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WTI < $100

Tyler Durden's picture




 

WTI crude just broke $100 (traded $99.99) - an almost 3 month low having dropped its most in the last 3 days since mid-December 2011. Remember: it has long been known that Obama, pardon Bernanke, will not allow THE NEW QE until a barrel of the black gold cost double digits. He just got his wish.

 

Charts: Bloomberg

 

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Fri, 05/04/2012 - 09:18 | 2396458 slaughterer
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Looks like Michelle is playing around with the Obama-family futures account again.  She has been distance learning with Blythe.

Fri, 05/04/2012 - 09:18 | 2396476 GetZeeGold
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Print 500 billion and short oil........what could go wrong?

 

Fri, 05/04/2012 - 09:21 | 2396494 Aziz
Aziz's picture

But but but Lindsay Williams said the "elite" were taking oil to $200 a barrel!

Fri, 05/04/2012 - 09:50 | 2396657 LawsofPhysics
LawsofPhysics's picture

Only after margins are 100% for everyone and their storage tanks are all full.  That reminds me, time to buy more diesel.

Fri, 05/04/2012 - 10:15 | 2396773 whatsinaname
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will be S&P stay around 1380 while WTI drops to 75 ?

is that possible ?

Fri, 05/04/2012 - 09:16 | 2396459 Jim B
Jim B's picture

Evil speculators at work! LOL

Fri, 05/04/2012 - 09:18 | 2396473 SeverinSlade
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Imagine how much balder Bernanke would become if crude dropped below $80-90 and the S&P was still levitating around 1400 on New QE hopes...lol

Fri, 05/04/2012 - 09:18 | 2396474 firstdivision
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This is killing the half-assed QE trade going on today.

Fri, 05/04/2012 - 09:19 | 2396479 fonzannoon
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I thought oil dropping is exactly what was needed to facilitate the next QE trade?

Fri, 05/04/2012 - 09:20 | 2396484 GetZeeGold
GetZeeGold's picture

 

 

You didn't get the memo.....we're not using those two letters anymore.

 

Fri, 05/04/2012 - 10:34 | 2396851 CURWAR2012
CURWAR2012's picture

We changed to SQE: Super Quantitative Easing?

Fri, 05/04/2012 - 09:19 | 2396482 EscapeKey
EscapeKey's picture

Marginal oil supply cost is $92/barrel, according to the FT:

http://ftalphaville.ft.com/blog/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU) indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10 year average. Last year production costs increased 26% y-o-y, while the unit cost of production increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost growth rates,highlighting continued cost pressures faced by the E&P industry as the incremental barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. Assuming another double digit increase this year, marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl.

While we see near term downside to oil prices on weaker demand growth, the longer term outlook for higher oil prices continues to be supported by the rising costs of production.

Fri, 05/04/2012 - 09:23 | 2396499 Caviar Emptor
Caviar Emptor's picture

Biflation at its very best: decreased demand but increased production costs. Beautiful

Fri, 05/04/2012 - 11:06 | 2396964 Marginal Call
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It's the increased production costs that's destroying demand. And any chance of future growth.  Game over.

Fri, 05/04/2012 - 09:24 | 2396502 LawsofPhysics
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Exponential equations and the laws of thermodynamics are a bitch, you can never "print" enough capital.  BTU returned / BTU invested is all that matters.  Oil is valuable, period, and we will pay dearly for it.

Fri, 05/04/2012 - 09:30 | 2396551 Caviar Emptor
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The laws of supply/demand abrogated by a vicious cycle of increased costs pushing down demand ever more

Fri, 05/04/2012 - 09:37 | 2396592 LawsofPhysics
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When the amount of energy you recover is less than the amount of energy you invested - game fucking over, period.  Unless of course you are interested in running an unprofitable operation and know that the taxpayers can be raped and starved (via your political puppets) to keep your operation going - oh wait, nevermind.

Fri, 05/04/2012 - 09:43 | 2396626 EscapeKey
EscapeKey's picture

Someone once said something about middle class, millstones, inflation, taxation.

They say he was right about capitalism, and wrong about communism.

Fri, 05/04/2012 - 10:06 | 2396728 aerojet
aerojet's picture

Governments are all running unprofitable operations.  What is your point?  It's been going on for a couple centuries now.

Fri, 05/04/2012 - 10:14 | 2396763 LawsofPhysics
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That is my precisely my point.  Try to pay attention.  People bitch about the system, but don't want to crash it and start over.

Fri, 05/04/2012 - 16:19 | 2398077 flyingpigg
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Argentina will join the non-profit club with YPF after nationalization!

BTW, the back-end of the Brent curve (Dec16) has been trading close to the above 92 USD/b level during the last two weeks. Probably selling forward production to get the financing for new projects.

Fri, 05/04/2012 - 20:00 | 2398585 smiler03
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+1 of course but who are the idiots that downvoted you? 

edit:

I changed my mind. You could use renewable energy equivalent to get that barrel of oil out of the ground. Plant that wind turbine by the oil well. Using too much oil to recover oil is of course ridiculous. 

Fri, 05/04/2012 - 11:03 | 2396956 CrashisOptimistic
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That's solid analysis and correct, but you have to understand that as oil scarcity destroys civilization, it also destroys oil consumption.

The marginal cost is the cost of the next additional barrel, by definition.  If civilization is being obliterated by scarcity and its consumption drops, *you don't need the next additional barrel*.  Already producing fields become sufficient for that moment and so the price can decline.

Then the next time there is an attempt to grow GDP, oil price spikes and crushes it.  This then soon relates directly to population, which also gets capped and then crushed.

There is nothing that can be done about this.  Folks can bristle defensively and bravely reject such a thought, but math doesn't care about their indignation.

 

Fri, 05/04/2012 - 09:20 | 2396488 LawsofPhysics
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The rest of the world does not give a shit what the price of oil is in dollars.  The U.S. military backs the petro-dollar and visa versa.  With fewer people willing to sacrafice themselves and their children for the petro dollar, we will see how long the dollar lasts as the reserve currency.

Fri, 05/04/2012 - 11:32 | 2397043 moonman
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When fewer people are willing to sacrifice themselves or their children for the petro dollar our fearless leaders simply reinstate the draft for our youth and call it a jobs program. Unemployment would be under 6%. BINGO! REELECTION

Fri, 05/04/2012 - 11:59 | 2397157 Bicycle Repairman
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A little history here.  In 1968 at the Long Binh Jail (LBJ) in Viet Nam, the US Army, for all intents and purposes, mutinied.  With the Army lost, what to do?  Answer, dial up the USAF and bomb the crap out of them for another 5 years.

Same thing now.  If US citizens won't fight, use another method.  In the 21st century, it is drones.  They substitute machines for people, continue the war and make people a little more obsolete.

 

Fri, 05/04/2012 - 09:24 | 2396510 junkyardjack
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But I thought the speculators made the price always go up?  That's what Obama told me

Fri, 05/04/2012 - 09:30 | 2396541 roadhazard
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Just because oil backs off for a few days means nothing. Oil ALWAYS goes up or I'd still be paying .60 a gallon for gas.

Fri, 05/04/2012 - 09:24 | 2396517 Spastica Rex
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It's an election year.

Fri, 05/04/2012 - 09:43 | 2396623 Yamaha
Yamaha's picture

You mean erection year..........

Fri, 05/04/2012 - 10:43 | 2396876 YHC-FTSE
YHC-FTSE's picture

That's all one has to say really. Ain't nothing to do with demand/supply. Anyone keeping an eye on SPR, refinery production rate, and Crimex oil futures? So many ways to manipulate prices, so little time.

Fri, 05/04/2012 - 09:25 | 2396520 Change-In-Trend
Fri, 05/04/2012 - 09:26 | 2396527 hankwil74
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Speculators don't control the price of oil? So I guess it's a coincidence that when the CME raises margins by 35% on members and 100% on non-members, oil dumps $6?

Fri, 05/04/2012 - 09:41 | 2396611 LawsofPhysics
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Make margins 100% for everyone, I dare you.  Who will be to blame when oil goes up then?

Fri, 05/04/2012 - 09:52 | 2396668 hankwil74
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Because the increase in the number of hedge funds coupled with low margin rates has had nothing to do with oil going from $40 to $110, right? Nobody is saying it is the only cause (Fed intervention, US war mongering, Iran sabre rattling, Goldman et al conspiring to run up the price of oil to bankrupt/buttf*ck SemGroup), but to ignore the impact of speculators is simply foolish.

Fri, 05/04/2012 - 10:12 | 2396753 LawsofPhysics
LawsofPhysics's picture

again make every mother fucker selling it take fucking delivery.  What the fuck are you crying about, that life is unfair and some people manipulate, lie, cheat the system, and fucking steal?  Grow the fuck up, grow some balls, and demand that the fucking fraud is prosecuted for a fucking change.  Funny how people get what they ask for/support and then complain about it.  

Fri, 05/04/2012 - 11:25 | 2397031 hankwil74
hankwil74's picture

You lost me.  You want ppl selling it to take delivery?  Either you want every buyer to take delivery, or every seller to have to actually be a producer?  Which one is it?

 

Who is crying?  I'm stating that speculators impact the price of commodities.  You are somehow disagreeing with that statement.  To back up my claim, I presented information that the recent margin hike by the CME has caused the price of oil to drop significantly.  There has been other bearish news as well, but without the drastic margin hikes, it is doubtful (based on how the market has shrugged off other bearish news over the past 6 months) that oil would be down over $7 since the margin hike announcement.  You have presented nothing.  If you disagree with me, and it is clear that you do, please present your evidence, unless calling people crybabies and telling them to grow up is the entirety of your evidence.

Fri, 05/04/2012 - 12:01 | 2397165 Bicycle Repairman
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"Grow the fuck up, grow some balls, and demand that the fucking fraud is prosecuted for a fucking change."

I writing my congressman right now.

Fri, 05/04/2012 - 09:26 | 2396529 Dr. Engali
Dr. Engali's picture

The deflationary forces Ben neds so he has cover to print. It's amazing how that seems to work out.

Fri, 05/04/2012 - 09:33 | 2396568 Non-overlapping...
Non-overlappingMagicCereal's picture

"It has long been known".

Really?  Have a link (even a dubious one) to support this claim?  Or just not bother because your readers will eat up whatever arbitrary shit you put in front of them?

That Pulitzer is surely in the mail.

Fri, 05/04/2012 - 09:40 | 2396603 LawsofPhysics
LawsofPhysics's picture

With ZIRP forever, who needs QE?

Fri, 05/04/2012 - 09:54 | 2396678 Non-overlapping...
Non-overlappingMagicCereal's picture

Good point.

Fri, 05/04/2012 - 12:02 | 2397167 Bicycle Repairman
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If the market and/or the TBTF banks falter, something else will be required.

Fri, 05/04/2012 - 09:39 | 2396606 Aductor
Aductor's picture

And it's a tax break for consumers, bla bla bla. Larry Kudlow will be thrilled.

Fri, 05/04/2012 - 09:40 | 2396609 grunk
grunk's picture

Problem with QE. Art Cashin called it a day early.

http://video.cnbc.com/gallery/?video=3000087932

Fri, 05/04/2012 - 09:46 | 2396634 orangegeek
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WTI elliott wave primary wave count shows bearish.  Based on this, we could see <$75 WTI very soon.

 

http://bullandbearmash.com/index/oil/daily/

Fri, 05/04/2012 - 09:48 | 2396644 Spastica Rex
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It could rain, it could be windy, it could be cool, it could be hot. Models say warm and windy but I see cool and wet out my window.

Fri, 05/04/2012 - 10:08 | 2396739 aerojet
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Elliot wave is complete bullshit.

Fri, 05/04/2012 - 10:49 | 2396832 steve from virginia
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Somebody's demand just got destroyed, we just don't know whose. Likely to be Spain's.

When a country's fossil fuel demand is 'modified' it can be re-exported to a country with good credit (US)

Another thing to keep in mind: it costs $100 to lift today's oil from the ground. Below $100 and oil is shut in. The result is shortages which cut into business activity and kill demand. The low price is actually too high a price, causing more business activity to be cut in a vicious cycle. Shortages are costly.

This is how it works:

 - high prices are costly, they destroy demand.

 - low prices are more costly because they constrain supply causing shortages which also destroy demand.

Another thing to keep in mind: the market is rendering the world car free. This is conservation by other means.  I hope you car people enjoy it.

Fri, 05/04/2012 - 11:13 | 2396994 CrashisOptimistic
CrashisOptimistic's picture

Suggest you start thinking with different terminology.  Your thinking is clear, but the words can corrupt it.

Economics calls two words synonomous -- "demand and consumption".

In a world of crushing oil scarcity, they are not synonomous.  High prices don't destroy demand.  They destroy consumption.  People want to burn oil.  They can't.

Low prices cause shortages, but again this does not affect demand.  Demand remains growing.  It is consumption which cannot grow.

Fri, 05/04/2012 - 12:36 | 2397279 steve from virginia
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I agree to the point where the desire to consume is crushed: I'll admit 'demand destruction' is a colloquialism.

Fri, 05/04/2012 - 20:09 | 2398611 smiler03
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 "Another thing to keep in mind: the market is rendering the world car free. "

Not yet it's not but it will eventually of course.  Car sales are booming in Asia and not that bad in the US either.

Fri, 05/04/2012 - 12:07 | 2397186 GottaBKiddn
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Barrels down, pumps up.

Fri, 05/04/2012 - 12:42 | 2397309 sschu
sschu's picture

Bam has to suppress the price of oil if he expects to get elected, so the beat-down begins.  

Keeping the S&P over 1,300, finance $1.6T in deficits, keep the 10 year below 2%, UE under 8% and drive the price of oil down ... it will take a magician to pull this off.

That is the only way Bam and Bennie get to keep their jobs.

sschu 

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