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Crude Parallels
Crude Parallels
The Great Recession was seven years ago so it might seem appropriate that our memories of the specific nature and order of events is lost to time. However, given that it will be a seminal event in history (hopefully not surpassed) there is less leeway to having such a short grasp on the important pieces. Part of that relates to trauma, financially speaking, whereby the economy is conflated with the “market” (either credit or stocks) in something like realtime. When the market crashed in October 2008, though, there was still debate on the economy even at that late moment.
On September 22, 2008, the October 2008 futures price for WTI surged by $25 per barrel, a record move, hitting a high of $130 intraday on nothing more than news of TARP’s introduction into Congress. This was one week after Lehman Brothers had failed, AIG introduced the world to “liquidity” and collateral in writing CDS (and JP Morgan’s central place in them) and various other big banks were on the precipice of total disaster. And despite all of that, oil prices in that intraday moment were only a dozen dollars or so below the July 2008 all-time peak.
Investors were concerned about “demand” but only slightly so as it related to, even by Lehman’s bankruptcy, still just a “slowdown.”
…click on the above link to read the rest of the article…
Petrodollar Mercantilism Explained In One Chart
Petrodollar Mercantilism Explained In One Chart
Over the past several months, with the price of crude plummeting to half where it was compared to a year ago, we have written much about the monetary reality of the Petrodollar (and more importantly, its recent disappearance), the socioeconomic implications for oil/commodity exporters, the liquidity considerations for the those who create the “recycled” currency in question, and the resultant demand for assets created by public and private entities sold by the currency creator, in the process boosting the “value” of both the commodity, the demand for the currency (usually the world’s reserve at any given moment), and the assets of the currency host.
We have explained this cycle and more importantly, what happens when this cycle goes into reverse, in “How The Petrodollar Quietly Died, And Nobody Noticed” and “The Death Of The Petrodollar Was Finally Noticed” (not to mention “Russia Just Pulled Itself Out Of The Petrodollar“).
Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions.
…click on the above link to read the rest of the article…
Could Oil Prices Plummet A Second Time?
Could Oil Prices Plummet A Second Time?
Are oil prices heading for a double dip?
The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.
However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.
Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.
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How Much Crude Oil Do You Consume On A Daily Basis?
How Much Crude Oil Do You Consume On A Daily Basis?
Oil. The commodity. We know what it’s worth – at least we thought we did – but what does a barrel of the black stuff get you in real life? Before we get theoretical, let’s first consider how much oil you use.
If you’re in the United States, that figure is approximately 2.5 gallons of crude oil per day; roughly one barrel every seventeen days; or nearly 22 barrels per year. That’s just your share of US total consumption of course; the true number is harder to discern – minus industrial and non-residential uses, daily consumption drops to about 1.5 gallons per person per day. Subtract the percentage of the population aged 14 and below and the daily consumption climbs back above 2 gallons. This is big picture, and it’s quite variable, so let’s go further.
Most of the nation’s daily crude consumption stems from transportation. If you’re an average driver in an average car, your crude consumption is in the order of 12 barrels per year. However, if your car is more than ten years old, chances are that figure is closer to 15 barrels annually. Does an electric car offer significant savings? Of course it does, but for an unconventional comparison let’s assume all of the electricity is sourced from oil – in truth, petroleum is not a very efficient fuel and accounts for just 1 percent of electricity generation in the US. Under this assumption, a Tesla Model S, with an 85 kilowatt-hour (kWh)battery and a range of 260 miles, will consume approximately 8 barrels of crude per year.
Related: The World’s 10 Biggest Energy Gluttons
Frequent flyer? Say 2,000 miles per year on a US carrier? Add about two-thirds of a barrel of crude to your annual consumption.
A 3,000-mile cruise on the MS Oasis of the Seas may sound relaxing, but at roughly 4 barrels of crude per passenger, the carbon footprint alone is worth reviewing.
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Oil And Debt: The BIS Examines The Consequences Of Financialization
Oil And Debt: The BIS Examines The Consequences Of Financialization
Since mid-2014, after remaining relatively stable for four years at close to $100, the price of crude oil has dropped by roughly 50% in US dollar terms. 1
Changes in production and consumption seem to fall short of a fully satisfactory explanation of the abrupt collapse in oil prices. The last two episodes of comparable oil price declines (1996 and 2008) were associated with sizeable reductions of oil consumption and, in 1996, with a significant expansion of production. This seems to be in stark contrast to developments since mid-2014, during which time oil production has been close to prior expectations and oil consumption has been only a little weaker than forecast (Graph 1, left-hand panel). Rather, the steepness of the price decline and very large day-to-day price changes are reminiscent of a financial asset. As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions. In this respect, the recent OPEC decision not to cut production has been key to the fall in the oil price.
However, other factors could have exacerbated the fall in oil prices. One important new element is the substantial increase in debt borne by the oil sector in recent years. The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly. Issuance by energy firms of both investment grade and high-yield bonds has far outpaced the already substantial overall issuance of debt securities (Graph 1, right-hand panel).
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Oil Plunges, Inventories Soar to Record, Glut Gets Worse
Oil Plunges, Inventories Soar to Record, Glut Gets Worse
Crude oil had rallied 20% in three days, with West Texas Intermediate jumping $9 a barrel since Friday morning, from $44.51 a barrel to $53.56 at its peak on Tuesday. “Bull market” was what we read Tuesday night. The trigger had been the Baker Hughes report of active rigs drilling for oil in the US, which had plummeted by the most ever during the latest week. It caused a bout of short covering that accelerated the gains. It was a truly phenomenal rally!
But the weekly rig count hasn’t dropped nearly enough to make a dent into production. It’s down 24% from its peak in October. During the last oil bust, it had dropped 60%. It’s way too soon to tell what impact it will have because for now, production of oil is still rising [my post from Friday… Oil Price Soars, Rig Count Plunges Worst Ever, But Bloodletting Just Beginning].
And that phenomenal three-day 20% rally imploded today when it came in contact with another reality: rising production, slack demand, and soaring crude oil inventories in the US.
The Energy Information Administration reported that these inventories (excluding the Strategic Petroleum Reserve) rose by another 6.3 million barrels last week to 413.1 million barrels – the highest level in the weekly data going back to 1982. Note the increasingly scary upward trajectory that is making a mockery of the 5-year range and seasonal fluctuations:
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This Week In Energy: The War For Market Share Is Only Just Beginning
This Week In Energy: The War For Market Share Is Only Just Beginning
This week saw yet more bad news for the oil sector, as the EIA’s latest figures released on Wednesday showed U.S. Inventories at levels not seen since 1982, when the agency first started collecting such data. To put it another way, the last time an ounce of gold bought you 29 barrels of oil was 1988. This resulted in a dip midweek before modest gains began to emerge yesterday off the back ofnews coming from Iraq of Islamic State militants launching an offensive on Kurdish forces near the oil-rich city of Kirkuk. Iraqi production rose by 200,000 barrels a day for a total monthly output of 3.9 million, according to a Bloomberg survey of industry experts, while total OPEC production rose by 483,000 barrels a day to 30.905 million barrels a day. Building on yesterday’s modest gains, we are seeing some highly promising signs after this morning’s trading, with oil prices currently up by over 7 percent at $47.97, but even so, it appears that the supply glut will continue as the battle for market share continues.
This war for market share may intensify further as yet more pressure mounts on the Obama administration to lift the U.S. crude export ban which has lasted for over 40 years. There are several fronts to the export battle, both external and internal. Latest poll data from Reuters suggests more Americans are now in favor of oil exports than ever before (though only by a small margin). In terms of public opinion, the overriding factor is concern over gasoline prices, which have halved in recent months thanks to the drop in crude oil prices. Former National Security Advisor to President Obama, Tom Donilon, says a complete lifting of the ban would be the “correct policy decision,” citing economic benefits, securing America’s energy future, foreign and energy policy goals as the benefits. Elsewhere experts maintain that easing the ban would have a positive impact for consumers in terms of gasoline prices as more crude oil on the international markets would maintain lower prices. However, not everyone would rejoice at the ban being lifted, first and foremost the U.S. refining industry, that has benefitted greatly from cheaper domestic crude oil supplies. Four refinery CEOs have already sent letters to the Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski to highlight the thousands of long-term, well-paid jobs that have been created by the U.S. shale boom replacing imports of foreign oil.
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Why the Hysteria Over Oil Prices Is Overblown
Why the Hysteria Over Oil Prices Is Overblown
Wild stormy weather stops us in our tracks. Factories close. Offices are abandoned. School is cancelled. After the rush to stock up, stores are shuttered. And when the storm hits, it’s all we can think about — especially if the power goes out.
It can seem like an eternity, and can obliterate any pre-storm memory. This sounds eerily similar to the oil price tempest we are in the middle of right now. Today’s price seems like the only reality, except that the plunge is still on. Are we going to survive this thing? Can we ever expect a return to calm?
Dial in to the news, and you’d be tempted to think not. It’s natural that storms bring about their own brand of myopia, but that’s when experience should make us wiser. And we all have a lot of that to draw on. We only have to rewind back to 2008 to see a very similar situation to today’s. Back then, oil prices slid from well over $100 per barrel at the peak to $40 at the trough, all in about five months. Currently, prices are tumbling from just over $100 to just over $40 over a six-month span. Just eyeballing the raw data, the similarity is staggering. So are other key features.
Both episodes were preceded by positive predictions. Back in 2008, fears that we were running out of oil led to very believable predictions of imminent $200 per barrel crude. Supply constraints in the 1970s led to very similar longer-term predictions. In today’s case, predictions weren’t as wild, but in general forecasters preferred to believe that a return to global growth would keep prices in the triple-digit zone. Funny how diametrically wrong pundits can be, even with a wealth of instructive recent experience.
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Either Crude or Copper
Either Crude or Copper
The primacy of the monetary pyramid in 2015 is not really about money as it is all ideology. If you believe that monetary policy provides “stimulus” then you immediately remove all thoughts of any economic decline during times when monetarism is most active. Since “it works” then all else must fall into place. Contrary indications are thus given extraordinary lengths to maintain logical consistency.
Economic commentary as it exists is incredibly short-sighted, though there is no reason to believe that is anything other than exactly what I stated above. The state of economics even as a discipline has internalized Keynes so deeply that all that matters is what happens month-to-month. That makes it easier to maintain the status quo of opinion about “stimulus” – in the short run it is very easy to find a suggestion for something behaving “unexpectedly.”
That was certainly the case with crude oil prices these past few months, as the initial impulse was uniformly and incessantly prodded to over-supply. Again, the reasoning behind that was simply since “stimulus” works and it was being practiced and replicated all over the world there was no possible means by which “demand” might drop, and so precipitously. After a few weeks of oil “unexpectedly” falling further, re-assurances were more difficult and increasingly derivative by nature.
…click on the above link to read the rest of the article…
Crude oil falls to lowest price in five years
Crude oil falls to lowest price in five years
Crude oil prices have fallen below $50 per barrel for the first time since 2009, hit by OPEC’s production stance, oversupply, weak demand and the strong dollar.
European Brent oil dived to $49.81 a barrel on Wednesday, a 5-year-low. New York crude had already slumped under $50 on Monday.
Oil has dropped about 50 percent since June on worries about weak demand and a decision by the Organisation of the Petroleum Exporting countries (OPEC) not to cut output in response to lower prices.
“The move below $50 shows how momentum is everything here,” Michael Hewson, CMC Markets analyst told the AFP news agency.
“With no sign that OPEC will do anything about over-production, it seems likely that we could well see further declines towards $40 in the coming weeks – particularly given that demand shows no signs of picking up.
“Weak growth and weak demand in China and Europe are likely to continue to be the main drivers as the battle for market share intensifies. We’ll probably still see sharp swings in the interim but the direction of travel seems clear, unless OPEC acts.”
…click on the above link to read the rest of the article…
Energy Sector Outlook for 2015
Energy Sector Outlook for 2015
It appears that crude oil prices are starting to stabilize. At least they’ve started to decline slower. Most of the “experts” who send me their price forecasts have the low being set in the $45 to $55 range.
This week we will see the first major winter storm of the season, which should draw more attention to the energy sector. The first “Clipper” of the season will bring heavy snow, high winds and very cold temperatures to an area of the country that burns a lot of natural gas for residential space heating. People in the Northeast still use a lot of heating oil to heat their homes, so this may have some impact on oil demand.
Outlook for 2015
2008 was the last time we saw crude oil prices plunge anything like they have this year. In that year the entire economy went into the tank, which in turn reduced energy demand. This year, it is the slow down in the Asian economies responsible for the International Energy Agency’s cut in their global oil demand forecast. Note that the IEA is still forecasting a significant year-over-year increase in demand.
…click on the above link to read the rest of the article…
Oil resumes slide after brief rebound on short-covering | Reuters
Oil resumes slide after brief rebound on short-covering | Reuters.
(Reuters) – Global crude prices fell again on Thursday, a day after a short-covering rally, as traders placed new bets that the market would resume a six-month rout on worries about a supply glut.
Benchmark Brent and U.S. crude each fell more than $1 a barrel to session lows in New York after initially extending Wednesday’s short-covering, which lifted prices by more than $3. They later retraced some losses, with Brent hovering at the psychologically-important $60 mark and U.S. crude trading above $55.
Traders braced for more selling in a market that had already lost nearly 50 percent of its value since June.
“We’re continuing to search for a bottom and might even see another significant drop before the year-end,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.
Great Unwind of Oil-and-Gas Junk Bonds to Defund Fracking? | Wolf Street
Great Unwind of Oil-and-Gas Junk Bonds to Defund Fracking? | Wolf Street.
The price of oil plunged once again off the chart on Monday and early Tuesday. At one point, West Texas Intermediate traded below $54 per barrel, though it soon bounced off. Crude is down nearly 50% since June. And over-indebted energy companies with cash flows that range from increasingly uncertain to completely demolished are suddenly contemplating just how deep the abyss might be.
The below-investment-grade bonds these risky companies issued with enormous hoopla and hype to fund the shale revolution and offshore drilling projects, lovingly dubbed “junk bonds,” had been sold to investors on the premise that oil would sell for ever increasing prices in the future, with the understanding that this might allow the company to make interest payments on time and raise new debt to pay off the old debt when it matures.
Even the still uncertain economics of fracking – the expense of drilling coupled with the horrendous decline rates – or the potential environmental consequences and subsequent backlash were elegantly shrugged off on Wall Street, given the ever increasing price of oil.
Norway Central Bank, Slammed By Oil Plunge, Warns Of “Severe Downturn”, Unexpectedly Cuts Rates | Zero Hedge
The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge. As Bloomberg reports, Oeystein Olsen said today in an interview after a press conference in Oslo, “our job now is that we need to prevent a severe downturn in the economy… that is presently the major concern of the board.”
Olsen cut Norway’s main interest rate today by 0.25 percentage point to 1.25 percent, a move that shocked markets and sent the krone down almost 2 percent against the euro (weakest since July 2009). The decision came after almost three years of unchanged rates and marked a shift away from a policy that had sought to prevent excessive monetary easing from fueling house price growth.
Even after today’s cut, the bank sees a “50-50 chance” for another rate reduction next year, Olsen said.
Oil prices have plunged 44 percent from a June high, the worst decline since the financial crisis erupted in 2008. Norges Bank estimates oil investments will decline by 15 percent next year, with the risk of “spillover” effects on the rest of the economy and rising unemployment.
And as Nick Cunningham via OilPrice.com, this is why… since Norway depends on the oil industry for almost a quarter of its economic output and has built an $860 billion wealth fund from its offshore revenue.
…click on the above link to read the rest of the article…
Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50 | Zero Hedge
Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50 | Zero Hedge.
The crude carnage continued overnight with oil prices across the entire complex crashing through support to new cycle lows. Despite recent strategic reservce demand in China, the world’s oil glut continues as global growth expectations plunge leaving WTI trading as low as $64.10, Brent $66.77 (narrowing the Brent-WTI spread to $2.68 from $3.23 on Friday), and most stunning of all, Canada Heavy as low as $49.24. Speculators and money managers appear to be BTFD as theyincreased net long positions last week (amid the price slump) but comments from Kuwait Petroleum’s CEO and Iran officials suggest ‘lower for longer’ on prices will be the norm. As Morgan Stanley notes, “with OPEC on the sidelines, oil prices face their greatest threat since 2009 and appear on track for an extremely volatile 2015”
WTI has retraced the entire dead-cat-bounce from last Monday…
Not pretty…
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