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At Last The ‘Experts’ Wake Up To Oil

Tyler Durden's picture




 

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Boy, did the ‘experts’ and ‘analysts’ drop the ball on this one, or what’s the story. Only yesterday, Goldman’s highly paid analysts admitted they’ve been dead wrong from months, that their prediction that OPEC would cut production will not happen, and that therefore oil may go as low as $40. Anyone have any idea what that miss has cost Goldman’s clients? And now of course other ‘experts’ – prone to herd behavior – ‘adjust’ their expectations as well.

They all have consistently underestimated three things: the drop in global oil demand, the impact QE had on commodity prices, and the ‘power’ OPEC has. Everyone kept on talking, over the past 3 months, as oil went from $75 – couldn’t go lower than that, could it? – to today’s $46, about how OPEC and the Saudis were going to have to cut output or else, but they never understood the position OPEC countries are in. Which is that they don’t have anything near the power they had in 1973 or 1986, but that completely escaped all analysts and experts and media. Everyone still thinks China is growing at a 7%+ clip, but the only numbers that sort of thing is based on come from .. China. As for QE, need I say anymore, or anything at all?

So Goldman says oil will drop to $40, but Goldman was spectacularly wrong until now, so why believe them this time around? As oil prices plunged from $75 in mid november all the way to $45 today (about a 40% drop, more like 55% from June 2014′s $102), their analysts kept saying OPEC and the Saudis would cut output. Didn’t happen. As I said several times since last fall, OPEC saw the new reality before anyone else. But why did it still take 2 months+ for the ‘experts’ and ‘analysts’ to catch up? I would almost wonder how many of these smart guys bet against their clients in the meantime.

I’m going to try and adhere to a chronological order here, or both you and I will get lost. On November 22 2014, when WTI oil was at about $75, I wrote:

Who’s Ready For $30 Oil?

What is clear is that even at $75, angst is setting in, if not yet panic. If China demand falls substantially in 2015, and prices move south of $70, $60 etc., that panic will be there. In US shale, in Venezuela, in Russia, and all across producing nations. Even if OPEC on November 27 decides on an output cut, there’s no guarantee members will stick to it. Let alone non-members. And sure, yes, eventually production will sink so much that prices stop falling. But with all major economies in the doldrums, it may not hit a bottom until $40 or even lower.

 

Oil was last- and briefly – at $40 exactly 6 years ago, but today is a very different situation. All the stimulus, all $50 trillion or so globally, has been thrown into the fire, and look at where we are. There’s nothing left, and there won’t be another $50 trillion. Sure, stock markets set records. But who cares with oil at $40? Calling for more QE, from Japan and/or Europe or even grandma Yellen, is either entirely useless or will work only to prop up stock markets for a very short time. Diminishing returns. The one word that comes to mind here is bloodbath. Well, unless China miraculously recovers. But who believes in that?

5 days later, on November 27, with WTI still around $75, I followed up with:

The Price Of Oil Exposes The True State Of The Economy

Tracy Alloway at FT mentions major banks and their energy-related losses:

“Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850 million loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. [..] if Barclays and Wells attempted to syndicate the $850m loan now, it could go for as little as 60 cents on the dollar.”

That’s just one loan. At 60 cents on the dollar, a $340 million loss. Who knows how many similar, and bigger, loans are out there? Put together, these stories slowly seeping out of the juncture of energy and finance gives the good and willing listener an inkling of an idea of the losses being incurred throughout the global economy, and by the large financiers. There’s a bloodbath brewing in the shadows. Countries can see their revenues cut by a third and move on, perhaps with new leaders, but many companies can’t lose that much income and keep on going, certainly not when they’re heavily leveraged.

 

The Saudi’s refuse to cut output and say: let America cut. But American oil producers can’t cut even if they would want to, it would blow their debt laden enterprises out of the water, and out of existence. Besides, that energy independence thing plays a big role of course. But with prices continuing to fall, much of that industry will go belly up because credit gets withdrawn.

That was then. Today, oil is at $46, not $75. Also today, Michael A. Gayed, CFA, hedge funder and chief investment strategist and co-portfolio manager at Pension Partners, LLC, draws the exact same conclusion, over 7 weeks and a 40%-odd drop in prices later:

Falling Oil Reveals The Truth About The Market

It seems like every day some pundit is on air arguing that falling oil is a net long-term positive for the U.S. economy. The cheaper energy gets, the more consumers have to spend elsewhere, serving as a tax cut for the average American. There is a lot of logic to that, assuming that oil’s price movement is not indicative of a major breakdown in economic and growth expectations. What’s not to love about cheap oil? The problem with this argument, of course, is that it assumes follow through to end users. If oil gets cheaper but is not fully reflected in the price of goods, the consumer does not benefit, or at least only partially does and less so than one might otherwise think. I believe this is a nuance not fully understood by those making the bull argument. Falling oil may actually be a precursor to higher volatility as investors begin to question speed’s message.

How much did Michael’s clients lose in those 7+ weeks?

Something I also said in that same November 27 article was:

US shale is no longer about what’s feasible to drill today, it’s about what can still be financed tomorrow.

And whaddaya know, Bloomberg runs this headline 51 days and -40% further along:

What Matters Is the Debt Shale Drillers Have, Not the Oil

U.S. shale drillers may tout how much oil they have in the ground or how cheaply they can get it out. For stock investors, what matters most is debt. The worst performers among U.S. oil producers in a Bloomberg index owe about 5.7 times more than they earn, before certain deductions, compared with 1.7 times for companies that have taken less of a hit. Operations, such as where the companies drill or how much oil versus gas they pump, matter less.

 

“With oil prices below $50 and approaching $40, we’re in survivor mode,” Steven Rees, who helps oversee about $1 trillion as global head of equity strategy at JPMorgan Private Bank, said via phone. “The companies with the higher degrees of leverage have underperformed, and you don’t want to own those because there’s a fair amount of uncertainty as to whether they can repay that debt.”

That’s the exact same thing I said way back when! Who trusts these guys with either their money or their news? When they could just read me and be 7 weeks+ ahead of the game? Not that I want to manage your money, don’t get me wrong, I’m just thinking these errors can add up to serious losses. And they wouldn’t have to. That’s why there’s TheAutomaticEarth.com.

A good one, which I posted December 12, with WTI at $67 (remember the gold old days, grandma?), was this one on what oil actually sells for out there, not what WTO and Brent standards say. An eye-opener.

Will Oil Kill The Zombies?

Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does. “It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.”

 

“Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday. “In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

Oil prices have come down close to another 20% since then, in just one month $67 to $46 right now. And it’s going to keep plunging, if only because Goldman belatedly woke up and said so today:

Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market. The bank cut its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year.. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York. The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom ..

 

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.” West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter. Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively ..

Well, after that 2-month blooper I described above, who would trust Goldman anymore, right, silly you is thinking. Don’t be mistaken, people listen to GS, no matter how wrong they are.

Meanwhile, the thumbscrews keep on tightening:

UK Oil Firms Warn Osborne: Without Big Tax Cuts We Are Doomed

North Sea oil and gas companies are to be offered tax concessions by the Chancellor in an effort to avoid production and investment cutbacks and an exodus of explorers. George Osborne has drawn up a set of tax reform plans, following warnings that the industry’s future is at risk without substantial tax cuts. But the industry fears he will not go far enough. Oil & Gas UK, the industry body, is urging a tax cut of as much as 30% [..] “If we don’t get an immediate 10% cut, then that will be the death knell for the industry [..] Companies operating fields discovered before 1992 can end up with handing over80% of their profits to the Chancellor; post-1992 discoveries carry a 60% profits hit.

And hitting botttom lines:

As Oil Plummets, How Much Pain Still Looms For US Energy Firms?

A closer look at valuations and interviews with a dozen of smaller firms ahead of fourth quarter results from their bigger, listed rivals, shows there are reasons to be nervous. What small firms say is that the oil rout hit home faster and harder than most had expected. “Things have changed a lot quicker than I thought they would,” says Greg Doramus, sales manager at Orion Drilling in Texas, a small firm which leases 16 drilling rigs. He talks about falling rates, last-minute order cancellations and customers breaking leases. The conventional wisdom is that hedging and long-term contracts would ensure that most energy firms would only start feeling the full force of the downdraft this year.

 

The view from the oil fields from Texas to North Dakota is that the pain is already spreading. “We have been cut from the work,” says Adam Marriott, president of Fandango Logistics, a small oil trucking firm in Salt Lake City. He says shipments have fallen by half since June when oil was fetching more than $100 a barrel and his company had all the business it could handle. Bigger firms are also feeling the sting. Last week, a leading U.S. drilling contractor Helmerich & Payne reported that leasing rates for its high-tech rigs plunged 10% from the previous quarter, sending its shares 5% lower.

And, then, as yours truly predicted last fall, oil’s downward spiral spreads, and the entire – always nonsensical – narrative of a boost to the economy from falling oil prices vanishes into thin air. You could have known that, too, at least 2 months ago. Bloomberg:

Oil’s Plunge Wipes Out S&P 500 Earnings

While stock investors wait for the benefits of cheaper oil to seep into the economy, all they can see lately is downside. Forecasts for first-quarter profits in the Standard & Poor’s 500 Index have fallen by 6.4 percentage points from three months ago, the biggest decrease since 2009, according to more than 6,000 analyst estimates compiled by Bloomberg. Reductions spread across nine of 10 industry groups and energy companies saw the biggest cut. Earnings pessimism is growing just as the best three-year rally since the technology boom pushed equity valuations to the highest level since 2010.

 

At the same time, volatility has surged in the American stock market as oil’s 55% drop since June to below $49 a barrel raises speculation that companies will cancel investment and credit markets and banks will suffer from debt defaults. [..] American companies are facing the weakest back-to-back quarterly earnings expansions since 2009 as energy wipes out more than half the growth and the benefit to retailers and shippers fails to catch up.

 

Oil producers are rocked by a combination of faltering demand and booming supplies from North American shale fields, with crude sinking to $48.36 a barrel from an average $98.61 in the first three months of 2014. Except for utilities, every other industry has seen reductions in estimates. Profit from energy producers such as Exxon Mobil and Chevron will plunge 35% this quarter, analysts estimated.

 

In October, analysts expected the industry to earn about the same as it did a year ago. “My initial thought was oil would take a dollar or two off the overall S&P 500 earnings but that obviously might be worse now,” Dan Greenhaus at BTIG said in a phone interview. “The whole thing has moved much more rapidly and farther than anyone thought. People were only taking into account consumer spending and there was a sense that falling energy is ubiquitously positive for the U.S., but I’m not convinced.”

Well, not than anyone thought. Not me, for one. Just than the ‘experts’ thought. But that’s exactly what I said at the time. And I must thank Bloomberg for vindicating me. Don’t worry, guys, I wouldn’t want to be part of your expert panel if my life depended on it. And it’s not about me wanting to toot my own horn either, tickling as it may be for a few seconds, but about the likes of TheAutomaticEarth.com, or ZeroHedge.com and WolfStreet.com and many others, getting the recognition we deserve. If you ask me, reading the finance blogosphere can save you a lot of money. That’s merely a simple conclusion to draw from the above.

And only now are people starting to figure out that the real economy may not have had any boon from lower oil prices either:

How Falling Gasoline Prices Are Hurting Retail Sales

Aren’t declining gasoline prices supposed to be good news for the economy? They certainly are to households not employed in the energy industry, but it might not seem so from the one of the biggest economic indicators due for release this week. On Wednesday, the Commerce Department is set to report retail sales for December. It’s the most important month of the year for retailers, but economists polled by MarketWatch are expecting a flat reading, and quite a few say a monthly decline wouldn’t be a surprise. [..] After department stores saw a 1% monthly gain in November, the segment may reverse some of that advance in the final month of the year.

This whole idea of Americans running rampant in malls with the cash they saved from lower prices at the pump was always just something somebody smoked. And now we’ll get swamped soon with desperate attempts to make US holiday sales look good, but if I were you, I’d take an idled oiltanker’s worth of salt with all of those attempts.

Still, the Fed, in my view, is set to stick with its narrative of the US economy doing so well they just have to raise interest rates. It’s for the Wall Street banks, don’t you know. That narrative, in this case, is “Ignore transitory volatility in energy prices.” The Fed expects for sufficient mayhem to happen in emerging markets to lift the US, and for enough dollars to ‘come home’ to justify a rate hike that will shake the world economy on its foundations but will leave the US elites relatively unscathed and even provide them with more riches. And if anyone wants to get richer, it’s the rich. They simply think they have it figured out.

Why Falling Oil Prices Won’t Delay Fed Rate Increases /span>

Financial markets have been shaken over the past several weeks by a misguided fear that deflation has imbedded itself not only into the European economy but the U.S. economy as well. Deflation is a serious problem for Europe, because the eurozone is plagued with bad debts and stagnant growth. Prices and wages in the peripheral nations (such as Greece and Spain) must fall still further in relation to Germany’s in order to restore their economies to competitiveness. But that’s not possible if prices and wages are falling in Germany (or even if they are only rising slowly).

 

In Europe, deflation will extend the economic crisis, but that’s not an issue in the United States, where households, businesses and banks have mostly completed the necessary adjustments to their balance sheets after the great debt boom of the prior decade. The plunge in oil prices will likely push the annual U.S. inflation rate below 1%, further from the Fed target of 2%. [..] Falling oil prices are a temporary phenomenon that shouldn’t alter anyone’s view about the underlying rate of inflation.

 

On Wednesday, the newly released minutes of the Fed’s latest meeting in December revealed that most members of the FOMC are ready to raise rates this summer even if inflation continues to fall, as long as there’s a reasonable expectation that inflation will eventually drift back to 2%. Fed Chairman Ben Bernanke got a lot of flak in the spring of 2011 when oil prices were rising and annual inflation rates climbed to near 4%, double the Fed’s target.

 

Bernanke’s critics wanted him to raise interest rates immediately to fight the inflation, but he insisted that the spike was “transitory” and that the Fed wouldn’t respond. Bernanke was right then: Inflation rates drifted lower, just as he predicted. Now the situation is reversed: Oil prices are falling, and critics of the Fed say it should hold off on raising interest rates. The Fed’s policy in both cases is the same: Ignore transitory volatility in energy prices.

There are all these press-op announcements all the time by Fed officials that I think can only be read as setting up a fake discussion between pro and con rate hike, that are meant just for public consumption. The Fed serves it member banks, not the American people, don’t let’s forget that. No matter what happens, they can always issue a majority opinion that oil prices or real estate prices, or anything, are only ‘transitory’, and so their policies should ignore them. US economic numbers look great on the surface, it’s only when you start digging that they don’t.

I see far too much complacency out there when it comes to interest rates, in the same manner that I’ve seen it concerning oil prices. We live in a new world, not a continuation of the old one. That old world died with Fed QE. Just check the price of oil. There have been tectonic shifts since over, let’s say, the holidays, and I wouldn’t wait for the ‘experts’ to catch up with live events. Being 7 weeks or two months late is a lot of time. And they will be late, again. It’s inherent in what they do. And what they represent.

 

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Tue, 01/13/2015 - 20:14 | 5657878 johngaltfla
johngaltfla's picture

But when will the "experts" wake up to the real threat to America and the world: Snowmen!!!!

Islam is Mean: Saudi Cleric Issues Fatwa Against Snowmen!!!

Tue, 01/13/2015 - 20:41 | 5657938 Pool Shark
Pool Shark's picture

 

 

Off Topic:

BitCoin Update:

Down to $221

http://bitcoincharts.com/markets/currency/USD.html

That's a loss of over 30% in less than 2-weeks.

Is everyone afraid ISIS will hack their wallet?...

 

Tue, 01/13/2015 - 20:43 | 5657966 El Oregonian
El Oregonian's picture

The pressure-points of continual pain.. 

Tue, 01/13/2015 - 20:58 | 5658001 Pinto Currency
Pinto Currency's picture

 

 

 

As long as everyone keeps pumping, the price can be set anywhere using the electronic (virtual) oil market price-setting mechanism.

As soon as anyone major stops wide-open pumping, the price will snap back.

Tue, 01/13/2015 - 21:04 | 5658025 NidStyles
NidStyles's picture

I noticed how oil really began to drop once the US G-men passed the permanent bailout provision for the banks in the 2015 budget.

Wed, 01/14/2015 - 02:01 | 5658862 The9thDoctor
The9thDoctor's picture

It's funny back in the Carter days of 1979, oil hit an all-time record of $39.50 a barrel, and everyone had to wait in long lines for gas.

That was the all time high price all the way up until... 2008!

Now when oil goes below $40, all of these doom articles come out.

I live in The Twilight Zone.

Wed, 01/14/2015 - 07:50 | 5659233 overmedicatedun...
overmedicatedundersexed's picture

doc, you forget the cost of loans..like in everything the bookie (banks) gets paid..your oil is at $10/b Fuck you pay up.

Tue, 01/13/2015 - 20:47 | 5657979 Winston Churchill
Winston Churchill's picture

Maybe bitcoins are made from oil.

Tue, 01/13/2015 - 21:58 | 5658214 daveO
daveO's picture

Gold hasn't. 30 percent would be about 900/oz. A dip to $950 wouldn't surprise me if the FED raises rates by June. I call it the buy of a lifetime.

Tue, 01/13/2015 - 23:06 | 5658453 itchy166
itchy166's picture

I have a BTC-denominated car loan :)

But I work in ND :(

Tue, 01/13/2015 - 20:19 | 5657888 knukles
knukles's picture

Gosh... and who'd'a thunk that demand for oil would be falling just at the same time as a refusal to cut "traditional prioduction" feasting hell upon the high cost newbies, as the global economy goes from slow to serious contraction whilst in the midst of a Liquidity Trap which is why it is not responding to either stimulative monetary or fiscal policies and will not!

Booyah, motherfuckers.

Strap in.  Your worst dreams are becoming reality.

TPTB continue at the helm, policies remain as is, rates drop to 0%, U grows big time, etc, etc., etc., etc..... While the only solutions are non monetary.  And you think the governments of the world are going to retreat from bigger government?
Hah!

Got some bad news for y'all.

Tue, 01/13/2015 - 20:25 | 5657917 kliguy38
kliguy38's picture

I beg to disagree....CNBC told me again today its "all good"....and I'm gonna buy Stawks.....now back to my regularly sceduled Dancing with the Stars.....yum yum

Tue, 01/13/2015 - 21:43 | 5658162 KnuckleDragger-X
KnuckleDragger-X's picture

Just think Knucks, with a little more 'expert' help the economy could collapse leading to nirvana, or maybe even immortality.......

Tue, 01/13/2015 - 21:55 | 5658192 SKY85hawk
SKY85hawk's picture

Why has everyone forgotten to blame the Prop Desks?  These guys used to pump the futures with many millions of PAPER barrels of crude futures!  August 2013 

Out of almost 400,000 open contracts indicating TOTALLY FAKE demand for 400,000,000 barrels of oil for September delivery, all but 30,440 have been cancelled or rolled over (to simulate demand in the next month) since July 20th (the previous rollover date), when oil was at $108 and there were 387M barrels worth of FAKE orders in September.  Oct was only 131M at the time, Nov was 83M and Dec 205M for a total of 601Mb of FAKE orders for the front 3 months.  

Now we have Oct, Nov and Dec adding up to 729M FAKE orders with 92% of the September contracts cancelled and, despite the added BS, oil has falllen to $106 this morning

10/13/2014         Big changes in Commodities trading.  http://seekingalpha.com/article/2556155-where-there-is-smoke-there-is-fire-commodity-king-on-a-path-to-world-domination

Third quarter ended with a thud for commodity prices. Gold dropped over 8% during the quarter, silver was down 17%, copper ended 8% lower, grains plummeted and crude oil was down more than 12%. A strong US greenback, up over 7.5% against major currencies, was a big part of the reason raw material prices slipped.

US legislators and regulators did not like the fact that:JPM),:GS),:MS), DB) and others owned logistical and strategic commodity assets around the world that operate in murky, sometimes less-than-transparent environments.

The increased scrutiny of Dodd-Frank legislation forced the banks to abandon and sell or downsize their commodity business segments.

 

Wed, 01/14/2015 - 00:11 | 5658629 SameAsItEverWas
SameAsItEverWas's picture

FAKE?  Sausage might be ugly inside but that don't make it fake.

Tue, 01/13/2015 - 20:20 | 5657897 johngaltfla
johngaltfla's picture

Have to say it one more time...

 

D

E

F

L

A

T

I

O

N

 

Enjoy SH.

Tue, 01/13/2015 - 20:23 | 5657901 Lumberjack
Lumberjack's picture

Here is an analysis regarding the oil (and other situations) that is absolutely spot on. 

 

Peculiarities of Russian National Character 

http://www.informationclearinghouse.info/article40690.htm

 

3. Impose economic and financial sanctions on Russia. Watch in dismay as your exporters start losing money when in instant retaliation Russia blocks your agricultural exports. Keep in mind that this is a country that, thanks to surviving a long string of invasion attempts, traditionally relies on potentially hostile foreign states to finance its defense against them. If they fail to do so, then it will resort to other ways of deterring them, such as freezing them out. “No gas for NATO members” seems like a catchy slogan. Hope and pray that it doesn't catch on in Moscow.

4. Mount an attack on their national currency, causing it to lose part of its value on par with a lower price of oil. Watch in dismay as Russian officials laugh all the way to the central bank because the lower ruble has caused state revenues to remain unchanged in spite of lower oil prices, erasing a potential budget deficit. Watch in dismay as your exporters go bankrupt because their exports are priced out of the Russian market. Keep in mind, Russia has no national debt to speak of, runs a negligible budget deficit, has plentiful foreign currency reserves and ample gold reserves. Also keep in mind that your banks have loaned hundreds of billions of dollars to Russian businesses (which you have just deprived of access to your banking system by imposing sanctions). Hope and pray that Russia doesn't put a freeze on debt repayments to western banks until the sanctions are lifted, since that would blow up your banks.

5. Watch in dismay as Russia signs major natural gas export deals with everyone except you. Is there going to be enough gas left for you when they are done? Well, it appears that this no longer a concern for the Russians, because you have offended them, and, being who they are, they told you to go to hell (don't forget to take Galicia with you) and will now deal with other, friendlier countries.

6. Continue to watch in dismay as Russia actively looks for ways to sever most of the trade links with you, finding suppliers in other parts of the world or organizing production for import replacement.

 

-----read the whole thing, it is amazingly spot on.

Tue, 01/13/2015 - 21:04 | 5658026 disabledvet
disabledvet's picture

Still..."you feel great sadness when your entire 300,000 man Army dug in in the Crimea is dead to the last man because of that Manstein fellow.  Sure...you make fun of his REAL name the rest of the War..but it hurts.

 

IT HURTTTTTTTTTTTTS....

Tue, 01/13/2015 - 21:14 | 5658066 will ling
will ling's picture

hope vicky nuland winds up gettin' Gen Paulus treatment.

Tue, 01/13/2015 - 20:24 | 5657909 spinone
spinone's picture

Shows how the conventional wisdom and simplistic models can't predict complex systems.

Tue, 01/13/2015 - 20:36 | 5657946 kowalli
kowalli's picture

It is simple means that system was made up this way to enrich small group of people and to give them all power.

We are between low-paying jobs and slavery now.

They need something big to make last step to slavery

Tue, 01/13/2015 - 22:19 | 5658291 daveO
daveO's picture

Sorry to disappoint. There's the IRS and fractional reserve banking which has brought us to where only about 16% own their homes outright. Then property taxes guarantee you're still just renting. Don't forget Obama Care which the High Priest Roberts said was a mandatory(income) tax. How could the people be anymore enslaved? Before 1865 a slave could buy his own freedom, for Pete's sake.

Tue, 01/13/2015 - 23:37 | 5658530 Livermore Legend
Livermore Legend's picture

".....Conventional Wisdom and Simplistic Models can't Predict Complex Systems......"

"Nuff Said"...

Tue, 01/13/2015 - 20:25 | 5657911 stant
stant's picture

It's a negative ah anti ah inflation ah . Oh yeah deflationary depression

Tue, 01/13/2015 - 20:27 | 5657922 Ralph Spoilsport
Ralph Spoilsport's picture

When filling up at "Abe Rubinstein's Discount Gas and Kosher Deli" today, I noticed that he changed the crawling LED display on the gas pumps.

"You're killing me here.....I'm cutting my own throat at these prices....Little Emil still needs braces....At least buy a pastrami sandwich....How can you sleep at night taking advantage of me like this?...."

Tue, 01/13/2015 - 21:18 | 5658077 Mentaliusanything
Mentaliusanything's picture

Well his till is being starved by a third in fuel turnover. Emil must wait.

Tue, 01/13/2015 - 20:27 | 5657926 The Shape
The Shape's picture

Wanna talk about behind the curve. EIA rig counts are still miles ahead of the current numbers.

Tue, 01/13/2015 - 20:29 | 5657933 GCT
GCT's picture

I am sure they will doctor the December numbers!  We cannot have truth now can we? Most I spoke with did not spend much because of tax time and the increases in their healthcare costs.  The drop in oil did not come close to covering the increases in healthcare.  Spot on knuckles! +!

Tue, 01/13/2015 - 20:31 | 5657934 The Axe
The Axe's picture

Disagree...OPEC has little LONG term power. 

Tue, 01/13/2015 - 20:35 | 5657947 Cautiously Pess...
Cautiously Pessimistic's picture

I don't know about you guys, but with gas at these prices, I don't even bother cutting my car off anymore. Go to work = idle in the parking garage all day.  Go home = idle in the driveway all night.  Suck it Al Gore!  You too Tipper.

Tue, 01/13/2015 - 20:35 | 5657948 NoWayJose
NoWayJose's picture

If QE and low interest rates are what made marginal production possible such that total production increased - then why is the end of QE and a rise in rates causing oil prices to drop??!

Tue, 01/13/2015 - 20:47 | 5657973 kowalli
kowalli's picture

You can print money if other countries buy dollars one way or treasure another way.

You can't just print money - you will get hyperinflation.

We have a point of time - world can't buy dollars, world doesn't have enough purchasing power

no petro-dollars - no futures contracts on oil

Tue, 01/13/2015 - 20:56 | 5657974 JustObserving
JustObserving's picture

Such a long article about the price of oil and not a single mention of the economic war being waged by the US against Russia?  Apparently, the author is unaware that oil prices manipulated down to $10 by the Saudis and their masters in 1986 caused the collapse of the USSR.

Now Saudi Arabia does not miss a chance to talk down oil.  The surplus of oil a few months ago was only about 1 million barrels a day on a base of about 92 million barrels a day - just 1%.  In December alone, China had absorbed an extra 0.4 million bpd and it only imports about 7 million bpd.

Saudis Arabia produces about 9.5 million bpd and exports only 6.5 million bpd.  So it is not such a big player anyway.  And non-Opec production is about $57 million bpd.  So OPEC is not a dominant producer either.

 

The main reason many propose for the sudden collapse in oil prices is the economic war being waged by the US against Russia:

We all see the lowering of oil prices. There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.” – Russian President Vladimir Putin

Are falling oil prices part of a US-Saudi plan to inflict economic damage on Russia, Iran and Venezuela?

Venezuelan President Nicolas Maduro seems to think so. In a recent interview that appeared in Reuters, Maduro said he thought the United States and Saudi Arabia wanted to drive down oil prices “to harm Russia.”

Bolivian President Evo Morales agrees with Maduro and told journalists at RT that: “The reduction in oil prices was provoked by the US as an attack on the economies of Venezuela and Russia. In the face of such economic and political attacks, the nations must be united.”

Iranian President Hassan Rouhani said the same thing,with a slightly different twist: “The main reason for (the oil price plunge) is a political conspiracy by certain countries against the interests of the region and the Islamic world … Iran and people of the region will not forget such … treachery against the interests of the Muslim world.”

US-Saudi “treachery”? Is that what’s really driving down oil prices?

http://www.globalresearch.ca/did-the-u-s-and-the-saudis-conspire-to-push...

In ignoring the multi-spectrum war being waged by US against Russia in determining the price of oil today, one is ignoring the elephant in the room.  But Meijer demonstrates a stunning myopia in missing such an obvious factor. To call his analysis worthless would be to compliment it.

 

Tue, 01/13/2015 - 21:07 | 5658042 disabledvet
disabledvet's picture

"Behold Exaclibur!!!!!

Tue, 01/13/2015 - 21:27 | 5658108 nmewn
nmewn's picture

Maybe Maduro, Rouhani, Morales and Putin should drop their price and engage in a good old fashioned "gas war" instead of wimpering & whining about all the losses they're incurring (look it up kiddes).

It should be beneath proud heads of state to snivel like that, its very unbecoming.

Just sayin ;-)

Mon, 01/19/2015 - 17:19 | 5681043 SameAsItEverWas
SameAsItEverWas's picture

Such a long article about the price of oil and not a single mention of the economic war being waged by the US against Russia?  Apparently, the author is unaware that oil prices manipulated down to $10 by the Saudis and their masters in 1986 caused the collapse of the USSR.

Another thing in 1986 was the Chernobyl-4 explosion.  Some say that the huge costs incurred by the Soviets bankrupted them.  There were 800,000 Liquidators working in Ukraine and Belarus.

It's always historical folly to think that there's only one cause of any major change such as the breakup of the USSR.

 

Tue, 01/13/2015 - 20:53 | 5657998 Consuelo
Consuelo's picture

"We live in a new world, not a continuation of the old one. That old world died with Fed QE. "

No, we don't and No, it didn't...

The facts aren't lost on those who heard the Nicole Foss arguments with all the 'deflation' noise back when this blog was just getting started, only to find out quite rudely, that the Fed had something else in mind...   Which they will again this time around; it's only a matter of pain + duration + timing.   Now that the lessons of 'timing' have been learned since '10/'11/'12 and '13, that's one outta 3 variables down, leaving only how long it takes for the pain to remind the markets - and society as a whole, since the entire 'rig' is based on liquidity-induced positive sentiment, just how much they miss the Fed.   

Tue, 01/13/2015 - 21:28 | 5658104 Professorlocknload
Professorlocknload's picture

Yup. Print is all they know. We ain't seen nothin' yet.

Tue, 01/13/2015 - 22:33 | 5658340 daveO
daveO's picture

I recently heard Rikards say they'll wait 15 months before restarting QE (because that's how long they waited the last cycle). The declines in oil and rates tells me that's pretty optimistic. I'd like for them to raise rates once, just so I can get some cheaper metal. Bernanke did a similar rate increase when things were already heading down, so it's not out of the question.

Tue, 01/13/2015 - 21:42 | 5658151 scuttlebutt
scuttlebutt's picture

That was a fantastic article.

 

Thank you!

Tue, 01/13/2015 - 22:42 | 5658361 fibonacci's claus
fibonacci's claus's picture

  IS THAT THAR AN ERL PATCH OR DID I JUST POOP MY BRITCHES?

Wed, 01/14/2015 - 01:51 | 5658840 Wild Theories
Wild Theories's picture

ok Raul, no need to be all smug and "I-told-you-so", nobody likes a smartypants, I've been told that enough times by others growing up

(here's a pat on your back from me, btw)

 

anyway, all the anaylysts tell me oil is still due for a bounce in 3-6 months when enough rigs close down, the mere fact this consensus exists means it's as sure a bet as any, so, umm, whatever you say, I think I'm still gonna buy that dip, yipeee

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