M14 Forum banner

1 - 20 of 792 Posts

·
Registered
Joined
·
1,916 Posts
Oil prices are a reflection of two or three things. The first is the decision by OPEC (read the Saudi's) to keep production levels high. This has two purposes, one is to kill the US shale boom, which is highly levered and only profitable with WTI above $80.bbl, and the other is to place pressure on Russia in order to make them less able to exert influence in Iran and Syria, especially the latter. Saudi and Qatar are desperate for regime change in Syria in order to run their pipeline to the Med.

Another reason for the drop in oil prices is a lack of demand globally, reflecting the economic downturn in China and the EU, but especially China. This has dragged the entire commodity complex into the dirt, as everything from crude to copper is lower in price and accelerating.

China is on the verge of an historic real estate bubble collapse, and their banking system is very exposed to RE loans, as well as other loans to core manufacturing concerns such as steel, coal, copper etc. When the loans begin to default, which has probably already started, the carnage will be huge. This also does not include their "shadow banking system" which are unofficial off the books loans to these same entities, and which will dry up liquidity, or make cash scarce, for the entire complex, resulting in large scale defaults and bankruptcies.

This will have effects far outside of China, as most of the resource oriented countries such as Australia, Canada, Russia etc will suffer from this as they have been the principle suppliers to Chinese manufacturers.

In essence, the world is on the verge of greater calamity than happened in 2008. As a matter of fact, it will be orders of magnitude worse, as governments are tapped out and will be unable to step in and "save the system" this time around, as all of the bad debts and financial scams that they covered up in '08 are just resurfacing with bigger numbers attached to them. How long it will take to reach our shores is anyone's guess, but given the interconnection between the world financial system, probably not long.
 

·
Banned
Joined
·
2,317 Posts
In essence, the world is on the verge of greater calamity than happened in 2008. As a matter of fact, it will be orders of magnitude worse, as governments are tapped out and will be unable to step in and "save the system" this time around, as all of the bad debts and financial scams that they covered up in '08 are just resurfacing with bigger numbers attached to them. How long it will take to reach our shores is anyone's guess, but given the interconnection between the world financial system, probably not long.

And this is exactly why we are seeing the militarization of the police and governmental agencies across our country. They know the S is about THTF!
 

·
Registered
Joined
·
459 Posts
^ +1 to both above

The demand side is slacking..how low can it go? Oil producing countries are getting spanked. It may be a race to the pricing bottom.

Curious if the low price carnage/impact to Russia, Venezuela, Nigeria, Mexico, Canada (tar sands) , and to the North Sea producers is enough to foment societal unrest or just bankrupt a few companies?

Another questions is this a/the deflationary pressure that sets off a bigger economic bust? … oil on sale and nobody buying /able to buy?...
 

·
Registered
Joined
·
4,950 Posts
It's certainly possible. I think gradual stagnation is more likely. People are always thinking it'll be a big kaboom when it's more along the lines of a weaker dollar and lower wage growth in relation to inflationary rates.
 

·
Rest in Peace
Joined
·
17,536 Posts
The Saudi's have run up the price so high it became profitable for other countries to come up with ways to extract their oil. So those countries need to buy a lot less Saudi oil. And some countries doing so well they can actually export.

Some talk about not profitable below $80/barrel. Below that may not be profitable for further development but certainly is for already operating wells.
 

·
Registered
Joined
·
1,916 Posts
The Saudi's have run up the price so high it became profitable for other countries to come up with ways to extract their oil. So those countries need to buy a lot less Saudi oil. And some countries doing so well they can actually export.

Some talk about not profitable below $80/barrel. Below that may not be profitable for further development but certainly is for already operating wells.
It depends upon how levered the companies are. At some point you need free cash flow to service debt. If you don't have it, you default on your debt, file BK, and your assets are sold off to pay creditors. If someone can't buy it cheap enough, or have deep enough pockets to pay input costs, they don't produce.

The cure for low prices, is low prices, as eventually the supply/demand curve does matter.
 

·
Registered
Joined
·
1,916 Posts
^ +1 to both above

The demand side is slacking..how low can it go? Oil producing countries are getting spanked. It may be a race to the pricing bottom.

Curious if the low price carnage/impact to Russia, Venezuela, Nigeria, Mexico, Canada (tar sands) , and to the North Sea producers is enough to foment societal unrest or just bankrupt a few companies?

Another questions is this a/the deflationary pressure that sets off a bigger economic bust? … oil on sale and nobody buying /able to buy?...
It depends upon how much oil revenue is used to support transfer payments to the people. In countries such as Venezuela, Mexico and Brazil, or others with .gov owned oil infrastructure and large social welfare programs, expect large amounts of unrest. Canada, Norway, Britain, not so much, even though StatOil (Norway) is state owned.

Venezuela is circling the drain as we speak.
 

·
Registered
Joined
·
172 Posts
All the above.

And Apparently Mike 7.62 and I visit the same websites besides this one.......
 
  • Like
Reactions: Circlehook

·
Registered
Joined
·
3,987 Posts
Think you guys summed it up fairly well.

If the Saudis can kill our domestic oil/alternative energy ventures, prices will climb back up and there will likely be some stability. If not, worldwide economic downturn. The problem is that the system has become so fragile that it's anyones guess how long it can sustain itself.
 
  • Like
Reactions: louie

·
Registered
Joined
·
4,073 Posts
That article seems to be written by someone with a lack of economic understanding, hawking a doom and gloom book for profit.

The 2008 drop in oil demand was due to a financial crisis that forced cash strapped end users to trim their budgets which in turn lowered the value of the commodity. The current price drop is clearly due to supply side issues and is the result of a price war attempt by the Saudis and OPEC to try to drive shale and sand oil producers out of the market for OPECs long term profitability.

It looks like they might be underestimating the long term financial and political fallout from such action though.

http://www.telegraph.co.uk/finance/oilprices/11263851/Saudis-risk-playing-with-fire-in-shale-price-showdown-as-crude-crashes.html

I will add that the oil industry probably did long term damage to their profitability with their extraordinarily high prices over the last several years. Americans changed their lifestyles and embraced more fuel efficient cars much faster than anyone though they would and drastically cut our fossil fuel consumption in the long term. If with drastically lower prices consumers aren't likely to go back to the gas guzzlers of yesteryear with high fuel prices with global instability and high fuel prices still fresh in their mind.
 

·
Registered
Joined
·
83 Posts
I can tell you with all that at least here in Prudhoe bay ak, very barrel is sold to China, due to our infrastructure already in place, ie. Pipline,food,housing, wells, and on and on, it takes 57 dollars to each barrel of oil to get down to Valdez. Based on a 42 gallon barrel which is how a barrel is measured. Bp and all the others up here have a vested field and explore yearly, the amount of money on exploration is staggering measured in billions a year, and most of the reason for that is 90% of wildcat holes gives a kick before shallow casing is in place( gas pocket release to atmosphere) which the cost of clean up of drill mud and tailings from tundra as well as payouts to the natives and epa, etc. so there's a lot of costs for getting the stuff out of the ground
 

·
Registered
Joined
·
1,473 Posts
Wonder what horse trading the OPEC nations are wanting for their external and public support against ISIS, or whatever the next terrorist group of the month will be.

Internal (USG) resistance to the Keystone project? More EPA regulations that keep strangling the oil/coal/petroleum industry?

Follow the money.
 

·
Registered
Joined
·
5,679 Posts
Saudi and neighbors are Muslim. Always remember. What they're doing letting crude float is dangerous to stock and debt instrument values and premium-valued assets of all types, and highly dangerous to U.S. and Russian oil-gas drillers/producers and field service providers. House of Saud can take down banks and Wall St maggots at will if that's what they want. They've got a new sack-mate and its name is China. Lamestream U.S. media must not understand the story cuz they're blowing it off. That's a mistake. The public needs to know the truth about why gasoline has come down in price so far so quickly.
 

·
Registered
Joined
·
1,916 Posts
Wonder what horse trading the OPEC nations are wanting for their external and public support against ISIS, or whatever the next terrorist group of the month will be.

Internal (USG) resistance to the Keystone project? More EPA regulations that keep strangling the oil/coal/petroleum industry?

Follow the money.
ISIS is fully funded by the Saudi's and the Qatari's, with our help. Their entire raison detre is to destabilize and overthrow Bashar al Assad, and install someone more amenable to putting in a natgas pipeline to the Med through Syria, something that Assad has resisted because it hurts his allies the Russians-read GazProm.

Some members of OPEC such as Venezuela, are very upset at the Saudis' for doing this, as they are hurting for cash, especially since the yield on Venezuelan bonds just climbed north of 21% and Moody's et al have downgraded their sovereign debt to junk. Nigeria, Ecuador, Libya, and Iran are in the same boat, just not as far gone.
 

·
Registered
Joined
·
1,916 Posts
Don't forget about the petrodollar.......
I haven't, but the strange thing is that the status of the petrodollar is in doubt. The Saudi's have been making nice with the Chinese of late, and I'm expecting some type of announcement that they will be accepting all currencies for oil, not just FRN$'s.

My key indicator for this will be how the US handles the situation with Iran IRT their nukes. If something isn't done that satisfies the Saudi's relatively soon, they may make the announcement, figuring that we've broken our end of the deal by not taking out the Iranian nuke program, leaving them vulnerable. They may even start taking Yuan if the ChiComs step up to do something-like sell the Saudi's a nuke or three to even the playing field.

At this stage of the game, nothing would surprise me.
 

·
In the gilded halls of Valhala
Joined
·
13,515 Posts
I am no expert but it would seem foolish to accept the yuan.
 
1 - 20 of 792 Posts
Top