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Why The Price Of Oil Is More Likely To Fall To 20 Rather Than Rise To 80
Submitted by Michael Snyder via The Economic Collapse blog,
This is just the beginning of the oil crisis. Over the past couple of weeks, the price of U.S. oil has rallied back above 50 dollars a barrel. In fact, as I write this, it is sitting at $52.93. But this rally will not last. In fact, analysts at the big banks are warning that we could soon see U.S. oil hit the $20 mark. The reason for this is that the production of oil globally is still way above the current level of demand. Things have gotten so bad that millions of barrels of oil are being stored at sea as companies wait for the price of oil to go back up.
But the price is not going to go back up any time soon. Even though rigs are being shut down in the United States at the fastest pace since the last financial crisis, oil production continues to go up. In fact, last week more oil was produced in the U.S. than at any time since the 1970s. This is really bad news for the economy, because the price of oil is already at a catastrophically low level for the global financial system. If the price of oil stays at this level for the rest of the year, we are going to see a whole bunch of energy companies fail, billions of dollars of debt issued by energy companies could go bad, and trillions of dollars of derivatives related to the energy industry could implode. In other words, this is a recipe for a financial meltdown, and the longer the price of oil stays at this level (or lower), the more damage it is going to do.
The way things stand, there is simply just way too much oil sitting out there. And anyone that has taken Economics 101 knows that when supply far exceeds demand, prices go down…
Oil prices have gotten crushed for the last six months. The extent to which that was caused by an excess of supply or by a slowdown in demand has big implications for where prices will head next. People wishing for a big rebound may not want to read farther.
Goldman Sachs released an intriguing analysis on Wednesday that shows what many already suspected: The big culprit in the oil crash has been an abundance of oil flooding the market. A massive supply shock in the second half of last year accounted for most of the decline. In December and January, slowing demand contributed to the continued sell-off.
At this point so much oil has already been stored up that companies are running out of places to put in all. Just consider the words of Goldman Sachs executive Gary Cohn…
“I think the oil market is trying to figure out an equilibrium price. The danger here, as we try and find an equilibrium price, at some point we may end up in a situation where storage capacity gets very, very limited. We may have too much physical oil for the available storage in certain locations. And it may be a locational issue.”
“And you may just see lots of oil in certain locations around the world where oil will have to price to such a cheap discount vis-a-vis the forward price that you make second tier, and third tier and fourth tier storage available.”
[…] “You could see the price fall relatively quickly to make that storage work in the market.”
The market for oil has fundamentally changed, and that means that the price of oil is not going to go back to where it used to be. In fact, Goldman Sachs economist Sven Jari Stehn says that we are probably heading for permanently lower prices…
The big take-away: “[T]he decline in oil has been driven by an oversupplied global oil market,” wrote Goldman economist Sven Jari Stehn. As a result, “the new equilibrium price of oil will likely be much lower than over the past decade.”
So how low could prices ultimately go?
As I mentioned above, some analysts are throwing around $20 as a target number…
The recent surge in oil prices is just a “head-fake,” and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude.
Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup’s global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.
A pullback in production isn’t likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range “for a while,” according to the report.
Keep in mind that the price of oil is already low enough to be a total nightmare for the global financial system if it stays here for the rest of 2015.
If we go down to $20 and stay there, a global financial meltdown is virtually guaranteed.
Meanwhile, the “fracking boom” in the United States that generated so many jobs, so much investment and so much economic activity is now turning into a “fracking bust”…
The fracking-for-oil boom started in 2005, collapsed by 60% during the Financial Crisis when money ran out, but got going in earnest after the Fed had begun spreading its newly created money around the land. From the trough in May 2009 to its peak in October 2014, rigs drilling for oil soared from 180 to 1,609: multiplied by a factor of 9 in five years! And oil production soared, to reach 9.2 million barrels a day in January.
It was a great run, but now it is over.
In the months ahead, the trickle of good paying oil industry jobs that are being lost right now is going to turn into a flood.
And this boom was funded with lots and lots of really cheap money from Wall Street. I like how Wolf Richter described this in a recent article…
That’s what real booms look like. They’re fed by limitless low-cost money – exuberant investors that buy the riskiest IPOs, junk bonds, leveraged loans, and CLOs usually indirectly without knowing it via their bond funds, stock funds, leveraged-loan funds, by being part of a public pension system that invests in private equity firms that invest in the boom…. You get the idea.
As all of this bad paper unwinds, a lot of people are going to lose an extraordinary amount of money.
Don’t get caught with your pants down. You will want your money to be well away from the energy industry long before this thing collapses.
And of course in so many ways what we are facing right now if very reminiscent of 2008. So many of the same patterns that have played out just prior to previous financial crashes are happening once again. Right now, oil rigs are shutting down at a pace that is almost unprecedented. The only time in recent memory that we have seen anything like this was just before the financial crisis in the fall of 2008. Here is more from Wolf Richter…
In the latest reporting week, drillers idled another 84 rigs, the second biggest weekly cut ever, after idling 83 and 94 rigs in the two prior weeks. Only 1056 rigs are still drilling for oil, down 443 for the seven reporting weeks so far this year and down 553 – or 34%! – from the peak in October.
Never before has the rig count plunged this fast this far:
What if the fracking bust, on a percentage basis, does what it did during the Financial Crisis when the oil rig count collapsed by 60% from peak to trough? It would take the rig count down to 642!
But even though rigs are shutting down like crazy, U.S. production of oil has continued to rise…
Rig counts have long been used to help predict future oil and gas production. In the past week drillers idled 98 rigs, marking the 10th consecutive decline. The total U.S. rig count is down 30 percent since October, an unprecedented retreat. The theory goes that when oil rigs decline, fewer wells are drilled, less new oil is discovered, and oil production slows.
But production isn’t slowing yet. In fact, last week the U.S. pumped more crude than at any time since the 1970s. “The headline U.S. oil rig count offers little insight into the outlook for U.S. oil production growth,” Goldman Sachs analyst Damien Courvalin wrote in a Feb. 10 report.
Look, it should be obvious to anyone with even a basic knowledge of economics that the stage is being set for a massive financial meltdown.
This is just the kind of thing that can plunge us into a deflationary depression. And when you combine this with the ongoing problems in Europe and in Asia, it is easy to see that a “perfect storm” is brewing on the horizon.
Sadly, a lot of people out there will choose not to believe until the day the crisis arrives.
By then, it will be too late to do anything about it.
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What's funny is last time I checked, Hephaestus wasn't making any more oil for us. Right when we need it most, to build long-term sustainable infrastructure that will take into account the realities of declining energy availability, we've financialized the whole thing and we're shooting our load to try to push the string of the status quo right off a cliff.
$20 oil requires: Paper currency looking strong and the oil producing regions looking geopolitically very stable.
Am seeing the exact opposite of that.
In addition, Goldman, Barclays and Citi are calling for much lower oil prices. So oil should head higher.
If interest rates can be negative, why the price of oil cannot be negative as well? ;-)
Looney
king of merica calling king of s.a. . we got a problem in houston, copy, house of saud; fuck you...
Wow, Alaska calling 1-800-got-junk? to move all that worthless crude.
Futures are dropping, even as spot prices rise, so this looks right.
Mar 16, WTI ~ 62.50 , Down from 70.00 a month ago.
Dennis Gartman said oil was going to drop to $20 a week ago. Which means it won't.
So WTI is currently trading at $52 and the Mar15's are $62.
Anybody got $50M and a spare 1M barrel tanker handy?
Only if you're a friend of the fed
Anyway it's $52.78 for March 15 WTI contracts. Spot is $52.99. March 16 is $62.44
An oil tankers costs $20-40K/month depending on size.
Oil won't get near $20 before major war breaks out, then it should pop nicely.
Next war is never like the last one. Think a lot of traders agree with you though.
So if I only wait until March that will only cost me...no wait.
Taint just oil neither. Iron ore, copper, coal. As Pete Puma say "whole lotta lumps."
Inflation fail, bubble blowback dead ahead.
A short squeeze is certainly the reason for the current price upward for oil. You people forget that hundreds of billions of free and cheap money is being sloshed around the stock market. Get with the program you good 'ol Mericans! Reserves are not currency and inflationary if they are being pimped around the players circle. Your corporate over lords seek gains by risk-fuck fundamentals. Moving along, supply levels have risen around 8% in a tad over six weeks. Over 30 million barrrels. Reality will yank this orgy into reality. The price of crude can not reach marginal costs because the stock pile is a fat pig waiting to be gutted. I am with the bitch ass squids on this one. Expect a move up followed by a sharp down turn. The question that does beg to be asked is which type of Rigs are closing down?
TV is a bitch with options and futures
"Not just oil, Keynes-oil"
< $80
< $20
The most likely price we will first see in the future is...
Both within one day.
The correct answer is 'What price do you want it to be?' (a variant on the old accountant gag what is 2+2)
With the current fixed and fraudulent markets, those with control of the USD printing press can make the price be whatever they want it to be. The only solution for a real functional market with price discovery to get the USD out of the equation.
First bounce and magically everybody is now bullish on oil. I used to think ZH'ers were smarter traders than most, but now I realize there's just as much dumb money here as anywhere else.
So you’ve got skin on the short side. Don’t blame others for it.
If you read ZH for a while, youshould know by now that when GS says anything, 90% of the time it means the other thing.
And as they’re publishing arround the clock now why oil should go down, it just means their ass is cooking and we’re looking at a shortsqueeze.
If Russia moves that nuclear submarine currently trapped in Swedish waters down to the Saudi oil terminals... well it's entirely possible that Putin's partner in crime (ISIS) may attack...
Israel is with ISIS. Israel has been supplying aid and hospitalizing their wounded from Syria.
http://www.haaretz.com/news/diplomacy-defense/.premium-1.630359
"Reports by UN observers in the Golan submitted to 15 members of Security Council detail regular contact between IDF officers and armed Syrian opposition figures at the border."
"Reports by U.N. Observers"
LMFAO... now there is a credible source
Are you fucking kidding me?
hmm..
Do you support Zionism?
ISIS = CIA
It used to be al Qaeda, but 0bama told us they were defeated, so the CIA had to create, train, and arm a new boogyman to scare the sheeple.
I don't make decisions for or against anything simply because of what GS says. Guess you do though, aren't you calling for $200 oil?
Talk about skin in the game...
Nop, I called for 50 dollar oil and made a killing.
Than I sold and friday I got back in on the drop.
no option through, only the stock. And another 5% rise is more than enough for me to get back out. And a buck higher in oil prises will bring me there.
But hey, it’s only money and everything in life is a lesson. Good or bad. Just stop following the crowd, it rarely pays off.
And anyone that has taken Economics 101 knows that when supply far exceeds demand, prices go down… Economics 101 but it only should apply to oil.
economics 101... comming from banksters...
HAHAHAHAHAHAHA
Gold silver anybody?!?!?
7+ billion people (and growing) all competing for a higher standard of living in a world that still runs on oil and you think that there is "no demand"? Good luck with that.
Peak demand has passed in the developed world. Europe is aging and dying. Same with Japan.
The US is also using less oil.
http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-bet...
What's left but China? The rest of the world will stay in the stone age. Just look at their birth rates.
$80 but that will be only $1.00 in todays gold price.
The first choice includes the second choice already, or do you mean greater than $80?
in world deflation, you would have strong currency and political chaos..
...yes, now if only we had some real deflation. I don't see any big decrease in the total cost of living at a decent standard, especially once you consider the average wage.
reversion to the mean....
http://truesinews.com/wp-content/uploads/2015/02/15-01-31-IMF-ALL-2.jpg
also look at Dr copper. it is very sick. also effects of printing peaked when gold hit $1900
I don't see any real deflation, either. I see electronic doo-dads getting cheaper. Gasoline fluctuates, but I only buy what I need, regardless of price, and don't need enough for that to make a difference to my monthly expenditures. My taxes aren't going down. Food only gets more expensive everytime I go to the grocery, and we only buy actual food ingredients, not value0added food-derivative products. Health insurance doesn't get cheaper. My kids are teenagers and college isn't looking cheaper.
The only deflation I see is in the wages people I know have to take when they lose one job and have to get another at lower pay. I'm self-employed, myself, and as I provide specialized services to corporations, I charge as much as I can get them to pay, and that hasn't been deflating much either.
Maybe there's deflation in the Finance sector. That's more over-supply though, than actual deflation.
i pay $2.30 a gal for gas last week in LA area. it was arround $3.50 a year ago, the highest was $4.50 which peaked 2007 and 2012.
In percentage terms that's a huge series of fluctuations. In terms of your overall expenses, probably not so much.
but what percentage of the world population is in our income bracket. what kinds of corruptions did it take for US to consume 20% of the earths resources. can it continue, will it continue. How many people in the US feel the pain when the packages of food get smaller. you probably did not notice that beef hots dogs come with less hot dogs or the ice cream is not half gallon any more. you live in an ivory tower and dont even know it.
GS said $30. Citi said $20. Means oil will hit $80.
When they say $80, it'll go $20.
volitility kills markets.....
That's your investing strategy huh? Listen to GS, do opposite in some arbitrary measure. I'm no GS fan, but I'm guessing they're not wrong every time, and I'd bet they're right more than wrong, so your strat has gigantic holes
be patient... wait until the world wake up to reality, then you may have a clearier vision of whats to come...
yes dont you just hate it, these big brokerage firms BUY when everyone is SELLING and VICE VERSA!. Bastardo's
I think 3 things are the case here.
1) Crude / energy is nearing a bottom here => http://bit.ly/1fMcakI
2) There is much BS, and manipulation about teh GREECE Crisis,
3) They will make the GREECE crisis seem bad, and send the market down a BIT so that Smart money who missed this nice rally in FEBRUARY can get back in and Make Big money in the coming months.
Time will tell.
Right. Qe can't be far behind. Rah, Rah, more debt slavery! Or, this;
This is just the kind of thing that can plunge us into a deflationary depression.
gas prices are ALREADY rising here in Michigan....
NOWAI!!!
OIL TO $200 ANY DAY!!
Whale oil beef hooked.
Paper currency is looking strong and the oil producing regions are looking geopolitically very stable.
The most important question is still the following: which PDs got buried with the sizzling USD rally and huge plunge in crude?
At 50/1 and even 100/1 no chance in hell at least one isn't more of a zombie than it already was.
Extreme price sensitivity is a sure sign of significant supply issues. This simply shouldn't be a factor in something as embedded as oil. But here it is, staring us all in the face. So what are the supply issues? Supply chain & logisitics? Extraction rates? Refining chokepoints? Consumption? All four? None of the above? Welcome your thoughts . . .
CapnJackDaniel
Extreme price sensitivity is a sure sign of significant supply issues.
Because global oil consumption (at $100) started falling faster than oil production decline.
I am not going short, long if anything. A friend who has a contact in the ME said they are pumping as usual and storing with intent to sell to us that storage @ $150-$200.
Last time there was a call of $150 by this guy, it was unimaginable, because oil was $60 and never been that high or even close. 9 months later, bingo $150.
WTF is going on? Fuel here popped .50 cents in two weeks. Something is a foot.
Gold Bitchez....I pick up pennies
Ooh, you "got a friend who says $150-$200 oil any day." *Wink, wink*
Sounds solid to me, I'll disregard the hard data put out by EIA and energy traders cause your insider scoop is for real.
EIA DOT GOV Estimates
Okay...
global economy slowing down + 800% increase in number of oil rigs since 2009
Yet there's a shortage of oil? Okay...
Who said there was a shortage? I'm laughing at the EIA estimates and the new kneeslapper, the "rigs don't matter line".
I've seen the decline rates, I'm glad to know they suddenly don't apply. Sure, knock out every rig and production will still shoot off into the sky for years (according to whoever needs to sell that story).
Just stating what I heard, I know the contact to be knowledgeable about ME oil activities, he drills baby.
Now the timeline was stated that the US military was emptying reserves to replenish with fresh oil so not to get gummy. Once that process was complete....bammm Don't know if true, but our military is the single largest purchaser of oil. Lets see what happens.
Filler up.....
Nothing but a trash man who picks up pennies.
Unrefined oil doesn't get gummy. It's been in the ground for millions of years. Putting it into a salt cavern or storage tank isn't going to change it.
Besides, why would the US military store oil? Do they own refineries?
I'm not an oil man, just trash so can't answer your question. I do know the military changed their fuel a couple years ago. Now if this is a military deal and for some reason they needed to lower reserves, my bet is they wouldn't advertise it.
Makes some sense, we have seen speculators filling tankers for months. You don't do that if oil is going to $20 and staying there now do you? The elite always have the inside track no? And what better way to make a killing than store oil and squeeze shorts? Talk about a payday. Try to think like an asshole, you will see it's possible.
Gold Bitchez....I pick up pennies
We might add to this scenario and think what would the banks have to benefit if they knew the price of oil was to be driven down temporarily? Own a few fracking locations and equipment, store boat loads of crude offshore when the BDIY is record low, then bamm, who's your daddy, we rich I tells ya, rich.
Helen we need another billion to rent a ship.
From patent application:US 6673231 B2
2. Description of the Prior Art
Generally, the term “crude oil” refers to oil recovered from below the earth's surface which remains untreated or unrefined. The problem begins when contaminants settle down on the bottom of oil storage tanks. Contaminants come from various sources and some of the contaminants are indigenous to the crude oil itself. Sludge is formed when naturally occurring solids as well as rust from piping and tank walls, and higher molecular weight hydrocarbons are separated from lighter hydrocarbons, and sink to storage tank bottoms. Such sludge is present in the form of stable emulsions consisting of long-chain paraffin, asphaltenes, inorganics and water.
So according to this oil man, sludge will form even in indigenous crude. Now did we blend it to pump it?
Maybe gummy isn't the right word, but you have some learning to do also I think. Takes 8-10 years and you get sludge.
Gold Bitchez....I pick up pennies
Oil in its natural state is a complex colloid from which quite a few things will precipitate in very small volumes. It doesn't go bad, spoil, turn into sludge, etc.
And the sludge is still useful Around here you can patch your driveway or tar your roof with it ... so long as the local environmental ghestappo isn't looking.
Not entirely true. Did a little digging and even Sandia did a study on our SPR caverns. Not that I am saying this is what was referenced in my buddys discussion.
Speed reading, it seems that oil left in these caverns for decades gasifies and becomes volitile to a point it cannot be transported safely if allowed to continue. Several caverns contents are degassed. It is a concern and they are still studing it as the oil is a complex substance. The salt mines also create some gassing it seems.
And yes sludge collects at the bottom but less than .5%
Good luck and good gambling.
http://prod.sandia.gov/techlib/access-control.cgi/2009/097747.pdf
Gold Bitchez...I pick up pennies
Money supply issues, that's all. I've been preaching for months(years?, I don't remember) that those oil workers were simply Federal Reserve employees.
Wait! The government will fix it......they know everything and what is best for ya.......
...that's what Uncle Paul Krugman says...
I'm deeply suspicious of somebody who says, I'm in favor of privatization, or, I'm deeply in favor of public ownership.
I'm in favor of whatever works in the particular case. — John Kenneth Galbraith
Hopefully the banks get stuck with those derivatives deep in their a$$.
They saw that one comming. Remember the cromnibus. We all got bent over on that one while their holes will remain unpenetrated.
The 'top' is in with the oil investment ads all over geezer radio ...... returns of 30% or more ..... 40k min. investment !
You know the rest.
Ummm...let me guess. They all get really really rich?
And what about to impose an import oil tax, say, 80%?
I think the idea is stupid enough to attract general attention.
"By then, it will be too late to do anything about it."
And what exactly were we supposed to do about this last year?? Other than stopping the over financialization of the world what would you like done skippy?
"Other than?" That's the exact thing that needs to be done. Now, how we're supposed to do that, I haven't the foggiest. All I can think of to do is use Finance as little as I can, but I've always been what those people call a "Deadbeat" anyway; I only buy what I can pay for and pay for it when I buy it. They hate me at car dealerships and credit card companies.
Clean up our closed oil rig locations? Sorry! We're bankrupt!
Death to corporate, fascist banksters. FBI trolls need not apply.
psst. its a fucking mess. truely a fuc...(boots on ground-spills, baby spills)
mother nature will not be happy about this ugly stain on her tablecloth.
run, hide(diving under the bed), moms home...
I love ZH and love the people who post here even more. It is the last remaining news outlet that has not been corrupted. The posts and the comments are equallly great. No /sarc here...this place is great and thank you for making it possible every day Ty and commenters.
Informative, cruel, funny, honest --
Quantitative Oiling .... QO 1 stimulus .... government buys high and sells low to consumers !
So many QE junkies here, like this one. Go find a statist blog and take the others here with you.
So the bankers blew their load and burned out the economy early while there was still money to be made in oil.
" This is really bad news for the economy, because the price of oil is already at a catastrophically low level for the global financial system"
Notice that it is bad news for the FINANCIAL SYSTEM, NOT for the rest of us. The Bankers have again loaned money into a bubble, a fracking bubble. The Banks have fucked up again, and need high oil prices for their debtors to service the loans Bankers handed out to energy companies. It was a bubble, as some here on ZH have said all along. Fracking is a marginal method of production, least profitable and most expensive to produce. Russia, the Middle East and some others are producing LOW cost oil, meaning they are not leveraged up, they need to produce at full tilt to make up for low prices. Since THEY produce for less, they will be standing tall, long after North Dakota shuts out the lightes on the last cattle and sheep grazing around the productiin rigs.
Frackers and other leveraged producers MUST produce at full tilt to help service their debts, driving prices even lowers. Production is way above demand, oil sits waiting for a bid. Unlike stocks and bonds, the Fed can not manipulate oil prices, oil still operates in a relatively free, fair and open capitalist market.
Botton line, the energy miracle Americans touted as our salvation just a few months ago, are now seeing the miricale turn to dust. Soon the 90-200 thousand dollar a year oil jobs will be gone. Even the secondary service jobs 25-50 thousand dollar a year will be gone. The Miracle of North Dakota will be a long lost memory. Right now people are seeing their American dream turn to shit.
Banks are in trouble, too many billions upon billion lent to dubious energy companies. When the producers go bankrupt, loans will default. Banks balance sheets will turn to shit, banks who alreay are insolvent will turn into really insolvent.
Demand for oil going forward is dubious at best. Peak debt has been reached, consumer incomes are falling, there is little hope for them to ever see a good paying job.
I see this oil story as being very big, the bankers bet tens of billions of an oversold dream of American energy independence based on smashing underground roks, pumping chemicals and an ocean of fresh water down the holes, at great cost, all in hopes of taking oil out right on the margines of profitability.
Hint. Don't loan money to industry that is right on the margine of making a profit, in a world market where cheap producers abound.
I was typing my post while you put up yours. That's what I was wondering about. Thanks.
No, no J.B., you got it all wrong. Just read the comments of the bulls here, don't you know? Oil magically going to $100 any day now!!!
Don't ask for sound reasons though, cause they don't have any.
JUST BELIEVE!!
It's worked for equities (so far).
jack, my sons' last day tuesday. done. 515/wk, 6 mos. unemployment.
like my situation from r.e. bust 08. done deal.
i truely hate fucking bankers with a passion. i wouldn't even waste the time to shit on their face(well maybe on second thought), ha...
i understand the krugman ramp w.wide to stimulate desparate econs.
keeps hitting home. father in law laid off 300k / year houston.
this is real contraction of econ just unfolding...
no tears need to be shed. we all are better off, cause we are frugile fucks
and create new destinies. but the ride never ends until the fed ends.
we know if this gets out of control the banks will be made whole -again.
maybe with a sequence of w.wide events it will get unmanageable for the cartel.
from another post i copied and pasted about 3 months ago. author unknown, but thanks to the wise poster:
Everything will be clearer if you consider, Obummer, Putin and other world leaders as the public figureheads of crime families. Obummer is the Manchurian Candidate creation of the New World Order, a cokehead turned President by the dark core of the CIA. Putin is a short guy in the Randy Newman song mold whose smartness made him the choice of the KGB 30 years ago to go places. Guys like the UK's Cameron and Blair and the like are idiots who just follow orders and protect the Rothschild interests, including accomplices who are pedophile murderers. OPEC, a creation of Royal Dutch Shell, is a sham front also controlled by the New World Order. Al Qaeda was created by the Saudis at the behest of the NWO to promote the establishment of a worldwide police state. The only problem now is that the repeal of Glass-Steagall in 1999 has led to the creation of over 1 quadrillion dollars in artificial debt by insane Wall Street derivative counterfeiters, debt that could collapse the world economy before the Rothschild backed NWO establishes a despotic world government where the NWO controls everything, from banks to dope trafficking to national armies. Russia is a hold-out now, a crime family not part of the Rothschild's Mafia. If necessary, a pretext will be created to start a world war to knock out the Russians. Remember, we are dealing with insane and degenerate people in the George Soros mold. Anything is possible.
When an alien race arrives to dig through the ruins of our civilization, they will wonder why we destroyed all of our topsoil and our groundwater so we could burn hydrocarbons in our heavy transportation boxes. It is truly crazy what we've done.
Couple things there, Jack.
First: You’re right. Banks would be in trouble, if we had a free market. Banks knows these loans can’t be paid, ever. Mathematically impossible. Look at Frack as the next subprime.
Second: The elites (bankers, specially) are defending their lifestyles. International banking and US American Multinationals interests and American interests have been slowly diverging over the last few years. And it is about to become much worse for American interests as Americans lose their Petrodollar privilege.
Jack: the Banksters' phantom FRB claims will be used to take ownership. It was other people's capital at risk... Heads they win. Tails we lose. People have to understand that TBTJ banks abuse their control if effective money supply to front run boom/bust cycles. Don't cheerlead the drop. It is just GS and other TBTJ banks trying engender a self reinforcing loop of distress on those without the Fed feeding them synthetic financing profits to ride out the storm.
Fuck, my fight or flight instincts just kicked in.
Here is Chicago we got wind of plans to evacuate the city in case of a "disaster". Shit like using the local transit system and that sort of crap. Must be preparing for that once in an epoch Lake Michigan hurricane or something like that. Talk of keeping anough food and water around, along with othere essentials. And the radio guy actually said that having a gun and ammo would be a good idea. This, in Chicago. Think about it, somebody is higher on a hill and is seeing things a bit further out.
Bipartisan bills were introduced last week in both the House and Seante for a national concealed carried law. Reciprocation amoung all the states, down the road sharing national databases of all who carry. Funny how coincidences work.
The unemployed from ND are starting to filter back to their places of origin/families. How long will they last on unemployment before the angst sets in?
JB, I logged in just to upvote you. That's the most clearsighted analysis of our current economic clusterfuck that I've seen. Keep it up.
Something has got to be utterly screwed up in the financing of the oil industry. The price of a barrel of oil pretty clearly has little to do with supply and demand for the forms of oil we consumers use. When gasoline was $4.29 a gallon nobody ran out; I could buy as much as I could carry away, anywhere I wanted, so the price wasn't a matter of constrained supply no matter what I was told.
And now that gasoline is one side or the other of $2.00 a gallon, I'm not buying any more of it because it's so cheap. The tank on my car holds 11 gallons, no matter the price. Since it's got ethanol in it here in Minnesota, it pulls water out of the air and is unusable after a few months, so putting a giant tank in my back yard isn't just suicidally dangerous, it wouldn't do me any good even if it didn't blow up.
I've seen the charts showing a decline in consumption and demand, but not 50%. So supply and demand on the consumer end isn't driving this, either. People buy as much as they need to, and it hsn't ever been so expensive people stopped using it in large numbers in the US.
So what is it? It's got to be the supply and demand for paper oil, the supply and demand of money to speculate with. Somebody has their thumb on the scale driving the price down for a reason. Usually when things at all like this happen, it's to bankrupt the shallow pockets so the deep pockets can scoop up the rubble for a song, and then the price goes to new highs. That's when the real money will be made, because the price of gasoline and oil products has to go far higher than it ever has in the US for people to stop buying as much of the stuff as they think they need.
demand for oil is inelastic, so a smal change in demand/supply causes a large change in price.
To the point of bankruptcy in the industry? I'm not being sarcastic or playing dumb. I just don't see how such extreme swings in price can be due to such inelastic demand. Or maybe what we've seen isn't that dramatic in the universe of possibility?
Such an incredibly complex issue... but here are some ideas:
When you consider the price of oil in USD, you also have to account for the other side of the trade (USD). The dollar's been in a bull market against everything under the sun as of late.
I think it also owes partially to the difference between crude oil (an input) and gasoline (a finished product). Because oil is such a highly leveraged commodity, I think you have to treat gasoline, and its price, like a kind of derivative (a leveraged instrument). Any kind of weakness in the underlying commodity can have exaggerated impacts on the price of the final product, particularly when this weakness is magnified up and down the supply chain.
And of course, never rule out good old fashioned market manipuation. We're teetering on the precipice of global conflict, and the big boys are sharpening their knives. The only way to cut the knees out from energy independent countries: crater the price of their prized export. Such overt manipulation is a clear sign that we've entered the shooting phase of a finanical world war.
Rubble or ruble?
Wait. At what point did the world consumption fall against rising production? Has anyone got a believable graph? I believe that the high price it did reach was based entirely on market manipulation, questionable consumption data (I mean, does anyone believe what China says?), and the collective vested interests of the big players. These same big players surely must all know that we are facing a world wide deflation death spiral? And what are they doing about it? What can they do about it?
On the other hand, seeing oil at $20/bbl, which is probably way too low, will benefit poor nations and nations without any oil (Japan). There is always someone who benefits. At $20/bbl, Russia is toast and Saudi Arabia runs out of cash. The Americans probably don't care because it will be a big boost to the trucking industry as well as lowering costs to all flights for their huge domestic airline industry. Winners and losers.
Uhh, even the highly manipulated stats put out by the IMF and big banks admit global growth non existent. That can be translated as, "recession/depression since 2012."
Hope I didn't wake tou from your sleep, welcome to 2015.
The recession began in Dec 2007. If you think we came out of it in July 2009, I have a few valuable items you might be interested in buying. Bring cash.
There are no winner or losers. There are bad and worst. Hardest hit will get most debt nations because they can't pay their debt and all countries will demand payments
I can't say I agree with you. If you're a trucker and you're making next to nothing because fuel costs are sky high and your employer will not pay you per load to help you out and the same holds true for self employed independants....then any drop in the price of diesel is going to help you out in a very direct way. The airline industry is able to hedge a lot of their fuel costs but one has to believe that a sudden drop in their main expense is going to help the bottom line; immediately. If airlines drop prices to the consumer then they fly more and incrementally the airlines will make more profits. All premised on short term lower fuel costs. The same might hold true for agri business (fertilizer makers for example) who are tied into the crude market, buying bi-products.
Debt nations, led by Greece, are in a different acid bath. If they have no oil then their fuel/energy costs are going to go down and this helps the bottom line. If they have oil, well then they are going to hurt in the short term. I for one do not believe that the current low price of crude will last too long. Whether it is a major war or not, it is going back up. Fracking might be pushed back, a whole way back. I'm not sure. The Alberta Tar Sands will scale back until they can ramp up and they will ramp up as soon as oil vaults upwards. The low prices on crude is perhaps a mega manipulation. Maybe. Time will tell.
Some crisis. We are supposed to believe that three digit oil is some kind of pre-ordained minimum necessary for survival? Whose survival? The high-cost producers? The vast majority of people benefit from lower oil costs, as they do from other costs. As to the hand wringing over future production, low prices are the cure for low prices. And if lower prices are primarily the result of a dastardly global derivatives conspiracy, long may it continue.
In fact, last week more oil was produced in the U.S. than at any time since the 1970s.
US now produces 9.1 million barrels a day and uses over 19 million barrels a day. So much for the tidal wave of US oil overwhelming the oil market.
Saudi Arabia produces 9.6 million barrels per day and uses 3 million barrels a day for its own domestic consumption. So it exports 6.6 million barrels a day out of world consumption of 92 million barrels per day.
Chinese imports of oil jumped over 0.5 million barrels a day in December alone to 7.2 million barrels a day.
Oil was attacked in a US-Saudi conspiracy to weaken Russia as half its exports are energy-related.
That strategy worked in 1980s when Saudis crashed the price to $10 a barrel in 1986 and the USSR collapsed.
That strategy will not work today as developing countries use a lot more oil- China and India use ten times more than they did then and will take advantage of cheaper oil. And Putin will not sit idly by and watch his economy get wrecked like Gorbachev.
John Kerry, the US Secretary of State, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.
http://www.globalresearch.ca/the-oil-coup/5420293
Oil price will go up again - AFTER a 25 year deflationary depression and total collapse of the present dysfunctional system.
At the press conference when Varoufakis was told that "Greece turned the corner in 2014, because its economy expanded" he responded thus:
We only “grew” because prices in Greece fell faster than activity fell. That’s not growth, it’s a great depression.
perhaps
If the collapse of the present dysfunctional system leads to a superior, functional system, well and good.
However, if it is replaced by a giga dysfunctional system, I suppose that'll be a different kettle of fish.
BTFD....
Speaking of oil...train derailment (oil tanker) in west va:
http://twitchy.com/2015/02/16/massive-fire-evacuations-ordered-in-west-v...
But pipelines are dangerous;)
I wouldn't place too much faith on any wall street types - the Ilk of Goldman Sachs. These are the same effers that told us in 2008 eveyrthing was ok. And knowing the scum, they are likely counter parties - like Citibank - on some bad trades for their clients. Now trying to cover their collective asses.
$ 20 indeed
FWIW - there is plenty of effing storage for the time being.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPC0_SAX_YCU...
In a blink of the eye, OPEC could set the price at whatever level they want.
LOL! Once price discovery is destroyed as well as the currency itself, it becomes very difficult to price anything.
Yes, and this is how it actually works!
https://www.youtube.com/watch?v=wz-PtEJEaqY
Talked to a guy that works in Williston ND and he has been taking home 90K the last few years. I wonder if he still has a job now.
if he has worked ten years he may make the cut. shuffling status to most lucrative formations. if it drops to 40 all bets off. a fucking mess. old timers(drillers) as floor hands. lots of turmoil as egos flair off. pun intended. safety will take a hit. h and r prides their safety big tyme. have to see. stapling a twenty to every bbl right now.
The price of oil will recover. It may be years from now, but it will happen. So far, there has been very little damage to the oil and oil service stocks. The market has not priced in a slump that will last years. When they finally do so, there is probably going to be some really great bargains out there.
A bedtime story regarding oil
Baltic, velocity, closed ports, vortex.............. sweet dreams folks..
They cut the most unproductive rigs, the author's thesis doesn't correlate.
I need someone to give me a clear answer cos I dont get it, why is cheap oil bad for the economy?
what do the people use this phrase mean?
is it understood as a bad sign for economy or some crazy bastard really thinks cheap oil sucks?
It means that some guys, (mostly men to my knowledge), in the oil industry will lose really high paid jobs until the industry recovers.
However, gamblers may also lose some money too that they loaned out to oil companies. This is more worrying because if the oil gamblers lose the republicans will want to bail them out.
So good for most people except really high paid oil executives that earn loads from extracting a resource from the ground. But bad for everyone if the republicans and teaparty decide to bail out the oil gamblers.
The ramp up in production was accompanied with a lot leverage. The leverage was based on a price that was substantially higher than today. Many of the drillers didn't even have positive cash flow at $80-$100 because of all the investment they were making. Paying down debt at <$50 is not going to happen and no new investment is coming. Saudi's have very easy oil to get at, I've read a production cost as low as a few bucks. In US, that doesn't cut it.
It's very good if you're just Joe sixpack consumer except Joe's banker is about to be assraped which we know will come back to Joe. And if Joe works in the industry or an ancillary industry, he may have cheap gas but no job to buy it with. Whole towns in ND were built up on this trade and now they could disappear if the price doesn't come back
Back in 2008, Goldman swore up and down that oil would be $200/bbl by the end of the year (as it tumbled to $33 or whereabouts).
They don't know any more than anyone else, and they've been a leading contrarian indicator for some time now.
No. The Squid knows more than anyone else because they're one of the main players rigging the market.
What amazes me is that, given a record like theirs that anyone would even read the garbage they pass off as research, let alone actually pay for it.
US is an oil producer. Low prices are bad for Producers and good for those who consume without producing.
US is a net consumer of oil, to the tune of about 10 million barrels per day. When the price of oil drops $10 per barrel, the US economy saves, at a minimum $100 million per day.
I was expecting another of Michael Snyder's articles along the lines of 17 Reasons Why Falling Oil Prices Will DestroyThe Economy.
And in a year's time a follow-up article entitled 18 Reasons Why Risling Oil Prices Will Destroy The Economy.
Yes, Snyder is a lightweight.
No analyst ever predicts a trend will reverse.
This is just the beginning of the oil crisis.
No, when oil hits $20, it will be the end of the oil crisis.
Happened in 2008 - 150 oil down to 35 in 8 months - and then the Fed stepped in to save us all.
Here's WTI monthly: http://bullandbearmash.com/chart/wti-oil-monthly-closes-sharply-weak-bou...
We are still a few months away from staying below 50 per barrel, but USD strength should drive oil lower.
So Goldman want the price low to offload their shorts? Time to buy?
They just keep pounding this intp the ground. $20 crude $20 crude and it reminds me of every other sell off in crude in that the bottom was always marked by predictions of it going to $20.
Goldman's trading calls have been backwards looking static for a long time. In a major macro move, they always seem to get it wrong. More often than not, they come in after a big move and demand more. And then that marks the end of the trend.
Funny thing is the Tylers keep managing to post GS analysis (even over a long weekend) when at the same time someone bombing a pipeline in Libya doesn't rate a mention?
It's MSM worthy stuff.
????? ????@40_reporter
#Damascus Explosion in the gas-pipe near Damascus Airport, followed by a power-cut
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The low price of oil is partially the market admitting US Ukraine policy to block Russian energy supply to Europe failed. It was a stupid plan to start with. This theory on the price move works in accordance with free market and manipulation price setting theories.
I'm afraid I do not understand the connection. You will have to elaborate.
My guess is the price will stabilize around $70+/bbl by the end of this year. In the interim it may go lower than it is now, but not higher. Here's why:
War, and so with the current increasing oil supplies we are to see $70/bbl? Are we using a fork to do a knife's job?
I agree with much of what you say, but just because Saudi oil can be pumped at 20 and make 10 at the wellhead does not mean that the Saudi state can tolerate such pricing for long due to its overhanging need for social welfare bribes and princely payoffs.
This is the difference between the US-- where a sector can be mangled but the rest of the economy will not collapse-- and a country such as Venezuela or Nigeria, et al. who are as much dependent on oil revenue as are seniors on their monthly social security checks. The state monopolies cannot be judged on wellhead profits alone.
Agree. It's a waiting game. Can the OPEC government-conrolled oil monopolies outlast the private shale operators? My bet is on the governments (sorry...) over the quarterly-report-driven private operators. Wish it was otherwise.
In turn, I concur regretfully as well. So far as the ME is concerned. Not so sure about Venezuela in particular and others.
But shale oil has placed a lid on oil prices of about 70 a bbl. As soon as the price rises back up there, shale kicks off again and lops off the top as a marginal producer. Plus shale recovery costs will continue to drop and eventually lower the lid. (sounds like a toilet problem).
The very extravagant days of endless oil wealth going to some very reprehensible people (apart from Texans) are over. They will have to learn to live with more modest revenues. Kudos to the persistent wildcat experimenters who have slain this mighty beast.
not a chance in hell oil goes to $20... Mrs. Yellen would not allow that to happen. PS Citi is filled with idiots.
Don't think so, Snyder. Prices are going back up. They have to. They just keep spending in Washington. And you are an ignoramus to think that low oil/gas prices aren't beneficial to the economy. In the short term, oil producers may suffer. In the long term, it's what's best for everybody, including the oil producers.
Ahaha! Foutaise! The forecasts of Snyder are true in 1 to 2% of the cases…
Tell me anything...funny, talk of abundance only started when the CRIMINALS decided to put the screw to putin.
realize, CRIMINALS will stop at nothing, to squeeze russia
Took my 40% gain on the bounce. I will gladly enter again on the next trough - whether at 20 or 40.
Good job; it will not bounce anytime soon, for the stakes ($$$) are too high. I would expect that demand will continue to wane and therefore it will be time to cause serious supply disruptions and very soon. It can be at the refinery level; perhaps a few more strikes or a explosion or two and then there is the more likely overseas disruption by Langley & Company. We will NOT see $20 per barrel oil anytime soon. The summer is coming up and people are "feeling good"; so they can't let that last opportunity go to waste. I would not want to be a Saudi right now or a Syrian or Iranian or an Iraqi. These are the places where the ISIS (CIA) will be given order to take offline some oil production in the very near future.
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Buffet, who is behind the stopping of the Keystone pipeline, must be a little upset with the derailment of the crude oil and the environmental disaster in W.V. going on as I write. Perhaps the railroad and pipeline oppositions are in the works here. Maybe a pipeline blows up next...sure is an interesting world for sure.
I see a short squeeze coming as the banks are encouraging people to go short; bet they are long.
Sure... and if we can't trust Goldman and Citi for financial advice... who CAN we trust??? Right? Right? RIGHT?!?!!??
BTW: John Williams thinks oil has bottomed and the dollar is topping... so... who do you trust again?
I doubt the dollar is topping as it is the best of the worst for now and with the turmoil or stalemate with Greece and the EU on the line; the dollar will gain strength. Just talking of interest rate increase will increase the dollar strength, but the consequences are unknown. Therefore I expect the FOMC meeting minutes to "test the interest rate increase waters" to see how the world responds.
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The reality is they cannot raise rates more than .05% in a number of steps over several periods of several months. By then, another set of factors (mostly negative) will manifest itself...we can expect much volatility until May (assuming no major false flags or Ukrainian war or dead EU). I would expect volatility to really ramp up in August and perhaps a 25% market correction in September or October.
There was no real increase in production during the 2007-2008 time period. The price spike was purely speculation. This increase in production came as a result of real shortages of oil producing a higher price. The surplus that has been produced will easily be consumed and prices will rise higher again. It's a cycle with a higher frequency than in the past.
.........If we go down to $20 and stay there, a global financial meltdown is virtually guaranteed...........is bullshit.
first - a meltdown will arrive independent of any oil price calamity. If anything, the retreat in oil and gas is a symptom of a much larger problem that arises when an economy is goosed with ZIRP and various monetary trickery where the boom that is created inevitably leads to a bust. The demand for oil and gas at levels not seen since, forever, is symptomatic of an economy that can barely print 2% GDP.
Allow the bust to clear the malinvestment(s) - assets exchange hands - and we move on. Its not the first time we've seen $20 oil. Won't be the last.