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Kazakhstan Prepares For $40 Oil, Gary Schilling Says "Oil Going To $20"
"People should not be worried," explained Kazakhstan President Nursultan Nazarbayev in a TV address over the weekend, "we have a plan in place if oil prices are $40 per barrel." Kazakhstan, the second largest ex-Soviet oil producer after Russia, explains "there are reserves which could support people, preventing living conditions from worsening." However, if A. Gary Schilling's reality check of $20 oil being possible comes to fruition, as he explains, what matters are marginal costs - the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf... We wonder who has a plan for that?
The Kazakh President says "don't worry", as Reuters reports...
Kazakhstan, the second largest ex-Soviet oil producer after Russia, has plans in place should global oil prices fall as low as $40 per barrel, President Nursultan Nazarbayev told local TV channels.
"Kazakh people should not be worried. We have a plan if oil price are $70, $60, $50, $40 per barrel," he said, according to a transcript published on his website www.akorda.kz.
"There are reserves which could support people, preventing living conditions from worsening," he said, without providing any details.
Kazakhstan's National Fund, which collects oil revenues, stood at $76.8 billion at the end of November. Separately, the central bank's net gold and foreign exchange reserves stood at $27.9 billion.
Nazarbayev has also urged the Kazakh people not to worry about the slide in Russia's rouble currency, which has lost some 45 percent of its value versus the dollar this year.
But A Gary Schilling is less sure... (via Bloomberg View)
When the U.S. Federal Reserve ended its quantitative-easing program in October, it also ended the primary driver of U.S. stocks during the past six years. So long as the central bank kept flooding the markets with money, investors had little reason to worry about a broader economy limping along at 2 percent real growth.
Now investors face more volatile markets and securities that no longer move in lock-step. At the same time, investors must cope with slower growth in China, minuscule growth in the euro area and negative growth in Japan.
Such widespread sluggish demand -- along with ample supplies of oil and most everything else -- is the reason commodity prices are falling. They have been since early 2011, but many people failed to notice until recently, when crude oil prices nosedived.
Normally, less demand and a supply glut would lead the Organization of Petroleum Exporting Countries, beginning with Saudi Arabia, to cut production. As the de facto cartel leader, the Saudis would often reduce output to prevent supply increases from driving down prices.
Of course, this also cost the Saudis market share and encouraged cheating by OPEC members. Saudi leaders must grind their teeth over the last decade's unchanged demand for OPEC oil, while all the global growth has been among non-OPEC suppliers, principally in North America.
That may explain why, while Americans were enjoying their Thanksgiving turkeys, OPEC surprised the world. Pressed by the Saudis and other rich Persian Gulf producers, it refused to cut output despite a 38 percent drop in the price of Brent crude, the global benchmark, since June.
OPEC, in effect, is challenging other producers to a game of chicken. Sure, the wealthier producers need almost $100 a barrel to finance bloated budgets. But they also have huge cash reserves, which they figure will outlast the cheaters and the U.S. shale-oil producers when prices are low.
The Saudis also seized the opportunity to damage their opponents, especially Iran and what they see as Iran-dominated Iraq, in the Syria conflict. They also want to help allies Egypt and Pakistan reduce expensive energy subsidies as prices fall.
Then there’s Russia, another Saudi opponent in Syria, with its dependence on oil exports to finance imports and 42 percent of government outlays. With the ruble collapsing, the Russian central bank let the currency float in November after blowing through $75 billion to support it. Then the central bank tried to stop the free fall by raising interest rates by 6.5 percentage points to 17 percent on Dec. 15.
Still, the Russian currency is floundering, along with the economy. Consumer prices in Russia rose 9.1 percent in November from a year earlier. The economy will be in recession next year, the website of the Russian economy ministry acknowledged for a few hours on Dec. 2, before the posting was deleted.
Venezuela is also suffering. The government needs $125-a-barrel oil to cover its spending, of which 65 percent depends on oil exports. Its crude production is down a third since 2000. With inflation raging, the bolivar officially sells for 6.29 a dollar, but for 180 on the black market.
In Nigeria, where oil and natural gas account for 80 percent of government revenue and almost all its exports, the naira has fallen 11 percent versus the greenback so far this year.
How low can oil prices go? In the current price war, the global market price needed to support government budgets isn't really the main issue. Nor are the total costs for exploration, drilling and transportation.
What matters are marginal costs -- the expense of retrieving oil once the holes have been drilled and pipelines laid. That number is more like $10 to $20 a barrel in the Persian Gulf, and about the same for U.S. shale-oil producers. The estimated $50 to $69 a barrel break-even point for most new U.S. shale-oil production is less relevant.
Developing countries that depend on commodity exports for hard currencies to service foreign debt will produce and export even at prices below their marginal cost. Until some major producer chickens out and cuts production, oil prices should remain low. They could decline a lot more than the 50 percent drop so far.
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Well, they can shaft the shale gas up their arses.
Tylers - the headline is misinterpretating what kazakh states. They already have plans for 40 ... what they are saying is Bring it On ... the ball is in your court ... You dig?
The question is how low can the banks bring the oil prices withoutout the oil derivatives exploding?
the kazakh are saying at 50 or 40 we dont care ... now hold or fold? Game ON
OMG EBOLA!
excuse me ?
-yes ?
- i seen for weeks oil 60, then oil 50, oil 40, now oil 20$...
-yep, so ?
- just wondering.. if oil goes negative, shall we be pay to use oil ?
- what the...?!?!
Oil is already cheaper than bottled water, no way it goes to $20.
I gave you +1 for your user name, I bet there aren't too many folks that know what it means...
look to 1986 - from high of $42.00 went to June 86' to $9.62 (Cushing) or 77% - down - that would make it off of $110 base intermediate high =
whch means $31.00 floor
OMG EBOLA!
And Gary Schilling is probably correct.
The Arabs would ass rape a camel so screwing America's oil industry would be like Clinton at an fat intern convention in their eyes.
Are you Chumbawamba?
Red Alert!
North Korean government hackers have hijacked his account.
Do your patriotic duty and contact the NSA,CIA,FBI,DIA, and the hundred other three letter agencies immediately.
Chumba, your check for "DJIA 18K Let's Party Motherfucker" hats still has not been received. Please remit ASAP.
I wonder if their plan includes a loyal citizen with a new vest and a one-way ticket to the KSA?
Why stop at $20. Let's go to a buck a barrel.
Ahhh... peak oil... the legend...
I wonder when all gore is going to be hit by a buss...
Ahem......peak oil is still here. The Saudi's are cutting with water more and more. Shale had not even got us back to domestic peak in 1970. The GOM is not producing any more big finds. Alaska is in terminal decline. North Sea is in terminal decline. Mexico is in terminal decline. Canada has to scrape the bottom of the toilet bowl (Tar Sands) to be an oil player.
And we are on the cusp of the Great Collapse of the Great Ponzi (2020-2025) so there will be no investment available for REALL
Y hard to get at places like the Artic.
yeah... you're wrong
You are not only wrong, you are Jumbo wrong! Peak oil is here if we had the tecnology of 1960, but we don't. We find oil almost everywhere we look for it. And then we find a way to extract it. It's called human ingenuity
How much higher can we go? 200 million barrels per day? 500 million barrels per day? 1 Billion barrels per day?
No we are spending a barrels worth of energy to get a barrels and a half worth of energy with shale. Try running our society with that kind of net energy. No freaking way the only reason we are not seeing well over $100 is because our economy sucks so bad we are using 4 million barrels a day less than 2008. Quit kidding yourself the cheap easy stuff is gone. If we are going to see the economies of the world continue to suck then we are going to see oil remain cheaper than $150 IF the dollar doesn't desinigrate. If we get the USD valued at reality then maybe that will look cheap.
The Bakken is peaking now.....Eagle Ford soon. Shale oil is a scam.
heck theyll prolly come up with a gadget that extracts oil drips from your garage and street parking areas.....be a multi billion industry in no time
You forgot the massive oil finds off the coast of Brazil and the Artic. Canada and Venezuela have more oil reserves than Saudi Arabia. The technology is here now to extract that oil and it will be even cheaper in the future.
How can harder to get to oil be cheaper? That doesn't make any sense. Look how deep down that Brazilian oil is. Even if the Arctic goes ice-free, it is still a pretty dangerous place. Most importantly, at these low prices, no one will invest capex to develop any of those sources.
Think outside the barrel, outside the Petrodollar: If the USD can be backed by a Real Asset like Petroleum, so can every other currency. Or be backed by PM.
At this rate... given that all currencies that are getting hammered by the USD will only be able to trade with EACH OTHER anyway, why not accept and front-run this thing?
IOW: Your citizens and businesses have in effect been forced to drop the USD anyway (can't afford to import goods from US, EU), so you might as well make it official: "The currency of our country will no longer by indexed to the USD, but to PMs, Petroleum or the CNY". That would kill the USD in weeks.
Kaboom, Dollar Kabal!
It only cost $5 to dig it out of the ground -- oops, wrong "commodity".
Oil to $20 and gold to $0, but the fucking market is rip roarin! What the hell kind of shit is going on?
Repeat after me.... the "market" is a policy tool...... the "market" is a policy tool.......
Gary Schilling say 20 and is making the headlines.
I say 10 and none is listening. Go figure
Maybe you should write a newsletter, and become a contributor to CNBS. It works for Fartman.
This is awesome. It's just like a depression but without the stock market crash. Someday in the far future we'll understand just what REALLY was going on these last few years. Cause we're sure as hell not getting the truth right now. (Secret E.O.'s anybody?)
If it weren't for all the dumpster divers and the homeless walking around you would never know we are in a depression. TPTB were smart passing out a few buck a month in SNAP to the serfs while they pillage everything else.
Full faith & credit No debt. It's that i've read zh for a few years, or i wouldn't have a clue and live my life as usual. Now i have become a medium prepper with several brain syndroms. I don't see the problem.
You know, the only thing bothering me is I must have missed the part in J-Bag's speech last week where she promised that the Fed would cover any bad debt resulting from the collapse of the shale industry. But no big deal, she must have mentioned it somewhere along the way.
I say it goes to 5 and everyone gets a free Chevy Volt !!! Shocking, ain't it !!!
Until the Fed is eliminated, agreed. Everyone needs to assume .gov is using the 'mark-it' to set prices of everything. Presently oil prices are low and we are at war with Eurasia.
Paper price maybe.
You won't be able to buy physical ,and/or liquid anywhere though.
a very special kind of shit.
Think diarrhea
pretty soon, you lose your vital fluids
Forget gold to zero, gold is going negative, which will be another great achievement for central banking. Next up, complex number interest rates, when reality just won't do.
Who the fuck down-arrows complex number interest rates? I LOVE it, I think it will open new frontiers in creative finance.
Long imaginary interest rates.
I'm waiting for 3.05i% on a 5Y UST to start borrowing like mad ...
kazaks can handle it
So gas under a buck again? Oh yeah, ther's that much in taxes.
Speaking of taxes, low prices are going to be hitting municipal budgets hard. They'll have to seek revenue elsewhere - perhaps by lowering legal speed limit to half a mile an hour.
Fuel taxes are based on the gallon, not price of fuel. Besides, fuel taxes are at the state and federal levels, not muni.
Fuel taxes are based on the gallon, not price of fuel. Besides, fuel taxes are at the state and federal levels, not muni.
trade in the Priapus for an Expedition Bitchez !!!
"When the U.S. Federal Reserve ended its quantitative-easing program in October"
Does anyone really believe the FED is no longer buying bonds?
Hi Belgium.... old Yeller here. Could you do me a solid?
You can check their balance sheet weekly. It's still growing.
http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Click on view as table.
Oct 1, 2014 = $4.450 trillion
Dec 17, 2014 = $4.502 trillion
An increase of over $50 billlion in 10 weeks. That's $5 billion per week of bonds they're still buying after QE3 "ended"
I think they call it currency swaps and re-purchase agreements.
Interesting that silver goes down with oil -- it's supply is very price elastic in econ-speak). In other words, with average production cost dollars higher then the current price, production will drop. A good percentage of silver is produced as a byproduct of copper mining, however with the global GDP slowdown, copper demand and production will drop.
Ever look at copper charts of the 1930's ?
Everyone here should. I have them in book form, there must be an online chart somewhere.
Business model here
Apparently the Capitalists studied Marxist/Leninism better than the commies did.
NYPD Now Officially a 'Wartime' Police Department
https://www.youtube.com/watch?feature=player_embedded&v=KdduuixQVZw
Bunch of fags....most couldn't shoot or hit a target at 25 feet....Yawn!!!!!!!!!!!!!!!
$20 oil ="I love when a plan comes together"
Not to be a jackass here but what will 20 dollar oil do to gold?
700 dollars gold? That would bite me in the ass bigtime!
That would be the least of your worries at that point, SD.
You'll be too busy fighting off zombies.
I have no job so no commute and don't care.
Get off your lazy ass and get to work. I need you funding my SSI when I retire. Savy kemosabe?
You do like to eat though, correct?
Bullish -Hat Trick !
Will knock off frackers, Putin and electric cars.
Pedal to the Metal - SUV's for everyone!
Gary Shilling is an idiot and always has been. The fact is there are no free lunches and nobody is going to produce something below cost for long. All in costs for oil production no matter where is above $80 and continually going up because what is produced has to be replaced at much higher prices or you are in the process of going out of business.
After reading it's clear he didn't say it was going to $20.
Bloomberg put that on the headline and Tyler jumped on it too.
Clickbait.
That's a bad case of ED.
It can take a very, very long time to go out of business.
Cash flow can mask insolvency for longer than you think.
Just look at TBTF.
It's being produced right now for less than cost, and the dumb fucks are planning to produce even more next year.
Accountancy cost, or cashflow cost ?
The fact is there are no free lunches and nobody is going to produce something below cost for long.
Don't count on it. Farmers will be testing out the below COP on corn and soybeans this season...looks like they'll go full retard trying to increase yields to offset cost of production. They'll ride that horse until it lays down and dies....right into the poor house. I have 1,100 acres, no debt and no need for operating loan...The best thing I could do in 2015 would be to never go to the field.....if I do at current prices....I'll be flushing $ 500K down the toilet never to be seen again. We're screwed.
Capitalism is too destructive, time for everyone to join cartels and only produce within their quotas.
So the dude goes on TV to tell everyone they should not be worried.
Problem solved.
My fellow Kazakhians,
Out national income just got cut in half. It may go lower still. Here at the Presidential palace, we have noticed no decline in living standards so everything must be okay with you guys too. In fact, we are throwing a party for my son to celebrate his graduation at the Kazakh Military Academy at the top of his class. Unfortunately, due to the space limitations imposed by the current inferior Presidential Palace, you are not invited to the festivities.
I have, however, just approved the plans for a larger and much more suitable Presidential Palace which will be open by the anniversary of my accession to power in 2017. Or else. At that time, we will be thowing a really huge party to celebrate, but alas you are not invited to those festivities either.
We are however going to decorate the one remaining lamp post in our capital city with the body of my opponent in the last election who turned out to be a plotter against democracy and the people of Kazakhstan.
Again, I assure you, there is no reason for alarm.
Released as he boarded a flight to Kiev to discuss the pleasures of being a billionaire with his mate the President there.
Yea $20 oil $700.00 gold $5 silver. DOW 36,000 that sounds about right!
No reason to ever wake up in this dream world!
It's all under control... Carry on!
Luvin' my unicorns.
I don't care how fucking sluggish the demand is, $20 is ridiculous. This isn't 1979 and the demand is multiples higher than it was 30+ years ago.
The thing with commodities, it's mostly dug out where the owners of the land are shit ignorant. First it was glass beads, next it was coins, and now we give them the alluring choice between shiny toilet paper or bullets and bombs. With the exception of the sheep fucking president of Kazhakstan, I seriously doubt anyone sane would be willing to sell their oil at $20. That's is so fucking stupid, it's almost Obamic.
Cost of production in the US, Canada, UK and elsewhere is multiples higher than $20, that much is certain.
That number seems absurd.
Saudis have magnanimously decided to supply the entire global demand at .80/barrel. Suspend your judgement and critical thinking, get long the S&P, DOW and NASDAQ and enjoy the party! You'll be able to pay for your $1/gallon gas with the daily profits on your market investments, and employment won't be a problem because you'll be making enough off the market to pay for everything, especially with the radically reduced cost of living that will come from more-or-less free commodities.
As NoDebt said, it's all the best parts of a depression, but without a crashing stock market, so just get into the market with all you've got and you'll be fine.
. . . and without the market clearing crashing housing market.
Yea just about as absurd as the more dollars the Fed prints, the higher it goes.
it is absurd
like the war on terror, however, these idiots are pushing it way too far
I wonder if these absurd numbers (like the terror claims) will begin to have the opposite affect and convince the relevant folks that this is all based on lies, can not last long and is nothing more than a bluff game.
It is fascinating to watch just how damaging the other (false) end of the peak oil spectrum is, just how tied our energy is to our (false) ever expanding debt economy, and just how desperate these criminals have become.
something is going to break soon and these assholes are accelerating the bust
@YHC-FTSE - "so fucking stupid, it's almost Obamic." Yes, sir. Green fucking up arrow. Obamic. I love it, a new adjective that more people should get to know.
"Two dollars!" That's the paper-boy trying to collect the bill.
So that means I should write off everything I've ever read about the amount of oil that's ever been discovered and that peak oil is a complete myth?
I gotta say the Saudis are starting to look a bit desperate with the amount of jawboning they're doing.
Surely not as desperate as central banks
Bring it. I'm gonna need a bigger boat!
Courtesy of derivatives, the $ price can be anything those with power want it to be. The $ price of everything is fixed.
$20 oil is a long time off - 47 and then 35 support
http://bullandbearmash.com/chart/wti-oil-weekly-closes-deflation-continu...
WTI oil weekly has been in free fall - expect these next moves to takes months as opposed to weeks to move to these levels
If oil's at $20 and shale sells for $20 under market rate.... then i guess that just makes it worthless?
ND Rig count keeps dropping
https://www.dmr.nd.gov/oilgas/riglist.asp
Seasonal? Was higher for the last 3 years at this time.
Where will all the hookers go?
This is nuts! Nuts I tell you!
The moar liquidity, the bigger the swings. When the pendulum goes to the other side, the storm will be big enough to provide the world with alternative energie for the next decade.
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I see your finger, and raise you another for those commodity speculators!
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And that 'plan' would be?…
Other than, "KEEP ƒµç?¡?? PUMPING!!" the plan would be?…
Exactly. They have no plan and neither does anyone else.
Unless of course, you count "Have we reached break-even, yet? How 'bout now? Now?
SHUD'ER DOWN!"
It's reactive, not proactive. Demand is dropping.
•?•
V-V
While we may enjoy the lower prices, if it keeps falling it stands to reason we might start to see shortages if it goes too low.
Well, there's voluntary cuts in production, and then there's involuntary reduction in supply.
What if you can't get the $10 to $20 oil to market?
Like, say your camels become lame, or your pipeline cracks, or maybe your oil tanker hits a reef?
Things happen.
No surprise the Saudi's are letting oil plummet. the Russians are big supporters of Iran and the Saudis are afraid of Iran and do not appreciate Russia helping their enemy.
But the drop in the oil price is not hurting the Russians, the rouble has dropped further so they are better off. Its the rouble crashing that is hurting.
ALL of this is being driven by nearly infinite abuse of what is actually quite finite real asset leverage. The Banksters are taking people out who still ultimately be proven correct by exploiting their asymmetric leverage and knowledge of positions as MM. Just liquidate essentially fraudulently priced financial assets to buy gold $ for $ without leverage and they cannot win. They are hyperlevered against fundamentals. There is 1 and only 1 semi stable path out of this mess.
And, by the way, the quantity demanded does increase with decreasing price (elasticity of demand). And, the excess capacity in the system is not very big... this will correct on fundamentals far faster than people are expecting. Shilling's commentary is a "paper perspective", but we all take delivery of oil and consume it. The games won't work the same way.
What the shale oil boom has produced is a ceiling for the price of oil. If OPEC wants all the oil revenue, they just have to keep the price down below other producer's costs. So if shale has a marginal cost of 50-69, that becomes OPECs ceiling until demand increases.
The shape of the supply curve is changing rapidly over time. With 30-40% depletion rates, we lose 2 million barrels if domestic shale per year absent new drilling. The full lifecycle cost becomes relevant far faster than people are projecting. Depletion rates in traditions fields are on the order of 5-7%, which means at least another 5 MM BPD absent global drilling. Coupled with elasticity of demand (increase in quantity demanded at lower prices) and we'll work through this "glut" much more rapidly than Shilling and shills appreciate. The isn't the excess housing stock. We have to run hard to stay in place with petroleum production.
anyone know about the story of the REAL reason for the new "Oil for almost Free" program?
Ive been reading that the Saudis have mistakenly pumped tons of water into the ground to force the deep oil up.
Except that.
They miscalculated, and over pumped water and now they are forced to pump the oil and keep pumping it until the pressure equalizes-other wise the oil is contaminated and mixes with the salt water.
They may have to overpump for the next 5 years until this thing works out, pressurewise.
dont ask me-i just reading it a couple places
I care more about what Gary Shandling might have to say....
Gotta love all these oil experts. Telling us oil could go to $20. Six months ago they were telling us it'd hit $200 in 2015.
The people that should be worried are the Saudi pleb's, period!
So, the Saudi's can make money on $20, $30, $40, $50 bbl....[ ]?
Here's the math on Saudi revenue which btw they consume ~10%-%15 http://www.alarabiya.net/articles/2012/03/31/204478.html themselves daily. Let's assume the Saudi's break even at $10/bbl :: 11Mbbl/d x $10 profit[?]= $22 Million daily x 360 days= ~ $41.5 Billion annually (*this being at the $20 market value). {and now @ $10 increments over floor price/ break even, estimated at $10??? } :: @ $20 profit = ~ $84.7Billion :: @ $30 profit =~ $166.2Billion :: @ $40 profit =~ $210.9Billion[...]
Who's the greater fool here? If Apple wants to sell me an iPhone for $50 retail to squeeze Samsung out of the market... I'm game
Before you all go steppin on each other with too much gusto, perhaps you need to agree to the definition of the term "Peak Oil". Then you can chase each other in circles doing the russian squat dance. You could actually be in violent agreement at this point.
"
When someone says 'oil has already peaked' or 'peak isn't until 2020', what do they mean? Peak Oil can (and will) have many definitions. It would benefit policy debates and discussions if there were a universal, agreed-upon definition. The most common is the year in which global crude oil production reaches its maximum sustained level, followed by a permanent decline. Some (Ken Deffeyes) define Peak as the date when 50% of the world's oil has been used irrespective of the annual flow rate (presumably, we could have used 50%+ of our oil and still have rising production if technology is allowing us to borrow from what would have been a bell shaped curve.)
Other definitions differ in what is included as 'oil'. The most restrictive includes only oil graded as "Light Sweet". More common definitions include condensate and Natural Gas Plant Liquids (NGPL). Still broader definitions include the heavy oils, the Orinoco oil sands, and the Alberta tar sands. And the broadest measure of 'what is oil' might include corn and sugarcane turned to ethanol, palm nuts turned to biodiesel, and coal turned to diesel fuel. This is referred to as "All liquids" and is what is commonly reported as total oil production in the media."
http://www.theoildrum.com/node/4020
Saudi cannot play this game of chicken without US having its back.
G Zero world in full operations.
The Empire strikes back. Who's next ? China ?
The "marginal cost" for shale oil production is not comparable to classical wells since they run virtually dry in 3 years. Their true average production cost per barrel MUST be at least 3 times higher than that for classical wells - if not more. Why does one think the shale oil producers are drilling additional wells like crazy ( now dropping steeply because of no longer viable economically )? Not for increasing production, just for keeping output more or less constant. Also bear in mind that virtually all the "sweet spots" in the Bakken have already been drilled empty, so oil extraction cost is on the rise and the hangover is on its way ....
When the stupid predictions start coming out of Wall Street after a large move has already happened, the trend is probably coming to an end. No one is going to let 20 oil happen. And now that Wall Street says they want it, it will be resisted. No matter what Saudi Arabia says, they are being destroyed. They cannot take these prices any more that anyone else without a bailout, probably less so.