Crude Carnage Resumes: WTI $52 Handle - New Cycle Lows, Here's Why

Tyler Durden's picture

Just 3 short days ago, energy stocks were surging and oil was - according to the mainstream media - "stabilizing." Today, we plumb new cycle lows, with WTI back below $53 as every rally is to be sold for now... While no one can resist the temptation to call the bottom in oil, the recoupling of oil-dependent energy stocks from oil appears to the no-brainer trade of January...


Not Zee Stabilitee...

As to what is poressuring crude - apart from over-supply in a dwindling demand world - 3 possibilities today:

1) News about the Saudi king's hospitalization (though it is unclear - apart from volatility - why this is bad for oil prices);


2) Zee Europeans have said lower oil prices bring ECB QE closer (not transitory like Janet said) and so there is a market pressure to force oil prices lower to force Mario's hand; and


3) The US appears to opening the door - albeit gently - to more exports (thus foiling OPEC's strategy of forcing US Shale to cut production as the export route enables their supply - albeit at lower prices - to get to market)

Here is Citi on the "US Condensates" news... Alert: US Government Makes Blanket Clarification; Could Result in up to 1-m b/d of Processed Condensate Exports by end 2015

In a not-so well-hidden set of FAQs (Frequently Asked Questions) the Commerce Department went a long-way to make public what had previously been private decisions clarifying what constitutes processed condensate, enabling producers to convert field condensate (not generally permissible for free export) into processed condensate, which is generally freely exportable as petroleum product.

While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end 2015. In late June there was wide publicity surrounding clarifications granted to two companies, Pioneer Natural Resources and Enterprise Products Partners, to the effect that lease condensate processed through a stabilization unit and elementary distillation tower is re-constituted and freely exportable. Now Commerce, through FAQ’s issued today, has made public specific criteria that allow condensate to be exported, ending the risk that companies would have to take if they self-certified that their exports constituted products rather than crude oil. Regulatory clarity should bring more exports.

The US shale revolution has been based on light and ultra-light crude oil, with total production of 40+ API crude oil currently some 3.81-m b/d. Of this around 640-k b/d is lighter than 50 degrees API. Eagle Ford production alone is at least 340-k b/d of crude lighter than 50 degrees API but production growth has been largely in crude gravity between 40 and 50 degrees, which is currently 42% of Eagle Ford Production, or at least 430-k b/d.

Citi estimates that currently there is about 200-k b/d of export capacity (including dedicated tanks and docking space), but this could be expanded to 500-k b/d by mid-year and 1-m b/d by the end of 2015.


The timing of the new FAQs is exquisite. US producers are under the gun to reduce capital expenditures given lower prices. One critical factor impacting production economics, especially in the Eagle Ford, is the exportability of ultralight crude oil. Now an export route provides a new lease on life that can further weaken crude oil markets and throw a monkey wrench into recent Saudi plans to cripple US production.

Another FAQ clarifies what makes it possible to re-export Canadian crude oil, making clear that minimal co-mingling with US crude is acceptable. Beyond this, blending Canadian crude or Mexican Mayan with processed condensate spells competition for Middle East producers and Russia in European and other markets. It is almost certainly the case that today’s clarification was not meant to be a change in policy, but others in the market may well come to a different conclusion.

*  *  *

But we suspect the Yellen magic can't fix earnings downgrades?


Charts: Bloomberg

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wrs1's picture

How does exporting oil allow shale to "get to market"?

Pinto Currency's picture



Makes sense.

King Abdullah's sick and Russia and China gearing for petrogold.

Oil down.

wrs1's picture

Shale oil gets to it's domestic market just fine.  There is plenty of market in the US as obviously there were 7.3mbbl/day of imports reported for the second week of December which was 1.2mmbbl/day more than the prior week.  During that time, West Texas probably didn't increase it's out put and continued to pipe the oil to either Cushing or the gulf coast so what is this person talking about?  The biggest problem for US oil is the dumping of foreign oil at sub production prices in order to harm domestic interests here.  Of course if no one here cares if the US is energy independent or not, then that is all good, go ahead and destroy the private domestic energy industry in this country becaue you want cheap gasoline along with your $1 bigmac.

saints51's picture

Majority of people will choose the cheap gas and $1 bigmac. Majority of people work for .gov or do not work at all which makes them working for .gov. I still believe collecting a welfare check or working for .gov is both in the same.

Pinto Currency's picture



Good luck financing drilling with high yield energy junk in 2015.

Abdullah probably had a jammer thinking about how he was going to explain to the Saudi citizens that they had been accepting paper for selling Saudi oil reserves for all these years when everyone goes back to gold for oil

knukles's picture

Somebody who understands.
sigh xoxoxoxoxoxox

knukles's picture

See, what the CFTC said was that a couple companies in dire straits would no longer have ample cash flows to fund their ongoing lease arrangements for politicians in DC.  Meaning that if they can find another market for their crude by avoiding regulations (as in statute, the law, another miracle of regulators Making Laws) then their politicos can continue to receive their God Given Lease Payments (Contributions).  Therefore, these two companies got permission to shake (not stirred) each and every 55 gallon drum briskly for a moment or two and thus, the crude can be Magically Declared Processed.
See, if Anybody Anywhere Will Buy Anymore During the Glut, that's cash in the pocket!
What, you don't believe me?
Doubting Thomases, the lot!

saints51's picture

I do not understand that either. If the shale industry is breakeven at a higher price than the $50 range, Who will be able to make a profit in the shale play at the current price?

Only way I see shale surviving is by .gov subsidizing the industry with the good old taxpayer as the back stop.

wrs1's picture

I have stripper well operators that claim to be making a profit on 5 barrels a day between three wells in order to hold the mineral rights under my land.  XOM claims they plan to drill 8 horizontal wells on that land starting in February.   Guess we will see how low oil can go and people still produce it at a "profit".

knukles's picture

This ain't about Profit & Loss anymore.
It's about Cash Flow.
You're already at a loss if you shut down.
Ongoing business losses from Operations are "tax deductible."
Butchu still got cash flow.


Winston Churchill's picture

+ 100.

Until the cash flow drops below the servicing costs, the game continues.

Just as well those loans were covenant lite, otherwise thay would have already been called.

saints51's picture

+1 And thats how this shale play will end.

NEOSERF's picture

Ask a coal company how long the game can go on for....

mayhem_korner's picture



Ask a coal company stockholder how long they can survive with slashed wrists.

wrs1's picture

No, it's about holding the minerals which no one that isn't involved in the business seems to understand.  Most leases require production in paying quantities or commercial production both of which mean profitable operations.

kaiserhoff's picture

Thanks for your posts.

We need more long run perspectives. 

surf0766's picture

Maybe shale with a few hundred billion will match the Green energy subsidies

One And Only's picture

The US now produces as much oil as Saudi Arabia. 

Competition. Without a monopoly on oil the price is coming down. Falling price means those extracting have to pump more volume to compensate for lower price.

Oil could go to $30's. 

blaireauhedge's picture
blaireauhedge (not verified) One And Only Dec 31, 2014 9:31 AM

Sure. And it all happened just like that... not gradually, but in a couple months.

Everyone knows this is all engineered to hurt Russia and Iran. Every other explanation is BS.

Sure. Everyone loves lower gas prices. But what the fall in the last two months shows is that the PTB can do whatever the hell they want. Perhaps oil never had to be over $100 for all those years.

Perhaps markets did not have to drop 50% in 2008.

Anyway, Obama himself let the cat out of the back a couple days ago on the fact that the oil collapse was a political ploy to hurt Russia.

Dubaibanker's picture

For all those who believe that US is all out to get Russia and US along with Saudi have collaborated to bring the price of oil down in order to hurt Russia, they must read this immediately.

Inside Obama’s Secret Outreach to Russia

As I have said this a couple of times, this oil price decline is hurting US/Canada/UK/Norway/Denmark etc the most being the highest cost producers, having all wells owned privately, having large debts and having no cash reserves to survive this price delcine, the carnage will keep happening for months to come (with further lower oil prices) and price will remain down for a year or two, until US oil production actually shows a significant decline.

wrs1's picture

And yet the first poducer to fall is within OPEC isn't it?  Seems like Libya isn't even producing up to it's internal needs, no more exports there.  Who is next for a little fire bombing from militants not being paid by oil revnues?  My bet is the kingdom itself is going to burn. Their stock market is crashing and their banks aren't going to make it when the chips are cashed in.  It costs money to run a police state and Saudi Arabia doesn't have the money to run theirs without cashing in big chips and certainly not for even six months.  They will cave before the end of April with some face saving move of capitulation.

mayhem_korner's picture

Without a monopoly on oil the price is coming down.


The Sauds are looking to eradicate higher-cost producers (i.e., US Shale independents) in order to resume their market power.  That's what is going on.  The US .gov is simply end-arounding the price war by enabling the independents to sell their goop while avoiding the expensive additional processing normally needed to "go to market."

The Sauds can outlast the U.S. on a pure price war if they want to.  Whether they do or not is unknown.

But if the shale drillers begin to fold up shop, a lot of creditors behind them will take a big hit as well.  And apart from CB relief, there isn't a lot of room on banks' balance sheets for moar underperforming and nonperforming loans.

db51's picture

Buffet merely adds another 1,000 60 year old railcars to his operation and further squeezes all grain shipments from Northern Corn, Soybean and Wheat growing states to basis levels making their products worthless.   Problem solved.

Its Only Rock N Roll's picture

As we close out 2014 I am sure everyone nailed the short oil/long bonds trade this year!

More of the same in 2015?

Poor Harold Hamm isn't happy either

Love the cats TD


knukles's picture

I got the long the long bond part right.
Long a whole buncha 30 year treasuries, up 20+%, and a whole buncha long munis up 9+%

I could care less about the short oil trade.

I just want my long gold to start going up, goddamnit!

cowdiddly's picture

Yes I missed the long bond trade. But I nailed that double dead cat bounce in the above chart in earl almost to perfection.

23.4% up for the year in a few days at the close of the year. Now to try to catch that knife again w/o getting my fingers chopped off. PANIC you Bitchez! Blow that Derivative time bomb.

And I want my gold long to go to 700 so I won't be playing with knives, -dammit

Chad_the_short_seller's picture
Chad_the_short_seller (not verified) Its Only Rock N Roll Dec 31, 2014 11:10 AM

Only go after the VERY VERY weak ones with MASSIVE debtloads. OAS will keep dropping to low single digits. Anyone else is too risky imo

Oilcrashing's picture

Here is my bet:

They have hoped to base the "recovery" after the crisis on an expensive oil that (as it seems now to be evident) can not be paid.

The oil price correction is logic (which is not logical is how they have inflated the commodities market, with the intention of extracting more and more and flooding the market, regardless of the cost of producing them:, since we cannot afford a so expensive oil (financing the extraction of expensive oil, copper or iron has detracted resources elsewhere from the non-energetic part of the economy, which happens to be ultimately the responsible for paying for its use); the "only" problem that I see is how this situation will take into bankruptcy companies that were created to extract expensive oil (and expensive iron, and expensive copper, etc, etc), something which will cause cascading effects on the rest of the economy.

They have tried to hide deflation from the start of the crisis, but it is now appearing on the commodities market and is starting to infect the rest. Its effects can be compared with that of a snowball falling down a sharp slope. Once it gains traction and speed, there is nothing that can stop it. Deflationary collapse (or Hyperinflationary collapse if Central Banks resort to do stupid things) in a heavily indebted system is the most probable outcome.

wrs1's picture

The oil isn't anymore expensive than your car or your rent or your steak or any other item you choose to purchase.  It was priced according to the ability of the marekt to provide it to you here.  If there were not a kingdom of 30m people in a sand flea infested country with a lot of oil to throw away because they can't use it, your oil woudl be far more expensive.  The previous price of oil this summer properly reflected what those people were charging in order to keep their population in check.  Now it doesn't and it appears to me that they may have some issues arising rather quickly as a result, the apparent illness of this "king" unsuprisingly may be just such an issue.  Should be interesting to see how that plays out.

alexmark2013's picture
Economic correlations are either manufactured or tautological. But oil v. margins does concern me b/c of right here:
JustObserving's picture

US imports about 7 million barrels a day now.  So US allowing exports of 1 million barrels of day of Processed Condensate means US has to import more oil.

The oil price decline is economic war being waged against Russia, Iran, Venezuela under the guise of a Saudi war against shale producers.

Dubaibanker's picture

The view on the 2 links are just an opinion and the first one is a fact that US oil imports are down.

What I must point out that Chinese oil imports from Russia are rising rapidly and have surged 65% YoY.

We must look at facts and not just opinions. Aside from US, even China has stopped buying from Saudi (that makes it 2 of the largest consumers on the planet).

This is not the deal between friends, Saudi has been squeezed to a point that they had to retaliate all by themselves and their OPEC friends in order to maintain their market share. There are several reasons why Saudi have done this and will bring this down to USD 30 levels or even lower within the next 6 months.

I wish Saudi and US were still friends and were doing back room deals but alas that is not the case.

I have described in great detail in 3 separate comments with examples of why Saudi and US have fallen apart.

I request you to read and revert.

fevil's picture

gain time and maintain dollar.



obama to saoud

"if you want to play with us, you have to play your game all the fucking year"

Quinvarius's picture

Oil will go down because it has been going down and bankers make money on derivative side bets making it go down.  Bankers set prices with unlimited margin accounts.  Compared to how much money is out there to push the price around, oil is a puny market.  In fact, oil itself is meaningless.  They are setting those prices to make money on derivatives side bets, just like they did with gold.  Supply and demand for real product is good propaganda to get sheeple involved in your derivative bets.  But it doesn't set the price.  It is all about the side bets.  There could be no oil at all and the price would still drop.

p00k1e's picture

The dead cat is awesome. 

FreedomGuy's picture

What he is saying essentially is that at some point markets must return to sanity. Either bonds or stocks will fold but both cannot continue on a parallel path to higher prices.

I agree and think the QE based economies and stock markets are about to fold. Crashing oil prices along with several other commodities are overcapacity are all indicators.

surf0766's picture

If Cruz was pres the media would be running 24 hour a day headlines talking about how bad $53 oil is for the middle class and Chuckie Shummer would be back on the steps telling the sheep how he cares for them

Cable Guy's picture

Lower oil prices is great for the US economy.  I know a few will suffer, but overall, its better for the overall country and economy.  The bigger problenm will be when oil prices go up.  If they go up as quickly as they've come down, the impact won't be proportionate.  The markets will get crushed.  That is happening.  Just not sure when.  Once the games they are playing are over, it will be north of $80....

surf0766's picture

YOu are substituting one group of unemployeed workers for another. They only want it is good is if people save more which will never happen. All the money spent still leaves the country because we produce nothing.

wrs1's picture

This guy likes his oilfield job at $175/day. He went to chef school after being in the Marines and  all he made was $9/hr and couldn't pay his child support.  With this job he can pay his child support and live a life he enjoys.  Higher oil prices are good for his economy, not so much otherwise.  I think he doesn't mind paying more for gas if he can have a decent living.

He is cooking up fresh food at a frac job 15 miles west of Orla.  Go look up Orla, Texas on a map to get a feel for where that guy is and what's out there.  

blown income's picture



Orla is a ghost town in Reeves County, Texas, United States. It lies about 38 miles north of Pecos. It is believed to have two residents and has its own post office, located on U.S. Route 285.[citation needed] The post office was established 26 December 1906 with Joshua D. McAdams as first postmaster.[1]

Orla was founded in 1890 and served as a section house for the newly built Pecos Valley Railroad, incorporated by John J. Hagerman, an American Industrialist, to link Eddy, New Mexico (now Carlsbad) with Pecos, Texas. The population remained small until World War II when the town's population finally grew and the number of businesses increased to two to serve the population of nearly 60 residents. The population reached a high of around 250 people when oil, gas, and sulphur activity brought more workers to the region in the 1960s.[2]

wrs1's picture

So what do you think is 15 miles west of Orla?  LOL!


Actually Orla is a pretty busy intersection these days but no one lives out there other than in a few man camps.  It's too hard to get supplies out there.  No running water, electricity for the oil pumps but not much else.  There is now an oil field service compay with a small store there.  There is a GasCard pump station, there are several SWDs but nothing resembling human dwellings or other things that might be recognized by the ordinary city dweller.  Pecos lies 40 miles to the south and most people from a big city wouldn't want to spend a night there.

My GGF bought four sections out there in 1907 and we have paid the taxes ever since.  One of the sections is basically part of downtown Orla.

Matt's picture

Are one of the two residents the postmaster?

Paul451's picture

Oil is a $35/bbl commodity, unless the FED is inflating the currency/making asset purchases.


Well, the Fed aint doing that too much any more...

wrs1's picture

Based on what?  Because you said it is?  Maybe you are a $2/hr worker unless.....................

Ban KKiller's picture

The corrupt Wall Street "guys" took over the position of the corrupt S&Ls that used to finance the wildcatters. Now they are looking for the next sucker to sell some "great oil investments". Ummm...sure thing. Look to Woodward, OK to see what the boom and bust looks like. Now, boom. Next month? Cheap rent. 

Dr.Engineer's picture

Are the sharks eating their own?  This is the only thing that I can surmise because this makes no fundamental sense otherwise.

If the sharks are eating their own then very bad things are going to happen.