Topic: The real deal on Crude Oil prices

[Libertas]

I have to grudgingly admit, for a NYT article this one isn't half bad...

http://www.nytimes.com/2014/10/14/business/energy-environment/oil-prices-fall-as-opec-members-fight-for-market-share.html?_r=0

This is not as big a deal for the US as some may think/want it to be.  OPEC has a long and hilarious history of botching things up...keeping their little merry band of slippery brothers in line is usually pretty elusive, they often go off on their own despite OPEC decisions.

We only get 33% of our crude oil supplies for foreign sources, per USEIA data for 2013.  Of that 33% only 46% of that comes from OPEC nations (or 15% of all US crude oil purchases) and that is not including all OPEC nations, we do not buy from Iran for example, and our top foreign supplier is Canada (36% of foreign/12% total).

We can weather this price drop, domestic suppliers can still be profitable and upgrade equipment and seek new opportunities.  These things never last.

And, statists are just another war away from ginning up fears and the Middle East has never been a quiet zone...

[ToddF]

I've read that the industry is better able to weather downturns, than it was in the 1980's.  Those banana republics over in sand land however...

[AlanS]

I've read that the industry is better able to weather downturns, than it was in the 1980's.  Those banana republics over in sand land however...

In the 80's, oil dropped to $10/barrel. That was a tough time.

[richb]

I've read that the industry is better able to weather downturns, than it was in the 1980's.  Those banana republics over in sand land however...

In the 80's, oil dropped to $10/barrel. That was a tough time.

I think $10 would be impossible with today's worldwide demand.   China was using far less back then.     Could it still be hard for the industry?  Maybe,  but other sectors of the economy would get a boast,  as people spend less at the gas pump and can spend it somewhere else.    Personally,  when gas prices went through the roof a few years ago,  it was restaurant business that suffered the most.     As the gas prices went up,  I stopped eating out so much.   

Gas is still ridiculously expensive,  and even with low crude rates,  I doubt it will go below $2 a gallon,  with all the taxes and fees that have been piled on in the last decade or so.    Facebook friends were posting pics of gas dropping (finally) below $3 a gallon like it was a huge big deal!    My comment to most have been,  when its closing in on a dollar then its good news.   $2.98 is still ridiculously expensive.

Frankly here in Indiana,  in the late 1990's I was paying less then a dollar a gallon (it even got down to 79 cents at one glorious point).  If we could get the politics out of the oil business,  we could be paying that again.   Ok,  I am dreaming........

But folks in North Dakota better be using this time to get into other businesses so they have something to do when oil prices are lower.    Texas got caught with its pants in the 80's,  hopefully ND will take notice.   At some point New York State and California will be forced to start drilling and that lower prices too. 

[AlanS]

I think $10 would be impossible with today's worldwide demand.   China was using far less back then.     Could it still be hard for the industry?

$10 would devistate the industry today worse than the 80's. I don't think it will get there, though. It seems China's economy is starting to max out and maybe drop off.

Gas is still ridiculously expensive,  and even with low crude rates,  I doubt it will go below $2 a gallon,  with all the taxes and fees that have been piled on in the last decade or so. 

When you consider inflation, gas is cheap at $3.50/gal.

[Libertas]

Even if demand just utterly collapsed there would still be enough being used to support a price in the $40-60 range, it will never see anything lower than that and even if it did the cause would have to be something so catestrophic that it would pass all markers and hit zero.

And MNHawk is right, our industries wouldn't be nearly as impacted as the economies in Sandland, it's one of the reasons the Saudi's are trying to flood the market with their oil this time around, they tried price controls and got fragged, and their dance partners will do their own flooding too, so we could see more downward motion on prices until new demand starts to eat some up some of that slack.

In the meantime, better times for consumers.

ETA - It dropped again in overnight trading, the trifecta of lower demand forecasts, bumper shale production and OPEC putting out like cheap prom dates.  Will be nice if gas prices stay low through New Year.

[ToddF]

WTI down to $81.22, another $4 drop in a single day.

[Libertas]

Yup, the trifecta at work, this really could last a bit longer than people think.

Just watch, some jackass will shoot another jackass and the price will start to rise!

Psychology (Fear!) works when the fundamentals are not in your favor...

ETA - Purdy charts -



http://www.zerohedge.com/news/2014-10-14/crude-crashing-brent-most-oversold-ever

Have to keep the scale in mind but that still looks like a vicious whack to the back of the head.

And, not sure I agree with the numbers, but breakevens aside, there is the delayed cash flow effect that determines real pain...



http://www.zerohedge.com/news/2014-10-14/opec-members-rift-summarized-1-simple-chart

And skip all that BS about Russia being fine...they are not fine, ZH Russophilia is not pretty to behold...

[Libertas]

Heh, that didn't take long...

Sometimes it is hard to see who blinks first in the oil game...usually its OPEC waving the white flag...

The Saudi's announce a supply cut and the price shoots up over a dollar in no time flat...but it has since come down to be up only $0.19 from yesterday, people getting over their initial panic no doubt and realizing other (even OPEC) nations will fill any supply gap.

But interestingly, the big buyer in this dip (which should not come as a surprise to anybody who follows any commodities) is China, they always have an eye for bargains, so why everybody else is slitting their wrists and mumbling to themselves all is well, the Chinese just hoard up on tangible assets, like they have been doing for decades in the real estate racket as well as with gold.

With oil levelling off again below $81 the poor Rooskies are still gonna be in a funk...   

[Libertas]

Yeah, new strategy...well, an old strategy, but it works on gold, so...

http://www.zerohedge.com/news/2014-10-27/wti-crude-tumbles-under-80-following-goldman-downgrade

...The Squid doing the Oligarchs bidding.

Hey, is Russia still solvent?   

[Libertas]

OK, WTI only dipped below $50 briefly yestrerday and Wall St crapped its pants...it stayed below $50 in the overnight...so we are roughly muddling in the mid-point of the $40-60 range I mentioned earlier....now the talking heads who previously said a drop below 50 was catestrophic are now saying a drop below $40 could be "terrifying"!

Sure, finally you move the bar down far enough you find the disaster you seek, but most everyone is in the same boat, so...

But self-interest is going to create splits...and some of those could create widening economic wars and possibly fatal real wars.

And the psychology is such now that options, while strangled and entagled with consequences, could have unexpected results...and since the Neo-Keynesians worship the stock market more than anything...well, there are some interesting times approaching...and expecting idiots to find a gentle way out of this I think is going to be impossible.  Who gets the pain?  I bet it is us...the everyday folk...as usual.

[ToddF]

It will go down.  There will be layoffs in North Dakota and Alberta.  Production will start to drop.  The price will go back up.  North Dakota and Alberta will boom yet again.

Enjoy it while it lasts, because it won't last forever.

[AlanS]

With cheap gas, imagine what this country would be doing with a booming economy like Reagan's.

[Libertas]

Well, Reagan would allow the industrious to do what they do best, create products and services people actually want to pay for, and not dole out money to cronies who waste it and looters who waste it...he would reduce regulatory burdens, cut taxes for all and let the people unleash their potential and create real jobs.

But that's old fashioned, that's common sense...that is not the Progressive Way.

Welcome to ObamaWorld...welcome to Hell.

[Weisshaupt]

Actually this is pretty much expected.  As world GDP continues to fall,  less and less energy is going to be demanded, and the prices will come down.  This of course has the effect of

1) wiping out producers that rely on the higher prices, probably forcing them to sell their assets
2) boosts what remains of the current economy for some time., kicking the can.
3) pretty much HAS to happen with the dollar index at 92 and climbing.  A stronger ( relative to the other crap fiat representing other even crappier economies) dollar means that oil becomes more unaffordable ( unless you are the one printing the dollars)

I wouldn't be surprised if we aren't seeing some naked shorts in the oil industry as well, but it could simply be a glut based on the fact that the world is demanding less energy. However it looks like direct economic warfare with Russia ( and therefore with the BRICS nations)  to me.  This is a deleiberate attempt to destroy the Russian economy IMO.

Could it spur real growth in America?.. yeah, maybe,  but dollar index at 92? (everything is awesome!)  With the money printing we are doing? That pretty much just means that the other world economies ( you know the ones that produce the crap we buy)  must be  entering near full collapse. Or the dollar index is as phony as the other metrics. 

So maybe this will spur some investment at home. Maybe it will slow deficit growth for a while. Hell maybe it gives us time to limp along another 20 years.  In the end it fails, because math.  We know that.  The last quarter GDP growth was 5% - they would need to sustain that for the next 8-10 years to overcome the math at this point - and that is assuming NO REAL GROWTH in government spending

But as low prices takes out some producers  and forces others out of production , this will rise again to some degree, but like gold, it will probably be  artificially repressed, to try and extend and pretend this fiasco just a little longer. Whatever. I will keep earning my fiat, keep expanding my own production capacity, and if they give me the time, pay off the mortgage.  In the end, this falls apart. I am glad of more time to prepare for that

[Libertas]

I agree the real target is the Rooskies/BRICS, not that O'Dumbo is that smart, the growth collapse did as much to engineer this as anything, taking credit for something after it happens is SOP though...and I do think the dollar index is full of crap, but so is just about everything...and the home investment I see is the strong (cash on hand/debt free) buying the struggling, as usual.  We'll see where this limps to, the Fed is boxed in, as is every Neo-Keynesian central banker, Politico's do what they do and won't change stripes...the potential to screw up on a massive scale still exists so keep the popcorn handy.