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The PunchLine: "The Oil Crash Is No Small Matter...Repurcussions Will Be Extensive"
Via Abe Gulkowitz's The PunchLine:
Awkward Beginnings... With all due respect...
What a way to start the year. The crash in oil prices is no small matter. The previous down sweep in energy prices occurred in the midst of the financial crash 0f 2008 and Great Recession. Oil prices soon reversed afterwards and climbed back to dizzying heights, even as world economic and financial recovery remained fragile. This time it would be foolish to bet solely on such a similarly quick snapback. The current bear market for oil may actually be the beginning of a longer and extended period of low commodity prices...
First, the price of oil at $100/bl or above had been an absurdity.
Second, many nations simply cannot afford to curtail pumping oil, even at a loss in the short run.
Third, global growth is proving to be woefully inadequate and uncertain. Even as growth in the U.S. economy is becoming more firmly entrenched, the rest of the major economic engines remain mired, as we have argued for some time, in subpar growth trajectories. The Euro area may be facing another soft patch and remains entangled in both economic and geopolitical crises. The recovery in Japan has been slower than expected. And China continues to grow well below its previous super- track; and it obviously faces headwinds from a volatile real estate sector, awkward debt buildups and massive stockpiles of high-priced commodities.
Fourth, the shale gas revolution has transformed America’s energy markets, with profound effects for economic growth, competitiveness, security, and environmental quality. And the extensiveness of the oil rush in America is also playing a big role in pushing the adjustment on prices.
Naturally, the new weakness in commodity prices will bolster the economies of some countries, but clearly damage others. The strength of the U.S. dollar in the face of a stronger U.S. economy and shift in Fed policy this year, combined with the sharp drop in commodities could expose severe underlying vulnerabilities in situations with significant currency mismatches. The effects of exchange rate movements for the developing world may also become more marked if the duration of the upward climb of the U.S. dollar becomes extended even more. The various repercussions will be extensive; this extremely tense business picture will be detailed herein in 2015.
The PunchLine full latter below:
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The little people have more money than usual! Quick, to the lubricant dispenser!
I always get laugh out articles that go on and on about what happened years ago. The fact is that the markets are so F'ed up and manipulated, you can't draw any conclusions based on history other that that the middle class will somwhow be on the hook for the loses.
Yeah, I wish they'd cut loose some of the "draw conclusions from shit that happened years ago" posts. I'm a cretin and I know we're in a completely different environment with levers being pulled that have never been pulled before.
I dunno why anyone swallows shit from these cheap ass bloggers peddling their online finger paintings.
No one knows shit and that's about all we know.
I do know one thing. I'm still waiting for the peace dividend and I'm sure I'll have to wait a long time for the energy dividend.
2015 AND 2016 COLLAPSE TIMELINE
Sharif do like it
Rock the Kasbah
Long oil drums
Sounds like Hank Paulson's ultimatum to the politicians for trillion dollars bailout.
I had a conversation, today, with a friend of mine that is a senior executive at Chevron. Almost everything is on hold.
He looked scared.
I was thrilled.
I have come to despise most forms of economic growth, despite having profited from it my entire professional life.
The sight of a another new Qwicky-Mart opening up on our Farm-To-Market Road makes me physically ill.
Don't fear the reaper.
The Kenyan got very excited when you said tubular product.
I just had a venison burger that I cooked over an open wood fire, HH. I built up the coals with wood that is generally considered garbage for cooking with, then threw a bunch of applewood on the fire and let that burn down. I got the heat from the coals without the nasty smoke, and the smoke that did get on the burgers was from apple. Topped with green chile that I grew and roasted last year, they were superb. If only that were the normal pace of life.
That is 100% your choice.
Just google search "new steel mills Ohio"
Yeah....those were all built because energy was super expensive and there was zero infrastructure let alone demand.
Yep. No worse thing ever for an economy than free energy!
I'm sure those dollars suddenly being worth something is a GREAT cause for distress as well. Price gouging in 'merica? NO WAY!
Attorney General be ALL OVER THAT!
Play a little chess here, petrol dollar is broken, Swiss disconnects from Euro, Jamie Diamon complains to Congress to loosen derivatives regulation four days ago, Greece disconnects after the 25th. What is next, Draghi prints and how does Germany react ? US bank fails on derivative bust ? 2015 will be a "E ticket ride"
There are no dollars in your petro.
Just "Petro."
The part about interest rates was good a d worth reading. "Death of Caeser" did stand out....
You are one of those fellow Farm-To-Market Roaders I'd love to meet sometime.
I offer this more recent song for some of us younger folk out there.
#Menofearthereaper
Thanks for the report. Only skimmed it but it was a pretty good read, I guess, to give a snapshot of the status quo. Sort of typical commentary and not very forward-looking.
Seems kind of chipper about real estate and construction - California light rail is something to watch? Really? And very little in the way of skepticism or caution, considering that RE is in an obvious bubble that appears to be beginning to pop (again).
Also, believing BLS job stats? Really?
This part made me laugh:
" Nobody buys used cars these days—they're "preowned." Likewise, subprime loans are so 2007: They are more often referred to as "nonprime" now. While risky mortgages remainfar harder to come by than before the financial crisis, the auto market is starting toresemble the good old days. In some ways, it is even better. Experian Automotive recentlyreported that the average term for a car loan has reached a record high of 66 months. For customers with the worst credit scores, it has reached 71.4 months. Longer terms equallower payments—which equals more people able to afford cars "
So, essentially, nobody actually owns anything - let alone houses, now they can't even afford a car, actually. What they can afford is smaller payments on longer-term debt, although they get to rent some wheels for awhile. Having a debt on something is not the same thing as "owning" it. (Neither is paying continual, lifetime taxes on something, all you property "owners" out there.)
I gave it a 3...
Thats why its called the never never in the UK.
Never paid for, and never yours.
We deflated some fiats...
Useless post.
Oil is in a bear market.
'Nuff said.
Maybe Mr. Yellen really did take away the punch bowl?
Don't tell the stock market.
Bernanke did when he announced taper.
Sure...interest rates BRIEFLY shot higher...but the BUBBLE shot higher MOAR!
Ya know, speaking of repercussions. What is going to happen when the lands that the fed babylonian US govt used as collateral for the massive amounts of foreign loans to give to the military industrial complex and isreal for moar endless warmongering, are all taken back by the states, thus suddenly there being no lands and NO resources under federal jurisdiction that are collateral any moar? Soon the states will say, what is theirs, is theirs and possession in nine tenths of the law of ours!
Hummm....justa thot.
https://www.youtube.com/watch?v=Cvvl5FSn6iw
(don't shoot the messenger, grasp the message)
Extra Credit:
https://www.youtube.com/watch?v=kQNykN2uaWA
States could take charge of the interstates..but that would make those waterways VERY valuable. Most of the money is stolen anyways.
"First, the price of oil at $100/bl or above had been an absurdity."
Really? Why is $100/bbl oil so absurd? In terms of gold the price of oil at $100 is historically CHEAP.
"The shale gas revolution...blah blah blah..."
Forget shale, shale is fracking dead...get over it. Just look at the Canadian rig cout...it has skyrocketed. Why? Simple, their oil sands are a whole lot cheaper to pump...they are helping the Saudis put the final nail in the shale coffin.
The drop in oil is temporary. Don't get used to cheap gas.
oh boy
Just look at the Canadian rig cout...it has skyrocketed. Why? Simple, their oil sands are a whole lot cheaper to pump...they are helping the Saudis put the final nail in the shale coffin.
Let me suggest that you get your info directly from Baker Hughes instead of some old regurgitated shit from Bloomberg. Rig counts in Canada as of Jan 16 2015 are at their highest levels for the past 16 weeks. Sand produce as low as $31 barrel. Yes others are higher but the shale deposits are the MOST EXPENSIVE. Get a clue.
1) who is the BIGGEST LIAR? Baker Hughes or Bloomberg? That's a tough one.
2) "Rig counts in Canada as of Jan 16 2015 are at their highest levels for the past 16 weeks."
But I wonder about this. Do those rigs produce what's considered "Canadian Heavy Crude", because if they do, then the price of that oil has to take the WCS differential into account. Look at this: http://www.psac.ca/business/firstenergy/
If you scroll down to the Western Canada Select line, you'll see that it was $40.98 a barrel in $CAD on Friday. That's about $34.21 US, and it's actually been well below that for several days out of the last couple of weeks, bouncing as low as a few cents above $30 even.
That's cutting it pretty damned close to the $31/barrel figure you site, which I've also read elsewhere.
So...I don't know that this is going to work out particularly well for Canada either.
There are large shale deposits in Saskatchewan.
Never say the word "oil" to an American oilman. He'll get it out of the ground for a buck a barrel.
Here is an interesting take by David Kniight on the subject..its a rather short video but it seems to make alot of sense.
http://www.infowars.com/gas-crash-how-low-can-oil-go/
Ya gotta give Infowars credit where credit is due...at least they come out right up front with "the market is manipulated." Just cut to the chase and whip out the tin foil hat stuff up front.
Dollar is too strong, more QE coming bitchez.......
Agreed. But how did it get strong? lmao.
It's a total setup for moar QE.
This article completely ignores the geopolitical reasons for the massive decline in oil prices and that makes this article worthless.
The US produces 9.1 million barrels a day and uses more 19 million barrels a day. Saudi Arabia produces 9.5 million barrels a day and exports only 6.5 million barrels a day - hardly enough to be the chief determinant of oil prices in the world which produces about 92 million barrels a day.
OPEC production is only 36 million barrels a day and non-OPEC production is 56 million barrels a day. So OPEC is no longer the force it was 20 years ago in determining oil prices.
The current decline in oil prices is part of a multi-spectrum war against Russia (and also damages Iran and Venezuela as a bonus). Though it does hurt US oil producers, it does benefit the US since it imports 7 million barrels a day. Kerry struck an agreement with Saudi Arabia in September to collapse the price of oil. The rest is history:
Oil politics: The secret US-Saudi deal
The fall of oil prices during conflict times is something unheard of. But it is happening today. Despite the fears of the current wars in Syria and Iraq spreading to other countries in the oil-producing region -- the Middle East accounts for 66% of the OPEC total -- oil prices are now plummeting. Adding to the conundrum is the East Ukraine crisis, where oil-and-gas producing Russia is threatening to curtail supplies to Ukraine and other European countries in response to the US and European economic sanctions slapped on Moscow. In all probability, tensions in Russia and the Middle East -- with the ISIS capturing oil fields in Iraq and Syria to boot – will deal a double blow to oil-buying nations. But instead, oil-importing countries are reaping a windfall from the price fall. Prices have fallen from a high of US$112 to about US$ 80 a barrel.
The why and how of this weird phenomenon is found in a secret deal the United States and Saudi Arabia entered into last month. The logic behind this is: If oil prices rise as a result of the Middle East tensions, it will help oil-exporting Russia to earn enough money to circumvent the adverse effects of the economic sanctions imposed by the US and its European allies. Russia was in economic chaos following the crash of the ruble in the mid-1990s. It was the rising oil prices that enabled Russia by 2005 to regain at least a semblance of its superpower status and assert its authority, by waging war on Georgia in 2008 and annexing Crimea this year. If oil prices fall, the US and its Gulf allies believe, Russia can be brought to its knees, for it earns 50 per cent of its revenue through oil and gas exports.
This strategy worked in the late 1980s when the US and Saudi Arabia got together and manipulated the market to bring down the oil prices to as low as US$ 10 a barrel with the aim of punishing the Soviet Union. They did succeed in precipitating the collapse of the Soviet Union and ending the Cold War.
The West feels that if Russia is allowed to go unpunished or unchecked now, the world’s largest country will be emboldened to embark on ambitious moves that could be more serious than annexing Crimea. The West and its Gulf allies, especially Saudi Arabia, are angry with Russia, because Russian President Vladimir Putin is a staunch supporter of Syria’s Bashar al-Assad.
Months before the Winter Olympics games in Sochi, Russia in February this year, Saudi Arabia’s Intelligence Chief, Prince Bandar bin Sultan, had met Putin near Moscow and reportedly warned him that if Moscow did not stop supporting the Assad regime, Saudi Arabia would have no option but to take measures harmful to Russia. At that time, many analysts believed that what Bandar meant was a terrorist attack by a Saudi-sponsored Chechen rebel group on the Olympic village.
But this did not happen. Instead, Saudi Arabia and the United States have decided to use oil prices as a weapon -- not only to punish Russia, but also Iran, which is a stauncher ally of the Assad regime than Russia. Like Russia, Iran also pins hopes on oil price hikes to overcome the economic difficulties that it is facing because of the crippling US sanctions.
Besides, the US-Saudi oil price weapon is also connected to US-Israeli moves to pressurise Iran to stop its nuclear programme. Parallel to these moves, the European Union is assisting Ukraine to obtain some of its gas supplies from sources other than Russia. A long term plan is for Ukraine to get Middle Eastern gas via Europe. For this to happen, Assad must go. If he goes, oil and gas from Saudi Arabia, the UAE and Qatar could reach the European markets via pipelines to be built across Syria.
As per the secret deal entered into during US Secretary of State John Kerry’s talks in Jeddah last month with King Abdullah and Prince Bandar, Saudi Arabia, the world’s second largest oil producer after Russia, has agreed to flood the market and sell oil to some of its key customers such as China at prices well below the market price.
http://www.dailymirror.lk/55515/oil-politics-the-secret-us-saudi-deal
If OPEC is no longer the force it was 20 years ago, why is the "Plan" with Kerry notable?
At 6.5 million barrels a day in exports, Saudi Arabia is about the largest exporter with Russia which produces about a million barrels a day more than Saudi Arabia but uses about a million barrels a day more.
Saudi Arabia has been the mouthpiece of OPEC and the US-Saudi plan worked so well to collapse the USSR when oil prices were crushed to $10 a barrel in 1986. The US is hoping to repeat that success and Saudi Arabia like a good puppet has never missed a chance to talk down oil prices since September.
I seriously doubt the US had much to do with Saudi Arabia's recent decision to continue pumping out oil regardless of the glut. Saudi Arabia actually made this move because it serves Saudi Arabia's financial interests first and foremost. They understand High cost producers will be hurt the most thus affecting their production a few years from now. As it stands now, American independent drilliers are still producing from current projects, but they've already stopped new production in its tracks due to the cost. Most all of these drillers only get a few months to years out of any one drill site forcing them to continue drilling at new sites all the time. Saudi Arabia's strategy is workign but the benefits are at least a year away. Saudi Arabia could have cut their own production but there is little reason for they alone to shoulder the full burden of reducing production. History has proven ALL other OPEC nations will not adhere to any quotas. The fact this hurts their nemisis Iran and Russia, is only a pleasing bonus. But a few years from now, China and even India will be capitalizing on their own shale oil reserves. Both countries have more in shale oil deposits than the US, and aren't even into the first innning of seizing on those natural resources. This isn't a positive for the price of oil going forward.
The US uses "only" 7 million barrels of oil a day.
That other number attempts to include "oil equivalents."
Still...25 million barrels of oil a day probably is feasible. Just look at how much energy is flared or burned on the line.
"That's what the taxpayer bailed out in 2008."
There does seem to be a fly in the oinkment however...
Just a couple of things
If you remove the US's 9 million bpd from non-Opec and add it to Opec, the two are almost even in pumpage and power.
How secret can this deal be if the Mirror knows about it? Isn't this just a ruse to make everyone think this is the deal, when it is really something else?
Here you have Venezuela as a parenthetical. What if this whole exercise in dropping the price of oil is not aimed at Russia or Iran, but at neighboring Venezuela? And the the normalization of relations with Cuba was merely to provide a place where 100s of US tourists (CIA) will have an excuse to meet similar tourists from Venezuela (opposition agents)?
I like your stuff
Good analysis but it does not fit the US stance relative to the fall out of its past plays.
The US is now visibly moving away from supporting rabid Sunni regimes; aka Saud/Emirates/Qatar with ties either to Al-Qaeda or to Moslem Brotherhood.
The US now believes that ex-rival Iran is the moderating and more modern element in this intra-moslem standoff, legacy of GWB's crusade in IraqAfghan, and which is creating havoc not only on the Sahel trail to Nigeria and Senegal but also in Europe's minority population.
If the perception of the US on moslem fanaticism is now to distance itself from salafism and wahhabism then this great oil deal with Saud could come apart at the seams-- not saying it does not exist, but it could prove a problem to sustain if Saud (or some Saud princes) persist in supporting rabid Islamic factions in ME.
Not saying that US's strategic interest is not to link ME gas to Europe via Syria to short circuit Russia. That is a given; aka Assad is an enemy to them, especially as the Putin/China pivot to east now thickens.
"A hopium pipe, a hopium dream, and thou beside me in the blogosphere"
oil prices will go back up when saudi finishes their wall. Unless, of course, they then realize they have to wall in the complete sand pile, then that could take a while. With the price of oil down $1 per gallon, wonder how many dollars were diverted so something else other than where TPTB thought they were gonna go. That is the problem. can't have all that money going to the little people.
So is Jim Willie speaking bunkum when he's says rig counts in Canada have more than halved in the last few months? He also says oil is going back up to $100.
Oh God no! Low oil and gas prices, what ever are we to do.
I don't know anyone too upset about it, actually I don't know anyone who isn't thrilled about it.
I don't think 756 people at U.S. Steel are too thrilled about it.
Or 9,000 people at Schlumberger, which a number of people at SeekingAlpha called a "must buy" last year.
Release the Repercussions !
On a side note
"BILLINGS, Mont. (AP) — Montana officials said Sunday that an oil pipeline breach spilled up to 50,000 gallons of oil into the Yellowstone River near Glendive, Montana, but they said they are unaware of any threats to public safety or health."
50k gallons makes 189 cubic meters. That's a nice swimming pool you have there guys!
Could you please throw your Montana officials in said river?
Nuts http://youtu.be/y-zpvAS4yMg?t=7m30s