As Nate Hagens noted, "people think that the economy runs on money but it runs on energy," and as Art Berman details in the following interview how the current oil price collapse represents devaluation from over-investment in unconventional oil - and most commodities - because of cheap capital, and is simply a classic bubble. "Continued oil prices of $30 per barrel or less are the only reasonable path to higher growth and a balanced oil market," Berman contends, adding that he expects $16.50/bbl - "I think we're gonna get there." Berman concludes ominously, we're not going 'back' to anything - "Normal is over, and there is no new normal yet."
Full Art Berman interview below (via Macro Voices):
18:25 - OPEC will cut production in 2016
19:05 - OPEC’s objective is to kill shale drillers’ source of funding
19:30 - The idea that Iraq/Iran will cooperate with Saudi Arabia is laughable
22:30 - EIA/IEA numbers are estimates at best, and almost certainly wrong
24:00 - He doesn’t believe recent EIA figures saying consumption has fallen dramatically
24:40 - US production must drop in a more meaningful way before OPEC can affect crude price
27:00 - Baker Hughes Rig Count is only focused on by traders because it’s available data, not because it matters
29:00 - Regardless of rig count, regardless of what people think, the number of producing wells continues to increase!
31:30 - US production not necessarily in direct competition with Iranian production
33:15 - As long as storage numbers are 80% of capacity or more, prices will remain “crushed”
35:45 - Forget about the nonsense that you read in the WSJ about “the true breakeven price” for shale operators - the true breakeven price for the best operators in the 3 main US shale plays is $60-70/bbl
38:40 - These shale operators “have no money”
39:00 - If investors abandon shale company stock, their total assets decline and their debt is in trouble
40:45 - Pretty obvious to anyone who knows that this situation is going to crash in a big way, it’s just a question of when
40:55 - Similar situation to “The Big Short”
44:40 - Very few options beyond increasing Cushing storage capacity, which takes time
46:30 - Whiting Petroleum clearly out of money, made a terrible acquisition, and is stopping further drilling because they have no other option. They could care less about the shareholders and are acting out of desperation.
48:05 - Midwestern gasoline refineries cutting back on crude purchases as they don’t see sufficient demand
50:00 - $16.50/bbl - “I think we’re gonna get there”
52:35 - Capital providers clearly pulling back from investing in US tight oil projects
53:00 - Future investments in the Oil Sands are dead
54:05 - In the first half of 2016 there will be a wave of shale operator bankruptcies and defaults on bond payments, a collapse in the high yield bond market which could spill over into other markets, as well as further distress in the banking industry - “will be a bloodbath”
55:00 - 2016 shale operator bankruptcies could reach 50%
57:00 - Iran will not get back to 1970’s levels as they would like to suggest. Production levels will be far less.
58:45 - Libya is the wild card. If they ever get their civil unrest under control, they could bring 1.5MMbbl/day to market and “that would be a disaster(for oil prices)”
1:04:15 - We’re not going back to anything - “Normal is over, and there is no new normal yet”
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And finally Art Berman's Presentation: