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Natural Gas Suggests $33 Oil
Submitted by Lance Roberts via STA Wealth Management,
In the last couple of months, the sharp reversion in oil prices has certainly caught the world’s attention. While the majority of economists and analysts continue to expect incorrectly that falling oil prices are a positive input to economic growth, the reality is that it is not. The negative impact to economic growth from the decline in oil prices are quite considerable when you consider that almost 40% of all the jobs created since 2009 have been in energy related industries.
Furthermore, many of those jobs are in the highest wage paying areas of the country that leads to more consumption and further job growth in other areas of the economy. In fact, for each job created in the energy sector there are nearly three jobs created elsewhere in the economy.
“What we have here is a failure to communicate.” - Cool Hand Luke, 1967
As I discussed at length previously, the current problem in the energy price is a realization of a supply / demand imbalance.
"First, the development of the‘shale oil’ production over the last five years has caused oil inventories to surge at a time when demand for petroleum products is on the decline as shown below."
"The obvious ramification is a ‘supply glut’which leads to a collapse in oil prices. The collapse in prices leads to production‘shut-ins,’loss of revenue, employee reductions, and many other negative economic consequences for a city dependent on the production of oil.”
Once you factor in the negative economic consequences of the decline in oil prices, any perceived positive impact from lower gasoline prices,by the consumer, will be quickly negated. (Read more here)
However, if you don’t believe me, here is T. Boone Pickens:
$33 Oil – A Return To Normalcy
While the economists and analysts are hopeful for a sharp recovery in oil prices, the current decline in oil prices is nothing more than a return to historical normalcy. Let me explain.
If you ask virtually any oil and gas professional, that has been around the industry longer than the graduating class of 2000, they will tell you that the historical relationship between oil and gas prices is roughly $8. The chart below shows the highly correlated history of oil and gas prices until 2008.
Not surprisingly, the divergence between oil and gas prices came to fruition in conjunction with the massive interventions by the Federal Reserve, which lowered borrowing costs enough to sufficiently provide for funding of higher cost shale exploration. As Yves Smith recently stated:
“The oil and gas sector is capital intensive. Drillers have borrowed phenomenal amounts of money, which was nearly free and grew on trees, to acquire leases and drill wells and install processing equipment and infrastructure.Even as debt was piling up,the terrific decline rates of fracked wells forced drillers to drill new wells just keep up with dropping production from old wells, and drill even more wells to show some kind of growth.One heck of a treadmill. Funded in part by junk debt.
Junk bond issuance has been soaring as the Fed repressed interest rates and caused yield-hungry investors to close their eyes and take on risks, any risks, just to get a teeny-weeny bit of extra yield. Demand for junk debt soared and pushed down yields further. And even within this rip-roaring market for junk bonds, according toBloomberg,the proportion issued by oil and gas companies jumped from 9.7% at the end of 2007 to 15% now, an all-time record.”
With an excess supply now realized, particularly as global demand continues to wane, oil prices are now returning back towards their historical long-term relationship.
If we assume that natural gas, which has been trading around $4 per BTU, has already returned a more normalized supply/demand range this would imply that oil prices have further to fall. The chart below is an extrapolation of the current West Texas Intermediate Crude price forecasted into 2016 on a monthly basis. It would currently require a decline in oil prices to $33 per barrel to return the WTIC/NatGas ratio back to its historic spread of $8.
As T. Boone Pickens notes in his interview, the main supply / demand divergence is in the process of returning back towards equilibrium particularly in light of the deflationary forces that exist on the global landscape. While it is certainly feasible that we could see a sharp “snap back” rally from the recent plunge in oil prices, it is likely an opportunity to reduce energy exposure in portfolios before the next leg lower.
Just as a reminder, the last time oil prices fell 50% from their peak was in 1985-86. Oil prices then stayed at those levels until the turn of the century. The rebalancing of supply and demand could leave oil prices at lower levels for much longer than the majority of analysts currently believe. Considering that oil production related states have done the majority of the work related to the current domestic economic recovery, such an outcome could derail the hopes for a continued economic revival.
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"return to normalcy" LMMFAO
took the words right out of my mouth there!
"While the majority of economists and analysts continue to expect incorrectly that falling oil prices are a positive input to economic growth, the reality is that it is not. "
OK, so lets say you don't believe we actually just printed 5% GDP growth (I don't believe it). What makes you think they would suddenly start printing REAL numbers if there is a downturn?
I am NOT buying into this fallacy that we're all going to die from cheap energy. Yes, there will be a lag between the pain of the downturn in the energy sector and the slow improvement in the rest of the economy. Malinvestment usually ends that way. But as another board member pointed out many times on ZH, It takes BTUs (energy) to actually DO things. I'm sorry oil workers are going to lose their boom-time $150K/year jobs shoving pipe into the ground. But the rest of us would like their turn, too.
Stats are stats, now all the good paying jobs are really gone.
And peak oil reveals itself to be peak debt.
man who was that fucking moron trying to tell Pickens what color the sky is? I'd pay real money to watch T. Boone punch him right in the kisser...
This is the scale of feeble-mindedness in descending order: MORON , then IMBECILE , then IDIOT. Whoever you called a MORON was given somewhat of a compliment , but I would wager he wouldn't understand the remark to begin with.
Shut the fuck up Kernen!
Hey Joe, tell us how there will always be enough oil at any price to support 8+ Billion people, and we're talking about food and water, not transportation.
Pickens giving Kernan and Quick a free Economics 101 lesson, and they still could not get past the light switch analogy. Hey kids, technology cannot solve tangible physical problems and limitations!
I'd wager neither one of them has ever dug a hole with a shovel. Your iPhone cannot drill for oil, nor grow a potato!
This reminds me of the national debt counter: http://www.worldometers.info/world-population/
You are barking up the wrong tree, those cats can't tell their ass from a hole in the ground.
false premise
You are wrong. The divergence relates to the delta between where energy resources are located and where it is consumed, as well as the massive inertia of our infrastructure that consumes energy... oil will not recouple with natty gas for any extended period of time for more than a decade hence, at a minimum.
These ratios are meaningless. Especially for natural gas, as it does not even have a world market!
Yeah, oil may fall more, but it has nothing to do with gas.
The ratio isn't meaningless. However it is sticky and sometimes takes months or years to adjust. You are correct in that gas does not transport conveniently. However, energy intensive industries can, and do, change their preferred sources of energy based on price.
Not the pet-chem industry who has a limited source of feedstock. This article is retarded.
Amen...
And natural gas is too cheap, I like how every divergence they assume it's going the way that fits their argument, natural gas prices will increase
$33 WTI Oil is below march 2009 lows, which was also market lows - 666 on the S&P500
http://bullandbearmash.com/chart/wti-monthly-tanking-forecast-wave-3-lon...
may happen in 2015 - or later
And DX, dollar over 90 right now. Shit don't add up.
Don't ZIRP me, bro.....
Oil and nat gas aren't the same thing, how they are used is different. Nat gas has a constant seasonal demand while Oil is a lot closer to the economic demand for transport and industry. It wouldn't surprise me to see gas go up and oil go down.
$33 oil is fuked, the whole economy is based on hydrocarbons, need to tell Obama
"return to historical normals"
I hope that doesn't include gold and silver
historical normals?
Like there is a endless stable supply?
Fuck this, give me $15 dollar a barrel thats historic: https://upload.wikimedia.org/wikipedia/commons/b/b0/Crude_oil_prices_sin...
A barrel of oil represents between 1 and 7.25 man-years of work. So at $33 a barrel, that represents a wage of between 0.23 to 1.65 cents per hour.
Others claim that a barrel represents 25,000 man-hours of work. That is a wage of 0.132 cents per hour at $33 a barrel.
China and India can double their oil consumption at $50 a barrel oil and increase their GDP by several percent. So it is very unlikely that oil falls below $50 for more than a few weeks.
http://www.theoildrum.com/node/4315
NG is, or was priced at about half the BTU value of oil. but NG could be worth a lot more if we had an infrastructure buildout, (potus loves his electric golf cart). already the states and cities have tapped into NG, so when Pickens says demand is down YES it is, buses and trash trucks and delivery trucks are running on NG, home heating bills on NG are half what the same cost of electric heating is. the naysayers who think NG buildout is impossible fail to consider what a screwed up system the oil refining system is, with CAFE standards, and transportation costs. they say there not enough volume in the current NG system, but if you have save storage and compression centers, low volume isnt an obstacle. fracking caused by malinvestment will go away, and that tends to put a price under NG. ZIRP has really screwed things up, we can only hope the markets return to normal after the Fed is dismantled.
Yes, Natty cannot be efficiently exported, but there are dozens of applications where it is directly competitive with oil. It is winning on all these fronts because it is cheaper, MORE STABLE IN SUPPLY, and much less polluting.
These are long run decisions, and will, over time hold oil prices down.
GOFO back negative
The author's theme is incorrectly substantiated by the Pickens interview. It is false to say that the decline in oil prices is a drag on the economy. In fact, the entire discussion smacks of the classic Keynesian broken window fallacy. Lower prices does not mean anything other than lower oil prices. Just because GDP falls as a result of a declining oil industry, doesn't mean that the welfare of everybody is worse off. The oil boom was a levered play wherre now as a result of the levered play, supply exceeds demand - which would never have happened were interest rates not suppressed to near zero bound. The point is, this is a redistribution of sorts - a clearing out of malfeasance in investment, and a bit of a boost to individual disposable income through lower fuel prices - end of story.
"The Jobs" argument is plain bullshit - since the entire jobs boom was fueled by debt - they are jobs that would not otherwise have occurred in the absence of ZIRP.
Agreed. But I think the argument is that 33$ oil will have consequences like a bad (needed) hangover after a party (that probably should not have been)
I was just getting ready to say... Gold and Silver are next. This is a commodity unwind. Down goes oil, then natural gas, gold and silver will drop to 800 and 12. Anyone holding gold or the mining complex should hedge in some way. No way gold avoids this same scenario...
I quit buying silver at $14. I will start again at $7. I initially started at $1.32 in the 60s. Sold a lot at $45. Rest fell out of my boat. It is time to reload on the cheap.
So is $7 your prince point not including premuims? Sounds like you have been around a fair bit, so you know all about the relationship of low prices vs higher premiums.
If you sold at $45 congrats, pretty good timing. There are many who bought at that level and have been wondering WTF they were thinking now.
I remember, in spring 2011, a man trying to justify his silver purchase to his wife while sitting behind me in a restaurant. That was a month before the peak. When the man on the street is talking about it... I haven't heard anymore of those conversations so, it's a relatively good time to buy.
@cossack,
You are completely full of shit.
The smart gold and silver bugs would cost average as it kept going down. Set the extra scratch aside you might have normally budgeted for XX or XYZ when prices were higher, and keep for a rainy day(which is pretty much every fucking day in the metals market)
The physical demand is still there. Shortages of real metals will occur while oil is still flowing. The banks can't dictate physical demand, only paper.
Is that due to oversupply or lack of demand?
Equities will eventually follow too.
This is quite paradoxical:
The world's largest consumer of oil just pumped out a 5% GDP number on the backdrop of oil falling 50%.
The the Saudi oil minister says demand is weak (I don't trust Saudi's) and the Government says 5% GDP (I don't trust the government).
So...what the fuck.
One can always trust an enemy. The Soviets were one of the best things to happen to USSA.
Of course, now that the gubmint is becoming an enemy.....hmmmm.
None of what I'm reading is clarifying. For instance, if debasement of the currencies is rampant, and the costs of exploration and extraction only marginally economical, especially for non-conventional production, and And if the US Fed-PetroDollar regime needs our ever growing exported debt to be purchased, how can the price of oil have so dramatically decreased? A one day buffer in supply and demand world wide doesn't answer anything one way or the other.
None of this makes sense to me...not supply and demand, futures, or any other claimed rationale. I'm not the smartest person, but I'm not a dull normal either.
QE ended in Oct. That was $85 Billion per month. Since oil trades in dollars, it's price is the reflected by the amount of dollars circulating. This is how the US exploits the rest of the world, by exporting inflation (taxation, counterfeiting w/o representation).
The concept of price gouging has been relegated to the dustbin of history.
Bring on the $33 oil. I need a new blacktop driveway.
"Just as a reminder, the last time oil prices fell 50% from their peak was in 1985-86. Oil prices then stayed at those levels until the turn of the century. "
That's not correct. The price fell more than that in 2008, and there were several 50% range breaks in the 90's. Not saying that he doesn't make other valid points, but some of his conclusions are pretty misleading.
Lance doing a 33 shout out to his friends in the cult
Is it Christmas eve yet?
Normally this would have been posted on a Friday evening just before sun down
But he'll be off celebrating Saturnalia this week
"RUSSIA warning: No gas for UKRAINE if it fails to pay $1.65bn debt in a week"
Speaking of gas! Speaking of attacks on the ruble, now is the time for Russia to DEMAND it be paid for energy exports in CASH. Why would Russia continue to ship gas, when all out war has been declared by Kiev and Washington?
But this will be spun by the western media as an attack by Russia on Kiev's Junta. As if payment for energy deliveries is an ATTACK! But then Washington DC and Kiev both have no idea how real markets work. Manipulation and communism are the hallmarks of modern day Washington DC and their a Puppet Kiev Junta. The Kiev Junta believes that free gas is part of their birth right, after decades of free gas from Russia, they really are addicted to it. In fact, Ukraine was never a viable economic unit without ultra cheap energy. Add to that, the loss of the Russian populated industrial heartland of Donbass, and Ukraine is nothing but a bankrupt ward of the EU, USA and IMF. But the IMF is stopping payments, waiting for reforms, that Ukraine can't afford. The EU is paying 2 billion Euros now, but that may be all for a long time. The US Taxpayer is funding the civil war, perahaps at the rate of 1/2 billion dollars a month, from the pentagon Black Budget.
Russian paid troll, stop manipulating. The war was started by Russia ON UKRAINE's territory and it continues. Russia is paying its full price by being unlucky to mismanage enourmously wealthy full of resources country at the times when access to capital was limited by the West as a retaliation to aggression from Putin, and slowing oil demand.
Secondly, Ukraine has never received ultra-cheap energy. Ukraine was paying 450 USD per q m of gas from Russia last year while Russia was selling the same gas to Germany for 300-320 and this is including the transportation leg of 2000 km (!). When Russia turned off gas supplies this year in the spring Ukraine got reversed supplies from Europe of the same Russian gas at a price of 330 usd per gm. Russians are liars and specifically Jack Burton YOU ARE LIAR!!
Stop naming Ukraine's democratically elected government junta. Junta is a ruling by military by default. Putin is KGB Colonell, former KGB are spread through all governing bodies in Rissua, patriarch Kyrrill is KGB officer Gundyaev -- who is junta? It will take 6-9 mo before Russia will turn in chaos. RUB devalued by 70% and more to come.
Hard to find any party that isn't lying. There are no 'good guys.'
"No Gas!" ?
Well, the crew from the Holy Grail would have a thing or two to say about that. Like "I fa*t in your general direction."
Merry Christmas
Bing Crosby - It's Beginning to Look A Lot Like Christmas
http://www.youtube.com/watch?v=GcZAwoip5aY (2:47)
Idina Menzel & Michael Bublé - Baby It's Cold Outside
http://www.youtube.com/watch?v=6bbuBubZ1yE (4:02)
Bing was the best.
http://www.youtube.com/watch?v=e2pk4p_yqH8
Kudos to Charles Hugh Smith on the Dollar call, and his oil call yesterday is interesting too.
Maybe Oil Goes to $70 on its Way to $40
http://www.oftwominds.com/blogdec14/70-oil12-14.html
Today's column.
Will the Fed Intervene in the Oil Market?
http://www.oftwominds.com/blogdec14/fed-oil12-14.html
"Will the Fed Intervene in the Oil Market?"
"Intervene", as in manipulate or control? Like every other "Market"? I pull a T. Boone Pickens and call "Bullshit!"
If you think it through... How can they "intervene", when the Dollar is bases on Petroleum? They got a lot moar PETRODOLLARS than they got PETROL. So "Tyler me that" explanation, SVP.
Smith? Tyler? Yellen? Bueller? Anyone?
Sorry, I don't buy the author's analysis. The historical gas<->oil differential of $8 existed when both were in unconstrained supply and the demand for gas was far lower.
Global oil almost certainly peaked in about 2006-7 and the world is currently traversing across the bumpy peak, albeit slowly due to the economic collapse.
But gas has not yet peaked. So the historical differential doesn't apply and it needs to be ignored. When gas peaks (I have no idea when), the historical differential may return, or it may not. Who knows.
I experienced the last oil implosion first hand from 1985 through 1990. I worked as an auditor for C&L in Denver, which at that time had an economy heavily based on energy (unlike today which is based on another form of energy, i.e., weed). There was no question that the oil belt which ran from the plains through Denver and Oklahoma and basically all of Texas suffered mightly. I know the economy in Denver was in the tank for 4+ years which saw numerous business failures, consumer BKs, real estate problems, you name it as a direct or indirect result of this event. As for this event, please remember the following:
- First, the benefit to consumers via lower gas prices was more "immediate" as retail gasoline prices dropped relatively quickly. The negative impact on the regional economy was more gradual as the energy industry finally realized their situation and adjusted with lower capital expenditures, job cuts, business consolidations (stronger consumed the weaker), etc. The full effect of the correction took at least two years to realize but make no mistake, it impacted every segment of the regional economy from retail sales to residential real estate prices to auto purchases to commercial development to government revenues (and spending on infrastructure, schools, etc.).
- Second, notice the drop-off in domestic oil production starting in the mid 1980's time frame. Actually, domestic oil production held-up until about 1987 at which point it finally took a deep and prolonged drop. I don't think there's any doubt that this was directly associated wtih the price dropping by over 50% a BBL but also emphasizes the lag effect associated with these types of events (which has been discussed on ZH previously). That is, with oil cap ex already committed for 2014 and some for 2015, oil production doesn't just turn off immediately as these "sunk" costs are already gone so you might as well produce as much product above variable costs as possible (as the money has already been spent). Further, in order to protect revenue levels, oil production may increase temporarily to increase unit sales in a falling per unit pricing environment. Thus, oil supplies may continue to remain stable or actually increase in 2015 as domestic wells are squeezed for production, OPEC refuses to give on marketshare, and the other BRICs attempt to sell as much oil for USDs as possible.
- As for the argument about the impact on the domestic economy being positive (lower gas prices) or negative (damage to the energy industry), in 1985 the feeling was that more of the US's consumption of oil was based on foreign supplies and thus by the price dropping, this would help the trade balance and represent more of a tax cut for the general US population. This time, with more of the US consumption tied to domestic production, I'm not sure the tax cut argument holds as well but I do think in the short-term, a net benefit of lower gas prices will assist the domestic economy (but not as much as various economists think).
- As for the financial/collateral risks, these are very real and could be extremely problematic. I witnessed more than a few banks fail in Denver during the late 1980's as well as in Texas. Maybe this time the banks don't have the full risk but there are a ton of debt products floating around that are sitting in someone's portfolio that will eventually blow-up. Again, this is going to take some time as a number of energy companies will find a way to hold on (restructure debt agreements/default waivers, utilize liquid resources, sell assets, leverage production, etc.) for 6, 12, and maybe 24 months but eventually, economic reality will set in. I can't tell you how many energy related investment funds, comapnies, etc. failed in Denver in the late 1980's.
- Finally and if you recall, the oil bust of the late 1980's was followed by the commercial real estate and S&L implosion which started in 1990 to 1991 timeframe. Excessive speculation combined with poor interest rate management doomed these two industries joined at the hip. Just look to the carnage in the S&L industry in California through 1995 (Home Fed to Home Dead, Imperial, etc.). Adding fuel to the fire in California in the early 1990's was the cutbacks in the defense industry which was the icing on the cake for residential real estate which saw countless home buyers quickly go underwater with purchases made in the 1988 - 1991 time frame. The residential real estate market bottomed in 1994 with a number of home buyers not seeing positive equity again until the late 1990's.
My point to all of this is as follows. First, the real impact of the correction in oil prices has not even begun to be felt yet. While the consumer gets the immediate benefit, it's going to take another 12 to 24 months to digest the damage at the corporate/industry level. Second, the reference to the S&L implosion was made to highlight the significant risks present (and often hidden) with interest rates. S&L's got into trouble for a number of reasons but a key was the mismanagement of interest rate risks. Again and today, with the interest rates artificially surpressed, interest rate risk mismanagement potential is at all time highs, especially if the Fed begins to raise rates.
Thus, the debt/interest rate timebomb has already been planted (just like from 2004 through 2007) and the only thing that remains to light the fuse is when the Fed decides to raise rates as you can be assured something somewhere will absolutely blow-up and create the next crisis.
As for the financial/collateral risks, these are very real and could be extremely problematic. I witnessed more than a few banks fail in Denver during the late 1980's as well as in Texas. Maybe this time the banks don't have the full risk but there are a ton of debt products floating around that are sitting in someone's portfolio that will eventually blow-up. Again, this is going to take some time as a number of energy companies will find a way to hold on (restructure debt agreements/default waivers, utilize liquid resources, sell assets, leverage production, etc.) for 6, 12, and maybe 24 months but eventually, economic reality will set in. I can't tell you how many energy related investment funds, comapnies, etc. failed in Denver in the late 1980's.
When CB's continue with interest rate suppression measures, your experience above is what you get - a reconciliation - prices eventually collapse - dislocated capital becomes relocated to the those that correctly took into a discount rate GREATER THAN ZERO and assets exchange hands from gamblers to the wise. In short, its nothing new here. Not a bit. And here's the kicker - production will resume at $40, $50, $30, $whatever oil because there will be no debt servicing, there will be no high input costs - there will be.........
Does this mean its a bad thing?
Nope. Declining prices, always a silver lining.
Its why GDP is such a shitty measure. Doesn't tell you anything about the welfare of the economy. And the loss of a debt driven industry is clearly a boom while the pain to those that gambled and lost - well, thats just a redistribution problem, not an economic problem.
I agree with your point as the excessive speculation in the oil industry in the early 1980's, commercial real estate after that, the dot.com era after that, residential real estate after that, and today, the facking industry, and tomorrow the next wave of tech companies all are sqaurely centered on the same poor economic fundamentals and concepts. Excessive speculation, leverage, and risk taking which eventually have a forced day of reckoning when the laws of supply and demand take hold.
I'm fully supportive of pricing being set by natural market forces so if declining prices are the result of supply and demand economics, then great. My problem (which you noted) is that the world's CBs have distorted the price of capital so severely and for so long, that each time they attempt to fix or resolve one problem, they create another underlying timebomb that is exponetionally greater than the previous one (and thus lay the ground work for even a bigger crisis that eventually may bring the entire house of cards down).
So am I worried about an industry that is finding price equalibrium from supply and demand forces, no, not at all (and is the redistribution process you note). However, am I worried about the severe misallocation of capital on a global basis driven by reckless CB policies and actions, absolutely which is clearly on display in numerous markets other than industry (think of overvalued IPOs for tech, beyond defendable interest rates for soverign debt, etc.). Basically, just about every asset is over valued today as a result of both cheap and easy CB monetary policy. There is just no way you can defend an argument of the Southern Europe countries being able to borrow at roughly 2% for ten years based on their economic fundamentals.
No what we have with the drop in the price of oil/energy is a much bigger message being delivered and risk present (than one industry rebalancing). The decrease in the price of oil is the canary in the coal mine as it relates to excessive asset valuations across all asset classes beginning to deflate as the CB monetary policies of attempting to inflate their way out of this mess begin to fail. This will all end when as you appropriately noted, proper rates of return on capital for the risks incurred are realized with all asset classes and specifically, soverign debt. When this happens, the entire collateral chain implodes and the great global financial reset and redistribution of wealth can occur.
The real problem is very simple and it comes down to two main issues (accross the globe) - Debt and Income: As in there is just too much debt and not enough income to service the debt. Thus and in order to keep the game going for a while longer, every trick in the book is being used to manage the debt level by lowering interest rates (ZIRP and NIRP), extending repayment terms (e.g., Spain 50 year bond), restructuring debt (e.g., Greece short-term to long-term restructuring), and using secondary repayment sources to pay the debt (e.g., QE in the US and Japan).
This paragraph:
I'm fully supportive of pricing being set by natural market forces so if declining prices are the result of supply and demand economics, then great. My problem (which you noted) is that the world's CBs have distorted the price of capital so severely and for so long, that each time they attempt to fix or resolve one problem, they create another underlying timebomb that is exponetionally greater than the previous one (and thus lay the ground work for even a bigger crisis that eventually may bring the entire house of cards down).
And this:
The real problem is very simple and it comes down to two main issues (accross the globe) - Debt and Income: As in there is just too much debt and not enough income to service the debt. Thus and in order to keep the game going for a while longer, every trick in the book is being used to manage the debt level by lowering interest rates (ZIRP and NIRP), extending repayment terms (e.g., Spain 50 year bond), restructuring debt (e.g., Greece short-term to long-term restructuring), and using secondary repayment sources to pay the debt (e.g., QE in the US and Japan).
says it all don't it? great post because, as your post suggests - this aint complicated. and the FED will start buying COMEX oil and gas futures and fracking debt like they did MBS.
Its what I've been saying all along - the system is rewarding the fucking greedy and stupid, but, penalizing the prudent and the savers. And no amount of bitching on my part, I suspect, is ever going to change this fact.....which pisses me off even more. have a great holiday!! :)
Couldn't have said it better. The parties that need to be punished, the one's deep in debt with no ability to repay the debt, that is the soverign debt countries, are being rewarded like never before. Less than 2% for 10 year money. A complete joke. And the prudent savers, with strong balance sheets, liquid resources, ability to service debt with room to spare, are being punished and trampled by TPTB with no regard for their hard work, diligence, and diciplin. But like you, my rants probably mean jackshit in grand scheme of things but as the old saying goes, every dog has it's day. So Pareto, let's hope dogs like you and I have our day and at least have the opportunity to watch the Fed, at some point, suck it up and take it on the chin and admit they were wrong.
Likewise, have a great holiday season and here's to hoping 2015 begins to resolve these imbalances!!! :)
+1 Indeed: 2015 - A Resolve to Imbalances My new theme for the year. God bless.
Good insight Delivered. Up here in Canada the media is touting the expected "benefits" and citing how it's already impacting our (all but gone)manufacturing sector. And it probably is, as you say, the immediate cost savings are real, but soon overcome by job losses, and corporations having to cut back.
We're still in the "deer in the headlights" phase, the fear stage is next, followed by the hacking and slashing of budgets. Even still, I have it on good authority that Calgary's(Canada's Dallas) real estate is already panicking.
It was up on the year double digits as recently as September, but now in the red, as new listings are going ballistic and buyers are vanishing. And the layoffs have barely even begun....
Very reasoned, digestible synopsis. Thank you
Oil is black gold, and as with the miners, the oil producers will be hurting BAD. Especially in the US. When a commodity trades below its cost of production heads will roll and blood be spilt. I personallz don't see demand down by 40% over the last say 6 months, to explain the drop. Whatever, these low prices, just as with the PMs, are artificial and not sustainable, unless we go in a full fledged deflationary collapse. Maybe we will. Interesting times.
"The rebalancing of supply and demand could leave oil prices at lower levels for much longer than the majority of analysts currently believe. Considering that oil production related states have done the majority of the work related to the current domestic economic recovery, such an outcome could derail the hopes for a continued economic revival."
The two sentences contained in the quote above contradict each other in the context of monetary policy by authorities that have already proven they will not allow the market to fall past a certain degree, which has by any other measure today, become a proxy for the 'recovery'.
Very shitty analysis. There is tons of creap to extract nat gas all over the world. There are no new discoveries of cheap to extract oil. Oil will be back to $100 within the year as T Boone predicts. Peak (cheap) Oil is a FACT!
Of course it will be back to $100 this time next year. They will need something to blame the dismal 2015 xmas numbers on, assuming something much larger has not taken place by that time.
No scatterplot? Not good enough. The divergence is where the rise happens in oil; not the gap. The gap marked is actually where the trends re-align & sometimes they stay that way. Gas isn't moved along the same directions as oil nor used for the same purposes as liquid fuel comes from oil, not methane gas. Natgas vehicles are not common & that's important.