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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.

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Good stuff, Mike!

What can you tell us about Ethanol from corn, and the GUBment subsidies the farmers are getting to produce corn for my gas tank? THIS has to have an effect on consumer prices at the pump. Prices have to level off in order for the corn farmers to make a profit. Man, I hate when the FED sticks it's nose into the consumer markets.


louie, out!
 

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It added over $2.00/G, but of course you didn't see it at the pump, as it was in the subsidy. I say was, because I think that Congress ended the subsidy in 2012. It was priced at $6 Billion/year.

Speaking for myself, I am glad that the subsidy went away, as it was a total boondoggle. If we really wanted to use ethanol, it's actually cheaper to import it from Brazil, where their costs are much lower because they're using sugar cane as their base material, which is much easier to convert to ethanol.

Instead we placed a tariff on the ethanol from Brazil to price it out of the market, and then paid farmers a subsidy to grow and distill corn, driving the price of that commodity up and creating shortages of corn for human and animal consumption.

I agree 100% IRT .gov interference in the markets, but there is not one market in this nation where their presence isn't felt. We haven't had free markets in this country since 1913.

When you have a central authority, namely the Fed, controlling the cost of money (interest rates), which are the life's blood of capitalism, then there are no free markets. It has only gone downhill from there, and every market today is controlled at some level.

The Exchange Stabilization Fund (gold and currencies), the Presidents Working Group on Financial Markets (equities), the Fed's Open Market Committee (bonds), the Dept. of Agriculture (commodities) and its subsidy programs, as well as price supports, are just a few of the .gov institutions and their proxies which engage in interventions on a daily basis. The Federal Reserve Bank of New York also intervenes in all markets routinely, as does every other central bank in the world.

There are no free markets anymore, only interventions.

Price discovery is deader than charity, so trying to price something is extremely difficult in what are euphemistically referred to as markets. Maybe one of these days that will change, but it will take a very large change in the system to bring that about.
 

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IIRC,...

Didn't all of this GUBment intervention begin with the milk farmers, back around the turn of the 20th century? Eventually leading to price controls in the 1930's?

I wonder if the GUBment is looking into price controls for gasoline and diesel, as both are commodities, like milk. Wouldn't this screw the American public! Raise the price of gas to say, $5.00 per gallon. Folks would use less, thereby reducing pollution, so we can conform to the recent agreements Obama signed. (We reduce our output, while the Chicoms 'promise' they'll try to reduce theirs.)

Hell, I thought I read where the Swedes are paying close to $10.00 per gallon for gas!
Crazy! But hey, how big is Sweden? A cross country trip can be done in less than a day. And their public transportation system is the bomb, compared to our antiquated model.

Socialism has it's merits!
High wages, with high taxation.
I really oughta read up on how this (Sweden) system actually works to the benefit of all.


PS...Thanks, Mike!
Good stuff!



louie, out!
 
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U.S. ought to be replenishing the SPR, fill up every played-out salt dome in the Lower 48. What we're experiencing right now at the well head and the gas pump WILL NOT LAST. It's an anomaly caused by foreign-nation behavior of the kind we used to call trade warfare.
 

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All I know is I paid $3.19 a gallon for 89 octane today.

I haven't seen numbers like that in quite a while so I'm perfectly happy
that oil is dropping.
 

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Mike7.62,
Do you read Denninger much? We seem to be of a like mind, and it's refreshing and enlightening to read your thoughts. I check Denninger on market-ticker.org and zerohedge pretty regularly, along with some other news sources, but I was hoping you might know some other good sites you could turn me on to.

Sorry to go off topic, but I imagine it's only partially so, as most people interested in this thread would probably appreciate the same links.

Thanks in advance for any help Mike, and keep on with the posts. I'm sitting offshore next to the rig right now, waiting to start my day at 0600, and thoroughly enjoying you say everything I would want to and then some.

One little bit I can add to the discussion is that some immediate impacts of the drop in price, at least at my company, is that we have all been informed we will ring in the new year with cuts in pay and benefits, and that if prices remain low, or drop further, we can expect rigs and vessels to start getting stacked, which could result in more pay cuts, job losses, etc. I'm not sure how other companies are handling things at the moment, but arguably, my CEO isn't the most, uh, stable, or rational individual, despite his position. You should read some of the e-mails we get. In any case, the affects of this are being felt by the employees of my company already. I'm trying to keep an eye on this as best as possible as it develops and the affects ripple outward. Great thread folks.
 

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Mike7.62,
Do you read Denninger much? We seem to be of a like mind, and it's refreshing and enlightening to read your thoughts. I check Denninger on market-ticker.org and zerohedge pretty regularly, along with some other news sources, but I was hoping you might know some other good sites you could turn me on to.

Sorry to go off topic, but I imagine it's only partially so, as most people interested in this thread would probably appreciate the same links.

Thanks in advance for any help Mike, and keep on with the posts. I'm sitting offshore next to the rig right now, waiting to start my day at 0600, and thoroughly enjoying you say everything I would want to and then some.

One little bit I can add to the discussion is that some immediate impacts of the drop in price, at least at my company, is that we have all been informed we will ring in the new year with cuts in pay and benefits, and that if prices remain low, or drop further, we can expect rigs and vessels to start getting stacked, which could result in more pay cuts, job losses, etc. I'm not sure how other companies are handling things at the moment, but arguably, my CEO isn't the most, uh, stable, or rational individual, despite his position. You should read some of the e-mails we get. In any case, the affects of this are being felt by the employees of my company already. I'm trying to keep an eye on this as best as possible as it develops and the affects ripple outward. Great thread folks.
Coffindancer,

Yes, I read Denninger pretty regularly, but we disagree about gold. He tends to be a "greenbacker" like Bill Still, and actually thinks that we can salvage the current paper paradigm that we have now. I disagree.

I do check in every AM with Zerohedge too, as they seem to be a day of two ahead of WSJ, Barron's, Bloomberg, etc, with the latest market news.

Some other sites that I peruse regularly are The Burning Platform, Of Two Minds, Jesse's Cafe' Americain, Stockman's Contra Corner, Paul Craig Roberts blog, and Seeking Alpha/Investment Research Dynamics. They all have insights, and though some would not like the conclusions that they make, I like a broad spectrum of opinion.

It sometimes feels like a full time job trying to track all of this econ booshwa, and I had to unlearn everything that I was taught in college IRT econ (my minor), as it was all Keynesian or Monetarist claptrap, and realign my thinking to the Austrian school, which actually makes sense.

Taking the time to understand in depth what is going on in the world, especially on the econ side, is very necessary if one wants to see trends and try and get in front of them, and prepare to meet the challenges that they will throw at you. If regular Joe's would spend a fraction of the time learning about how their money is created and used as they do on sports, we wouldn't be in the situation that we're facing today.

I hope that your job continues without interruption, but it is increasingly obvious to me that there will be some type of disruption in our oil space, probably on a level of what happened in the late 80's. Prepare accordingly.

My cousin is a roughneck, and is currently in Nigeria on a rig, but looking to get out of there for other parts, mainly because of the Ebola outbreak. It's still bad over there, even though our media has agreed not to cover it anymore. I hope that he can find another position too.

In my opinion, this will affect the entire country and every business, as even though the price of oil is lower, and seems to be a boon for the consumer, keep in mind that almost ALL of the jobs created in the US have been primarily in the seven states that have shale/tight oil. If that goes away, all of those jobs will go south, with knock on effects throughout the system. Same with the finance side of things, as we're seeing with the high yield (junk) bond market. It's a grim picture.

Anyway, thanks for the kind words.

Mike
 

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If I read correctly, crude sold for $64 per barrel on 15 DEC.
Lower than that now. Brent is $61.06 and WTI is $55.91

http://www.oil-price.net

Unfortunately, Bakken and Canadian crude is going for the mid to low $40's due to transportation issues. Other, more sour crude such as Venezuelan is less than that.

Bad news all the way around.
 

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About 75% of the people I know in the oil industry are out of work as of right now. I am one of the last still drilling. It is bad already and only going to continue to get worse. The house of cards that is the "world economy" is going to come crashing down. This has been an inevitable future for the U.S.A ever since we ceased being a producing nation and started being a consuming nation.
 

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Yeah gas prices never fall as quickly as oil. But you can bet they rise just as fast.

Oil has dropped ~50%
Gas has dropped ~25%

Someone somewhere is putting a lot of money in their pockets.
 

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Mike7.62,
Do you read Denninger much? We seem to be of a like mind, and it's refreshing and enlightening to read your thoughts. I check Denninger on market-ticker.org and zerohedge pretty regularly, along with some other news sources, but I was hoping you might know some other good sites you could turn me on to.

Sorry to go off topic, but I imagine it's only partially so, as most people interested in this thread would probably appreciate the same links.

Thanks in advance for any help Mike, and keep on with the posts. I'm sitting offshore next to the rig right now, waiting to start my day at 0600, and thoroughly enjoying you say everything I would want to and then some.

One little bit I can add to the discussion is that some immediate impacts of the drop in price, at least at my company, is that we have all been informed we will ring in the new year with cuts in pay and benefits, and that if prices remain low, or drop further, we can expect rigs and vessels to start getting stacked, which could result in more pay cuts, job losses, etc. I'm not sure how other companies are handling things at the moment, but arguably, my CEO isn't the most, uh, stable, or rational individual, despite his position. You should read some of the e-mails we get. In any case, the affects of this are being felt by the employees of my company already. I'm trying to keep an eye on this as best as possible as it develops and the affects ripple outward. Great thread folks.
Your boss's initials must be S.G. and you are on one of the "Blue boats" I have heard about your physco CEO and feel for you guys.
 

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About 75% of the people I know in the oil industry are out of work as of right now. I am one of the last still drilling. It is bad already and only going to continue to get worse. The house of cards that is the "world economy" is going to come crashing down. This has been an inevitable future for the U.S.A ever since we ceased being a producing nation and started being a consuming nation.
I work for one of the offshore drilling company's we are still drilling. Most of the guys I know offshore are still drilling for now. Most of our projects cost are spread out over a 20 to 50 year life of the field, so a temporary drop in oil prices should have only a small affect on what we do. The land rig guys that can be shut down and restarted at the drop of a hat, they will and are feeling the pressure first.
 
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