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With current prices, I'm putting premium in my truck for what I paid for regular 6 months ago.
Unless your engine calls for premium, you're wasting money. If you're engine is designed to run on regular and you use premium, you are getting less miles per gallon.
 

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We really should take this to a different forum. It deserves discussion b/c there are good arguments on both sides.
 

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Sure it does, if the entire industry relies on a certain break even price to have a going concern and can't get it. No one is going to loan money to an industry that can't make money, regardless of whether the product is there. If it can't be brought to market profitably, it won't be.
The industry as a whole is not going anywhere no matter how low the prices get in the short term because in the long term oil has to come out of the ground to make the world turn. The players and regions may change but the industry will be here until a better alternative comes along. Not all of the industry needs capital given the biggest players are highly diversified capital rich multi-nationals and not all oil fields have the same break even point.

What has happened is that OPEC and the oil industry as a whole have artificially inflated the price of oil for too long and it has caught up with them by decreasing the demand for their product and bringing in more competition for them. OPEC and especially the Saudis are now trying to manipulate the markets again by artificially lower prices to drive their competition out of business so they can again raise their prices in the long term.
 

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The industry as a whole is not going anywhere no matter how low the prices get in the short term because in the long term oil has to come out of the ground to make the world turn. The players and regions may change but the industry will be here until a better alternative comes along. Not all of the industry needs capital given the biggest players are highly diversified capital rich multi-nationals and not all oil fields have the same break even point.


What has happened is that OPEC and the oil industry as a whole have artificially inflated the price of oil for too long and it has caught up with them by decreasing the demand for their product and bringing in more competition for them. OPEC and especially the Saudis are now trying to manipulate the markets again by artificially lower prices to drive their competition out of business so they can again raise their prices in the long term.
I never said that the "industry as a whole" is going BK. IIRC we were discussing the fracking boom in the tight oil shale sector.

This sector is highly leveraged, requires on average across the board $80/bbl oil pricing to break even, and has issued almost 20% of all junk bonds nationally, which is a fair amount.

The problem with all of this debt is that it has been financialized and repackaged into CDO's, and should even one of the companies be unable to service it's debt and defaults, it has knock on effects throughout the financial system. Think sub prime real estate, which was the trigger for the last crisis.

There is a daisy chain of CDO's and their attendant CDS's that supposedly "hedge" the losses, but that all depends upon the counterparty in the deal, and whether they have the liquidity to make good. Unfortunately, all of this derivative activity is over the counter and unregulated, so knowing exactly who, what, and how this debt was structured, and who is on the hook is impossible until the event, at which time it is too late to prevent igniting the chain.

The bottom line is that the "miracle" of the shale oil/fracking sector has been pumped up by a raft of cheap money, and a very large portion of the sector has yet to show a positive cash flow, even at $100/bbl. It is going to blow up because of this latest move in the oil price, and will have very detrimental effects in the entire space for quite a few years, even if there isn't a wider detrimental effect to the financial system as a whole.

Yes, there will be some who will come in and buy assets on the cheap, but whether they can buy the assets cheap enough to make money with them, and whether the oil price will remain depressed for far longer than many can predict making the effort unprofitable is anyone's guess. All I know that at this point in time there "will be blood" until it gets sorted out.
 

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Here's a good story on just how this move by the Saudi's is affecting the oil space. I bolded some points that have to do with fracking:


Saudi Arabia Declares Oil War on US Fracking, hits Railroads, Tank-Car Makers, Canada, Russia; Sinks Venezuela
by Wolf Richter • December 1, 2014


When OPEC announced on Thanksgiving Day that it would maintain oil production at 30 million barrels per day, chaos broke out in the oil market, and the price of oil around the globe spiraled into a terrific plunge. The unity of OPEC, if there ever was such a thing, was in tatters with Saudi oil minister smiling victoriously, and with a steaming Venezuelan oil minister thinking of the turmoil his country is facing [OPEC Refuses to Cut Production, Oil Plunges off the Chart].

The bloodletting in the oil markets on Thursday led to some wobbly stability on Friday, and for a while it seemed oil had found a bottom, but then the US stock market closed early while crude continued trading, and suddenly all heck re-broke loose, and the US benchmark WTI plunged again and broke the $66-a-barrel mark before coming to a rest at $66.06. After a near 10% dive in two days, WTI is now down 37% since June!

This chart shows the Thanksgiving plunge following OPEC’s decision, the deceptive stability Friday, and the afterhours plunge:

US-WTI-2014-11-28

Now more information has emerged, confirming prior “rumors” and “conspiracy theories.”

During the closed-door meetings in Vienna, Saudi oil minister Ali al-Naimi told OPEC members that OPEC had to combat the US fracking boom. If OPEC cut output to raise the price of oil, it would lose market share, he argued. The way to win would be to allow overproduction to depress prices to the point where they would destroy the profitability of North American producers. And they’d have to cut production, rather than OPEC.

With Saudi Arabia’s overwhelming power within OPEC, his argument won against objections from desperate members, such as Venezuela, Iran, and Algeria, which wanted a production cut to push prices back up.

“Naimi spoke about market share rivalry with the United States, and those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle,” a source told Reuters to make sure the message got out.

Asked if this was a response to rising US production, OPEC Secretary General Abdullah al-Badri essentially confirmed OPEC had entered the oil war against the American shale revolution: “We answered,” he said. “We keep the same production. There is an answer here.”
The bloodletting is spreading.

While the US fracking boom is the official target, Canada’s tar-sands producers are getting hit the hardest. The process is expensive. Their production is largely land-locked and often has to be transported to distant refiners in Canada and the US by costly oil trains. Yet these high-cost producers are getting the least for their oil: The heavy-oil benchmark Western Canada Select (WCS) traded for $48.40 per barrel on Friday, down over 40% from June, the cheapest oil in the world.

Their shares got knocked down in sync: For example, Suncor Energy dropped 9% on Friday, down 27% since June; and Canadian Natural Resources dropped nearly 10% for the day, down 28% since June.

The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.

Goodrich Petroleum plunged 34% on Friday; down 80% from June.
Sanchez Energy plunged 29.5% on Friday, down 71% from June.
Clayton Williams Energy plunged 25.6% on Friday, down 61% from May.
Callon Petroleum plunged 18.6% on Friday, down 60% from June.
Laredo Petroleum plunged 33.5% on Friday, down 66.5% from June.
Oasis Petroleum plunged 27.2% on Friday, down 68% from July.
Stone Energy plunged 24.1% on Friday, down 68% from April.
Triangle Petroleum plunged 25.6% on Friday, down 62% from June.
EP Energy plunged 25.3% on Friday, down 54% from June.

The list goes on. Even large oil companies got clobbered:

Exxon Mobil down 4.2% for the day and 13% from July.
ConocoPhillips down 6.7% for the day and 24% from July.
Marathon Oil down 11% for the day and 31% from early September.
Occidental Petroleum down 7.4% for the day and 24% from June.
Anadarko Petroleum down 10.5% for the day and 30% since late August.

Then there is the Oil Service sector.

The Market Vectors Oil Services ETF dropped 8.9% for the day and has plummeted 34% from June. The current standout is its 10th-most heavily weighted component, Norway-based SeaDrill which had announced that it would cut its dividend to zero to deal with its mountain of debt, given the current environment. Its shares swooned on Thursday and Friday a total of 28% and are now down 70% from a year ago. The whole sector followed. This is what debt can do when the going gets tough.

Those are among the official targets of OPEC’s scorched-earth oil war. They’ve been hit, and they’re taking on water.
There is collateral damage.

With increasing amounts of oil being carried by oil trains, the railroads, which had been trading near their exuberant 52-week highs in large part due to the lucrative oil-train business, suddenly took a dive on Friday:

Union Pacific -4.9%
CSX -3.8%
Canadian Pacific -8.0%
Norfolk Southern -4.7%
Kansas City Southern -5.1%
Canadian National Railway -4.6%
Burlington Northern Santa Fe, which is owned by Warren Buffett’s Berkshire Hathaway, isn’t publicly traded. But if the oil-train business gets hit, so will Buffett’s “steal.”

But this pales compared to the carnage in tank-car builders. On Friday, they plunged:

Greenbrier -15% for the day, -28% from its September high.
American Railcar Industries -12.9% for the day, -28.3% since August.
FreightCar America -7.5% for the day, -21% since September.
Trinity Industries -11.3% for the day, -36% since September.

The oil price move is already cascading through American industry. Bondholders are next. The US fracking boom was built with debt, much of it junk rated. And this pile of debt is now at the confluence of the collapsing price of oil, high costs of production, and sharp decline rates of fracked wells that force drillers to continue drilling just to maintain their revenues. It’s a toxic mix.
And there are victims of friendly fire, so to speak.

Particularly OPEC member Venezuela, dogged by the world’s highest inflation and worst budget deficit, is running out of options. On November 18, President Nicolas Maduro ordered $4 billion in loan proceeds from China to be transferred from an off-budget fund to one counted in the international reserves. The sudden appearance of $4 billion in international reserves pumped up bondholder confidence: the next day in intraday trading, Venezuelan bonds jumped the most in six years.

But it didn’t last long. Within a week, its international reserves dropped by $1.3 billion to $22.2 billion, Bloomberg reported. Venezuela had burned through one third of the Chinese money in one week. Venezuela must have much higher oil prices. Unless a miracles happens, or unless China bails it out altogether – at a steep price – the country is headed for default.

Russia, third-largest oil producer in the world, after Saudi Arabia and the US, also got hit, as did Norway, and their currencies have been brutalized [Ruble Freefall: And the Ugliest Currencies Are?]
But this time it’s different.

This time, OPEC is trying to depress oil prices. In prior years, OPEC tried to push prices as high as possible, but without killing the global economy and demand for oil. The balancing act led to high oil prices that consumers struggled to pay but that allowed the US shale revolution to bloom. If oil had remained at $40 or $50 a barrel, fracking wouldn’t have taken off. OPEC was, ironically, one of the enablers of fracking (yield-desperate investors, driven to near insanity by the Fed’s zero-interest-rate policy, were the other one). And now fracking is threatening to make OPEC irrelevant.

Saudi Arabia, formerly the dominant oil producer in the world, the country whose mere words could shake up markets and manipulate US policies in the Middle East, and the master of an all-powerful OPEC, is reduced to struggling for simple market share, the hard way.

A lot of people believe that the plunge in the price of oil will be brief, and that it has gone pretty much as far as it can go, given production costs in the US and Canada. But the bloodletting in the US fracking revolution will go on until the money finally dries up.
 

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Taking a hit in all time high profitability is a long way from total collapse.

A granny on SS can now buy more gas for her car than she could have 2 months ago.

For the greater % of people in this country, HIGH oil prices bad, LOW oil prices good.

Your paycheck will allow you to stock up on more ammo.
 

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It seems entirely possible that the Saudis could not only put the shale oil producers out of business, but also purchase the shale fields afterwards and completely eliminate the threat altogether.
 

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Just went to MEIJER'S to pick up a couple of things. Their gas has gone up to 3.65 a gallon.

Was 2.61 yesterday. Somethings up.


Randy
 

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This is 85% good, Exxon quarterly profits will probably only be 5 billion instead of the normal 9 billion.

Kind of poor timing though, they are within 6 months of putting a well over the hill from me, my property is over the well. Oh well, l won't be retiring this year.
 

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Houston local news reported a Tulsa OK. gas station today was the first in US to sell at $1.99 per gallon. Locally I bought it @$2.35 per gallon today.
I like the low prices but I really wish it would stabilize soon .
The oil business effects us all , much more than most people realize. The fracking industry has brought prosperity and jobs to places that neither have been available for years. I wouldn't wish any city or state to experience what happened to us here in Houston Tx during the oil bust of the 80's.
 

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Good stuff from Mike7.62!

Now, 'splain to me why the cost for supermarket food hasn't come down.
I thunk the increase in food prices was largely due to high transportation (and farming) fuels costs.
No?

PS...The beef we get over here in SE PA, sucks. Pork prices are through the roof. Same for chicken, produce, and canned/boxed goods.


louie, out!
 

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Good stuff from Mike7.62!

Now, 'splain to me why the cost for supermarket food hasn't come down.
I thunk the increase in food prices was largely due to high transportation (and farming) fuels costs.
No?

PS...The beef we get over here in SE PA, sucks. Pork prices are through the roof. Same for chicken, produce, and canned/boxed goods.


louie, out!
Agree in part a lot of it's greed. however a long term severe drought throughout many parts of the west has caused many ranchers to sell off most of their herds to avoid going broke feeding them during last winter resulting in a shortage now . Beef, pork and poultry has almost doubled in price at grocery stores where I live in the last year. Same for canned goods. Next year doesn't look any better.
Another contributing factor to food costs is the government mandate using corn to make ethanol for fuel .Up to 10% of gasoline used in the US is ethanol made from corn. That's a LOT of livestock feed going in everybody's tank. And another major cause of sky high food costs. So thank your senator and congressman.
 

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Meijer's must have made a boo - boo.

Its still in the 2.60's everywhere else in town.

Number on son said Lexington was similar in cost.


Randy
 

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Today's WSJ, p. C-1, "Saudis: Oil to Firm at $60". If the leaks and associated speculation bear this out it'll be another shock to the U.S. financial system, though it needn't be disastrous. The banks make me more uneasy than the integrated major oils. They can adapt to $60/bbl crude. It'll hurt the Russians. Venezuela's already hopeless without $ Multi-Billions in Chinese bailouts. Canada's got problems. Haven't seen anything about Mexico. Lots of folks will be trying to do the math. Good luck.
 

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Good stuff from Mike7.62!

Now, 'splain to me why the cost for supermarket food hasn't come down.
I thunk the increase in food prices was largely due to high transportation (and farming) fuels costs.
No?

PS...The beef we get over here in SE PA, sucks. Pork prices are through the roof. Same for chicken, produce, and canned/boxed goods.


louie, out!
All those FRN$'s that the Fed has been printing have to end up somewhere, and they have found their way into the commodity markets as well as the stock and bond markets.

Input costs for food have come down in the last few months, but like most prices are very sticky to the downside, unlike when they increase. I'm sure that maintaining profit margins has something to do with it, as does the lag between when the company paid for their raw materials and when it hits store shelves. IOW, if they paid a higher price for their feed stock, then they will try and recoup those costs before they lower prices to match the new input costs. Supply and demand also play a part, and supply for feed was restricted because of both drought in certain areas, and .gov mandates for corn ethanol. Herds were slaughtered, and it does take time to expand them again. Transportation costs are also a component, especially in the current "just in time" system where trucks arrive daily to resupply stores.

This is part of the big "inflation vs deflation" debate.

Keep in mind that when you hear the word "deflation" bandied about, it should mean a decrease in the money supply, but it has been morphed into meaning decreases in the price of financial assets such as stocks and bonds. This is sure death in a purely unbacked debt paper system that requires constant expansion of the money supply just to pay the interest on the new debt that has been issued.

Usually in an economic system, when manufacturing improvements are made, or farming techniques are improved, the costs come down, given reasonable supply and demand parameters (no shortages and steady demand), and a stable monetary supply.

This is a natural phenomena that increases the purchasing power of the currency, making it easier for the wage earner to live, and keeping wage and labor costs reasonable for the manufacturers and farmers. Of course banksters hate it, as they have less opportunity to skim off the efforts of actual production.

Unfortunately, in our system since 1971, there have been no restraints placed on the growth of the money supply, which is why you have seen the purchasing power of the FRN$ decrease substantially. This is what happens when your currency becomes unbacked by anything but the promises of politicians and the charity of bankers. The cost of everything goes up, including input costs for manufacturers and farmers, and the cost of finished goods for consumers. Wages do not usually keep up, so it induces labor strife into the equation too.

When the central planners at the Fed decide that a 2% CPI is the goal, what they are doing is debasing the purchasing power of your wages by 63% (compounded) over a 25 year working career. That's one of the reasons that you have to assume risk by placing your savings into the stock and bond market, rather than just having a regular savings account for your retirement, because you can't be assured that the money you save today will buy the same amount of goods and services that it did twenty years before.

Essentially, the Fed has designed the system so that anyone who saves must do so in the risk markets if they wish to maintain their purchasing power, and also to increase the "wealth effect" overall, and keep confidence in the system at high levels.

When they keep interest rates at artificially low levels and run the CPI up a few hundred basis points above that, it is a deliberate policy called "financial repression". It is done as a policy to make paying down debts easier, but it has side effects such as forcing the general public into the market to maintain yield, and they then assume the risk in products that they do not fully understand, and that the bankster's may skim for their own benefit. It's one of the many reasons that the middle class is shrinking. They have lost purchasing power, and they have lost savings through market reversals.

Our system has been set up by bankers for the benefit of bankers, anyone who tells you otherwise is a liar, or involved in the system in some way. Honest money is the friend of the general populace, but it is anathema to banksters, as it reduces their opportunity to skim.

Unfortunately-or fortunately depending upon your age- the system that we have been under since 1971 is at the end of its tether, and is showing strains. It is in the process of coming apart, and the people in power are trying mightily to maintain it. I seriously doubt that it will last another five years. What will come after is anyone's guess, but I'm fairly certain it will be a system that is backed by something other than hot air and bulls hit.
 

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This is the type of thing that I'm talking about when I say that the fracking, tight oil space will likely find it hard to find anyone to finance their operations, even after many go TU and their assets are on sale for pennies on the dollar.

When you see that they are having trouble rolling their debt over, then you can read that they are also having trouble servicing the existing debt, and that defaults are likely. When they default, the financialized nature of the CDO manufactured with their debt blows up, triggering CDS hedges, putting strain on the entire chain. No telling where this will present in the final stages.

Energy Junk-Debt Deals Postponed as Falling Oil Saps Demand
By Christine Idzelis and Jodi Xu Klein Dec 3, 2014 3:19 PM CT



Two energy-related companies are postponing financings after a plunge in oil prices made their high-yield, high-risk debt more difficult to sell.

New Atlas, a newly formed unit of oil and gas producer Atlas Energy Group, put on hold a $155 million loan it was seeking to refinance debt, according to five people with knowledge of the deal, who asked not be identified because the decision is private. EnTrans International LLC, a manufacturer of equipment used in fracking, delayed selling a $250 million bond, according to three other people with knowledge of that transaction.

Investors in bonds of junk-rated energy companies are facing losses of more than $11 billion as oil prices dropped to a five-year-low of $63.72 a barrel this week. This is deepening concern that the riskiest oil explorers won’t be able to meet their obligations, and sending their borrowing costs to the highest since 2010.

More than half of Cleveland, Tennessee-based EnTrans’s revenue comes from equipment sales to the hydraulic fracturing and the energy industry, Moody’s Investors Service said in a Nov. 17 report. The notes, which were being arranged by Credit Suisse Group AG, would have been used to refinance debt.
Lender Meeting

Gary Riley, chief executive officer at EnTrans International, said yesterday in an e-mail commenting on the deal status that “the decision to defer or go forward has not been made.” Riley didn’t respond to questions seeking comment today.

Deutsche Bank AG and Citigroup Inc. were managing New Atlas’s financing and had scheduled a meeting with lenders for this morning, according to data compiled by Bloomberg.

Edward Cohen, chief executive officer of Atlas Energy, didn’t immediately return a telephone call seeking comment.

Bonds of junk-rated energy companies are yielding 9.76 percent, the most since June 2010, according to the Bloomberg USD High Yield Corporate Bond Energy Index.

High-yield loan prices have fallen each day this week to 96.72 cents on the dollar today, the lowest since Oct. 23, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index. The debt has tumbled from this year’s peak of 99.1 cents in July.
Vine Oil

Vine Oil & Gas LP is offering lenders above-average yields to fund its purchase of natural-gas fields from Royal Dutch Shell Plc.

The Blackstone Group LP-backed exploration and production company is seeking $850 million of term loans, proposing to pay as much as seven percentage points more than the London interbank offered rate for a $500 million first-lien portion, according to data compiled by Bloomberg.

That’s more than the average 4.68 percentage-point spread for new first-lien loans sold to institutional investors as of Nov. 26, according to Standard & Poor’s Capital IQ Leveraged Commentary & Data.

Dallas-based Vine said in August that it was buying more than 107,000 acres in Louisiana’s Haynesville shale basin from Shell, and that the deal was expected to close by year end.

Morgan Stanley, HSBC Holdings Plc, Credit Suisse, Societe Generale SA and Natixis SA are arranging the financing, which includes a $350 million second-lien loan being offered to investors for as little as 90 cents on the dollar, Bloomberg data show.

Peter Rose, a spokesman for Blackstone, didn’t immediately return a phone call seeking comment.

For Related News and Information: Junk Backing Shale Boom Faces $11.6 Billion Loss: Credit Markets Blackstone-Backed Vine Oil Offers Terms on $850 Million of Loans Oil Price Drop Lends Unexpected Hand to Ailing South Europe

To contact the reporters on this story: Christine Idzelis in New York at [email protected]; Jodi Xu Klein in New York at [email protected]

To contact the editors responsible for this story: Shannon D. Harrington at [email protected] Faris Khan, Caroline Salas Gage
 

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Pretty sure our current administration used it's Muslim heritage to influence OPEC to produce more oil, thereby reducing the cost per barrel, which lowers our gas prices to offset individual Obamacare expenditures, with the root effect of not feeling the pinch in your bank account making your weekly paycheck extortions a wash.
 
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