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The Chilling Things Delta Said about the Airline Business, the 90% Collapse in Q2 Revenues, and Why Some Demand Destruction May Be “Permanent”

The Chilling Things Delta Said about the Airline Business, the 90% Collapse in Q2 Revenues, and Why Some Demand Destruction May Be “Permanent”

Shares go to heck after the mother of all revenue-warnings, plunge 20% in two days, including 7% after hours. Its disclosure confirms Buffett’s decision to dump his airlines in mid-crash.

Delta Airlines came out with the mother of all revenue-warnings when it said in an SEC filing this morning that its revenues in the second quarter, ending June 30, would collapse by 90% compared to the second quarter last year.

In addition to the collapse of demand, it has “experienced significant ticket cancellations” (refunds are counted as negative revenues), and it has waved change fees, which used to be a big profit center, and it is giving out “other refunds,” and they all “have negatively affected our revenues and liquidity, and we expect such negative effects to continue.”

And it cannot predict the effects of this unpredictable future, not even the near-term effects. “The longer the pandemic persists, the more material the ultimate effects are likely to be,” Delta said. “It is likely that there will be future negative effects that we cannot presently predict, including near term effects.”

It added a slew of dismal data points and warnings, along with the hoops it has already jumped through and still needs to jump through to stay in business, including billions of dollars in help from the taxpayer. It was a doom-and-gloom report that not even a sworn doom-and-gloomer would have been able to imagine not too long ago.

Delta’s shares dropped 7.4% during regular hours, and another 7.0% after hours, to $29.40, after having already dropped 7.6% yesterday. It seems, some people knew yesterday what Delta would announce this morning. Over those two days combined, including after hours today, shares have plunged 20.3%.

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Unprecedented Demand Destruction Marks The Return Of The Super Contango

Unprecedented Demand Destruction Marks The Return Of The Super Contango

Super Contango

These days, every corner of the oil market is “unprecedented”—from the demand destruction to the supply surge and the resulting glut. The oil futures curve is no exception and is also in a state never seen before.   This is the super contango, the market situation in which front-month prices are much lower than prices in future months, pointing to a crude oil oversupply and making storing oil for future sales profitable.  

The last time a super contango appeared on the market was during the previous glut of 2015. During the peak of the 2008-2009 financial crisis, the super contango hit a record—the discount at which front-month futures traded compared to longer-dated futures was at its highest ever.

The double supply-demand shock of the past month threw the oil futures market into another super contango. And this super contango is already beating previous records.

The super contango is representative of the state of the oil market right now: the growing glut with shrinking storage capacity as oil demand craters, OPEC’s leader and the world’s top exporter, Saudi Arabia, intent on further cratering the market with a supply surge beginning this month. Storage costs are surging, and so are costs for chartering tankers to store oil at sea for future sales when traders expect demand to recover from the pandemic-hit plunge.

The market structure flipped into contango in early February, when the Chinese oil demand slump in the coronavirus outbreak led to lower estimates for oil consumption. A month and a half later, oil consumption is set to plunge by 20 million bpd, or 20 percent, this month. Add to this the Saudi supply surge, and here we have what analysts expect to be the largest glut the oil market has ever seen.

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IEA Asks Majors Oil Producers To Boost Production

IEA Asks Majors Oil Producers To Boost Production

oil drilling

Rising oil prices are hurting consumers, Fatih Birol, the Executive Director of the International Energy Agency (IEA), says, calling on major all producers to do the best they can to further boost production and ease persistent supply concerns that pushed Brent Crude to above $86 a barrel on Wednesday.

“Some countries have been making efforts to increase production but this is far from comforting the markets right now,” Birol told the Financial Times on Thursday, adding that his “hope is that all the producers are aware of the sensitive situation and make their best efforts.”

Although higher energy prices may look like a boon for oil exporting countries today, tomorrow the economies of oil exporters will also suffer because of the lower demand growth stemming from high oil prices, Birol told FT.

In an interview with Reuters, also today, Birol said that:

“It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don’t see anybody benefiting.”

Earlier this week, the IEA chief also took to Twitter to comment on the oil price rally in recent weeks and its implications on global economy.

“Rising oil prices are hurting consumers & economic growth prospects today – globally but particularly in the emerging economies – but in a rapidly changing energy world could also have implications for producers tomorrow,” Birol tweeted on Tuesday. Related: A New Era Of LNG Megaprojects

U.S. President Donald Trump has also used Twitter several times this year to slam OPEC for keeping oil prices too high.

Birol’s comments on oil prices and what oil producers should do come just after Saudi Energy Minister Khalid al-Falih said earlier this week that Saudi Arabia would be pumping 10.7 million bpd in October—just below the Kingdom’s highest-ever production level—and would slightly raise production volumes in November.

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OPEC’s Dilemma: Demand Destruction Or Production Boost

OPEC’s Dilemma: Demand Destruction Or Production Boost

Crude oil pipeline

The early signs of discontent and demand destruction could be forcing OPEC’s hand, but increasing production carries its own risks.

OPEC and Russia are considering raising oil production in a few weeks’ time, and while much of the focus has (rightly) been on the supply outages in Venezuela and the potential for disruptions in Iran, the prospect of demand destruction also looms large for the cartel and its partners.

Oil forecasters had been predicting a blistering oil demand growth for 2018. But lately, those bullish forecasts are not looking quite as good, precisely because oil prices had climbed to their highest level in more than three years. For instance, in May the International Energy Agency revised down its forecast for demand growth for 2018 from 1.5 million barrels per day (mb/d) to 1.4 mb/d.

But a growing list of other signs should cause OPEC some concern, and might ultimately push the disparate members of the group into agreeing on higher output.

A nationwide truckers’ strike in Brazil paralyzed the country. Truckers were outraged by the soaring cost of fuel. The expense is made worse by the fact that Brazil’s currency, the real, has declined significantly this year, doubling the pain for motorists in the country. The strike led to enormous damage to the agricultural sector, and led to shortages of a wide array of basic goods. The country’s GDP is expected to take a significant hit.

That strike was followed up by an oil workers’ strike, which forced the temporary shutdown of a series of refineries. The workers, as well as the truckers and a wide swathe of the country, are outraged about the cost of fuel, and they demanded an end to the more market-based pricing for gasoline and diesel that was introduced several years ago.

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Demand destruction and peak oil

Demand destruction and peak oil

Roger Baker is a transportation and energy reform advocate based in Austin, Texas. Long time member of ASPO, we actually met at one of the first ASPO conferences, the one held in Pisa, in 2006. Here he discusses the current situation with crude oil and the global economy. 


We are fully under the influence of petroleum demand destruction. The global oil market can’t function without real oil production price discovery, which doesn’t exist in the currently deflationary global economy, which forces indebted producers to sell far below cost.

Both supply and demand seem to cyclic in nature and we are not finished with the supply destruction phase, which can only be revived through a globally realistic oil trading price, which nobody knows. This is an unknown until demand destruction also runs its course. The global demand in the oil supply-demand balance that sets the global oil price cannot be known until we can understand where the global economy is headed. The global material economy seems to be contracting as the Baltic dry index, trucking, and railroad profitability seem to affirm, even ignoring oil prices and Chinese economy.

The reality is probably that a falling EROEI and the end to cheap oil after ~2005 made our finance capital investment growth less profitable. But this fundamental shift has been hidden through easy central bank credit and fiat currency generated on demand to pay interest on a growing mountain of unpayable debt, with a shift of debt from private hands to public, such as away from Wall Street toward Fed and US Treasury obligations. Now we see the world’s major central banks each independently creating their own fiat currencies to preserve a trading advantage, led by the dollar as the world’s standard reserve currency.

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Peak Oil Ass-Backwards (part 2): Crashing OilPrices Aren’t Due to an Oil Glut But to DemandDestruction and Peaking Credit

Peak Oil Ass-Backwards (part 2): Crashing Oil Prices Aren’t Due to an Oil Glut But to Demand Destruction and Peaking Credit

As I began to mention at the end of the first part of this three-parter, I’ve only just recently come to the conclusion that oil prices aren’t going to have a tendency to rise due to the tightening of supply imposed by peak oil, but to depreciate. This of course flies in the face of the common logic of supply and demand, but when factoring in the method by which the majority of our money is created, a deflationary effect can be seen to come into play. This has taken me an absurdly long time to clue into, for although I’d steadfastly amassed a bunch of pieces (various information), I hadn’t realized they were actually all part of the same puzzle.

With peak oil and fractional-reserve banking being the first two pieces of this puzzle, the third piece that I needed to factor in (which oddly enough I’d already written about) is the fact that money is a proxy for energy. As I wrote in a previous post, Money: The People’s Proxy,

Simply put,… the core function of money is that it enables us to command energy – the energy used to move our bodies with, to power our machines, to feed to domesticated animals whose energy we then use to do work (which nowadays generally means entertaining us), etc. In other words, it might be tough and/or inconvenient, but one can get by without money. You can’t get by without energy.

In other words, at their core, our economies don’t run on money, they run on energy. Moreover, it doesn’t even really matter what you use as your form of currency – coins, pieces of paper, gold, zero and one digibits, conch shells, whatever – because if you don’t have the energy to perform the work and/or create the products your society expects, the money is virtually useless and worthless.

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The Archdruid Report: Déjà Vu All Over Again

The Archdruid Report: Déjà Vu All Over Again.

Over the last few weeks, a number of regular readers of The Archdruid Report have asked me what I think about the recent plunge in the price of oil and the apparent end of the fracking bubble. That interest seems to be fairly widespread, and has attracted many of the usual narratives; the  blogosphere is full of claims that the Saudis crashed the price of oil to break the US fracking industry, or that Obama got the Saudis to crash the price of oil to punish the Russians, or what have you.
I suspect, for my part, that what’s going on is considerably more important. To start with, oil isn’t the only thing that’s in steep decline. Many other major commodities—coal, iron ore, and copper among them—have registered comparable declines over the course of the last few months. I have no doubt that the Saudi government has its own reasons for keeping their own oil production at full tilt even though the price is crashing, but they don’t control the price of those other commodities, or the pace of commercial shipping—another thing that has dropped steeply in recent months.
What’s going on, rather, is something that a number of us in the peak oil scene have been warning about for a while now. Since most of the world’s economies run on petroleum products, the steep oil prices of the last few years have taken a hefty bite out of all economic activities.  The consequences of that were papered over for a while by frantic central bank activities, but they’ve finally begun to come home to roost in what’s politely called “demand destruction”—in less opaque terms, the process by which those who can no longer afford goods or services stop buying them.

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