when you can't remember what lies you have said in the past. That alone assures that the chaos within OPEC - if only for purely optical reasons - will only get worse and likely lead to least a few sovereign defaults as the petroleum exporting organization mutates to meet the far lower demand levels of the new normal.
In the meantime, the only question is how much longer can stocks ignore the bloodbath in energy (where there has been much interstellar screaming too) because as we showed on Friday, despite the worst week for stocks in 3 years, equities have a long way to go if and when they finally catch up, or rather down, with the crude reality...
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Bob, you can whack yourself but not anyone else. Is that clear?
Monty, yes like Archduke Ferdinand.
Both countries have very big guns that wouid leave a hot mark for a few years.
This cheap oil stuff is catnip for anyone who likes paying less than more.
Cheap oil is nirvana!
Like crack cocaine?
Interesting that Saudi Arabia can do so much to the world with price controls and the rest of the powers (primarily the US and EU) can't accomplish shit with sanctions.
I guess oil really does make the world go round.
I for one am going out and buying the Biggest Fucking Truck (BFT) I can find 'cause gas prices are down and gonna stay there. Yea!
What is Saudi Arabia playing at? Simple, read this : " it should surely offset the epic capex destruction that is about to be unleashed on America's shale patch, in junk bond hedge funds around the globe, and as millions of high-paying jobs created as a result of the shale miracle are pink slipped."
Secondly, this is pounding NATO enemy Russia into a bloody pulp!
All in all, Saudi is doing itself a huge favor, it is even kicking Iran in the balls here.
Saudi went into this on several fronts. Number 1. They want to get market share back and make it up on volume. Number 2. America is telling them that we will allow shale to be plowed under, if only Saudi will plow Russia and Iran under first.
When all this is over, Saudi will have it's market share back to where it feels comfortable. But, be warned, market forces have already PROVEN, that cheap oil is an aberration, the race to develop highly expensive to produce oil, fracking and tar sands, shows that Saudi is one of the few producers of easy cheap oil, that is where their power lies, lots of oil at 1/10th the cost of Tar Sands mining. Or put another way, Cananda has committed the nation for a plan for 75 years of production of oil at TEN TIMES the cost of Saudi pumping oil. Fracking has seen hundreds of billions of invetment, and America is committed to 50 years of non-stop production of a resource coming in only a bit better than Tar Mining. This revealed that in a market with rising demand, even if only a small rising demand, the cheap oil is finished and expensive oil is baked into the future cake.
Right now the EU is in serious economic decline, American consumers are too, this take demand down a few notches. There is a fine balance point at which oil sky rockets agani, at this perfect moment, the balance has tipped, with a little help from Saudi, to the ultra cheap oil side, that is only a temperary illusion. I can't say how long cheap oil lasts, but if you look long term, I can't see this being a new normal, not at all. This event seems well timed for geo-political war, which we are in. The right enemies are being hurt, the NATO side is winning from this, so is Sunni Saudi Arabia. Can it last? My best guess is, NO. If this were a new normal, then all the bright stars who built tar sands and fracking into major industires were wrong and stupid, I do not believe they were stupid or wrong, they see that no cheap oil is being found. Please name the last large oil find that was of the cheap variety. Why is their a rush to the Arctic seas, newly ice free, to drill at huge trouble and expense. We all know cheap oil is not there, soon enough it will bounce back.
Jack, you are no doubt right on a time scale of 50, 75 years. There's a lot of mayhem and commotion between here and there though, and in a world where corporations can't generally afford to look far beyond their next quarterly dividend and where the dollar value of financial instruments vastly exceeds the value of real property, I wonder how much effect on the way events unfold in the near term our understanding of long term realities will really have.
Over the next months, the next year, two or five years, the robustness of every government on Earth, and the willingness of their people to endure, will be sorely tested. As will the ability and will of governments to think and act outside the box. Everyone on ZH seems to be writing off Venezuela as a goner, many agree Russia is about to get pulped and few doubt that Saudi Arabia will be the obvious winner of this round. For a site where the coming demise of the dollar is widely discussed, few seem to be connecting the dots. I would suggest that events may confound this conventional wisdom. (Yes, even ZH posters can fall victim to that!)
First, Venezuela is not so fragile in a political sense. Their revolution is based on strong grass roots organization including most critically within the military, and a strong effort to educate the people about geopolitical realities. They have large gold reserves. They are well prepared to participate in a global realignment and changing of the rules as the dollar collapses, provided their popular base can hold steady and withstand the hardship of the severe disruption that is unfolding.
Second, Russia is getting creamed in the financial markets and inflation is starting to seriously hurt, but if Putin will act strongly against the Central Bankers and Atlantacist oligarchs, as he must, and if his huge popular mandate holds, they can weather this storm and be a rock to which countries like Venezuela can anchor.
Third, Saudi Arabia, for all its low costs, has a rapidly growing population. It's citizens have already seen a huge drop in per capita living standards. Much of the population is non-citizens with few or any rights. Third and fourth generation Arabians are still classed as aliens. Everywhere there is a deep and longstanding anger at the plunder of the national wealth by a few thousand princes and their families. To this day the Saud family relies on a small mercenary army for protection. That hasn't changed since the early '90's when rather than raise an army to defend against the threat of an Iraqi invasion they invited in US troops. I would not be surprised if the Saudi state was among the first to crack under this economic agression they themselves have launched.
Finally, the damage to the US - and the dollar - will foreseeably go far beyond the oil exploration industry. The financial shock waves will trigger a tsunami of consequences far beyond the ability of our financial wizards on Wall Street and the Potomic to contain or recover from.
For all my criticism of ZH posters and commenters however, I can't think of a better seat to watch this show from.
Here's a prediction to place bets on: Five years from today there will be no country on Earth with a name that starts with "Saudi".
good post, +1.
Just also got to see the MIC angle too, huge Us/Uk/Saudi weapons deals... & anti-'terror' co-colaborating... to realise Oil isnt the only thing being negotiated, just a chip-stack in the game.
Yes. Saudi Arabia fired its first projectile into a G Zero World and the evolving outcomes in both the real and financial economies contain unprecedented uncertainties. This includes the imminent collapse of the US$.
One thing that is more certain is the volatility that is not about to subside. Nations and Corporations with higher debt loads than their global peers have the handicap of less flexibility when the contagion rips through the markets.
Short answer: Yes, those who invested in tar sands and fracking were indeed wrong and stupid. Fracking and "alternative liquids" have never been profitable. They are part of the show to make you believe in this fake recovery.
Tinfoil Hat Sunday - Why Are They Bricking Over The First Floor Windows of The Chicago Fed? http://www.brotherjohnf.com/archives/356927
As the A-rabs shout full speed ahead, hail that iceberg and tell it to get out of the way. We ain't changing course for no damn icebert!!!. They're a one trick pony economy they have to run oil in order to survive. Shiitt.
I know the JunkB's are imploding but $40's going to nuke things! The whisper back a few months was the Gold reset was after CNY, the timing of this seems to fit quite well.
Are Saudi on the axis of evil yet?
unfortunately, these folks don't control prices like they used to in the 1970s and 1980s.
should see a corrective move up next week
http://bullandbearmash.com/chart/wti-oil-weekly-tanks-forecast-58-suppor...
but the trend remains down and yes, $40 or less (no support at $40)
I think many are missing the move here. Why did OPEC agree not to cut until mid 2015? The Saudis likely have a deal with China similar to the one that birthed the Petrodollar in the 1970s. OPEC is on board. The move not to cut is the beachhead attack on the Petrodollar that will break its monopoly. They had to wait until the next undeniable global recession (within a broader global depression) to do it. At these low oil prices OPEC cleans up the marginal shale and oil sands competition with domino debt defaults and knock-on economic and financial shocks. In the teeth of the crisis producer economies will point to the high dollar and low oil price as proof that the dollar is ill-suited to continue as the sole denominator of global commodity prices. They will claim that they need, as a matter of survival, to accept other currencies as well for commodity and energy pricing and purchase. The reference for bilateral currency valuations will be, in part, gold. OPEC is on board but Venezuela stormed out because it knows that it will not make it to mid 2015. By H2 2015 the new OPEC plus non-member producers will be accepting Yuan for energy sales.
Passing along intel. http://go.microsoft.com/fwlink/?LinkId=129794
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BASTARDS! It's a sad sad day for my hero :(
http://nooooooooooooooo.com/
Whatever doubts there may have been about manipulation, these continued price decreases put it to rest. That such a huge drop has not been reflected in a commensurate increase in demand just makes no sense. Unless the prices are being manipulated.
Why would demand for oil increase just because the price is down?
All commodities are way down: copper, bauxite, coal, iron ore, scrap steel, et cetera. Why isn't demand increasing for these other commodities, since the price is way down?
We are in yet another global recession. Baltic Dry index tells us global commerce has slowed to a crawl. Demand for raw materials is down globally. OPEC's refusing to cut oil production is not a big conspiracy to hurt Russia or US shale or whoever - it's a necessary move to keep their own economies and corrup governments afloat as the available product exceeds world demand.
Why should OPEC cut oil production to save their competitors' asses in a declining market? Is Wal-Mart closing stores or cutting hours to save Sears?
Bring it on, I'll love buck fifty gas even more.
I think oil is done going down - completely sold out and will rally this week.
It went to $37 last time.
It'll never go up again, just remember that. Static models forever!
Short term bottom is in .... too many gloomy predictions and cab driver experts giving opinons...
time for that 10% bounce beginning Sunday night when no one gets in early enough to live through few shake outs before they rip it.
In six months sure Oil could be at 40 or 30, but very short term right now they are goind to squeeze the shit out of it.
Copper, yen, euro, oil all poised for a bounce.
If the amount of BTUS generated by a system drops, that usually signifies the system is working less , winding down, or shutting off.
Given that the general idea is that supply/Demand curve = sets Price, a decrease in price either signifies increased supply or decreased demand or both at the same time.
If the amount of gallons of oil being consumed is dropping, that signifies the economy is about to self-destruct.
If the amount of gallons consumed is unchanged/stable ... that signifies falling production costs or a supply that is growing faster than the consumption.
One situation is good, the other is bad.
My first gut feeling would be that consumption is rapidly decreasing (people not driving, not enough people working globally so no need for gasoline to drive to work) etc... less spending on travel.... which means the economy is crashing and people are about to ramp up credit card use and default risks will rise.
Since the default risk is increasing, it makes sense why the banks snuck in a pre-bailout in the govt spending bill , so that when all the cascading defaults happen, they can use it as an excuse to bankrupt the tax-payers instead of themselves (we are talking pre-emptive end-game moves) at this point in the game if we were playing chess, its like the banks know checkmate is guarenteed to happen within X amount of moves... and they are pre-emptively setting up the pieces to "win".
What winning means in this system is, the destruction of the system itself, and the implementation of a new, more authoritarian system.
We are quite frankly fucked unless we opt to use an alternative currency post-system-failure. . .. like bitcoin or something, because I don't see gold circulating fast enough for it to save us.
Its almost game - over folks.
I'm not so sure it is supply and demand of actual oil. How much more "paper oil" is there than physical oil?
How about this theory: 100 USD per barrel was an artificially inflated paper price due to QE and now (after the end of QE) reality starts to come back?
None of the QE money printing went to the public , it was all tied up indefinitely in bank reserves, stocks and housing prices propped up by fund managers investing in the real estate bubble.
So I don't see QE as a viable basis to explain the large rise in oil prices in the previous 8 years, I mean . . . did YOU get more money out of QE and did YOU go use that money to buy more gasoline than you normally would of? I sure as hell didn't.
That being said, its great to finally be able to fill up a tank on my car at these prices and not feel completely ripped off... 2.50~2.95 a gal for gas is almost reasonable. . . . opposed to 4~5$ a gal which was getting kind of ridiculous, I would love to see 1.19 ~1.99~2.20 again . . . I think low prices like that could actually let the economy heal alittle from all the damage the financial sector of the economy has caused the country for the past 10 years. . . 2.20$ gasoline for the next 4 years would certainly heal atleast 30% of the damage done by banks...
But I wouldn't get too excited, look at diesel prices . . . not really coming down much.
I think this is more of a manifestation of a failing global banking/monetary system, as all the other currencies start to fall apart at the stitching everyone is just rushing to what they have known in the past. . . . the USD.... and as such as they flee their failing currencies , they are entering into a currency that is also failing, and artificially propping up its value for just a little longer.
This is a bubble in the value of the dollar, and will pop as soon as atlas (the usa) shrugs.
But totally agree with "It's almost game over"....
yep and that sucks!
dbl post
Actually, OPEC is exerting its control strongly to wipe out all the spectulators and financiers.
When the bottom is finally set, then OPEC will be back in-control.
I see this as similar to FED Volker raising interest rates to break the back of inflation.
It is just the way OPEC can wipe out secondary markets and bankers starting to run everything.
It is OPEC's black swan which OPEC wields over the world.
Just like the end of Matrix...this might also 'trigger' the TRILLIONS of derivatives to topple too...
Everybody can live in tents for a few years, and the Oil is still in the ground, protected.
Cratering oil price will eventually begin to show up in the bottom lines of the long suffering gold miners. They all, like farmng, tend to run on hydrocarbons. Now might not be the worst time to pick up some mining shares. Everything is going to crater I guess, even gold miners will be sold in a crash, but I can't help but wonder how much further miners can go, they already seem extremely depressed. Gold seems like it can't be far off it's bottom, long term bottom that is. Every time I think gold can't be driven down anymore it gets hammered again, it seems like the manipulators are unbeatable.... But they aren't... There's a limit somewhere to how far down gold can be depressed. We've been here before, gold prices were depressed while oil was expensive and the miners were getting killed then as well, that was just before things turned around and the miners had there best run for a very long time, that was back awhile I can't remember the year....02 or 03 maybe. If the oil price stays down awhile there are companies that will benefit no doubt. Maybe gold will take a big run suddenly at the same time oil is crashing, which could really drive the miners up provided of course a crashing market doesn't drag them down too far too long with everything else.
Oil will be up 5%+ end of trading session on Monday
Are you betting on it? I wouldn't...
OK. Some math.
I have friend with family in ND for many years. They say house prices go up 50% a year for last 7 years.
(1.5)7 = 17 times. So now the real estate will fall back 10 fimes ? A $500,000 house will be worth $50,000 in ND.
That is just one issue, there are also all the CAPEX and finance in the Oil markets.
Then there are all the Oil derivatives markets (TRILLIONS ?).
The numbers are big.
As soon as SCE&G shows up tomorrow. You're a lifeless man/woman walking about. Both neighbor’s didn’t experience a 10 second smart meter reboot. You will become a Sony side kick. This 10 seconds will make your life unbearable. Good luck! Once the IP and print off is given, your life will be turned upside down. A couple of phone calls will lead me to your spoofed address. Will use a burnt phone to make that call. Hope your ass is puckered. Never fuck with white hats, you will get a nail gun in your eyeball.
Be aware!
Mr. Badri was not lying when he said:
"I believe that speculation has entered strongly in deciding these prices."
What Mr. Badri did NOT say is that it is Arab controlled OPEC speculation as OPEC gambles hard it can drive the Less Than Deep Pocketed players out of the market.
Prices will "stabilize" then.
The Arab mindset is to "say things" without "saying things".
Most Americans are unaware of this.
Do they sell oil monster boxes?
We will stick with Maduro, you have to stick with your stock market!
Assume, for argument's sake, Saudi Arabia does not have geopolitical motives for not cutting production. Therefore, it's motives are purely financial. It wants to maximize the wealth it receives for its oil. Looking forward, it thinks the world is awash in oil and that gradually, it will lose market share. But it can't lose market share. All that can happen is it sells whatever it pumps for whatever the going price happens to be. The only way it loses market share is if it chooses to produce less oil while other countries keep increasing production. Saudi Arabia has simply decided it wants to produce and sell 9 - 10 million barrels per day, regardless of what the price is and regardless of what other countries do. Other countries have the same attitude as Saudi Arabia. It's a good old-fashioned price war and absent legislation or sabotage, the oil price plummets until a bunch of high-cost production gets shut down. A mere 2 million barrels per day shuts down and oil is back to 80 or 90 (barring global recession).
When do airline tickets start decreasing?
If you like your shale, you can keep it...
While $40 dollar oil is eventually inevitable, oil will find some support in the short term...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
i expect bottom in march. ( bottom, i do not say any number )
then for 60 days up for may.
Boy, talk about a non-story.
Does anybody care?
Makes no freaken sense to sell a real asset....oil...for ....toilet paper...the USD....if Maduro is smart he will pull the trigger and demand payment in Gold....
And ostensibly end in the same way as Qaddafi....for the same reason
"$40 a barrell."
I assume a "barrell" is what a barrel looks like when the reader is extremely jittery.
Low Oil Price is stealth QE4, nothing to do with Russia or Shale.
I'd like to flee to Russia. That is the number 1 growth nation of the 20th century. All people have to do is to get rid of the NWO.
Windows to Russia:
http://windowstorussia.com/
Missouri farm raised Nam sniper, Cordon Bleu chef and more..met Russian Lady online, married
9 year in Russia. Live near Moscow, and part in tiny village.
Example for you...
RBTH.com usually has a section that has experiences from people who live in Russia from other countries (S.Korea, USA, England, France, etc). Might I suggest moving to Rostov region and buying up a small peice of land and get yourself a decent datcha? Datcha's outside of Moscow are much cheaper than in Moscow (Moscow, they run in the millions, outside of it, like in Rostov regions, you could get away with spending less than $100,000 on a nice place). Use the small amount of land to build a small farm like cattle raising and what not. OR, move to tatarstan and buy a datcha and decent yard, raise chickens (they do not have any laws regarding owning chickens in a village/town) and some vegetable and fruite growth, and sell it at the local market: http://sdelanounas.ru/blogs/56218/
http://naturalhomes.org/naturalliving/russian-dacha.htm
What would happen if Venezuela decided to default? I am still asking this because there is no real answer. So far, Argintina defaulted what, twice? What does that do besides limit their credit rates? At this point, Venezuela should just default, use their oil in an export that they are willing to take (other currency rather than USD. Maybe their own?) and use the money gained to start diversifying the economy like more pulp mills and pharmacuticals in order to make the things that are in demand? Get other countries whom are interested in Venezuelan market to invest in that type of business? Maybe lower business taxes to let private, small companies, flourish? There are plenty of options that could very well work!
we'll see defaults and a BUNCH of rigs stacked, if not already done so by the savvy operators. wonder how long before the employment numbers start showing drillers out of work. Roughnecks being greeters at Wallyworld I guess. Isn't central planning great?
The kin folk said; "Jed, move away from there!"