OPEC just published its December Monthly Oil Market Report with their crude only production numbers for November.
Total OPEC crude only production was down 390,000 barrels per day but that was after October production was revised up by 190,000 bpd. After revisions only Iraq and Nigeria showed any increase in November.
The data for all charts below is in thousand barrels per day and is through November 2014.
OPEC crude only production stands at 30,053,000 barrels per day.
Algeria started a slow decline in 2011 but seems to have reached a plateau in 2013.
Angola has been on a bumpy plateau for about 4 years now.
Ecuador began to increase production in 2011 and after about a 70,000 bpd increase seems to have reached a peak.
Nothing very exciting is happening in Iran. Production is holding at 2,750,000 bpd and holding.
Iraqi production is holding steady despite ISIS intrusion.
Project Kuwait, Kuwait’s infill drilling program increased production by about 240,000 bpd above their 2008 peak but it seems declines have caught up with them and their production seems to be in decline.
The largest November decline was in Libya. They were down 249,000 bpd in November.
Nigerian production seems to be holding relative steady for the past couple of years.
I don’t know what’s going on in Qatar but something seems to be happening. Their production dropped by 50,000 bpd in November and that’s a lot for them.
Saudi production fell slightly in November, down 50,000 bpd but that was after October production was revised up by 47,000 bpd.
The United Arab Emirates had a similar program as did Kuwait but now appear to have peaked and started a slight decline. They are down about 100,000 bpd since their peak 4 months ago.
Venezuela’s production has leveled out at about 2,330,000 bpd. This is a little surprising giving that their conventional fields are very mature and require heavy investment to maintain current production levels. I have been unable to locate Venezuela’s bitumen production vs. conventional oil production but I believe bitumen or extra heavy production to be somewhere under half a million bpd.
The OPEC MOMR has an opinion of what non-OPEC will produce next year. They believe non-OPEC production will be up 1.36 million barrels per day with the bulk of that increase coming from the US and Canada. That prediction is Total Liquids, not C+C.
In other news the EIA published their Short-Term Energy Outlook Monday. They are predicting that US total liquids will be up next year by 990,000 barrels per day and Canadian total liquids to be u 110,000 bpd. They are predicting non-OPEC total liquids to be up 840,000 bpd. That means they expect non-OPEC liquids, outside US and Canada to be down 260,000 barrels per day.
This one is very important:
Limits to Growth was right. New research shows we’re nearing collapse
The 1972 book Limits to Growth, which predicted our civilisation would probably collapse some time this century, has been criticised as doomsday fantasy since it was published. Back in 2002, self-styled environmental expert Bjorn Lomborg consigned it to the “dustbin of history”.
It doesn’t belong there. Research from the University of Melbourne has found the book’s forecasts are accurate, 40 years on. If we continue to track in line with the book’s scenario, expect the early stages of global collapse to start appearing soon.
I was on Doomstead Diner TV Sunday. I gave a very muddled performance however.
Seeking Alpha has started picking up some of my blogs. They have published three so far.
Note: I send an email notice when I publish a new post. If you would like to receive that notice then email me at DarwinianOne at Gmail.com.
Thanks Ron, interesting to see Kuwait and Qatar both cutting production. And the Libyan renaissance seems to be dying. And I see the EIA must have a good batch of weed.
The OPEC Conundrum
Oil price wars – who blinks first?
The second post by Roger Andrews
Here in Aberdeen a massacre is in progress 🙁
You came close to independence, the funding for which would have been . . . low priced oil. That was dodging a bullet.
Yeh, tell me about it. But its not over. The UK political land scape appears to be in process of a generational overhaul. The referendum ended up being as much about social depravation as independence. And the socially deprived are abandoning their traditional Labour party to join the Nationalists in droves.
UK general election in May 2015 and another Scottish election in a couple of years. We have far too many layers of representation.
Is Cameron at any risk in May?
Consensus among those who do the numbers seems to be ‘yes’, but it is hard to call. Probably 5o/50 he wins or loses. Even a ‘win’ could mean he still needs a partner party to govern with a majority, just like now, and perhaps will not be able to raise one. Ukip the populist crowd would not be an ideal partner.
It has become a competition of the least unpopular. I believe Cameron will win a majority. Libe Dems have become unvotable because of alliance with Tories. Labour have become unvotable because of legacy from illegal wars and unpopular leader. Enter UKIP, straight talking, beer swilling with a sensible energy policy.
So UK membership in the EU is not long for this world. That may be the UKIP’s price?
I have always been pro-Europe and pro-European. But I am increasingly disillusioned with the dictators in Brussels.
it is because concept “pro Europe” that was sold to the masses is delusion in itself. I mean even Hollywood after Rocky 6 sequence can not “sell” the same thing over and over.
Another hung parliament seems most likely at the moment, though Cameron will be praying he can take credit for any stimulus from the low oil price so he can continue his economic rhetoric.
One company I know has just announced 28% staff cuts from early New Year and are already planning a phase 2 of cuts. BP are already cutting jobs. Budgets are being slashed. Local press announced 10,000s jobs expected to go.
Major projects already committed will go ahead. But vast amounts of non-essential drilling and maintenance will get shelved.
Its definitely a bad time to be looking for work in Aberdeen.
And a little further to the east.
BP WEIGHS FUTURE OF AGING NORWAY FIELDS AS OIL SLUMP FORCES CUTS
http://readingeagle.com/ap/article/bp-weighs-future-of-aging-norway-fields-as-oil-slump-forces-cuts
“As oil prices keep falling, BP Plc is among Norwegian oil producers taking a hard look at whether to kill off aging offshore fields earlier than planned because squeezing out the last barrels might not be worth it.”
BP is run by beancounters. They are really good at firing people around the end of the year. An excellent way to pick up professionals is to budget them for the second quarter. This allows you to interview and pick up hand picked cast offs from large multinationals. The best candidates are usually short and squat, and don’t know how to make a good power point slide.
Another slaughterhouse today in the oil markets. 4%+ on both WTI and Brent.
Inelasticity cuts both ways with this stuff. Sure you have to buy what you need, but you don’t buy any more than you need. Hence having a glut despite the marginal producers needing $100+ to extract.
Regex posted a note at the end of the last Ronpost comment thread laying out LLC organization from a Bakken producer. LLCs of course are to allow people to walk away from debt without exposing their other assets.
Regex the rest of that presentation was, as you well know, hype and it was hype prepared at probably $70/b. It’s now $60/b. Seriously, how do you cut rig count by 40% and say you’re going to increase oil production 5%? Oh yes, because now, unlike before, you’re going to drill better rock.
Note: If you have posted an important comment on a previous post please feel free to re-post it on the most recent post.
This is not the oil drum and I don’t have silly rules like Leanan did.
Okie doke, will go get it.
Well, no I won’t. Mike rebutted and it will get long.
Wait I’ll put it at the bottom. It’s a good item and Mike has good rebuttal.
The dollar is flat today so oil is moving with bad economic news.
The real danger here is what we’ve been discussing — shale’s proportion of national GDP is much more than can be known because the sheer recency of it would escape the in-place economic metrics. This has death spiral potential. If shale starts to die, so does GDP, and thus consumption, and the price falls even more.
If you’re Russia that can get oil for its people at $8/b, you are sitting pretty. They will power their tractors and their trucks bringing food to Moscow. The Saudis will start buying food for oil. A bushel for a barrel, in 1970s parlance.
BTW with Bakken sweet at $44/b, even wacko Kudlow is facing suicide watch.
I happen to work in the Bakken. Heard today CLR, Hess and others are stacking out rigs. Heard of 10 so far that will be stacked out upon well completion.
It had to come.
Any news on frac spreads? I would assume they will keep going longer, but laying a few off would be a good price management tool, for some good discounts.
Mildly off topic question, but when is the price of oil going to shoot back up? For my own present financial well being, oil prices being higher rather than lower is necessary.
Alternatively, when will the world’s economic activity take off in response to the juicing of the economy provided by lower oil prices? This would help me out some too, though rather less directly.
I’m hoping that these low oil priced don’t last much longer than a year. I have no idea of when, where, what or how long any price might arise though. But I’d prefer higher prices.
Pls send your note to the Russian embassy. Maybe they’ll care. Or not.
Further, if there enough of you, you can get government or Fed stimulus send to the shale industry. Yet another mechanism for that.
Why so sarcastic? Did you sleep well last night?
No. Maybe tonight, if Singapore doesn’t log in at $57/b.
Why so sarcastic? Did you sleep well last night?
Correlation is not causation…if there were a direct ratio between Watcher,s sleep and his sarcasm, I’m pretty sure he wouldn’t sleep at all. : )
-Lloyd
Depends if this is just a production glut or if the glut is as big as it is (and staying as big as it is) because global demand is that weak. The former can work out real fast once production gets in line with demand. The latter…not so much.
I personally lean the latter. Quite a bit of bad global economic news and all other commodities are also in the tank.
I personally lean the latter. Quite a bit of bad global economic news and all other commodities are also in the tank.
There’s a lot that can be cut back. People can drive less. They can fly less. They can buy less. There’s a lot of non-essential oil use in the world.
If you kill a lot of people, then their use isn’t essential, either.
If you kill a lot of people, then their use isn’t essential, either.
Yes. Wipe out a lot of people, either intentionally, neglect, or some other fashion, then what resources are left might be enough to support the people who are left.
Some of you expect collapse to hit everyone and every system equally. But I think some areas and some populations will be hit harder.
Hi Boomer,
I completely agree with you. In fact I have argued here in other posts that the world is in the early stages of collapse. Collapse is not necessarily a binary event, and it does not necessarily have to be global.
Of course eventually societal strain may result in a sudden transition to a new state, but at this point we are in the midst of a managed collapse.
Best,
Tom
Hit them before they hit you.
Why would there be non-essential oil?
If there is, does this imply that people are just frivolous with their use?
What mechanism would trigger not using non-essential oil?
Price? Isn’t the general consensus that high prices hurt economies?
People that can afford to use non-essential oil if it is high priced will probably use it anyway.
A wealthy person does not need to own a high priced car with low mpg, but they buy them anyway. Is this non-essential?
Great efficiencies and scaling back consumption.
Perhaps you don’t get a car and you walk, bike, or take public transportation.
Instead of a 2000 square foot house you live in a 1000 square foot house.
There is a lot of room to cut consumption. People waste a lot. Food, fuel, electronic devices, toys, etc.
There are quite a few people realizing they can get by with less. And what they don’t use doesn’t automatically get used by someone else.
I meant to say: create efficiencies, and scale back consumption.
What mechanism would trigger not using non-essential oil?
Tribalism?
Also poor urban planning. The federal government has spent vast sums in the last 70 years gutting urban America.
@Wet One
nobody knows.
real anecdote from last week end of the year meetings:
Oil company: “We have done budgets for 2015, but we cannot tell you how big the budget is ( I guess it is classified like in Bond movies 🙂 )”
Our service company: Okey????
Oil company: The reason we cannot tell you is because probably it will change (read: get chopped) in January.
Our service company: Okey????
So now there is conundrum: keep employees, lay off employees, buy or not buy equipment, buy Christmas presents or not buy Christmas present…in one word we are like “deer in headlights” 🙂
The budget gets chopped in March. But we do get warnings. Many years ago I proposed changes to our budget approval process. I think it was a pretty good idea, but it never went anywhere (I was surrounded by Harvard types).
I could take 1 to 3 years for oil to return to the $90 level. But then again our leveraged Ponzi debt economy could come spiraling down. We could be looking at Great Depression II. Anyone who gives you an estimate is just guessing.
Oh there will be some graphs appearing soon that will posture themselves to be something more grandiose than a guess, so don’t you worry.
hahaha. No doubt
Hi Watcher,
All scenarios are guesses. The price of oil makes a huge difference to oil output over the long term, recently some grandiose scenarios have appeared with different oil price scenarios. In the chart below I compare the EIA’s 2014 Annual Energy Outlook (AEO) oil price scenarios for Brent crude in 2014 $ with the two recent oil price scenarios I have created.
It would be interesting to hear what you(and others) think oil prices will be (0 to infinity would cover it, but not be very bold, though it would likely be correct) over the next 15 years.
I would go with “DC high” as the most likely.
Thanks Fernando.
If some other, rate of increase seems more reasonable, please suggest. DC high is 3.6% annual rate.
Thanks Fernando,
The DC high scenario aimed for AEO ref price in 2030 and has a 3.66% annual oil price increase from 2015 to 2040.
I think maybe a 3% annual rate of increase, which would take prices from $67 in 2015 to $140 in 2040 might be more reasonable. The DC low is about a 1.2% annual increase in oil prices, another alternative would be a DCmedium case of maybe a 2.5% annual rate of increase ($124/b in 2040 in 2014$).
forgot my name in above, sorry
I’m not that much of an expert. That DC High is a bit lower than the OPEC 2012 vintage price forecast. The report had estimated a much usa lower horizontal well cost. I think it compensated for this with a higher financing cost. Time will tell.
Ahh, there’s one.
On one hand, non-OPEC supply is still increasing and projected to increase in 2015. On the other hand, OPEC said they will not decrease their production. Other point consumption in H1 one year is lower than consumption on H2 the previous year.
Unless something happen in early 2015 (central banks, subsidies…) I think US oil production would start to decrease in Q2 2015. Indeed, the number of drilling permits has fallen by 37% in November. If the number of permits fall again in December, US production will definitely decrease in Q2.
Many shale oil companies have a moving break-even from $90 in May to $70 to $40 and continuing to decrease apparently. I think they are going right to the wall.
I am not sure we will have a peak in 2015, but there are many trends to think it will be 2015. Increase in oil price should help to maintain a plateau or have a smooth decline (at the beginning).
I think we will have a scenario similar as the 2008 price peak: low oil prices will decrease production while consumption will go up because of low oil prices. At some point in H2 2015 or H2 2016, production will be lower than consumption, oil will sky rocket followed by a new (or deeper) economic crisis.
Moving prediction… 2015 will probably be historical regarding to oil production.
The following article is also putting things in perspective (pro-european think-tank).
The oil industry crisis
It all depends on FED policy. If the benefits of a lower oil price do not outweigh the damage on shale and ancillary industries and the high yield bond market, the dollar will go lower. In my view we had already this week a reversal as the dollar fell despite lower oil. It looks like it is in the best interest for the US economy to have a high oil price rather than have a strong dollar. This is a considerable policy change from past decades. A lower dollar will for sure ignite higher growth and eventually also stabilise the oil price.
The reason prices have fallen is because customers are bankrupt, not just in the US but around the world. The credit system is broken and customers can no longer afford to borrow-to-bid the price of crude. Meanwhile, those with access to funds will not bid in their place. Elites understand that you cannot spend your way to wealth!
Will prices go up? Yes and no. In real terms the cost to extract each new barrel of oil is greater than the one it replaces so the replacement barrel will be more expensive or it won’t be sold. In nominal terms, prices can’t go up. In our economy there are two agents or segments: drillers and their customers. They compete against each other (and their lenders) for funds. One segment’s purchasing power can only increase at the expense of other’s. While there hasn’t been an out-and-out shortage of petroleum there has been shortage enough to adversely affect the customers’ solvency. The drillers have borrowed hundreds of billion$: they need the loans, otherwise there is no petroleum.
The customers also need the same funds because sales to customers is what retires these billion$ (trillion$) of driller loans.
When funds flow to drillers = more of a debt burden falls upon customers leading to insolvency. That is underway right now. Should more funds flow to customers = the drillers are starved of funds and customers fail anyway due to fuel constraints. Our blessed ‘energy revolution’ was a gigantic diversion of funds from customers to drillers by way of finance, PR and (hopeful) policy. Now customers are broke and cannot afford to retire the drillers’ loans. Next up: finance ‘difficulties’ as banks choke on the billion$ of bad loans. That means more monetary easing = more diversion of funds away from customers this time to the bankers = lower fuel prices in a vicious cycle.
Whatever occurs, glut or shortage, the customer takes it in the neck which strands the drillers.
Fundamental issue: a supported price is one where oil use is productive, that is, offers a real (not borrowed) return. Guess what? There is almost no real return to our use of petroleum! The car cannot be paid for by driving it, neither can the roads, the fuel supply/distribution or massive governments. What pays is debt and now the credit system is broken. That is what the price decline is saying: banking and finance have reached the point of diminished returns.
Instead of useful but difficult voluntary conservation we now get to experience ‘Conservation by Other Means’. Whoo boy it’s going to really hurt.
🙂
The reason prices have fallen is because customers are bankrupt, not just in the US but around the world. The credit system is broken and customers can no longer afford to borrow-to-bid the price of crude.
People used to be willing to borrow on the assumption that their incomes will rise enough in the future to be able to pay off their debt. They may be realizing that may no longer be the case.
They borrow to go to college. Maybe they get jobs when they get out. Maybe they don’t. But they are paying off debt.
They used to borrow to buy a house on the assumption that appreciation would more than cover the loan. They may still be the case in a few markets, but not everywhere.
These days, what is there that consumers can buy now and pay off later with increased income? Very little. If they are conservative about their purchases, that is as it should be.
Any industry that depends on consumer spending as got to factor in a reluctance to spend. And any industry that depends on business spending has to factor in that businesses may not be investing in their own businesses because consumers are conservative.
There really isn’t a lot on the horizon to suggest a boom.
Hi Boomer II,
Your assessment is correct in developed countries. There is much less excessive consumption in developing countries, so there may be continued growth there.
Also there could potentially be a boom in spending on replacements for fossil fuel, or if not a boom, at least increased spending on alternatives (wind, solar, geothermal, and nuclear energy and rail, light rail, better windows and doors, more insulation, heat pumps, and maybe a few plug-in hybrids and EVs.
Also there could potentially be a boom in spending on replacements for fossil fuel, or if not a boom, at least increased spending on alternatives (wind, solar, geothermal, and nuclear energy and rail, light rail, better windows and doors, more insulation, heat pumps, and maybe a few plug-in hybrids and EVs.
I think there could be a boom in alternative energy wherever it is installed. Yes, in this country it would need to be financed via debt, but I think it would boost the economy enough to cover that debt.
As for developing countries, yes alternative energy should automatically improve their economies. If they have no energy or expensive energy, putting in something that is solar powered should pay for itself.
” The car cannot be paid for by driving….. ” Yes it can. Cars are used driving to work and generate income over the lifetime of the car more than a car is worth.
Energy and resources are the only real capital we have. Killing that capital does not create more capital. Income gained with help of burning fuel in a car is probably spent on burning more capital.
Labor and human ingenuity are the only real resources we have.
As a follow up to my last question, will world oil production actually increase during this time of low prices or is this the end of last kick the growth in oil production will ever get? I.e., is it all downhill from here?
I know it’s all speculation at this point, but low prices will shut off investment taps and the endless march of depletion will continue. It’s weird that it would end this way, heralded by low oil prices, but I suppose the world is full of surprises.
Here’s how it plays:
You got geology. If there is no oil in rock, you can’t get it no matter what you do.
You got EREOI. It may take more effort to get the oil than the oil could fuel, and this is supposed to magically be measured by money.
You got money, that pays for effort and the output is sold for money and if it’s less than what you paid for the effort, you won’t continue. Unless:
You have central banks and starvation fearing governments, who will redefine money and make that oil come out of the ground regardless of EREOI (measured by money) because it would be profoundly immoral to let their people starve when they could get oil out, and obfuscate all problems associated with it via money created from thin air.
Oil’s price fall correlates almost to the day with a global spike in the dollar vs other currencies. It is credible that this has been orchestrated and supply and demand are not definitive determining price in a world where 4 trillion dollars were created from nothingness since 2009.
The oil price, like gold before it is ABSOLUTELY being manipulated – probably to stimulate the global economy!
If one believes that the price of oil is manipulated then it would behoove them to explain exactly how this is done.
By monetary policy – the FED can influence the yield curve – a steep curve drives a currency lower. A lower dollar will for sure bring the oil price up and vice versa. Will hurt a strong dollar and low oil price the US economy now? The huge collapse of shale companies and the implosion of the high yield market seems to confirm this view. I am expecting a much lower dollar quite soon.
I think the mechanism of oil price suppression is easy enough and could work.
(1) We talk behind the scenes with Saudi Arabia and, while noting an already obvious trend in weakening demand and steady supplies, ask them to not cut production at their next few OPEC meetings.
(2) Next, talk behind the scenes with your favorite bankster allies and ask them to help move oil down either directly by shorting oil futures or indirectly be not taking long positions. Also tell them to be sure to whisper to US producers that oil may be going down and now would be an excellent time to hedge (i.e. go short the futures).
(3)Once that ball gets rolling downhill, just sit back and watch the pressure build on your enemies.
We know that the US futures market is the playground of price manipulators so it’s not at all difficult to imagine them doing the same thing with oil, especially if there’s official backing.
The thing about “”markets”” now is that with the heavy presence of lightening fast computers dominating the quote and liquidity structures, all you have to do is set a trend in a given direction and they’ll do the rest of the heavy lifting for you.
(1) We talk behind the scenes with Saudi Arabia and, while noting an already obvious trend in weakening demand and steady supplies, ask them to not cut production at their next few OPEC meetings.
Well that would be controlling supply! Yes that would work but you are dreaming if you think “we”, whomever we are, could actually talk to to the Saudi King or Princes who dictate Saudi oil policy.
(2) Next, talk behind the scenes with your favorite bankster allies and ask them to help move oil down either directly by shorting oil futures or indirectly be not taking long positions. Also tell them to be sure to whisper to US producers that oil may be going down and now would be an excellent time to hedge (i.e. go short the futures).
You must be joking. For starters my bankster don’t trade futures and few do. Most banks don’t even allow naked trades in derivatives. That would be considered gambling with depositors money. Banks simply don’t allow that. Virtually all institutional trading in futures is done by 1. ETFs, 2. Speculative Funds, and 3. Hedgers. It would be impossible to “talk” to these people and get them do follow your wishes. They are trying to make money not do the bidding of someone who wishes to see oil prices fall.
We know that the US futures market is the playground of price manipulators so it’s not at all difficult to imagine them doing the same thing with oil, especially if there’s official backing.
No, we do not know that at all. But you are correct in one respect, it is not at all difficult to imagine them doing that. But that’s exactly where it is, all in your imagination.
People who make claims of futures market manipulation have no idea just how hard this would be to accomplish. “Talking to bankers and hedgers”? Give me a break. They are going to listen to you or me? The very first thing they would do is ask you: “Who are you to give me financial advice?”
The Hunt Brothers tried to manipulate the silver futures market and it cost them billions.
Yeah. I’ve been actively trading in futures for a very long time, and I can tell you beyond a shadow of a doubt that these markets are now very much in the hands of price manipulators.
I’m not sure why you are being so vehement on the matter, so certain, it speaks of a belief system perhaps that you are holding rather than an opinion based on facts.
I can show you tape after tape of various price moves made int eh futures market that have nothing at all to do with legitimate price discovery and everything to do with moving prices for the sake of moving prices.
It’s just how these markets work now. The structure began to break down in 2007 and by 2008 we had a new emergent market structure.
To move these markets around now is simply a matter of applying a little bit of leverage in the right spot.
For example, the favorite playground to move the S&P is not in the cash market…that’s where the final effects show up.
The initiating spot is in the VIX and emini futures…
We also know that central banks have direct accounts with the CME.
And we know that various banks, yes *banks*, have been active manipulators of aluminum, FOREX, Gold, LIBOR…all things that you would claim are ‘too big’ to manipulate but apparently not.
I watch and participate and study these markets every single day and I have tons of facts to back up these points. I save data constantly.
It’s not really as hard to accomplish as you seem to think. In fact it happens pretty much every day.
What seems to get missed is that in 2008 the TBTF banks and the investment banks were merged or in the case of Goldman an investment bank was turned into a regular bank virtually over night. The markets haven’t been the same since. You now have investment banks with virtually unlimited firepower, soon to be backed up by tax payers again, playing in every liquid market available.
It’s just how these markets work now. The structure began to break down in 2007 and by 2008 we had a new emergent market structure.
For consumers, does any of this matter anymore? Seems like wealth creation primarily benefits those who are already very wealthy. A two-tiered system where the wealthy get more wealthy and everyone else gets by as best they can.
Sure, oil prices could go down for awhile, but if consumers are smart, they no longer make plans based on what are likely temporary price declines.
Does the economy for the average person have anything to do with the economy of the wealthy these days? Seems like two totally separate worlds. And the only time they affect each other is when there is another crash. So the consumer gets hurt when it falls apart and doesn’t really benefit with it booms.
And we know that various banks, yes *banks*, have been active manipulators of aluminum, FOREX, Gold, LIBOR…all things that you would claim are ‘too big’ to manipulate but apparently not.
LIBOR? Now you are mixing apples and oranges. Banks do control interest rates, or at least partially so. I have no doubt that banks do try to control interest rates. That is not the futures market.
However five trillion dollars, in various currencies, changes hands every day on the FOREX. No one bank has enough money to manipulate the FOREX.
If you have the facts that various futures on commodities, including oil, are being manipulated, you need to tell us exactly what those facts are.
You mentioned talking to the Saudis, bankers and hedgers. I just don’t see that as actually working and certainly not “manipulating the market”.
I never imagined you as a conspiracy theorist Chris. I am shocked.
Rumors swirl every day on and off the futures trading floor. These sometimes do cause sudden swings in the market. But such moves are always short lived. Only supply and demand can affect the actual long term price trend in the price of oil.
Of course if you could talk to Saudi oil minister Ali Ibrahim al-Naimi and convince him to cut supply that would definitely work. But neither Iran or Venezuela had much success in doing that but if you could….
Uh oh.
Do I believe that smart people make plans and hide them from time to time? Yes.
So I believe that money and power are great reasons to hide one’s plans and motives from public view?
Yep. Guilty as charged.
It is how the world has always been and always will be.
“I never imagined you as a conspiracy theorist Chris. I am shocked.”
This conversation is now over.
“According to him, the dystopia of the Wachowski Brothers’ Matrix trilogy is already here: the technological-industrial ‘machine’ is already running the world, a world where individual humans are but insignificant little cogs with barely any autonomy. No single human being – neither the most powerful politician, nor the most powerful businessman – has the power to rein in the system. They necessarily have to follow the inexorable logic of what has been unleashed.”
~ G Sampath on John Zerzan
Just go and think about it for awhile over a nice bourbon and then see how you feel. ^u’
Let the yeasts worry about their wastes.
I view this with interest.
Ron, the other day I offended you by mentioning that Chris’s video on ocean acidification was a travesty, because it opens with unsubstantiated claims about pesticides and monarchs, “compounds” and obesity rates, things that someone with a PhD in “neurotoxicology” should know better than to say, claims that totally undermine the veracity of the video.
There are people who aggrandize themselves by getting people wrapped up in narratives of conspiracy and doom, and who don’t care about facts.
In 2009 I dropped out of the peak oil scene because it became clear to me that there were a whole lot of cranks in the field that were pulling the wool over the eyes of us who are purely lay observers–the Savinars, Rupperts, and others.
I think you need to consider that this Mr. Martenson might be another such crank.
I am very, very skeptical about who I listen to about peak oil anymore. Just one or two slip-ups, and I tune them out.
Mike
Greetings, Mike, the lurker,
This whole dystem is the ‘world pulled over our eyes’. It’s a religion. Ridiculous and overcomplicated and no one really knows their Bibles, but very sinister at the same time because it imposes itself on the planet.
It even tortures and witch-hunts like the good ol’ days. Ah, enlightenment, progress…
By the way, speaking of price discovery, I just discovered that the price of oil is too expensive for everyone. =)
Father MacIntyre hath spoken.
And now back to our regularly-scheduled program…
What say you, Father Watcher, from the Land of Dems, bonds, shorts, OPEC, NoDak, percentages, and K-Street?
Ah, never mind. ‘u^
Happy belated Halloween.
Another point: the FED (and ECB) is running out of assets to monetize. Buying too many treasuries, like Japan almost monetizing all .gov debt, is not an option. FED and other cb’s are already in stocks. Maybe US shale is something to ‘monetize’. Or ‘they’ are crushing emerging markets for abandoning the dollar.
Don’t underestimate the influance of finance and politics. There are no markets. There’s just the FED & friends.
Saoedi Arabia not lowering production is weird.
‘They’ are looking for assets to monetize, and foremost; a reason to monetize imho.
Saoedi Arabia not lowering production is weird.
Why? Isn’t it just as weird that Russia does not lower production? Or anyone else for that matter?
The running out of assets narrative was pretty thin from day one. If you want to monetize something and there aren’t enough of them, just pay more for what there is.
It would be odd for the Saudis to cut production when the prices fall. They have bills to pay as well.
I am with Ron ninety nine percent of the way.
I do believe that oil prices can be and may be manipulated to a small extent OVER THE SHORT TERM.
But if a given speculator buys oil today because it is cheap- physical oil that actually goes into storage- that has the effect of raising the price TODAY while depressing the price on the day he sells it.
This sort of game is a wash.
Now it is possible that a Ronald Reagan can make a deal from a position of strength with a close ally such as the Saudi royal family and maybe talk them into glutting the market and fxxxing up the old USSR economy while pouring the coal onto the star wars fires and maybe breaking the old USSR’s political and economic back.
Opinions vary as to whether this actually happened. If it did it was because other circumstances fell into place and helped set the stage. No liberal I know believes it happened but just about every conservative I know believes it did.
( No liberal a year or two ago believed in conservative predictions of cheap gasoline either. Lol. Neither did I.)
But times are different now. The leadership is different in both countries.Circumstances are very different indeed.
Recently our leadership has been rubbing the Saudi collective nose in cultural shit-from THEIR pov. Women in charge of the state department. Advocating policies such as freely practiced abortion. Gay rights.
This stuff is ok on the home front and ok with me but only a damned fool could possibly believe it does not matter at a VERY deep level over in Sand Country.
My opinion is that the current price collapse is a natural consequence of production holding up better than expected with the economy being weaker that expected along with fast increasing efficiency in cars etc.
Oil is probably the most price inelastic important commodity in the world. A minor surplus thus means a price collapse and a minor shortage thus means a price spike.
A BIG collapse and a big spike.
Now the Saudis may be cooperating IN PART with CM’s scenario but mostly maintaining production for other more important reasons of their own. One would be to maintain market share. Another to put a hurting on our tight oil industry. A third- and the most important of all in my opinion- is to force the smaller hangers on in OPEC to understand that if they want a production cut they are REALLY going to have to play fair and do some cutting themselves -that the Saudis are not going to keep on toting the load for them.
You just cannot force the price of a given commodity down -or up- very much or very long unless you can control the supply reaching the market.
The average guy filling up his gas tank cares not a flying XXXX at a rolling donut what the FUTURE wholesale price of oil is going to be next year.
And the producers and the refiners and the shippers and the retailers are supplying this average guy TODAY – not next year.IF he ain’t buying then they ain’t selling.
IF they ain’t selling then they have to cut the price to a point the end user buys whatever IS produced.P.E. R. I.O.D
I don”t know how much crude goes into long term storage but my guess is that it is much less than one percent. Probably less than a tenth of a percent. Leaving it in the ground is probably a lot cheaper.
NEXT YEAR has almost NOTHING to do with the price of oil at the pump TODAY.
The future price of corn means very little to a farmer with corn to sell today. Now if it is high he may choose to hedge now and grow more next year- but that is NEXT year.He can hold some of his his corn if he wants to- it is after all already harvested and he most likely owns a storage facility adequate to hold a good bit which would otherwise be empty and unused anyway.
If he doesn’t sell today that helps raise the price today but depresses it when he sells his carry over next year.
Now a big buyer with money to pay well in advance and pay the storage costs may be buying today when corn is cheap in expectations of higher prices next year of course.
But that is still a wash over a years time.
Now as to whether the OVERALL economy can be manipulated by bankers and politicians- the answer to this question is undoubtedly yes – in the very broadest terms.
But so far as I can see the current low interest rate that made the tight oil boom possible was not set with the tight oil industry in mind.
NOBODY in his right mind believes that the bankers of the world have been conspiring for the last decade to run up oil prices.
The current policy of the worlds central bankers has certainly not been put into place with the intention of bringing on a recession or depression -QUITE the contrary.
It was set with the ENTIRE economy in mind unless I am badly mistaken – with perhaps the banking and investment industries being a little more equal than the rest of us – Animal Farm style.
As Ron said there is not a snowballs chance on red hot stove that anybody in Washington could convince anybody in Venezuela- or Russia- to cut or increase oil production to further American foreign or economic policy.
We ain’t got no friends in them places to put it as bluntly as possible in my local vernacular.
The truth of the matter is that the Saudis themselves would disown us in a skinny minute except for the fact that they are afraid to do so. Without us to keep them on their throne with our political and military clout they would be refugees by now.They probably would all have either fled or dead and unable to flee forty or fifty years ago.
We are an imperial power without any question but we practice a much softer brand of imperialism than any other top dog country has in the past and the Saudis know it.
They have no desire to align themselves with the Russians or Chinese for this reason- but they are not powerful enough and will never be powerful enough to go it alone. So they stick with us as their best choice.
But the fact that a hypothetical woman who has recently gotten thoroughly disgusted with you is still living with you is NOT an indication she will be eager to do whatever you want her to anymore-even if she would enjoy it.
The Saudis will cooperate with us to the extent they have to from here on out rather than because they view us as real friends.
We were never their REAL friends in any case, in the sense we are friends with for example the Aussies.
Being a nation built on a different cultural and religious foundation has always ruled that out.The First Five Books are not enough.
That hypothetical woman can either leave or kick you out. Over here at least. Over there the men do all the kicking.
Maybe for some folks who don’t quite understand my arguments about current consumption and prices in relation to EXPECTED or PREDICTED future prices I should elaborate a little more.
You can buy a house today based on the expectation of the price going up next year and thereby making a profit. If lots of people buy houses for this reason then it will without a doubt result in house prices going up NOW.
But rents are based on CURRENT DEMAND. A few people might sign leases now hoping to avoid rent increases next year but rental leases of houses are usually for a year only so guess what- next year the landlord will raise the rent unless you negotiated a two year lease.
People may think oil is going up again and bid up the price of oil STILL IN THE GROUND- by bidding up oil company stocks. I would myself if I had any money.
But the price of oil in the ground to be extracted next year or ten years from now has no more to do with the price of oil today than next years housing market has to do with TODAY’s rental rates.
Next year may be a boom or bust year for apple growers. This years price-TODAYS price – is determined by current supply and current demand.Apples don’t keep. Houses do but a months rent not collected is lost forever. So rent money is a perishable too.
Oil keeps – in the ground. But todays price is determined by todays supply and todays demand.
Todays supply AIN’T IN THE GROUND. IT is already in tank farms and pipelines and the tanks at service stations and in your car.
The oil being pumped out of the ground today will reach the end user weeks or months from now.But the buyers of it are already scaling back because their inventories are piling up on them. Service stations cut their orders,local wholesalers cut their orders, regional wholesalers cut their orders . refineries cut production ,-all the way back to the well owner until the supply matches consumption at every level.
This process may take a while to play out – not less than a few weeks and more likely a few months. Inventories along the way will go up or down to accommodate the process of finding the new equilibrium price and supply.
I know most of the regulars here understand this stuff without it being spoon fed but there are always newbies and hopefully some kids who are new to the nature of markets.
EXPERTS are the last people to get it when the fundamental nature of the game is changing.
People who believe in conventional banking practices for instance cannot conceive of the executive and congress writing a whole new set of banking laws.
Conventional farmers cannot conceive of being unable to buy fertilizer or pesticides.
Conventional economists mostly cannot conceive of a world without endless growth- at least as a possibility.
CM is at least unconventional enough that he understands some physics and biology.
BUT I am waiting- along with Ron- for an explanation of the way our government is herding the cats of the oil industry.
Herding cats is basically impossible imo.
Mac,
You mention that you are apple orchard grower. Do you sometimes shake your trees to see which apples are ripe for falling? I did that when I was kid at my grandpa farm. Maybe somebody is “shaking” the “oil orchard trees” to see who is ripe for “falling”.
I am not saying that is the case. I have no idea and I don’t particularly care to know because it will not help me in any way in my day to day life. All I was saying I try to keep my mind open, as Buddhist would say to have “beginners mind”, and then I would see a glimpse of reality from the fog of delusions.
For the time being, the US dollar is the world reserve currency. If the value of that reserve is intentionally manipulated, then all prices of all goods and services are, to some extent, manipulated.
The Fed explicitly targets 2% inflation, and this necessarily perturbs all other prices, however they may ramify through an impenetrably and wildly complex world.
The Fed has also willfully monetized fraudulent debt instruments, and has openly targeted asset prices by design, to alter behavior, regardless of the fact that they can not predict what that behavior will be. The Fed and treasury are hardly alone in this sort of conduct.
If the goal is “growth”, and that is explicitly stated, the finite nature of the “real” world must eventually doom this enterprise. The question seems to me to be a matter of timing.
It all depends on who’s growth your talking about. Currently, Wall Street and the Fed only directly control 25% of the world economy so from their perspective there is still a lot of growth potential even in a finite world.
Wow, this has the same feeling I get when an old car keeps falling apart, I fix it and soon more falls apart and more patches are needed. The end result is inevitable and the timeline ends when I no longer want to put up with the amount of trouble and monetary losses.
To be watching a civilization where the old tried and true is acting like an old car on it’s last legs while a whole new way of doing things, new materials are being formed, new energy sources are all banging on the door to be let in and taken seriously; is just amazing to me. So much manipulation, so much desperation and so many changes. Still the major choice is the dead end system that got us here. Absolutely crazy and strange. Life is emulating the stage at this point. Way too much drama for the results.
For me, lately the question has been do I want to keep an old car and not drive it or do I want to get a new car and not drive it. So far, I’ve been keeping the old car and patching it as needed.
Allen. What you say is what I think. What to do?
My own personal decision is to do what I do, thermal machines, in a way that might be good for all of us little furry critters scurrying around in the understory trying to avoid being trampled by the dinosaur in its death struggle.
We know that when all the thrashing around has quieted down, it’s our turn.
So, PV is near miraculous, just a sheet of glass that puts out real watts than can charge your car and/or fry you to death. But, in the last three weeks, couldn’t do diddely since no sun, so what it needs is a booster to get over such events. Like a wood pyrolyzer/air engine.
And, of course, I can’t begin to make a new PV out in my workshop.
The pyrolyzer works just fine, and I can’t understand that they aren’t already on the market to replace the much inferior conventional wood stoves, one of which is heating my back as I speak.
The thermocompressor looks great on my sketch, as well as on my son’s simulation.
Like you say, energy banging on the door.
You guys here who spend serious time recording the dinosaur’s death struggle, should take a break now and then and look at all the good new stuff ready to be born which you could be supporting right now instead.
Hi Wimbi,
Do you have a website or blog so folks can see what your up to?
You are welcome to post stuff at my blog (very low traffic though), if Ron likes it and thinks it’s relevant to peak fossil fuels, he would likely post it at POB where lots of people will see it.
My blog is at link below,
http://oilpeakclimate.blogspot.com/
just contact me there, if interested.
My daughter, in a university, has some students putting some of my stuff on the web, where anybody can grab it and run off anywhere. They are waiting my finished dwgs with dimensions and McMaster-Carr numbers.
Will let Ya’all know.
As a follow up to my last question, will world oil production actually increase during this time of low prices or is this the end of last kick the growth in oil production will ever get?
It is far more likely that oil production will decrease during times of low prices. Prices dictate supply and demand. Low prices usually drive supply lower.
But the last half of your question is what is called a non-sequitur. It does not follow that if production goes down… or up… that this means that this is the end of the last kick to the growth in oil production we will ever get. Low prices is likely a kick down in oil production. But there could be future increases in prices that will encourage higher oil production. Whether they will be successful or not remains to be seen.
You know, Ron, hmmm, there could be serious calendar issues in this.
If you shut down drilling via low price for years, the global decline rates take the output down. Then if you get a price rise, there should be a point where restarted drilling can never get you back to previous levels. It would be somewhat different than the frantic drilling concept being unable to offset declines.
It would be accumulated declines added up (down) by the calender can never be undone even with restored drilling before geology simply runs out.
Watcher, Ron is clearly correct saying oil production will decrease during times of significantly low prices. But, the depletion of “easy oil” reserves will continue (or even increase); leaving (expensive) “harder oil” for the future. Meaning, if (when) you get a price rise, there should be a point where restarted drilling can never get you back to previous levels (your precise point). But it’s all a question of timing. A brief drop in oil prices is simply a convenience for consumers and a (big) inconvenience for producers. The above argument comes into effect in a relatively long low price cycle, in my opinion. Face it, per my niece’s comment in the previous post, production is already being deferred in “expensive” off shore oil Norwegian fields. These fields will be reactivated in the future but add even more pressure on future prices.
Douglas, best point in your para that the easy oil decline is the hardest to replace. I’ve suggested hysteresis in shale price . . . a different price for industry destruction — far lower — than required for industry restart. You’ve just said the same thing, but even for conventional.
The easy oil depletes, the harder oil also depletes, but this raises the average restart price.
And . . . no, given shale’s hyper fast everything (70% of Bakken production from wells less than 20 months old) this cycle doesn’t have to be long and slow. Take the price down, maybe only for 6 months of so, smash the industry, fill the court dockets with lawsuits of one party against another, raise the price, really high, and you STILL can’t restart because everyone is paying lawyers.
Russia, if they did this, are geniuses.
Russian oil fields have a lot of high water cut wells. As it turns out many of these wells stop producing oil if they are shut in. This means russian producers have a conflict. They would love to close the high water cut producers to cut costs, but that’s dangerous. I don’t know what they are doing at this time. But this is a very touchy and complex technical and economic problem.
If you look past currency, and think in terms of “having enough to feed our people”, the water cut issues diminish in importance.
A fave theme here is “how do you do irreparable harm to an oil field”. The shut-in-can’t-be fixed scenario has been mentioned. In the context of Libya. Shrug.
When is the last time global oil production/consumption moved more than 5% in a year, regardless of the direction of price?
even in “high price” (clearly an anchoring phenomenon) environment globally we’re blowing though 30bn bbls or so.
We need that stuff you know……
Rgds
WP
(p.s. I think using a logon/pswd is a good idea)
Never fear, high prices are here: OPEC slashes oil production estimate; crude slumps again
So, in the wake of their next meeting? Or however this works usually. Maybe the news itself will do the trick? Or prices won’t rise at all, given what bulls the shale drillers are. Will be interesting to see the dynamics at work here.
Venezuela “predicts” an emergency OPEC meeting early next year. That’s about 2 weeks after release of the schedule for the next meeting specified to be June.
I agree with you Ron. I see that I phrased my question poorly. What I was really asking is as follows:
“will world oil production actually increase during this time of low prices or is this the end of [the] last kick [at] the growth in [the highest rate of] oil production will ever get?”
Or in other words, will this time period be “Peak Oil” because the confluence of factors that lead to increases in the highest rate of oil production, vs. the factors which work in the opposite direction, permanently be on the side of lower and lower possible maximum output? I.e. geological, financial, political, economical and other factors will never come together in such a way that the maximal rate of oil production will never again be higher than it was in the past?
Oil production rates will go up and down under the influence of whatever factors are at play at the particular time in question. But has the maximum rate of production been reached, never again to be surpassed?
Keep baiting, ouette won, and you’ll get your answer. Tons, in fact. And by simple random chance, one of those answers will be approximately “right,” And it will be selected and highlighted as a “correct prediction” out of the lot of stinkers. I’m placing my money on don’t know squat, which is of course the correct answer, and I run from those who claim otherwise.
haha the Elaine Garzarelli approach. If you got 1000 stock analysts flipping a coin 100 times, one of them is going to get heads 100 times.
That analyst will be declared the most skilled coin flipper.
I more or less failed statistics, but I am going to guess, math free, that to get 100 flips all heads you would have to start with an analyst population that would not comfortably fit in the confines of the world, possibly of the solar system.
Or have a crooked one in your initial sample, which to be fair is higher odds
You know, I ***KNEW*** someone would complain about the numbers. haha
The point is the concept. Lots of people are predicting every day and someone is going to be right and get declared highly skilled.
haha the Elaine Garzarelli approach. If you got 1000 stock analysts flipping a coin 100 times, one of them is going to get heads 100 times.
Damn Watcher, you should know better than that. The odds against 100 heads in a row is 7.89E-31. That is an extremely tiny, tiny number.
Nod.
Easy to roughly estimate using the following fact: Two to the tenth (1024) is roughly ten to the third(1000).
The chances of heads n times in a row are roughly one in two to the nth, or using the fact roughly ten to the -n/3.
”You got EREOI. It may take more effort to get the oil than the oil could fuel, and this is supposed to magically be measured by money.”
I must disagree. I am sure you understand what you are talking about but I think you got in a hurry and should have looked twice before pressing the post comment key. This is a mistake I make often myself. Else I just don’t understand – a frequent failing on my part too.
Energy returned on energy invested is measured in energy not money and while this is a limiting condition under some circumstances it is not very important under other conditions such as RIGHT NOW – not for the short to medium term..
It is obviously impossible to use oil to extract oil if it takes two barrels of oil to get one barrel out of the ground.
BUT if you use twice as much energy from natural gas and coal that sell for four times LESS on an energy content basis you may well be able to make an economic or monetary profit while experiencing a losing EROEI.
Gas and coal are plentiful and very cheap at the moment compared to RECENT oil prices so for the moment EROEI as it relates to oil is not very important.
But it WILL BE IMPORTANT – VERY IMPORTANT INDEED- later on when coal and gas are also in short supply along with oil.
I expect oil and coal prices to gradually converge with oil prices on an an energy equivalent basis. This is going to take a long time to come about but the only thing that oil is really better for is transportation. And as oil gets to be ever more expensive over time the market will move transportation away from oil.
It occurs to me that Model T Ford back when it first hit the road probably cost as much in terms of earning power as an electric car today. In other words what I am saying is that a man in the same profession- assuming that profession still exists -probably had to spend as many days pay back then for a new Model T as his great grandson doing the same work- say accounting – has to spend to buy a Chevy Volt or a Leaf- or maybe even a TESLA..
If the economy doesn’t crash and prevent it then electric cars are going to eventually take nearly all the market for passenger cars imo. Wind and sun are free and coal is going to be plentiful for a long time and electricity is going to be available.
I don’t think anybody acquainted with the industry is saying the same thing about oil – that it will stay cheap- unless he has an ulterior motive of some sort.
The interesting thing about the Model T, is that Ford wanted them to run on Ethanol, in order to provide income to America’s farmers. He was swayed by the oil companies.
With regards to electric cars, the numbers have been doubling for the past 3 years, and planned production would have them double again next year. If this rate of increase continues, there will be over 1 billion electric cars on the road in 2025. So even if oil production declines by 25% in 2025 (as suggested in the video), the decline in demand would more than make up for it.
Not bad. The overall point was the difficulty of finding the end point of Energy Invested measure (the trucks that haul the oil, the heat that formed the metal that made the truck, the shoes on the driver’s feet, etc) and how money became the metric that avoids the difficult input calculation.
But one of your sub points is legit, that the form of Energy Invested might be nat gas (it certainly is for Suncor’s oil sands operations) rather than oil, but in a macro entropy perspective you still can’t do that very long, and no, the solar guys don’t need to jump in and say they are going to pump oil with solar powered drillbits. That’s not happening and isn’t going to at 745 watts per horsepower.
Where your point goes is just deeper into the complexity morass of how do you measure energy input. The world decided to do it with money. But money gets printed whimsically now so it would be nice to have another metric.
Well , ahem, wells come in various kinds and most of them are deep subjects lol…..
I lack the proper words to describe why money IS a fairly decent metric but I will try anyway. IF I buy a bulldozer and pay a quarter million for it then it has less than a quarter million worth of energy embedded in it. The fuel is apt to be the biggest variable expense – more than the operators wages. The operators commuting energy expenditure is probably exceeds his food energy expenditure which probably exceeds the energy expenditure involved in his shoes.
In other words the farther you get from the bullseye of eroei then the less the small things matter.So if you have a reasonable estimate of energy involving the big things you should have a reasonable estimate of eroei with the understanding that the true eroei is somewhat but not much higher.
Of course there is the flip side of the coin to consider- the entire economy consists of a lot of small things in the aggregate.
My work boots are a very small part of my energy input as a farmer given that I sometimes used to use up to a hundred gallons of fuel a day.. But the three piece suits worn by lawyers are a much bigger part of the energy budget of a law office.I doubt the average lawyer uses over a gallon or two of fuel a day running his law practice unless he lives out in the boonies.
In my estimation money can and will continue to be printed until it is essentially worthless at some future time. For now it works a lot better than nothing as a measure of energy intensity.
Ron, can you get the Regex post and Mike’s rebuttal. It has a graph in it and I’ll fail.
Regex Wald posted on another thread:
Oasis has announced their preliminary 2015 capex plans — the first “big” Bakken producer to do so up to this point.
Planned capex is $750-850 million in 2015, or about half of what will be spent in 2014. The 16 rigs they have been leasing all this year (incidentally, only Continental and Hess have been running more rigs in the Bakken during 2014) will be whittled down to 6 by the end of March as they concentrate all drilling to the company’s best acreage, in north-central McKenzie County. In spite of this, they still expect a 5-10% increase in year-over-year production by the end of 2015.
If you’re into such things, they have posted a new investor presentation to coincide with the 2015 capex announcement. For obvious reasons, more focus is placed on costs in this presentation compared to previous presentations.
The stock is down more than 75% over the past 5 months, and, so far, today’s announcement has not yet helped.
BTW, Watcher: Oasis is one of the public Bakken companies that has all its wells and related assets organized into an LLC. To be exact, “Oasis Petroleum North America, LLC.” Hess is another notable Bakken driller that also does this. Their LLC is “Hess Bakken Investments II, LLC.”
Mike replied:
This LLC thing is ridiculous; as was mentioned in this link, Oasis is the 3rd most active driller in the Bakken. Hess is the 2nd most active, both are large, semi-integrated public companies. They are also LLC’s, so what? There seems to be two implications regarding this LLC issue, one being that any company carrying those initials behind it can simply walk away from its debts and leave everyone else holding the bag. That’s bunk. Ask a lawyer.
Two, the issue with LLC’s is that there are thousands of them operating shale wells, that LLC’s drill the majority (?) of shale wells and when they all walk, the shale industry will die immediately. That’s bunk too. The implication is, I think, that there are lots of mom and pop companies able to drill 10 million dollar wells that will go belly up because of oil prices. Shale oil is a big boy’s game that is played with big money.
The only way to resolve this “fear” is to define what constitutes a small shale oil company and what constitutes a big shale oil company. Then a lot of time has to be wasted listing all the shale companies in the Bakken and judge them as small, or big. Y’all can do that, then decide who is the flight risk.
By the way, make sure that you are comparing apples to apples, operators to operators and not operators to service companies. There are indeed lots of mom and pop LLCs providing services to the shale oil industry, so what again?
Thanks, Ron. It is a good offering and a good rebuttal.
Mike, if putting LLC behind a company name doesn’t mean they shield their external assets from internal risk, then exactly what would you think Limited Liability Company means?
And also, if there is no such shield, why would they endure the legal costs of arranging such a business architecture?
It doesn’t have to imply . . . “evil”. A company that doesn’t protect its shareholders’ assets with such an arrangement is not performing fiduciary duty pretty much at all. They would be irresponsible if they didn’t arrange things so that they can walk away with impunity.
BTW I don’t think LLC existed more than 20 yrs ago. A tad new.
Definition of a Limited Liability Company or LLC
Like a corporation, a limited liability company or “LLC”, is a separate and distinct legal entity. This means that an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. The primary advantage of an LLC is that its owners, known as members, have “limited liability”, meaning that, under most circumstances, they are not personally liable for the debts and liabilities of the LLC. For example, if an LLC is forced into bankruptcy, then, absent special circumstances, the members will not be required to pay the LLC’s debts with their own money. If the assets of the LLC are not enough to cover the debts and liabilities, the creditors generally cannot look to the members, managers or officers for recovery.
All it means is that the executives or owners of a company are not personally responsible for the debts of the company. Of course if the stock goes to zero then their stock holdings in that company go to zero. But the debitors cannot go after other assetts the owners may hold. Company property is fair game however. If there are buildings, real estate or equipment owned by the company, they can go after that.
In Mike’s defense, I think he is rebutting my past semi hyperbole about who the drillers are and most particularly to what extent they have a long term perspective rather than being house flippers.
Pardon the Mike Tyson quote, but “everyone has a plan until they get punched in the mouth.”
LLCs will fold like cheap lawn furniture if they see a threat. And they should.
Thank you, Ron. I understand the LLC theory as to how it pertains to shareholders and personal liability to principles in public companies; I have been in business for myself way too long (I should have got out of the stinkin’ oil business in June!). In the case of mom and pop LLC’s I am still under the belief that personal guarantees are very necessary and we both know how litigious a world we live in these days; nobody is totally off the hook for nothing anymore. Liability was not my beef anyway.
Look, I think that with declining oil prices and the shale oil industry being in deep doo-doo, the peak oil community has moved up in prestige, so to speak. Your blog, I believe, is at the head of the class. I just want us to be careful about predicting the exact time of death of the shale oil industry least we’ll be just as guilty as it has been.
The oil business is like Texas weather, if you don’t like it just hold on a minute, it’ll change.
Thank you again for the good work.
Mike
Mike, I knew you knew exactly what LLC meant. My post was in response to Watcher’s post.
Watcher, I am occasionally confused by some of your statements and if I am again, I stand corrected. In the context you were using LLC’s it seemed to me you were implying a crafty way for business in general, in this case the shale oil business, to skate off into the sunset leaving boatloads of debt behind with no liability whatsoever. I don’t think that is the way it works. Its limited liability, not no liability. How does GE loan 400 million dollars to Shale R Us, LLC and not expect to get paid back? And, by the by, I think that LLC’s are now old enough to be getting holes blown in them not too infrequently these days by good lawyers.
Liability issues aside, the more relevant part of our debate, for me anyway, is the notion that the shale oil industry is going to implode tomorrow because “thousands” of LLC’s will just walk away from unprofitable wells. Not service companies, or man camp landlords, or caterers, operators. You have said precisely that. I stand by my belief that the vast majority of wells being drilled in the two primary shale plays are by large, partially integrated public companies who cannot simply disappear in the dark of night.
We are two months into a precipitous drop in crude oil prices. I think it is way to soon to be burying shale oil companies in mass graves. This bust is a shale oil bust, not an oil industry bust; I know you know that. The world is not coming to an end. I do not believe that LLC’s will fold up like lawn chairs, as you say, maybe that is the American way now days, I don’t know. Its not my way.
Lets see how it shakes out and not get in such a damn hurry to bury those guys. We’ll know soon enough. You know what I do for a living; what do you do, please?
Mike
I’m nobody, Mike. I’m gonna stay that way.
I was never anybody to start with.
IIRC you have mentioned one or another snooty mba program here in the not so distant past.
And you certainly seem to know a lot about the ins and out of business on an ongoing day to day ”this is what is happening right now basis”. Not many people know so much unless it is part of a job.. Time counts and you obviously spend a lot of time poking in less than well illuminated corners.
Fess up.
I expect you are involved in some way hands on in the oil or broader energy business – maybe not greasy hands with calluses but hands on in the sense of buying and selling securities maybe.
“implying a crafty way for business in general, in this case the shale oil business, to skate off into the sunset leaving boatloads of debt behind with no liability whatsoever. I don’t think that is the way it works. Its limited liability, not no liability. How does GE loan 400 million dollars to Shale R Us, LLC and not expect to get paid back? ”
Well, bad example hahahaa GE was bailed out. Their loan department damn near cost Jeff Inmelt his job.
But your real point is what it is. Nobody lends money if they don’t expect to be paid back. Well, maybe. That IS what interest rates determine, or used to before the arrival of swaps. Now it’s interest rates and swap premiums that measure risk, and — as we’ve been digressing to now and then — if you’re TBTF you don’t have to do any of that crap. You just have to spend money on Congressional campaign donations to be sure you get your piece of the bailout because you’re, altogether now, Too Big To Fail.
GE was.
Risk of default is in every loan made for anything. The loan approval guys are going to get an end of year bonus for ‘bringing in more business’ so if they can just get a few loan payments collected by last Christmas, they get their bonus. Then, if they don’t believe their own booming economy propaganda, they retire to spend more time with their families or they move on to “other opportunities” before the default hits.
This is all somewhat moot in a world of bailouts, and as has been posted, the MSM is already floating that trial balloon. And come on, we didn’t really think the world had gotten back to pre-2008 normal, did we?
Having been involved in some LLCs, I can tell you banks get small operators to give personal guarantees. Large corporations are smarter than this. Unless lenders can prove fraudulent conveyance (very difficult) the lenders are on the hook with no recourse.
Mike, I’d bet Watcher was a spook. I think those guys (and gals) have their brains rewired so they can never again reveal the fact they actually exist: They become virtual people. Whatever, Ron’s Blog wouldn’t be the same without him. Better maybe but not the same. 🙂
To not use an LLC for an venture which potentially creates huge liabilities would be crazy.
If you own a couple of rental properties you most likely will put each of them in a separate LLC in case a tenant who slips and falls sues you, even if s/he was awarded 50mm for a broken arm by some jury which had a bad day. Your damages will be limited to whatever assets the LLC has instead of everything you own. That is not “crafty”, that is common sense. In a way it is a protection against the ridiculous US legal system.
Rgds
WP
Thanks, pardner; I’ll remember the advice about LLC’s.
One of my rules:
Never do business with spooks or family guys.
I just posted up above that I think he is an active trader or energy business man of some sort. Spook fits better.
This might explain his tendency to believe in conspiracies right left up down center and anywhere else …
It is not that I myself don’t believe in markets being manipulated. I do. Sometimes. Often in fact.
BUT NOT EVERY TIME day after day.
Some things just happen. Like for instance a weak economy interacting with a steady or maybe slightly rising oil supply to result in a price crash.
Nobody has to deliberately do something in concert with anybody else for such things as the recent oil price crash to happen.
Maybe I was one of those tree huggers that drove spikes in so when the chainsaw hit the spike the saw would fly back and cut off an arm.
That would be really green.
Good try but lol on that one Watcher.
You have never run a chainsaw obviously enough if you think a spike in a tree will result in the logger getting hurt- if he hits a spike it just dulls the cutting chain on his hand held saw.
(Farmers either redneck or university trained or combo like me know about such things since we frequently run our saws into all sorts of stuff embedded in trees. Kids nail horseshoes to trees, dog chains get left around them , fences get nailed to trees, etc and all this stuff is inside the tree eventually as the wood grows OVER it.)
Now when a conventional circular saw four or five feet or larger in diameter turning a couple of thousand rpm hits a horse shoe – or a spike- at the mill – shrapnel flies and expensive repairs are necessary.People DO get hurt sometimes.Used to anyway. Larger mills nowadays have metal detectors.
I just recently logged a couple of dozen nice poplars leaving the first six feet on the stump given that the mill operator is adamant about not buying such logs.
Send a log to a local mill with a horseshoe in it and the mill owner will never buy from you again.These particular trees were all on the acre or so around an old house where kids lived for at least half a century.So the stumps are are all very tall stumps.I bought the old place to fix it up and left some trees for shade of course.
Incidentally circle saws are pretty much obsolete these days, having been replaced with band saws which make less sawdust and thus more lumber.. But a spike in a log still means a potentially dangerous breakdown and an expensive repair.
Mike,
Here in the UK it certainly looks like an oil industry bust. We’ve a lot of tired and expensive fields, and a lot of people selling expensive deepwater services. There’s lots of redundancies being made at the moment.
Hi, Mr. Taylor; its amazing how quickly and emotionally people are reacting to this oil price thing, isn’t it?
I read recently the most fascinating little tale of Americans developing a little oil field in Sherwood Forrest during WWII. Man, it was great! What a secret that was, and how well the secret was kept from the Germans. They had no rig lights for fear of Germans seeing them. Those American roughnecks were there for years developing that field and could never even write home to tell their families where they were!
I like to remind people who yak about shale oil technology and horizontal laterals, how long the oil business has been doing that sort of thing. And my favorite example is extended reach wells drilled there off the British mainland, what is that field called? Man, those guys get way out there, something like 7 miles. Incredible technology, 20 years old.
Mike
Mike,
It’s certainly surprising how fast some firms are reacting, but a lot of the exploration companies were already feeling the pinch at $100/bbl, since majors already wanted to cut capex. It’s a worrying time. I certainly won’t be spending my Christmas bonus this year!
I’d never heard about oil being drilled for in Sherwood, that’s certainly news to me. Where did you hear about it? I would guess that the field you’re referring to is Wytch Farm in the south-west? That’s the only real onshore field of any real size that we’ve got going. Some long laterals down there, I think.
I’ve done a bit of reading, and one of the geological units they’re drilling down south is the Sherwood sandstone. Perhaps that’s where the Americans were drilling?
http://www.amazon.com/The-Secret-Sherwood-Forest-Production/dp/080613433X
Its a great read! And yes, you are correct, Wytch Farms, that is the field. The surface facilities and well locations are very esthetically and environmentally nice looking, but those wells go a long way out there.
Mike
I have not talked to my good buddy friend who happens to be a lawyer today so I don’t know precisely what the difference is between a corporation and a llc.
But it is a solid gold fact that the owners of a corporation – the stock holders- can and do on a daily basis walk away from corporations that go busted without being liable for corporate debts. Otherwise if you owned stock in a bankrupt corporation-General Motors for instance- you would find your OTHER assets seized to pay the corporations debts.
Now under some circumstances management and owners can be held liable for corporate debts- especially if prosecutors can prove they are caught deliberately manipulating the books.
Lotsa complexity there, farmerguy. LLCs in Delaware, for example, conceal by law the identity of the principals. As for company executives, indemnity insurance is pretty much always carried. Hell, if you didn’t do that no one would ever take a CEO job.
btw indemity insurance is also provided to university executives, too (not necessarily employees thereof — perhaps advisory councils). And in a different form, members of Congress. Can’t sue for a Congressman’s personal assets for voting on legislation that hurts you.
Oil producers typically create wholly owned operating companies which are the companies that actually operate the leases. There are both liability and income tax reasons for doing this. As I’m sure you are all aware, oil and gas exploration and production is fraught with environmental and worker’s compensation liability. Those liabilities fall on the lease operator.
By setting up the operating company, the producer seeks to limit liability company wide in the event of a human and/or environmental catastrophe. Furthermore, LLC’s provide the same liability protections to members as corporations do to shareholders, but may be taxed as a partnership. Therefore, there is no federal income tax paid by the operating company LLC, all income and expenses flow through to the producer corporation. I am sure with these multi billion dollar public companies there are many other reasons for the LLC operating company model that are beyond my knowledge.
As for walking away from debt, I would assume the bank loans are all properly collateralized, unless of course the banks made mistakes in the documents. Banks typically don’t loan on real estate unsecured and oil and gas is real estate until it is captured by the producer and placed in the stock tanks. Further, banks typically don’t loan on personality, such as stored oil, equipment etc., without securitizing it. Choice of entity doesn’t matter.
On the other hand, the bond holders are not secured, they cannot go out and foreclose leases or levy on equipment. They hope there is something left in a liquidation after the secured creditors get paid. Admit I’m not an expert here by any means and stand to be corrected. Hope this is helpful.
It ain’t clear what % of debt is with banks (which mostly seem to be essentially regional) and what % was in some fashion underwritten HY bonds pushed onto the public for commission. HY would be investment grade if they had a lot of collateral behind them.
Congress is scurrying around trying to get government shutdown funding passed so this is off the radar screen in Washington for now. There are bad things about this, beyond simple delay of whatever form a bailout might take.
There is time passing to wipe out the boom narrative. That narrative extends all through society. When video footage arrives of long lines of trucks and campers and whatever leaving North Dakota the underpinning for presumption of much broader US economic growth is gutted.
Yes lots of complexity. Nobody will loan a small corporation very much money for instance unless the owners and managers are willing to assume personal liability for the loan.
But incorporation still leaves the management and principals in a strong spot – being incorporated – in the case of an employee or customer lawsuit.
I have borrowed money secured by oil leases in the past. We are very small and nowhere near shale. I really didn’t pay much attention to shale until I noticed the US production going up by much more than predicted.
In any event, as has been pointed out, the high yield bond market is responsible for this shale mess. Bank loans have lending standards. Banks typically may only loan a percentage of PV 10, using the bank’s price deck, adjusted to the producer’s wellhead price. Typically the bank will loan around 50% of PDP PV 10. The bank will typically loan very little using PUD reserves as collateral. At least that is how they loan to small privately held producers.
If you look at the shale drillers, you will find their SEC PV 10 for 2013 and will see it is based on an oil price of over $90 and contains a high amount of PUD. When you look at the shale drillers’ liabilities, you will find the total almost always greatly exceeds 50% of PDP PV 10 as of year end 2013.
Year end 2014, PV 10 using the current price will mean they are all big time underwater. It would be akin to owning a home in 2013 which appraises for $200,000 and owing $250,000 on it 12/31/13. Now, the new appraisal 12/31/14 values the home at $100,000 and the debt against it is now $350,000 as another $100,000 was borrowed. All made possible by issuance of junk paper.
The shale proponents all point to hedges. However, they fail to get into the specifics. Many shale cos used 3 way collars, assuming that prices wouldn’t fall this far. They were hedged at $90 provided the price didn’t drop below $75. Now the price is $60, they are only hedged at $75. Price drops another $10, they are only hedged at $65, etc.
I started studying this shale stuff in June, 2014. I completely agree with Mike. Except for some sweet spots, this stuff is going to crash and burn without a major price turnaround.
I have tried to equate it dollar for dollar to conventional drilling, but no one seems to understand my point. I’ll try again here.
We can drill and complete an infill well for around 1/100 of the cost of a shale well in our old shallow stripper field. 1/100 of the average EUR in the Eagle Ford would be only 1,680 bbl of oil gross, and 1/100 of the average EUR in the Bakken would be only 3,200 of oil gross.
There is no way anyone would drill a well in our little old depleted stripper field if they hoped to produce over the life of the well 1,680 to 3,200 gross oil, the life being in excess of 30 years. We operate many wells drilled in late 70-early 80s boom. Their EUR range widely but 15,000-25,000 is pretty common and they are still producing a barrel per day on average. 100 times would be EUR of 1.5-2.5 million bbl of oil. Almost none of the tens of thousands of shale wells will ever approach that. Also almost none will have a tail of around 100 bbl per day
These wells IMO are very marginal. I know my example oversimplifies, but to me it shows just how over hyped these wells are. Sure the IP high, but it is not impressive to me in relation to what they cost.
That’s good stuff.
At least for the money, the key really is the bond issuance. We’ve gone thru numbers on that and with 5 year maturities, the cash demands on these wells are overwhelming at $70 or 75. At $61, it’s disaster, and probably really fast.
A good data point, and you or Mike might know, what is the historical norm for loan maturities of borrowed money on conventional wells. Only something like 15% of CLR’s debt is 30 years. They had a quoted hmmm I have forgotten but I think it was 7ish years as avg maturity on debt, and with 15% or so at 30 yrs, that means there is a LOT that is less than 7 yrs.
Why hasn’t the market taken them to $2/share? The bailout word is out there.
Do the EF or Bakken wells market their gas production?
Yes, all gas that is not flared is marketed. In North Dakota, in August 2014, approximately 28% of all gas was flared.
Natural Gas Flaring In Bakken Reduced Following New Regulations
Thanks Ron,
That works out to about 180 kboe/d of marketed natural gas, assuming 1000 kb/d oil output in Aug 2014 and 80% of barrels of oil equivalent of output (1250 kboe/d) is oil output. So 250 kboe/d of natural gas, and 28% is flared leaving about 180 kboe/d of marketed natural gas.
Then the gas production they market should cover a significant share of the well direct operating costs. Right?
Hi Fernando,
I would defer to your judgement along with Mike and Man Bear Pig. Rune Likevern has suggested this would amount to about $3/b of oil produced in net revenue and could be used to cover some of the general overhead that he does not include in his economic analysis (which is done on a point forward basis).
Oasis is cutting Capex even though they are 50% hedged at $89 for next year.
Ron, you might want to look at slide 9, they talk about high intensity completions that boost initial flow rates.
Even hedgers have the option of settling futures contracts in cash if they so choose. In other words Oasis does not have to deliver the oil they hedged at $89 a barrel. They can simply choose to accept the difference between $89 and the price of oil at the expiration of the contract.
They could just choose to do that and turn their rigs back to the lessor.
If Oasis is suppose to be one of the better shale companies, and they are cutting their drilling fleet by 60% and only drilling in one small area, what will the results be for the less viable companies?
Oasis has come out first with their revised drilling program, does than mean they at least have a viable plan that they can make public, or are they the first to feel the heat. I feel the former maybe the correct answer. It should be an interesting time watching as the rest of the shale industry make their own announcements on cut backs?
http://www.oasispetroleum.com/wp-content/uploads/2014/12/2014-12-OAS-IR-PresentationvFINAL.pdf
One for Watcher,
Page 12 & 13
Note the quantity of fluids that leave the well sites, by pipeline,
oil 77%
gas 97% of wells
salt water 40%% and increasing
As they concentrate on the sweet spots and have more intensive development, these pipeline take away numbers will only increase, so the number of truck movements will naturally moderate.
now sand is another matter, they seem to be using greater quantities all the time and trucking is the only alternative, but any liquid in a densely developed area, lends itself to be pumped via pipe.
ZH (I think those guys pay for a Bloomberg terminal (several thousand dollars/month) is trumpeting “HY Energy has blown out 960 bps!!!!”
I didn’t know the high yield space was sectorized, but assuming it is and there is indeed an index of high yield bond issuance from energy companies, this text blast would seem to say the interest rates on new such HY bonds (loans) borrowed by energy is about 11%. Gulp.
Ron, I have been a long time regular visitor and lurker at Doomstead Diner. It was a pleasure to see you and listen to you on Doomstead Diner TV. I wouldn’t worry about your performance too much. I’ve never seen a “good performance” from any notable person on Doomstead Diner TV. We have to excuse the media format as being much less than optimum, understand how difficult it is over that medium to look and present information in an optimal way, and just focus on the message. And your message, and your opinions expressed certainly compensate for any lack of “good performance”, imo.
I have often speculated that we will reach a point in time where panic sets in, either preceded by or followed by a stock market crash, leading to utter chaos. That approaching reality seems very logical and unavoidable to me. It is interesting to see you also express that POV. I think you gave it a “within ten years” timeframe, where I tend to believe it is coming much sooner than that.
And if you will excuse me for bringing this point up again. That panic, along with the loss in confidence and the chaos that will come with it, is exactly what the thick cloud of lies and propaganda being generated today attempts to delay and suppress, because IF the truth were known by a majority, panic and fear and chaos would certainly result.
Nobody denies that we, the masses, are being bombarded by propaganda and lies. The question is, who is behind all those lies and propaganda spiels. Many if not most, including you I believe, continue to believe that it is a multitude of independently operating entities that are producing the groundswell of lies and propaganda.
But, when the need to suppress panic, fear and chaos is so great and when doing so is of critical importance to the Federal Government, state governments and to corporate and financial institutions, isn’t it logical to assume that those entities who are most threatened might be working together behind the scenes to prevent or at least delay that fear and chaos?
It seems so obvious to me that there is a coordinated effort behind not all, but so much of the propaganda we are being hit with, certainly the major pieces such as in “The Economist” that you posted last week. But I don’t seem to get a lot of agreement from others on this topic. So, I’m still trying to “reach out” and find confirming points of view on the subject.
Northwest Resident, thanks for the compliments.
About those lies. There are lies being told but they are largely being told by the corporations, not by reporters who, very naïvely believe those lies.
Concerning the stock market crash you wrote: I think you gave it a “within ten years” timeframe, where I tend to believe it is coming much sooner than that.
“Much sooner” falls within a ten years time frame. 😉
About those lies… Many if not most, including you I believe, continue to believe that it is a multitude of independently operating entities that are producing the groundswell of lies and propaganda.
Yes that is exactly what I believe. The oil companies, and a lot of other companies, are knowingly pumping out lies in their sales brochures. And this gives birth to all this “energy independence” crap we keep reading about. People desire to believe what they desire to be true. Reporters get caught up in all the euphoria, believe it and print it. I don’t believe there is any kind of conspiracy by publishing companies, broadcast media, or whomever to deceive us. These people are just plain ignorant of what is really happening. They have said in the past “we were wrong” and they will be wrong again, and admit it.
I simply believe it is ignorance on the part of the media, not any kind of conspiracy, that is pumping out all that wild exuberance we see about shale oil and yellow brick road to energy independence.
Economist cover “Drowning in oil” – March 6, 1999
“Our energy correspondent couldn’t go anywhere without people reminding him of our poorly timed ‘Drowning in oil’ cover, with talk of $5 oil, which ran just before the oil price started an epic, eight-year climb to a high of $145.”
Nobody wants to agree with me. (sigh….)
But seriously, thanks for the feedback, Ron. Your POV on the subject is reasonable and logical. Mine is a speculative and borderline conspiratorial. There is no doubt but that financial and oil industry PR departments are churning out the propaganda, and that may be all there is to it. But my deep suspicions remain that there is more to it than that. One day, if I find something that I think more substantially proves my point of view, I’ll revisit the topic here. Otherwise, I think I’ll give it a rest on this topic, on this forum at least. Thanks again.
It’s all words, guy. A conspiracy is just a word created to discredit the work of a “coalition”. Like a coalition of central banks. Or a Troika. The EU, ECB and IMF get together to conspire to put Greece in debt in perpetuity, and it becomes a Troika aid plan, not a conspiracy.
Conspiracies require that groups of people work together and that there are few, if any, leaks.
To believe in a global conspiracy, you must also believe that these groups of people are especially well managed. I’m not sure that is the case.
I simply believe it is ignorance on the part of the media, not any kind of conspiracy, that is pumping out all that wild exuberance we see about shale oil and yellow brick road to energy independence.
Yes, I think so too. Media in an echo chamber where they read what each other says. It’s too risky and time-consuming to come up with something that isn’t being widely reported.
If someone says something, you can accurately report that this has been said without bothering to check whether what has been said is actually true.
That’s how political reporting works now. A politician can say something outrageous. Rather than fact-checking, the media just repeats it. If it is repeated often enough, it takes on a life of its own. There are people who point out when something is a lie, but they are usually smaller in number.
Actually a politician says something outrageous. His or her staff convene and discuss how that plays in what state or district. Maybe they take a flash poll to see focus group response.
If it looks bad, they’ll hit up the reporters with “he misspoke in a moment of fatigue after hard days working for his constituents”.
When it comes to whether or not there is a conspiracy or not. I think most of the dialogue seen in the media is one brought about through ignorance. As they say: don’t attribute malice to something that can be explained with ignorance. Saying that a significant amount of what is stated (or sometimes not stated depending on the storyline in question) is manipulated either through economic or political pressure.
What we need to be mindful of is that these media outlets are under pressure to generate profits and to achieve those ends a company must not produce too many articles that are overly critical of their sponsors and shareholders. Another part, and this relates to what Ron has said in the past, is people are natural optimists so it behoves companies to deliver a narrative that is optimistic and palatable to their target audience. A negative more pessimistic story is not going to generate as a large following no matter how accurate or logical the content maybe. And besides since most people are optimists it follows that writers of such articles will tend to be optimistic so naturally there will be a bias to feel good storyline.
In cases like this accuracy becomes less important, and sometimes it is better to be wrong in a group than to be right on your own. In the end the most difficult thing to overcome for most people is that there is no solution and by this I mean there is no series of steps we can take to maintain our industrial lifestyles. It is merely a question of how to ameliorate the decline. Now perhaps there are ways of softening the decline but there will be a reduction in the living standards of people and we will live shorter and harder lives. It is just a question of degrees.
trala trala trala
http://finance.yahoo.com/news/could-us-bailout-own-oil-120440435.html
An economist who correctly predicted the fall in oil price this year has told CNBC that the U.S. government could look to bail out its energy sector in 2015 as the commodity’s low price starts hitting the country’s economy.
“The U.S. energy sector is clearly important,” Steen Jakobsen, the chief economist at Danish investment bank Saxo Bank, told CNBC Wednesday. “They are paramount to the long-term strategic issue that the U.S. will be self-dependent on oil.”
I should rent space on a mountain top and sit cross legged there saying Ommmmmmmmmmmmmm.
From the article:
Any potential bailout for the sector, or even the banks that lend to them, would prove vastly unpopular in the U.S. The country is steel reeling from a financial crash in 2008 when taxpayer money was used to backstop major financial instructions on Wall Street.
I hope politicians remember this.
That’s why the Fed does it, by buying HY issuance and thereby putting a floor on their price (a cap on their rate). That’s why the Goldman rumor of securitizing HY paper was such a big deal. The Fed could buy some of those packages almost without a significant announcement.
And the Fed never stands for re-election. I don’t even think the Senate has to reconfirm governor nominees (could be wrong about that).
The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement monetary policy of the United States. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms.
!!!!!!!! 14 years? Holy crap.
I just went back and checked that, thinking maybe typo (in the wiki)
http://en.wikipedia.org/wiki/Federal_Reserve_Board_of_Governors
It’s not a typo.
The Fed also isn’t audited and regulates the TBTF banks that happen to be its owners and sit on the boards of the regional banks.
Fed hatred is pretty much epidemic online nowadays. I point at what they did a lot, but I claim they did it because oil scarcity is forcing it. Bernanke was facing a rolling Apocalypse and had no choice — and he may even know or suspect he only delayed things and maybe made them worse in the future.
If you’re a tenured left wing Princeton guy and you’re told a lot of people are going to die in a year or so if you don’t do some particular thing, but if you do that thing, yes, those people won’t soon die, but 5X that many people PROBABLY will die several years later, that guy is going to do that thing. He’s going go for buying time and hope to dodge the “probably”, most especially if he can resign and get a replacement in before the later schedule arrives.
For someone who is normally so skeptical, you sure have fallen hard for the propaganda.
There will be no bail out of oil. It is much more simple. The dollar will slump. This week has been already the reversal as the dollar fell despite much lower oil.
So what leads you to believe the dollar will slump?
It is mostly the collapse of the high yield bond market. HYLD, JNK and HYG are in free fall mode. This has been in my knowledge the first time the high yield bond market collapses in the face of a high dollar and low inflation. Previously a strong dollar, low inflation and a falling oil price has been a huge advantage for the US economy. However this time it has the imploding shale industry around its neck. So this time a falling oil price has a price for the dollar. Usually it takes around three months after the high yield bond market collapse, to impact the economy. Therefore I am expecting a much weaker US economy and dollar by next year. Nevertheless it also depends on the FED. It can do a lot of damage by keeping the US dollar high.
More on cuts to oil company budgets:
http://www.cnbc.com/id/102256756
‘Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold in 2015, according to Norwegian consultancy Rystad Energy.’
Doug’s niece had that before CNBC. Hell, everyone has stuff before CNBC.
Notice: I really don’t like anonymous comments so I changed the settings so you must be logged in to post. I hope this does not inconvenience anyone.
Probably a good decision, I hate being switched down to Anonymous. Wasn’t impressed being assigned a 12 character password though: It’s not Fort Knox!
Looks like you are killing your comment sections, Ron.
Yes, it threw me when it said I wasn’t logged in. I thought I had been. I tried posting several times and it kept telling me I wasn’t logged it. Then I had to open an account when I thought I already had one. It was confusing.
Okay, undid it.
agree, a little explanation would probably help.
But for everyone that not made a new account today, they will need to do so to log in and get a new pass word.
Naw, everything is back like it was. I had no idea it was going to cause problems. Anonymous posts are sometimes a pain but not that big a pain.
Seems like most anonymous posts are accidental. Of course, you get some troll posts, too, but perhaps you can just delete the really bad ones.
As for the global warming opponents, they seem to pop up everywhere on the Internet where anyone mentions global warming. It looks like relatively few of them post using their real names, and probably some of them post multiple times under different names. Luckily they haven’t taken over your blog yet.
I’m opposed to global warming. But when I think of it, I’m opposed to global cooling too. I’d rather keep it like it is right now, or maybe a little bit warmer (say no more than 1 degree c). The only pro global warming person I’ve ever met was a Russian who worked at Varandey. But that’s a really cold place.
Thanks
Ron,
I thought your diner performance was fine. Not an easy format.
I have to admit that when the ever cheerful professor bardi says that he’s getting scared that does rather unsettle me.
Also the paper by Graham Turner, whose work is mentioned in that guardian article, can be found here:
http://www.sustainable.unimelb.edu.au/files/mssi/MSSI-ResearchPaper-4_Turner_2014.pdf
Looks like those oil stocks are pushing down all of the equities. CLR is 34 or something and had a high of 80.
Whiting Oil bought Kodiak the other day, Whiting lost 3 dollars today. KOG is no longer being traded, Whiting bought them out lock, stock and barrel.
EOG at 87, down from 118.
STO is at a new low under 17.
What a fine mess.
Does this mean if oil goes to 200, the DJIA will be 40,000?
OPEC cuts 2015 demand forecast:
http://www.reuters.com/article/2014/12/10/us-opec-oil-forecast-idUSKBN0JO15W20141210
Well there’s the answer as to what’s causing the “glut.” No demand due to bad economy and US shale producers running full blast for non-demand reasons.
Ron,
Methane geophysics/geochemistry has been one of my interests for decades. I’ve written a brief summary of key points for your consideration. Perhaps it’s too long or too off topic. In other words, retain or delete at your pleasure: Won’t be offended if it disappears.
Respecting methane, something unusual turned up during early seismic reflection work. This oddity was a cause of confusion among geophysicists exploring for oil on continental margins because it seemed to indicate a “sub-floor” beneath the actual bottom: A “sub-floor” reflection which paralleled the seafloor. Explorationists labeled this false seafloor reflection the “bottom-simulating reflector” (BSR). The mystery was finally solved when BSR was traced to a free methane-methane hydrate interface; the gas failed to reflect sonar signals, while the layers of methane hydrate above created a strong signal — made even stronger by the contrast with free gas below: BSR marked this boundary. The reason BSR closely follows seafloor topography is because it is the depth that the oceanic cold penetrates, allowing the formation of hydrate. Deeper, geothermal heat flow does not permit the hydrate to form.
The BSR signature means we can use it as a method to determine locations of methane hydrate on continental margins. So, BSR delineates the base of the gas hydrate stability zone and allows its determination without drilling. This is very important.
In coarse-grained sediments rather than muds there is greater pore space for hydrates to form. In these units, therefore, hydrates can be found as cements, gluing sands and gravels together by occupying open spaces. There also exist more massive, laterally continuous layers, ranging from two meters up to tens of meters in thickness. These hydrate layers and units form an impermeable barrier within sediments.
Below the hydrate barrier you find significant quantities of free methane, some of which undoubtedly moves upward into the hydrate stability zone, but there, because pressure-temperature conditions are right, it also becomes a hydrate. Most hydrate, in fact, is likely to have been formed in this fashion. Some free methane, however, is carried upwards in fluids that circulate in sediments which make it through the gas hydrate stability zone and overlying sediments, evade being consumed by bugs [methanotrophs (prokaryotes (a single-celled organism) able to metabolize methane)], and escape into the water column and eventually the atmosphere. Climate change may alter this dynamic in significant ways.
There are, of course, quantities of methane hydrate in permafrost estimated at about 10 Gt of methane. Although there is total disagreement in such estimates this represents only about 1% of the amount in the ocean’s continental margins. Nonetheless, permafrost hydrate methane may have been important past climate patterns — long past climate patterns.
“evade being consumed by bugs [methanotrophs (prokaryotes (a single-celled organism) able to metabolize methane)]”
!!!!!!! What a weapon!
Thank you Doug,
I for one would be greatly pleased if you were to provide us with more comments along this line anytime at all-any thing that has to do with geology and fossil fuels that is not widely known to laymen- but comprehensible to us with some basic chemistry and physics.
Now I have a question that is sort of out there in left field- Do you know of any evidence that good-sized chunks- lets say from as big as a house to as big as large ship maybe- of methane hydrate ever become detached from the sea floor- evidence such as a crater not yet refilled by sediments perhaps?
It has long been a pet theory of mine that at least a few disappearances of boats and reported sightings of fires might be attributed to this possible phenonenom- nothing new about this of course , this idea has been floating around at least since the discovery of hydrates.
But lots of things are known to laymen before they come to the attention of scientists- one example being rock drawings for instance. There is no reason a professional geologist in the oil industry might not know about the existence such a crater without this knowledge coming to the attention of folks in other fields.
As a matter of fact such a geologist could probably get his name and picture on the front page of a lot of papers if he were to turn up the coordinates of such a crater -which may or may not exist of course.
And of course the people who create and those who pay for the seismic work might prefer to just keep their pie holes shut for business reasons – keeping everybody else in the dark to the extent possible.
At any rate it seems very likely to me that big chunks of hydrate must occasionally break free due to earthquakes and undersea landslides, the vagaries of currents eroding certain areas of the sea floor and building up other areas and so forth.
Of course just being a simple layman who took a math course in probability I understood that continental drift HAD TO BE a reality before it was accepted by the geology profession.
(Ya don’t just accept odds of trillions and trillions to one against something as reasonable because you don’t understand the how and why of it- you go looking for the how and why and behold!!! sooner or later you find it.)
With all those many square miles of hydrates out there I just can’t see all of it staying put all the time.IT DOES FLOAT if it breaks loose right? Some of it anyway, with less embedded sediment.
But maybe even if a large patch is disturbed it IS too heavy to float away and the water is still too cold ( not enough mixing with surface water) to melt it in a hurry.
But but but – even in that case an earthquake or landslide might impart enough energy to melt the hydrate in a small specific area so the methane could bubble up to the surface.
A serious reply might put you out on a limb in case it gets back to management so a humorous one will do.
Old farmer, gas does bubble up all the way to the surface from seeps. The shallower the water the easier for the bubbles to reach all the way up. But this refers to gas seeps (it never gets frozen).
I’ve never heard of methane hydrate “chunks” the size of a car. My guess is anything that big would get eaten if it were a juicy chunk of hydrate sitting on the sea floor.
http://science.psu.edu/news-and-events/1997-news/iceworms.htm
Don’t forget most hydrate fields are a mixture of water, gas, sea floor mud, silt, dead critter skeletons, carbonates, etc etc. We also have to account for the fact that hydrates sublimate when pressure drops below the hydrate formation pressure. This means a hydrate chunk floating towards the surface will start turning into gas as it ascends. However, this would definitely make a great experiment. We could try putting an explosive charge in a hole drilled 20 ft into the sea floor and blow it up to see what happens.
”This means a hydrate chunk floating towards the surface will start turning into gas as it ascends”.
My precise line of thought.I have read quite a bit about such possibilities.
Such an ascending column of methane bubbles might be enough to lower the effective density of the water at the surface to sink a boat- or to suffocate the fishermen on the boat- or to ignite if one of them is smoking a cigarette or there is a cooking fire or hot engine.
This could perhaps potentially happen fast enough that even a fisherman with a radio might not get off an sos with an explanation of what is happening. Such as fisherman would probably be too panicked to communicate effectively anyway.
A very low flying plane running into a methane cloud would suffer engine oxygen starvation and go into the drink in a hurry.Maybe in as little as ten seconds if skimming the waves.
I do realize that IF such sudden hydrate releases happen they must happen only occasionally and the the oceans are very large and that finding smoking gun evidence – if it exists- is going to be the result of a lucky accident.
Escaping free methane has created bottom craters. They can be found in several places around the world, including the floor of Belfast Harbor on the west side of Penobscot Bay in Maine. There the bubbles of methane are suspected to be the cause of several unexplained boat sinkings in centuries past, although none have been reported recently. The craters for some reason attract lobsters in the summer and early autumn, so the local lobstermen regularly set their traps in and around the craters.
Hi Mac,
Hydrates in seafloor sediments generally remain frozen: after all, they are icy lattices. Mostly they remain frozen well above the normal ice melting point so oceanic methane hydrates are usually found buried in sediments where the overlying seawater is at least 300 meters deep. Of course, depending on local geothermal gradients their depth extends to only about 1100 meters.
Having said that, the ocean is a big place full of surprises so I’m not suggesting your ideas are totally off base. As an off topic aside, you may recall the crater complex filled with carbonate-debris breccias which became the host oil for the oil fields around the Cantarell Complex in Mexico. It’s been suggested it was this impact event that released vast quantities of seabed methane that lead to the Cretaceous–Paleogene extinction. Maybe. but not my cup of tea however.
Thanks Doug
Given what you have added to what I knew already it seems likely to me now that the only likely reason a big chunk – maybe even tens of hectares- of hydrates would ever just break loose would be as the result of a powerful disturbance such as an earthquake nearby- or maybe nearby volcanic activity.
In this scenario such a sudden release would be an extreme rarity indeed.Maybe not even once in a century world wide.
Now here is semi sci fi scenario. An energy company locates some hydrates in a nice quiet bay someplace and sends down automated harpoons with air lines attached and starts pumping a lot of air into the hydrate deposit- plus some good hot sparks.
This might just bring a lot of methane to the surface in a hurry.
A floating hood say a square mile in extent could be used to capture it at the surface and allow it to be pumped on board a ship and compressed.
Just plain old dynamite might work too but a lot of heat would be needed for the phase transition involved. Hence I suggest fire rather than explosives.
Most likely a totally impractical scheme but people have invested money in schemes no more likely to succeed.
I am open to a partnership with anybody experienced in running investment scams.;-)
wasn’t something like this a possible idea for why ships disappeared in the Bermuda Triangle?
As a matter of fact this theory was what brought the possibility to my attention originally.
Being stuck inside these days and most recent days I spend a lot of time poking into such interesting topics.
My conclusion concerning the Bermuda Triangle is that it only exists in the imaginations of people who want to believe in it.
The number of ships and planes that have been lost in that area in relation to the amount of traffic is not out of line with any other area of the oceans of the world with similar weather conditions. As a matter of actual fact the number of lost ships and planes in the so called Triangle are is probably LESS than expected in relation to the traffic.
This lower loss rate probably has a lot to do with so many people being out there with good navigation equipment and good radios and lots of rescue infrastructure within easy reach.
People in the Triangle area can afford better and newer boats than say the people fishing off the coast of let us say Vietnam for instance.So it stands to reason the loss rate would be less.
I almost got lost in the Bermuda Triangle in 1973. We left Ft Lauderdale with a brisk wind, but in 2-3 hours it got really nasty. Then we got hit by one of those rogue waves people used to say didn’t exist. And we almost sank right then and there.
According to Laszlo Birinyi(on CNBC’s front page) this recent oil drop which I think caught everyone by surprise is a Black Swan Event. After thinking about it he could be right! Just my 2 cents
Stockman – ‘the shaleoil bubble in plain sight’.
http://seekingalpha.com/article/2746305-this-time-is-the-same-like-the-housing-bubble-the-fed-is-ignoring-the-shale-bubble-in-plain-sight
Rather good I thought…..
Wow.
Do you think the media will read this and learn something?
This is the best and most telling article yet on the shale boom and the US economy. Wow!!!!!!!
Stockman’s resume has always been a little weak, but no worse than many in politics. This material, though, stands on its own strength.
Lower oil has also benefits for the US economy. The FED is just waiting on which side the trade off lies: lower energy prices for consumers or implosion of shale and high yield market. There are some egos on the FED who want to desperately rise interest rates – which means a higher dollar and lower oil. Will they win this time? In any case something has changed on a worldwide stage. For the first time the Shanghai stock market soared in the face of a rising dollar. This is a sign the dollar is not as mighty as it used to be. So there is a stand off between the FED and the rest of the world.
The fed doing nothing- meaning maintaining the current policy- is the same thing as doing something- and I will hazard a guess that the board members think they have a few months or maybe longer to wait and see what happens to oil prices without changing course.
Intervening on the part of the oil industry is not going to be a popular move in so far as the average voter is concerned and although the Fed is ostensibly and legally independent the people appointed to it are after all political appointees who generally remember WHO appointed them and why.
Personally I think oil prices will go back up within a year or so and that while there will be a lot of blood in the street the tight oil industry will survive more or less intact with new owners but the same infrastructure and assets minus the debts- assuming there is on bailout.
PERSONALLY I believe in markets and capitalism. Part of that belief includes believing that people who are dumb enough to invest in or loan to an iffy industry must suffer their losses as well as enjoy their gains.
A bail out means socialized losses and privatized profits.
NOBODY should escape from a bailed out industry with a SINGLE THIN DIME – every dime should go first to making the creditors good and anything left to keeping the industry running if it is an ESSENTIAL industry.
Old owners out new ones in. Period. If the industry has reason to continue to exist the new owners will keep needed good existing employees and maybe even some of the old management.
I figuratively pee on bailouts that allow investors and owners to off load their risks on me. They don’t offload their profits if any do they?
Except that didn’t happen.
AIG was bailed out. BoA was bailed out. GE was bailed out. GM was bailed out. Goldman Sachs took a piece of the pie. JPM did. When that money was there, it became immoral and irresponsible to one’s shareholders not to grab some of it — even if you weren’t going bankrupt — because, and this is important:
If you don’t take that money, your competitor gets an advantage. How does Goldman compete with JPM if the US government takes JPM’s debt off its books?
The Rubicon is crossed. The goal of many things now is to pretend it either didn’t happen or it was a single event that can’t ever happen again.
Silliness. Of course it will happen again. It would be immoral for it NOT to happen again.
What ought to be and what is alas are not often the same thing.
If JPM went busted and got bailed out according to MY STANDARDs then JPM would in essence no longer EXIST.
But gold in sacks would probably have bought up some of the assets auctioned off such as existing receivables, real estate owned etc.
So – competing with JPM would no longer be a problem FOR ANYBODY.
That ain’t what happened and thus, that ain’t what the world is now.
Very good article, from a US point of view. The only fault I would have with the article ignoring the global supply situation. And as I periodically note, CNE (Cumulative Net Exports) depletion marches on.
On the following slide, the updated 2013 numbers, for the (2005) Top 33 Net Oil Exporters, would be as follows, as a percentage of 2005 values:
Production: 101%
Net Exports: 94%
ECI Ratio: 83%
Remaining post-2005 CNE: 72%
(ECI = Ratio of production to consumption)
Note that (by definition) it is not whether remaining post-2005 CNE have declined; it’s a question of by what percentage.
Comment about Venezuela:
Quoting from the Original Post
“Venezuela’s production has leveled out at about 2,330,000 bpd. This is a little surprising giving that their conventional fields are very mature and require heavy investment to maintain current production levels. I have been unable to locate Venezuela’s bitumen production vs. conventional oil production but I believe bitumen or extra heavy production to be somewhere under half a million bpd.”
Venezuela’s production numbers are unreliable. However, let’s assume these are close enough. The majority of Venezuela’s oil production comes from older fields or from the Orinoco oil belt. Older fields such as the ones we see in Venezuela usually have a fairly low decline rate. The Orinoco extra heavy oil wells produce 8 degrees API, they are developed using horizontal wells equipped with progressive cavity pumps. Diluent is injected downhole, or at the wellhead to make a +/- 18 degree API diluted stream. When these wells are first drilled the PCP isn’t turned too fast, and it’s common for the individual wells to gave excess capacity. Field capacity is set by diluent availability, or outgoing pipeline capacity.
Thus we can group the well population in two large groups: the newer extra heavy oil wells and the older wells. Older wells can have high water cut, high gas to oil ratio, or production system limits.
This means the decline rate, on a per well basis, has a weighted average below 10 % per year. Say it is 8 %. 8 % of 2.3 mmbopd requires about 15 to 16 Kbopd per month of new well additions.
I can’t tell you what the recent crop of wells is like, but I’ve seen Orinoco wells pump 2500 bopd with a PCP using 5 1/2 inch tubing. This is exceptional, the very best. My GUESS is that today, with the service companies doing a lot of heavy lifting, pdvsa can complete 500 bopd wells. So they need say 32 successful completions per month. That’s doable using 32 to 50 drilling rigs. Not all the drilling is done in the Orinoco, but it takes up a fair share.
My guess is today they are producing over 1 mmbopd of 8 degree API. About half is upgraded, with the upgraded crude ranging from 18 to 32 degrees API. The other half is blended with venezuelan or imported light crudes (or naphta).
The main barriers to increasing production in venezuela are their lack of brainpower and cash. They can’t get foreign investors to invest much, and there’s a huge lack of know how.
Fernando, thanks a million for this very insightful post. It is always good to get a little inside information from someone with actual knowledge of what is really going on there.
Ron, it’s a pleasure. I’m learning a lot by reading this material, so I might as well contribute a little bit. If I see anything I can clarify I’ll put my shoulder to it.
Fernando, the world, especially the blog world, is filled with arm chair experts and it is refreshing to have your injected expertise at key moments. I’ve been trying to talk my niece (a young Norwegian Petroleum Engineer) into becoming an active commenter but of course doing so isn’t compatible with having a job in the oil industry. Thanks for your continuing the input.
She can apparently read English well- so she COULD relay her comments thru a third party for a little polishing given English appears to be a second language for her.. HINT.
Up until WW II German was the second language of Norway but they were so pissed off being invaded the use of that language disappeared, by mutual consent: Virtually every Norwegian is fluent in English now. Sometimes my niece reads Ron’s Blog and sees something she doesn’t agree with then sends me an e-mail but, alas, time passes and old posts are soon forgotten.
I spend about half each year in Europe, mostly divided between Italy, where I have a Daughter, and Norway. Next time I visit my niece (Christmas) I’ll suggest that she shouldn’t be shy about sending remarks here: Given the crap he lets me get away with it’s unlikely Ron will complain?
Of course not, I would welcome her comments.
FYI for some reason Baker Hughes Excel report of international country by country rig count spreadsheet doesn’t open, but a graph shows rig count inside Venezuela at about 80 in 2012. That’s gas and oil and apparently “casement repair” types.
Don’t know if that’s enough to accomplish your required 32 successful completions/month.
I don’t think they list repair rigs (do they?). So the number of rigs you list for Venezuela should be the total number of rigs of all sizes.
The best rig for heavy oil wells is a 2000 hp rig, with top drive, and skiddable. The best well arrangement is in multiwell pads. This means the ability to skid from well to well is really important.
However, since around 2006, when chavez went radical red the amount of corruption skyrocketed, and pdvsa political commissars got much more into the day to day operations. As a result they started bringing in chinese and russian rigs. And those are much slower, break down a lot, and in general aren’t fit for purpose. So everything slowed down. Venezuela is living in a world where time runs backwards. Every day things get worse, more primitive, and less efficient. In recent days I heard about the Vicepresident (Arreaza) giving a speech about the need to control professionals and scientists from leaving the country. This tells me brain drain must have accelerated. So, are those rigs enough to keep production up? Maybe. But the business requires wells to have flowlines, and pumps, power distribution, separators, oil treaters, and so on. And I’m not sure if the brain drain isn’t gutting PDVSAs ability to put the oil in an export terminal. My guess is they’re going to have difficulty keeping production levels as they are.
Here’s a link to a Bloomberg piece that has some useful information in it.
http://www.bloomberg.com/news/2014-12-11/america-getting-rid-of-oil-addiction-as-price-plummets-amid-glut.html
One point that caught my eye is that actual average new car fuel efficiency is up twenty five percent just since 2007 in this country. I have no doubt at all that oh seven models were also twenty five percent more efficient that late eighties models.Maybe not on paper but in real life.I am talking about weighted averages not the averages of individual models.
Just about all eighties vintage Mustangs are v eights but by the mid nineties most of them were v six for example.And the market share of real hot rods has continued to decline even as new hot rods these days get mileage comparable to yesterdays econoboxes.
Even here in a hard up corner of Appalachia there aren’t many eighties models still on the road and early nineties models are going to the scrap yards fast. The high price of scrap metal in recent times resulted in the used parts industry having little to offer in the way of inventory for these older cars and continued inflation in repair costs has contributed too. Cars with really high mileage or over fifteen years old just don’t get fixed except in backyards anymore.
Newer cars that use a different computer and sensor and fuel injection set up every six months sometimes and always within a year or two and come in a hundred different models are not easily repaired anymore except by expert mechanics with lots of diagnostic equipment and a customer willing to pay for their services – not to mention hundreds of dollars for parts in addition. So a ninety five Tauras that is still in basically good shape but not running that might easily run another hundred thousand miles just doesn’t get fixed. The owner adds another thousand to the thousand dollar estimate and buys a somewhat newer used car in most cases.
And people who are hard up who still have cars have cut way the hell back on unnecessary driving.One of my neighbors who has a dump truck actually stops on the way home with it after hiring it out for the day to buy his groceries. Five years ago he would have laughed at this idea but now that work is slow…. he has changed his tune. Pretty soon he will be leaving it on or near the job site and driving his car to and from-if he still has work.
Personally I think increasing efficiency is having a bigger effect on oil demand at least in this country than most people think.
Conservation is playing a big part too. I recently parked the family Buick not because it costs too much to put gasoline in it but rather because we just weren’t using it often enough to justify the insurance and tags any more.It ought to go but Daddy won’t hear of it.
Mac: re comment on getting cars fixed, dignosed, etc.
I live 1 hour distance by driving due west from a small city of 35,000 on Vancouver Island. Said city sports several dealerships and mechanic shops which charge the same per hour shop time as the dealers. $85/hr….sometimes more, and usually an apprentice is doing the work ($15-$20/hr). Parts are marked up and customer forced to pay full retail price, usually out of ignorance. Because of this I have been doing most of my own work whenever possible. I hate it, to be honest. I hate lying on the cold concrete with rust getting in my eyes repacing mufflers and brakes, etc.
A friend of mine set up a home shop in our valley. He is a certified technician/journeyman and recently was one of the ripped off mechanics at the local Toyota dealership. (They charge $85 he was paid $30). Plus, they treated him crappy. He now does the same work at home for $40/hr and provides parts at cost. His wife works in town and he gets her to pick up parts on the way home, or we can provide them if we choose.
My point is that decline provides opportunities for both workers and customers. I drove by the fancy dealership, yesterday. The show room, huge inventory, layered management and ownership providing pretty crappy service is an unaffordable dinosaur of how business needs to be done in many respects. My friend has more work than he wants and provides concientous follow-up to make sure his customers are happy.
regards
A friend sent me a note to the effect that net new global automotive sales (net being gross new sales less vehicles scrapped) are estimated to be about 50,000,000 units in 2014, or in round numbers about 140,000 net new vehicles per day.
Hi Jeff B,
THIS IS A SCARY STATISTIC sure enough and one that I knew about of course but not the net increase.
But it is my impression that the average guy who gets a new car in China doesn’t drive it very far on a daily basis or even very often.For sure the Chinese don’t live out in the burbs and commute to work the way we do- at least not yet. They can’t – not yet- the road network is not yet up to the job except in a few areas.
And while the sale of luxury models is booming in places such as China it appears to be the case that most cars sold in the so called developing world are econoboxes.
So I will hazard a guess that even with a hundred fifty thousand new cars net on the road every day that global gasoline consumption is still more or less flat or maybe even falling due to the scrapping of older larger less efficient cars in places with roads enough to really drive them.
I am one of the biggest believers in you export land model.
The auto industry is not going to grow to even half the size most economists are predicting in my opinion.
And if it makes it to even the half way projected mark then the typical new car is going to be an electric or a plug in hybrid or fueled with natural gas or whatever- and it is going to be about half the size and weight of todays smaller cars. Fore and aft seating the first twenty to fifty miles at the least on a battery and anything past that on a two or three cylinder lawnmower sized ice or conceivably a fuel cell.
Zero to sixty times that are advertised now will be long forgotten and the fact that a car can GET UP TO SIXTY will be advertised instead.
And except for ambulances and cop cars new ones may come speed limited to forty five mph.
A universal speed limit of forty or forty five strictly enforced would cut oil consumption in cars by at least a third in countries such as the US.The increase in economy from slowing down would contribute part of this savings- but the minor part.
The greater part would come from people changing their driving habits. Commuting fifty miles at seventy ( hopefully ) would take close to twice as long at forty.
Road time would thus be substantially increased giving drivers a strong incentive to combine trips patronize neighbor hood businesses move closer to work etc.
A simpler idea might just be to tax gas at the pump. That’s what the Germans do, and they manage to use much less gas than americans, and have no speed limit at all in many places.
The key is making cities more dense. About 2/3 of a typical American city is parking lots or roads. Narrowing roads in city centers and changing zoning laws to allow businesses to build without providing parking would increase density, reducing the distances traveled. changing zoning laws in suburbs could revive the corner store, reducing travel even more.
The Dutch have taken this logic to an amazing extreme.
http://vimeo.com/76207227
This movie is about Groningen, but satellite pics of any Dutch city will show that it has happened everywhere.
I AGREE.
But while I can slow down easily enough I would have a hard time paying another four bucks a gallon for gasoline. And I am not in a situation to move personally. 😉
These graphs make for interesting reading, thanks for posting them.
More happy news to share with one and all.
SUPERBUGS TO KILL ‘MORE THAN CANCER’ BY 2050
http://www.bbc.com/news/health-30416844
“Drug resistant infections will kill an extra 10 million people a year worldwide – more than currently die from cancer – by 2050 unless action is taken…”
Yeah. Sure. Another wild ass guess that no one knows will be true or not.
We’ll see of course. Superbugs are real and growing, but to kill more than cancer? Eh… I’ll wait and see. 2050 is a long ways away from now and a whole lot can happen. No point worrying about this now. Not for us average schmoes anyways. Designers and builders of hospitals, maybe. Everyone else? No. Not worth thinking about at all.
I disagree. Superbugs can and do come out of nowhere and the evolution of immunity to pesticides and drugs on the part of agricultural pests and diseases is extremely well documented.
My grandfather used to tell me about the miracle white powder DDT. Spray a quarter pound of that stuff and you wouldn’t see a fly anywhere around a cow barn or even near the barn for two months or more until the rain finally washed it all away. You could feed houseflies DDT like a vitamin twenty five years later.No effect whatsoever.
–
Sometimes we are going to win the race and have a drug to stop a bug. Sometimes the bug is going to win. We have been lucky recently in terms of quarantining the new superbugs such as ebola.
We won’t always be lucky.
The next killer flu like the one that broke out during WWI may get established and run wild before anybody really understands what is happening. If it is once well and truly on the loose we won’t stop it.
IF not killer flu something else.
This is not an if question but rather a when question.
Any doctor will tell you the same. Any professional farmer likewise.
Farmers practice the same basic public health measures on their farms as doctors do in their communities but to a lesser extent. Dead chickens and pigs are not as big a deal as dead people.
There is a fatal viral disease running wild now in domestic hogs. We will probably get it under control. NO guarantees.None at all.
Just probably.
Ten million extra highly stressed victims – ill fed ill sheltered and ill cared for once they are sick is not very many out of ten billion.
Just one in a thousand would be an ADDITIONAL victim of a fatal infection.
I would not be at all surprised if the actual death rate relating to newly emerging fatal infections is several times that high.
Pigs don’t fly very often and when they do they are usually meticulously checked by vets at both ends of the flights.
People come and go to suit themselves as often as they please if they have money for tickets.Millions of us every day.
It is a damned good thing terrorists are mostly under achievers- otherwise they would have gotten themselves a volunteer who would otherwise have worn a suicide vest to allow himself to be infected with ebola and onto an airplane to Atlanta or New York. Or London. With a bunch of self administered drugs such a carrier could probably conceal his symptoms long enough to go to a pro football game or a rock concert.
The problem of symptoms showing too early could be very easily managed by infecting him via a syringe with infected blood on the way to the airport. OR maybe twelve hours before that.
A dozen such deliberate carriers could shut down the country for a while. Maybe a long while.
Of course ebola is not ordinarily or easily transmitted thru the air like flu.But the example is fresh which is why I chose it for impact.
But there WILL BE an air transmissible bug that is just as dangerous. Maybe tomorrow. Maybe ten years from now.
Don’t get me wrong. I’m not saying it can’t happen and I”m not saying that it isn’t happening right now as clearly the spread of drug resistance is going on right now.
I’m saying I’m skeptical that anyone can say with any degree of certainty that such bugs will kill more people than cancer by xyz date. There’s just no way to know that. The march of drug resistance continues apace, no doubt, but how to know with such accuracy when the phenomenon will be more lethal than cancer? I’m not buying it. For all we know, cancer rates could get worse.
Who knows when it will happen? No one. So we’ll see.
On the other hand, the impact of infections is well known and the knowledge of a world without antibiotics is fairly recent. It’s quite possible that I’m out to lunch on my original comment. Upon reflection and reading the article (that always helps!), I’m pretty sure I’m wrong. I read “superbug” as something akin to Ebola, not meaning drug resistant TB or Pneumococcus or other drug resistant nasties that killed in the past, were tamed by antibiotics and that will kill again when antibiotics are useless.
Ain’t evolution grand?
Wasn’t luck. The WHO has gotten extremely good at containing epidemics.
This link has nothing to do with peak oil directly but it throws some light on our politics and thus on what policies are apt to be put in place long term in respect to energy and environment.
http://www.nytimes.com/2014/12/10/opinion/have-democrats-failed-the-white-working-class.html?_r=1
In my estimation it goes a long long way towards explaining the recent repuglithan massacre of the dim rats who paid the price for failing to think about these things very often or very deeply for the last couple of decades.
I am in favor of a EUROPEAN style health care system and realize that OCare is a STEP in that direction.
BUT when the employer mandate finally kicks in next year it is going to piss off so many people that the repugs will win the WH even if they run a child molester in my own personal opinion.
If I were a repug strategy planner I would do everything possible to make sure that mandate is implemented exactly as written. ON TIME.
But I would silmantaneously put on a strenuous false flag effort to repeal it.
Guaranteed WH win with some more seats in both houses and an opportunity to appoint a lot of judges all the way up to the SC itself.
Incidentally the NYT is not exactly a red neck conservative publication.
Paint me a realist.
Oil $60.
USD surging vs Euro and Yen. Another day in paradise.
Low $60s, that is, could crack down to the 50s. There are curious items in the omnibus spending package having to do with derivatives trading. Seems to permit using subsidiary banks that are FDIC insured to buy them, and if “them” are swaps on oil HY paper, we have ourselves a bailout, sportsfans.
Watcher, maybe you need to attach a glossary to your posts: “Oil HY paper”??? Hey man, you’re talking to mere mortals here.
Douglas, “paper” is bonds, from the very short duration commercial paper days. HY paper is high yield paper, and it is issued by companies who are “less than investment grade”. That determination is made by bond / country/ company rating agencies (S&P, Moody’s and Fitch).
If the condition of the entity is poor, they have to pay more interest (or provide some sort of swap sweetener) to a lender in order to borrow money.
Shale oil drillers are essentially uniformly less than investment grade (as evaluated by those agencies). This includes CLR and EOG. Their paper issuance is HY (also known as “junk” — Junk Bonds). High Yield means they have to pay a higher interest rate . . . the yield on the paper is higher for the lender.
If you bundle a lot of HY paper into an index, you can create an exchange traded fund (ETF) that the public can buy and sell on the public market. If you bundled a lot of HY paper, period, then you have what would be analogous to MBS (Mortgage Backed Securities), which up until about October the Fed was buying at the rate of 30-40 billion dollars/month from banks with them on the balance sheet (the mortgages were not being paid by homeowners, they should have been worthless, but the Fed bought them at full price anyway, to bailout the banks).
Anyway, packaged HY paper, maybe call it OBHYS (Oil Based High Yield Securities) would be a convenient instrument for a Fed bailout.
I wouldn’t try to explain all that to another soul but that actually makes sense. Thanks.
Yes.
It all makes perfectly good sense and while I think WATCHER believes in looking for conspiracies the way my favorite Walker hound believes in looking for coons- essentially EVERYWHERE- He is nevertheless a pretty smart guy.
As a matter of fact I strongly suspect he knows too much about banking and paper and electrons and all that sort of stuff to be an amateur. Most people who are financial writers in my estimation know a lot less.
Fess up Watcher.
I am or used to be a university trained ag guy. What is your specialty? Law ? Economics? Finance?
You are too well informed to pass as a green horn.
Assistant Manager at a failing McDonalds.
move from junk food to junk bonds?
Nah, junk bonds already failed.
Although the dollar is up 0,29% for Thursday it is down 1% for the week. The resistance for the dollar is rising despite lower oil.
With oil prices the lowest in years, why are Gas Station sales falling?
Sales At Gas Stations Are Tumbling
In November, sales at gas stations fell 0.8% month-on-month and 2.1% year-on-year.
I assume this means all sales at gas stations, gasoline as well as everything else the gas station sells.
Ron, I have been following oil prices constantly night and day for a couple of months now. I have the impression the prices increase (a little bit) when Asian markets are open, stay more or less constant when European markets are open and take a nose dive when only American markets are open. Is it a possibility the USA is suffering a huge demand destruction as we speak? Your find that gas stations fail, seems to accord with that. Or is it rather South&Central America dat is going down?
Verwimp, I really don’t think demand destruction could be causing the market to drop only when US markets are open. Actually the electronic market stays open all night. Only the open outcry market has daytime hours. But I do think demand destruction is the main culprit that is causing prices to plunge. Production is just not up that much, if any at all. But the demand destruction is happening in most other places in the world as well as in the US.
Probably the shrinked suburbia aren’t as elastic as the gas prices. Same for the bankrupt businesses.
I’m not exactly sure what that chart is showing and I went to the source and grabbed this one that shows gross sales over a longer time range FWIW. Assuming the graph shows up, it seems to reflect what I would expect, based on economic conditions.
Additionally I would expect that going forward, gross sales will be down due to the dramatic fall in gas prices, even if volumes sold go up.
All I know is that I’m glad that I sold my Baytex holdings at the market peak back in late June and took the capital gains. OTOH, I’m sure not feeling so good that I bought them back a couple of months later and a much lower cost basis which now, in hindsight, doesn’t look like such a deal now 🙂
But, hey… that’s the nature of a boom/bust business.
Haven’t looked into those graphs deeply, but if the price falls and not much more gas is bought, you would get those graphs — if they are measured in dollars and not gallons. And hell, the decline is only a few %, with oil down a ton.
Exactly
And yippee KIE AY
http://finance.yahoo.com/news/fed-helped-cause-550-billion-143354747.html
That’s outta Bloomberg.
Lets seem some juicy morsels:
“Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG.”
DB don’t usually know jack, but three cheers for delineating bonds and loans, and we do realize that is half a trillion big ones?
“Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5 percent this week from 5.7 percent in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services Inc. (CJES), postponed financings this month as sentiment soured. ”
Oh look! We can probably foist our issuance on the public, but we don’t wanna pay 9% for that money. So we’re gonna sit with arms crossed and wait for those lenders to be desperate to give their money to soon-to-be deadbeats. (BTW looks a LOT like we had the right interest rate for loans pre crash. )
“”It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said. ”
hahahahahahahahaha Who the hell is going to be above B with $44/b valuation on their Bakken lease collateral?
“Quantitative easing “has been one of the keys to the fast, breakneck pace of the growth in U.S. oil production which requires abundant capital,” Lafakis said. ”
Lafakis is a Moody’s minion who actually understands bonds. And lookee there, Kudlow, it seems like capitalism didn’t drill those wells. Harold Hamm didn’t build that. Neither did Obama.
Ben Bernanke did.
“One of those to take advantage was Energy XXI Ltd. (EXXI), an oil and gas explorer, which has raised more than $2 billion in the bond market in the past four years.
The Houston-based company’s $750 million of 9.25 percent notes, issued in December 2010, have tumbled to 64 cents on the dollar from 106.3 cents in September, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They yield 27.7 percent. ”
hahahahahahahaaha I think that makes them worse credit risks than Greece. hahahahaha You can’t make this up. This would have been Comedy Central material in 2006. That world is just . . . gone forever. With the wind, that kills birds.
“Energy XXI got its lenders in August to waive a potential violation of its credit agreement because its debt had risen relative to its earnings, according to a regulatory filing. In September, lenders agreed to increase the amount of leverage allowed. ”
Ya. Try that now, at $44/b in the Bakken. Those doods have had since September to swap that paper to kingdom come.
“”We think the sell-off has been a little over done,” said Greg Smith, a vice president in Energy XXI’s investor relations department. “People are trading us as though we’re distressed.” ”
Jawdrop.
I can’t do any more of this. Y’all read that article.
”Lafakis is a Moody’s minion who actually understands bonds. And lookee there, Kudlow, it seems like capitalism didn’t drill those wells. Harold Hamm didn’t build that. Neither did Obama.
Ben Bernanke did.”
Keep talking Watcher .
The bankers ain’t the Lord but when it comes to easy money , the bankers giveth and the bankers taketh away.
And for what it is worth I have always had more respect for a dope dealer on a street corner than I have for the guys on the top floors of the skyscrapers in the financial districts.
The dealer given his background and his understanding of the world he lives in is more or less doing what he can to live and get by. The bankers have other choices than to rob and steal and deal.
You are beginning to make more sense on a daily basis from my perspective.
I have known for a long time that bankers manipulate the OVERALL economy to a substantial extent. This is not to say they get the results they WANT -but they nevertheless get results.
AS you go on in your text you laughed less and less. First you had 9 haha, then 8, and finally only 3 haha. It seems you got so sad about the stupidity of the investors that, perhaps, it makes you more cry than laugh.
nod
We need more babies! Seriously, this is a problem
[Excerpt from article]
I know a lot of us have been brainwashed into thinking that our natural and manufactured resources are shrinking. We’re often told that we have a choice of either radically reducing our consumption or our population or we’ll eventually run out of water, energy, and food.
Excuse me, but this is hogwash.
That’s because we heard the same thing in 1714, or 1814, and probably the year 10,000 B.C. And they were wrong then too.
What’s the biggest reason that the doomsayers about the end of the world’s resources have always been wrong on?
The answer is that some members of those growing populations decided not to give up and came up with new ideas, technologies and resources to replace and improve living conditions. I’m talking about the people who have come up with the technologies to desalinate water, terrace mountainsides, drain swamps and fight disease with vaccinations and sewage treatment. I’m talking about the people who came up with kerosene to replace whale blubber, petroleum to replace kerosene, natural gas to replace petroleum, and so on and so on.
All of the above came courtesy of humans. Reduce their number, and you also reduce your chances for the great innovations that make life better for the humans already on the planet and make life more comfortable and possible for billions more to join us.
In short, people are our greatest resource. Economic growth cannot occur without human growth. And this is not a problem that can simply be solved by increasing immigration.
[End of excerpt]
Reduce their number, and you also reduce your chances for the great innovations that make life better for the humans already on the planet and make life more comfortable and possible for billions more to join us.
We had great innovations when we had fewer people on the planet. Why would we need even more people now to come up with innovations? Are people getting dumber so that we need even more to get a few good ideas out of them?
The logic isn’t there.
It’s the ooooooold…I haven’t died yet therefore I never will…kind of logic.
Pitiful!
Why do the 1.3 Chinese and the 1.2 Indians have no Nobel laureates in science? Do you suggest to decrease the “non-productive” nations and increase the US population by one or two billions?
@ron, couldn’t reply
“Saoedi Arabia not lowering production is weird.
Why? Isn’t it just as weird that Russia does not lower production? Or anyone else for that matter?”
Good point. So there is demand. I am far from a specialist in oil, nor finance. But what i do know, markets are manipulated to the bones. A multi trillion paper market looking for revenue, supported by central banks to sustain the status quo, is raping price discovery in all markets. Add a bit politics into the mix, and it becomes impossible to “know” where things are heading. Reader Chris Martenson maybe has a few good points. Be careful with fundamentals, they don’t count anymore.
“Be careful with fundamentals, they don’t count anymore.”
Behold, the new normal.
What do you tell youngsters when you know this is what the world became when QE started?
A penny saved is a penny earned? Not when there’s QE.
Invest for the long term. Really? The Nikkei hit its all time high in the early 1990s, and that was even WITH QE.
You can’t cheat an honest man. hahahahahahahaahahahahahahahahahahah
Oil is like gold & silver, Watcher. There’s no price, only assumptions. Until reality hits.
I have no interest in gold and silver. They mostly have no function in society.
The gold wackos will hate this.
Here you have 18 haha (at the 7the haha you inserted another “a” for a more drawn-out laugh I suppose?) and further up there were 9, 8, and 5. I like to develop a correlation between the numbers of haha and the perceived severity of market/investor stupidity you are commenting on.
There are better things for your time. Like nutella.
Don’t you have better things to do with your time than creating a lot of haha? Even using this wasted time by eating Nutella would be much better.
But what i do know, markets are manipulated to the bones.
And just how do you know that. Did you read it somewhere on the internet? People claim that markets are manipulated but no one ever explains just how it is done. And until they do I don’t believe a damn word of it.
Sure there is cheating. Insider trading is cheating. Front running is cheating. Trading on company confidential information is cheating. But none of these things manipulate the market. I know banks have colluded to try to control interest rates. But that is not the futures market. Interest rates may affect the futures market, especially the bond market but banks can not directly manipulate the market. It simply cannot be done. The Hunt brothers tried and it cost them hundreds of millions.
So unless you can tell me just how the market is manipulated please don’t try to tell me that it is.
The markets for interest rates, currencies and gold are definitely manipulated. Here is one example.
http://www.zerohedge.com/news/2014-11-09/another-conspiracy-theory-bites-dust-ubs-settles-over-gold-rigging-many-more-banks-f
The Libor scandal was an attempt by several British banks to inflate or deflate their interest rates. It worked until they were caught. It did allow them to make more money on their financial transactions. Banks inflating their interest rates is something they can do but it is illegal. They got caught.
We have always known that bank could inflate their interest rates. At one time it was legal. In some instances it is still legal. Interest rate manipulation is not manipulation of the markets themselves.
From Wiki Libor scandal
The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and also the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were.
Here’s one; there’s too much paper looking for yield, so there’s an overreaction in markets, upwards and downwards. Leveraging and overstretching. Central banks buy stocks, debt. The PPT smashes the VIX when ‘needed’, Mario Draghi talks down the yield on southern European debt. Flat broke countries pay 2% on the 10 year. That’s fraud mr Patterson. And it has brought the entire financial system to the edge of the canyon.
Me thinks the ‘betting’ drives the oil price in a great matter. There is no market, only distortions.
For starters there is no such thing as a Plunge Protection Team. That is a nickname given to a group of advisers.
Plunge Protection Team – PPT
DEFINITION OF ‘PLUNGE PROTECTION TEAM – PPT’
A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence. The team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission.
INVESTOPEDIA EXPLAINS ‘PLUNGE PROTECTION TEAM – PPT’
“Plunge Protection Team” was the nickname given to the Working Group by The Washington Post in 1997. The team was initially perceived by some to have been created solely to shore up the markets or even manipulate them. The team was created in response to the 1987 market crash.
When the working group was started rumors flew. It was rumored that they were to shore up the market in cases of a plunge by manipulating the market. That was a crock of shit. All they can do is make recommendations. They have no power whatsoever to control the Volatility Index.
I don’t know anything about this Mario Draghi except that he is an Italian Banker. And indeed he may or may not be engaged in fraud. Fraud does not mean manipulating the futures market. Bernie Madoff was engaged in fraud. Fraud is everywhere. There is a difference between fraud and market manipulation.
You cannot manipulate the futures market. People who claim you can just don’t know what the hell they are talking about. There are books written of fraud and how traders cheat by front running the market and other things. You will not find one book on how either the futures market or the equities market is manipulated. You cannot because it isn’t. There are safeguards to prevent it and they work.
I read in German, British, and French newspapers how glamerous and save the shale operators are and one should buy bonds yielding 10% or more. The banks, issuing these bonds, know better but do not tell the truth, just get the last sucker before the ponzi scheme collapses. In my definition this is cheating and manipulation of potential investors.
I often use the phrase ” dumb as a fence post”. This guy is so dumb -if he is serious- that a monkey marking his answers at random would as likely as not outscore him on an IQ test.
Please say a fond farewell to Red Fork Energy – the first of many shale oil companies to go pop (interestingly actually an Australian company, but operating in the US). Liquidators called in:
http://www.abc.net.au/news/2014-12-11/oil-price-drop-claims-first-wa-victim-red-fork-energy/5962020
The shale business reminds me of the PC business back in the early 80s when PC Magazine was as thick as a NY phonebook. Even though the PC market was strong, virtually every PC manufacturer that advertised in PC Mag went bust. I’ve been expecting the same with the LTO drillers but I certainly didn’t see the oil price smack down coming. Likewise I have no idea what oil will be selling for a year from now. All that I can guess is that the shale industry will be very different. Darwinian for sure.
Yeah, and then we had the dotcom bust and the internet disappeared 😉
The solar industry is like that too. None of the companies are worth anything, but the market keeps growing.
LTO will stand or fall will the merits of the industry and technology itself, It doesn’t matter (much) whether the individual companies survive, and how they get financed.
Convenient timing, but this isn’t really a casualty of the oil price drop. Red Fork were on borrowed time for a long time. Forget the oil price because they were going down no matter what it was and this was a more than 18 month descent into the abyss. They were struggling when the price was high, a lot of money drilling and some very average returns.
From the abc.net.au article: ! F I F T E E N TRILLION ! Can that be? Step 1: Shoot the Analysts.
“By some reports, $15 trillion of funds has been lent to this business, so it may well be in fact that it’s not the oil companies that are in trouble, it’s the banks.
“Over the next six months, I’ll be watching very closely to see how these banks react to their debt, if they come back to the company and say we want our money back, the company says we’ve got no way of repaying it, the bank will end up owning these oil and gas assets.”
Well, wait a minute. 15 Trillion is not all at once. Some got paid back and reloaned back out. It’s money velocity, not a bulk issuance increase.
Maybe Bernie Madoff can explain how the market is manipulated.
He has some experience related to the stock market, all fraudulent, but that is good for the real story, the rest of the story.
Ronald, Bernie Madoff was a swindler, he did not manipulate the market.
Listen, if the market was being manipulated someone like Michael Lewis would have written a book about it. Michael Lewis writes books and tells us about electronic front running. But that is not market manipulation.
If you know how the market is manipulated then write a book and make millions. Otherwise don’t tell me the market is manipulated unless you can explain how it is done.
https://www.enotrans.org/store/research-papers/the-life-and-death-of-the-highway-trust-fund
seems interesting reading, including the cool $65 billion in transfers from the general fund to keep the U.S. Highway Trust Fund solvent since 2008, possible violations of the budget control act, entrenched powers that be and the bonus of contract authority, and the fairly urgent work at kicking the can down the road for some unspecified future congress to fix.
Maybe I’ll walk downtown one day and see how big Bertha is going…
Hello,
I just put up the post;
Will the Bakken Red Queen outrun growth in Water Cut?
Using actual NDIC data as of September 2014 the post takes a more detailed look into the developments in LTO extraction, water cut, Gas Oil Ratio (GOR) for the Middle Bakken and Three Forks formations for six pools in 3 counties in North Dakota (Mountrail, McKenzie and Williams).
The post contains 30 charts.
The post looks briefly at the operational challenges of LTO wells in Bakken.
It also takes a closer look at well economics and an alternative way to solve the equation to break even prices (on a point forward/half cycle basis) is to solve it for first 12 months total extraction, break even flow, versus the oil price (WTI).
This was done for the average well which now is expected to yield 90 kb LTO during its first 12 months and around 30% of a LTO well’s EUR is extracted during its first 12 months of operation.
Closing quotes got on your link. Have to extract to open.
You quote a breakeven and a cash flow negative/positive price. Did you include loan service BEYOND mere interest in cash flow? Meaning, if the $10 million loan has a 5 year maturity, the well has to service $2 million per year plus interest, in addition to all other costs. Cash flow definitions have always varied a bit.
One point you made about 30% of EUR is in year 1 for Bakken wells. If the price is low that year, you are eviscerated.
So . . . don’t drill. Shut it all down. Wait.
Watcher,
For the cash flow positive/negative estimate financial costs are NOT included.
Sorry about that closing thing, full link below
http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/
Okie doke.
Here’s a link that worked for me
http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/
Rune’s post will be posted here on this blog as a guest post tomorrow if there is no news out of North Dakota or Texas. But if either of them updates their database today, it will be posted later next week.
Rune, I’m used to having these economics run for the life of the well, including gas sales revenue. I think it would be safe to assume CAPEX will be 10 % lower, and lease (direct) OPEX will be 5 % lower. Am I wrong if I assume the wells can EASILY be drilled at $70 WTI if all of these factors come into play?
Fernando,
Running the number of a type well with an expected lifetime of 35 years, point forward basis (half cycle), OPEX 5% lower, including gas sales (which on average grosses $3/Bbl and gas is expensive to process and transport), CAPEX 10% lower (well cost @$8.1M) and type well extracting 90kb LTO during its first 12 months, I get a break even price below $75/Bbl and above $70/Bbl.
The estimate is based on an average (weighted) interest rate of 5% on debt.
Whoops. Then the hurdle price is closer to $75. This explains why the large companies didn’t buy up these North Dakota shale properties.
Can they cut costs using larger multiwell pads? Or are those already being used?
From what I understand multiwell pads has been used for some time.
I think we will see some cost cutting with a lower oil price.
“This explains why the large companies didn’t buy up these North Dakota shale properties. ”
Now THAT is a critical point.
Exxon bought XTO, primarily (only) because XTO had shale gas leases in the east. It was a billion dollar transaction.
CLR and EOG were small once, recently, and the big boys looked at shale and guess what, not only did they not buy leases of their own . . . they didn’t buy CLR or EOG, either. Just XTO.
They understood the economics. They didn’t bank on the stock market elevating their price, but the knew the numbers for oil production didn’t work. So they passed on not just buying leases, but on buying companies that had the good leases.
Chevron and Exxon and RDS and Total buy companies all the time to get their holdings. They passed on CLR. Imagine that.
Emerald Oil (EOX) is the next Bakken driller to make an announcement regarding preliminary 2015 capex and drilling plans. Emerald is a small company that primarily operates in southern McKenzie County. The name may be familiar because a few months ago Ron posted a chart from a investor presentation showing the 24-hour, 30-day, and 90-day production from the company’s wells.
They plan to have 1 rig operating in 2015, down from the 3, sometimes 4, they had operating this year. For the entire year of 2015, the preliminary plan is to bring 12 net wells online, mostly in the first half of the year, which would be half the amount of wells brought online this year. They do acknowledge, in the presentation accompanying the announcement, that if the price of oil doesn’t increase by the second half of 2015, the company’s total production will quickly start to decline since they will not be bringing any new wells online.
The company also took the time today to announce that the current COO has resigned and a replacement will be coming in on January 1st.
Another guy wanting to spend more time with his family!!!!!
Or rather wanting to take his resume to an industry with some chance of increasing his pay.
Wall Street reacted to the news today, sent the stock down 24%, the biggest daily loser on the entire NYSE. The stock is now below the $1 mark; it had been as high as $42 in 2011.
Post close electronic session has $58.85ish. Asia will open soon.
re: $58
So either 7 billion people suddenly stop driving and manufacturing compared to 6 months ago or pretty much everything that we see and touch in this world (from stocks to Wal-Mart trinkets) is price inflated in biblical proportions 🙂
I am afraid it is the later.
From way up above back to Ves,
I try to maintain an open or beginners mindset myself.
I do not doubt that some sharks with big sharp teeth are ready to devour some small and medium sized oil fish in distress.
(Back in the early days of the oil industry this was standard practice. I don’t see why this would have changed.
BUT I do not expect to hear much about buyouts in the tight oil fields for a while yet. The market for tight oil companies probably has a way to go down yet.
Only an amateur grower shakes a tree.
An apple that falls is usually a bruised apple that ya gotta sell to the juice house for almost nothing- sometimes juice apples don’t bring enough to pay shipping costs and we dump them in a gully unless somebody wants them for deer apples or horse treats.
In a rational world such apples would be delivered to people glad to eat them. I eat them myself being partial to a truly tree ripened fruit- and one that is truly fully ripe falls off with the first gentle breeze .)
“Only an amateur grower shakes a tree.”
The ones that shake the oil tree are not growers. As you could see in the last few days there were articles from Norway, UK, and I know from the first hand in Canada that there are massive layoffs in oil sector happening right now. The thing that I don’t know is if they are intended target or collateral damage?
As far as buyouts in shale oil, nobody in their right mind would touch that toxic stuff. Even the clueless euro banks learned the lesson from toxic mortgages when the last RE bubble popped.
West Canadian Select is about $41/b.
The last one the leaves Ft Mcmurray (oil sands area) can please turn off the lights behind.
Suncor is still $28. The overall market has to sink a lot to take some of these things down.
Yes. For the big guns will take some time. But the smaller operations are already letting go people. After that it just trickles to the rest of the economy built around.
Now is the time to dust off those upgrader basic engineering drawings. If I were a large company I would build a 300,000 bopd upgrader to make 32 degree API syncrude.
I believe it is collateral damage without a doubt rather than deliberate targeting.
So far as I can see there is no need whatsoever to think there is any sort of concerted action or conspiracy involved in the current oil price situation..
All that is necessary to explain it is production holding up little better than expected and demand falling off more than expected due the the economy being weaker than expected.
Oil is sort of like perishable baby formula- You will pay any price for what you need but next to nothing for more than the baby wants- maybe you might want to feed some to the family cat if you can get it cheap enough.
Low oil prices are the result of cash strapped consumers buying as little as possible as cheap as possible and suppliers hanging in there trying to hold on to market share and ride out the current glut.
I sold our apple crop at least ten years out of the last forty for less than it cost us to grow it. This sort of shit happens. It happens a lot in farming because we can control how much we plant but the weather ultimately controls how much we produce after planting any given year.It happens less often in other industries but it still happens.
Now as far as nobody wanting to buy the assets of the tight oil industry – no body wants these assets at current prices loaded up with current debts.Very true.
But there is a rock hard, diamond hard nut at the heart of peak oil theory or rather peak oil fact. That nut is that conventional legacy oil is depleting at over four percent a year and no large new conventional fields have been discovered for many years past.
Oil is going to go back up- just like the price of apples always goes back up after a bad year- or sometimes two bad years- depletion guarantees it.
And with the debts cleared in bankruptcy court and the land leases all renegotiated and the machinery all bought at firesale prices and a hell of a lot of infrastructure already built including roads and pipelines etc- tight oil will without a doubt be profitable to the new owners.
Lets not forget that the localities will also reduce tax rates rather than collect no taxes at all from the tight oil industry.
Your analogy of shaking the tree is actually right on the money in terms of industries consolidating. The big boys may overproduce for a while in order to force some little guys into bankruptcy court- but this will be a little later on when they are ready to buy on the courthouse steps. Not Yet.
I am like everybody else and take things in too literal a fashion sometimes. And I love to talk about apples.
“And I love to talk about apples.”
Off topic
Do you make a Calvados (apple brandy)?
All I can say is that I am a libertarian sort of conservative and that some living members of my family who currently reside at the Graybar and some others who reside permanently out on the hill top next to our family church USED TO make good brandy.
I occasionally crack a joke about such things but actually I don’t manufacture myself- the risk of getting caught is too high in relation to the benefits and aggravation.So I get my artisanal liquors from neighbors who have less to lose.
Going to jail would be the least of it- sentences are short for small time first offenders these days. But the courts are turning into tax collectors and the monetary costs are huge- assuming you have any money or property that can be seized.
So brandy is made these days- and pot grown – and both sold- by people with nothing to lose except their freedom.
Given that I am known as a local guy who believes in live and let live I can buy on the local black market.
Somebody gets caught making brandy once in a while but not very often because not many bother anymore.
The money is in pot these days and distilling a small quantity is a hell of a lot of work in relation to the return with a liquor store in virtually every county and town nowadays.
I would make my own as a matter of pride and principle and just to thumb my nose at the insane state monopoly if it were less work and I could afford to run the risk of having to spend ten grand for lawyers and fines and maybe pulling a few months.
But there is nobody else to look after my VERY OLD Daddy and he would die of heartbreak in a nursing home in very short order.So these days I mostly sit in the house and keep him company and look after him which is why I have time out the ying yang to blog away here.
Otherwise I would be outside doing something.
Thanks. Sorry I did not mean to put you in a spot. I had no clue that making Calvados is not allowed. When I was growing up in old country the farmers used to make from the apples that were leftover and would get rotten anyway over the winter. Nice memories from sitting around the fire and listening stories from the “old guys”.
Graciously accepted but not needed.
We can at least make small quantities of wine and beer legally here for personal consumption without jumping thru hoops.
Just the simple possession of a still without the required permits is enough to land you in jail for a year .
Such permits are not easily obtained. Getting them involves spending a minimum of several tens of thousands of dollars on lawyers and facilities that might or might not be profitably operated once built.
price inflated in biblical proportions >/i>
Actually the oil business is a single digit percentage of the world economy, so a 40% drop doesn’t mean much.
Oil rents (that is, the difference between production costs and market price) are even smaller, though still positive thanks to cheap incumbent conventional oil.
That rent gets passed up through the chain sort of like VAT. VAT works like this: Say I’m a wholesaler of electronic components and sell at a 10% margin in a country with a 20% VAT. I buy for €1m net, meaning I pay €1.2m. Then I turn around and sell for €1.1m, and get €1.32m from my customers. Since my added value was €100K, I pay €20K to the government. The other €200K was paid to my supplier.
So it looks like the tax bill is vast, because every player in the supply chain is paying huge sums, but actually its the same money rolling over and over. It’s a big deal for cash flow, but not for P&L.
Same thing in the oil business. The costs get spent on the suppliers to the oil industry and rolled over by the oil men and passed through the economy, but don’t increase. The rents land in the pockets of the oil men, but are also rolled over at each step inn the supply chain.
There is some feeling among fringe economists that oil prices have to be counted multiple times in a long supply chain, but this is a simple error in cost accounting.
Except.
This industry is funded by HY paper that doesn’t even have fractional reserve impediments to how much can be loaned. It gets paid down and re-borrowed.
$15 Trillion, apparently. Outstanding as of now . . . I think it’s 100s of billions, and again, it’s not fractional reserve lending. It’s money from nothingness, added to GDP.
Yeah. Separate but very interesting problem.
I remain comfy with my presumption that the Russians are executing an excellent counter sanction via the dollar.
Great quote on current oil price dynanmic: ‘like trying to catch a falling dagger, and I ain’t going to try to catch it’ some analyst quoted in the paper paper….
http://www.cnbc.com/id/102260792#.
So- Mexico is hedged and will get a fairly decent price next year regardless of the market price.
Does anybody know about how much of the entire wholesale market is either hedged or sold by contract months ahead?
IF I were a big producer and had a long time steady big time customer maybe the two of us would just skip the hedging and agree on a price and quantities today for deliveries three or four months down the road. This would be a bigger risk in terms of rising and falling prices but it would also cut out paying who ever manages the hedging business.
> it would also cut out paying who ever manages the hedging business.
Yes just like a casino business the one player who always wins is the one who runs the show.
Ignoring that fact in theory every big ‘hedged’ winner on this sudden price movement has a corresponding loser. One such loser is Harold Hamm’s Continental Resources
see http://www.reuters.com/article/2014/12/12/us-oil-hedging-analysis-idUSKBN0JQ0DV20141212
Two points: 1. No one runs the hedging business because there is no hedging business. It is called the *NYMEX. There is a seller, the hedger and there is the buyer, the speculator.
Point 2. It is nothing like a casino. A casino takes the opposite bet, the NYMEX does not, the speculator takes the opposite bet. The NYMEX just handles the transaction. But in the case of Mexico, they did not sell a contracts, they bought puts.
The Mexico hedging was done with puts. Calls and puts are options on futures. You buy a put and that gives you the option but not the obligation to sell at a set price. If the price goes up you don’t have to sell at the put price, you can sell at the market price. What you lose is the price you paid for the put. The put expires worthless.
*NYMEX – New York Mercantile Exchange.
Hi Ron
Not to quibble excessively but NYMEX does charge a fee for every transaction does it not?
I know you are very well acquainted with this line of work whereas I could hardly know any less about it other than the bare abc outlines.
How much do these fees amount to these days as a percentage of the call or put purchased?
The fees are charged by your broker, not the NYMEX. What the brokerage house pays the NYMEX is extremely small. However on very large transactions the fees are microscopic compared to the amount of money leveraged by the put, call or futures contract. And the more contracts or puts or calls bought, the smaller the cost per contract.
Full-service brokers can charge $2–$5 per options contract, while discounters might charge a low flat commission per trade, regardless of the number of contracts traded. Mexico, buying thousands of contracts, would likely pay far less than 1 percent of the price of the contract. That is the brokerage cost of all the puts Mexico bought would be miniscule compared to the actual cost of the puts.
A contract is for 1000 barrels of oil. Option pricing is complicated. There are “in the money” options where you must pay the price of the option plus any intrinsic value the option has. That is the amount the option is “in the money.” Out of the money options are much cheaper because they have no intrinsic value. You pay only a time premium. And the closer the option is to expiration the lower the time premium.
It is likely that the puts Mexico bought were well out of the money at the time of the purchase so their cost was likely very little compared to the money they saved by exercising their options at expiration.
You know your option stuff. Surf around on Black Scholes. I think it has been overcome by later stuff, but it’s still good math.
Black Scholes went down in flames because it ignores counterparty risk.
If Alice bets Bob some money on a shady options deal, she can use the equation to calculate the risk of Bob owing her money when the term is up. But if she wins and Bob doesn’t pay because he’s bankrupt, she’s out of luck, counterparty risk is not part of the equation.
The guys (including Scholes) who pushed the idea found this out the hard way when their fund LTCM went down $4bn in the hole. Well not that hard the Fed bailed them out so they lived happily ever after.
From an academic POV, the equation is still sound, and widely used.
Incidentally the LTCM disaster of the late 90s was just a warmup for the OIS-Libor spike of 2008 that brought down the whole market.
OIS is what the central banks lend at. Libor is what banks lend 30 day money to each other at. It’s usually almost the same, because the banks trust each other. The spread spiked because the banks stopped trusting each other– the counterparty risk got too big.
It was like an airplane stalling. For a brief moment, the entire banking system ceased to exist. All bets were off.
Then the ECB dumped about a trillion euros into the system. A couple days later the Fed joined the fun. That staved off the apocalypse, but the markets crashed anyway. Since then we’ve been in the era of quantitative easing.
From your link:
Among major and mid-sized exploration and production companies, some 35 percent of all 2014 oil production was hedged at an average of $95.5 a barrel as of November, according to an analysis prepared by RBC. Yet only 14.3 percent of 2015 production was hedged.
So now we know. Only 35 percent of 2014 oil production was hedged and 14.3 percent of 2015 production is hedged. There will be a shakeout that will start to hit this year but will really hit next year. That is if prices stay low.
I got a problem with this. It’s rather too much like the Barron’s article the week after Black Monday back in 1987.
“We have called all our analyst and advisor friends on Wall Street and we must conclude that there was no Black Monday last week. The markets never fell.
Why do we say this? Because everyone we talked to told us they had sold in the weeks prior to Monday. Therefore, there could have been no one holding stocks that day who could sell and drive prices down.”
The Chinese and the Russians are not exactly at each other’s throats these days.
http://www.oxfordenergy.org/2014/12/commercial-political-logic-altai-pipeline/
The author of this link seems to think the Russians will have trouble raising money to pay for this pipeline if they decide to build it.
I wonder why.
The Chinese have huge foreign exchange reserves and the industrial capacity to supply the steel, cement, engineering expertise and just about anything else in exchange for gas on a barter basis.
Beyond that the Russians are not exactly broke themselves and have proven that they have engineers as good as anybody else.
Now why would anybody with a brain think that between them they need access to western capital markets to build a pipeline between the two of them?
I mean, even the average Joe Sixpack who is making some money repairing stopped up toilets and likes to gamble a little in the stock market probably knows the Chinese are financing us rather than the other way around.
I spend a hell of a lot of time on the net reading all sorts of news including the business news and can’t remember reading a single story in recent times about a Chinese business borrowing money from a western bank – at least not money to be spent in Asia- the Chinese may borrow some from Western banks to finance business ventures in the West. But evidently not very much or very often.
2008 Vs. 2014
It’s interesting that the five month decline in monthly Brent prices, from $133 in July, 2008 to $52 in December, 2008 was sharper than the current five month decline, from $112 in June, 2014 to $79 in November, 2014, roughly a 60% decline in five months in 2008, versus a 30% decline in five months in 2014. However, the annual price in 2008, $97, is going to be quite similar to the annual price in 2014, probably right around $99.
The monthly decline bottomed out at $40 in December, 2008. The year over year change in annual prices was from $97 in 2008 to $62 in 2009. And of course two years later, prices ranged from $109 to $112 for 2011 to 2013 inclusive. The annual rate of increase in monthly Brent prices, from December, 2008 ($40) to December, 2011 ($108) was 33%/year.
However, according to the EIA, Saudi total petroleum liquids production (+ other liquids) declined from 11.2 mbpd in July, 2008 to 10.0 mbpd in December, 2008, which does not seem to be a pattern that the Saudis are currently emulating.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RBRTE&f=M
This time the dicline didn’t start from a sharp peak. It started from a 3 year old plateau. That looks like an other dynamic. The 2008 decline might have been expected (from a ‘what goes up, must come down’ point of view.) While now suddenly the decline took anyone by surprise.
Saudi Arabia Says ‘Why Should I Cut Production?’ as Crude Falls
http://www.bloomberg.com/news/2014-12-10/saudi-arabia-says-why-should-i-cut-production-as-crude-falls.html
Are oil production numbers netted out, subtracting the energy or barrels needed for extraction.
Thanks
No
Nice article for The Dissipated among us:
Thermodynamics theory of life’s origins.
For more on this you might enjoy Into The Cool – Energy Flow, Thermodynamics and Life by Schneider and Sagan
Steven Kopits put an interesting analysis up over on his blog:
http://www.prienga.com/blog/2014/12/10/exxon-calls-peak-conventional-oil
The overpopulation that the world faces is of blogs.
And that includes a massive dollop of new conventional C+C. It will be about half of conventional production by 2040.
Wonder where that’s coming from.
If you read carefully and deliberately you will see that Kopits is skeptical. To me it is obvious that he believes that Exon is too optimistic but that he is trying to present a basically impartial or balanced view, neither optimistic or pessimistic for the most part, rather than push his own opinions.
But he doesn’t pull any punches in his last paragraph.
”For the next year, however, expect carnage on the supply side if oil prices remain at current levels for another hundred days. By late 2015, expect a price spike as too many operators will have headed for the exits too fast. Other than shales, as Exxon points out, the conventional supply continues to struggle. Finding conventional oil remains ‘no cheaper, no easier’, and that has not changed in the last year. If the deceleration in shale production is as severe as the EIA predicts, the global economy will be seriously short on the supply side by this time next year.”
I believe he is dead on- prices in the sixties are going to result in tight oil production sinking like a stone while at the same time new conventional production growth is almost for sure not going to be adequate to make up the difference.
Remember the baby formula. Daddy buys as much as baby wants no matter the price up to the limits of his purse- but no more if money is tight- not unless he can get it cheap enough to feed it to the cat.
Most people for some reason just don’t seem to get extreme price inelasticity. A SMALL SUPPLY OVER CRASHES THE PRICE.
A SMALL SHORTAGE PUSHES THE PRICE THRU THE ROOF.
RIGHT NOW the tight oil industry is supplying the excess deliveries that have pushed the price into the basement for all producers.
But the tight oil industry is losing its collective backside at current prices and while it takes a while to stop a ship or a freight train or a tight oil company and shut it down or reverse course the process is underway and tight oil production is going to sink like a stone within the next few months once the drillers quit starting new wells. They will probably finish all the ones that are nearing completion previous to shutting down of course.And they will still drill SOME new ones since they have already committed the money to do so and can’t get it back.If you already have leased a million dollar machine- or ten million dollars worth of machinery- the owner is going to insist on getting paid whether you use it or not.
They may also drill a few wells that might even make a few bucks at sixty dollars but if so it will be very very few. And they will drill a few wells in order to hold onto land rights and to keep management crews together in the expectation of higher prices again pretty soon.
I would gladly bet my last can of beans on the price of oil heading back up within a year- barring the global economy being on crutches and oxygen.
“I would gladly bet my last can of beans on the price of oil heading back up within a year- barring the global economy being on crutches and oxygen.”
Maybe the destruction will put it on crutches. That’s called a death spiral.
Unless intervention.
Exxon is expecting tight oil to grow by leaps and bounds and oil sands to triple. I really don’t think so.
I also like the way new conventional doesn’t exist right now, but will suddenly appear in a few years and get bigger than LTO, tar sands and deepwater put together.
If you are watching the bailout aspects, this is big news:
http://headlines.ransquawk.com/headlines/fed-s-kocherlakota-says-will-not-seek-another-term-in-2016-12-12-2014
That’s the Governor of the Minneapolis Fed branch. That’s the person who would lobby at the FOMC for a Bakken bailout. The replacement has to be pre-prepped, and then win Senate approval.
Wait, 2016. Still on the job next year.
I’m seeing $57 and change this morning. Lynn Helms is seeing $41. trala trala
Ron tracks production better than most official agencies and there has been no production spike.
Whilst looking for a consumption collapse we encounter last Friday’s strong US jobs report. Preceded by another such in November. We don’t see any particular GDP smash in Europe worse since June than it has been forprettymuchever. And China, the vaunted slowdown, that logs a 7.5% GDP number perpetually that no one believes, but that somehow funds a 22 million unit car purchase rate that is up this year rather than the down we would expect from a cratering economy (and thus cratering oil consumption). To wit, it didn’t happen.
Since June, no smash of consumption. No blast off of production.
The disciples of supply and demand are gonna have a lot of redefinitions to compile.
Furthermore (why is there no furtherless), where does surplus go? 80 million bpd coming out of the ground and there is a presumption that consumption isn’t there . . . where does it go? In just 1 day of imbalance you’d have to find storage for 80 million barrels. The US SPR is only 727 million. That would be 10 days of imbalance and it’s not empty.
So then you have the theory that well, the imbalance is not a fully 80 million barrels in a day. It’s maybe what, 100 barrels. A buyer says . . . I need 100 barrels less than you’re selling, so cut your price and I’ll take the 100 barrels and put ’em somewhere. The seller says huh? Why don’t I just pour the 100 barrels on the ground and not change my price? And btw, where is that somewhere you were gonna put em.
Wayyyyyy too much worship at the altar of supply and demand.
And the estimated net increase (net, after scrapping) in global vehicles is about 140,000 vehicles per day in 2014, while the estimated net increase in global population is about 220,000 people per day in 2014.
http://www.worldometers.info/world-population/
Thank you, sir. Whither consumption collapse?
Pretty crazy that, in round numbers, we have another million net new vehicles every seven days and another net million new people every five days–while I estimate that we burned through about 5% of remaining post-2005 Global CNE (Cumulative Net Exports) in 2013.
Don’t fret Jeff. Earth has all the unused “carrying capacity” sitting around just waiting to be used. Besides, in the end you can take comfort from the fact that God Will Provide. I guess that means he/she will provide all the food, water, oil, etc. we will ever need for ever and ever and ever.
The Chinese will buy 24 million bad boys this year and the US is on track for 17 million. The US 17 isn’t net, the Chinese mostly is.
140K/day X 365 = 51 million. The Chinese and America alone probably are 34 million of that (and let’s note that some scrapped American junkers are Corollas replaced with a low gas price Escalade). Damn near none of them are wacko electrics. So that’s pure oil consumption jack up. Tack on the Indians and those African pseudo oil oligarch ebola dodgers and ya I can see 51 million. Give 51 million a 15 mile/day drive at 25 mpg and we have for the year
728K bpd new consumption.
trala trala
ZH is indulging a litany of basis points. Oil sector high yield have now blown out 1000 bps.
Sports fans, a basis point is 0.01%. Thus 1000 bps is a yield of 10%. USUALLY such things are expressed as a spread and the polite reference point is the 10 year Treasury, currently at 2.05% (in its own delightful freefall).
2.05 + 10 = 12.05% for every 10 million drillandfrack loan sought today from some insane person willing to lend to a deadbeat.
Time to lighten up a minute.
http://rt.com/uk/213947-men-darwin-stupid-death/
Someone previously posted the following very interesting article by David Stockman. Do you guys think that his 90% number is a reasonable estimate?
This Time Is The Same: Like The Housing Bubble, The Fed Is Ignoring The Shale Bubble In Plain Sight
http://davidstockmanscontracorner.com/this-time-its-the-same-like-the-housing-mania-the-subprime-shale-bubble-is-in-plain-sight/
Rune just claimed 30% of EUR is in year 1. Seems unlikely 60% in year 2.
OTOH 70% of the Bakken’s output is in wells less than 20 months old so headscratch.
For Jeff and Watcher in particular:
This is an excerpt from the Stockman link.
”In the case of shale oil, for example, it is estimated that were drilling to stop for just one month, production in the Eagle Ford, Bakken and one or two other major provinces would drop by 250,000 barrels per day. After four months, the drop would be 1 million bbl./day and after a one-year, nearly half the current four million barrels of shale oil production would disappear.
That’s why all of a sudden there is so much strum and drang about “breakeven” pricing. Obviously, new drilling is not going to go to zero under any imaginable price scenario, but for all practical purposes the shale revolution could shut down just as fast as did the housing boom in 2006-2007. In effect, the shale financing boom presumed that both the junk bond cycle and the oil price cycle had been eliminated.
Needless to say, they have not. So the impending “correction” may well be as swift and violent as was the housing bust.”
This is rock solid evidence that he understands shale oil decline rates but still leaves a question mark about the ninety percent in the first two years.
My guess is that he has inadvertently switched some figures around – a typo in effect – or more likely that he used (without saying so) some other possible measure such as maybe net present value of production rather than actual production in barrels.
The present day value of production way down the road is very small for sure.
For example you can pay five extra bucks on the principal of typical thirty year mortgage the first month and knock off a thousand dollar payment at month threee six zero if the amortization schedule shows five bucks principle and nine ninety five interest for the second payment.
But I am only guessing. At any rate he is no fool.
The main shale output of Eagle Ford and Bakken, let’s call it about 2.5 mbpd (the other 500K from Okla, Permian shale, New Mex etc) so he’s saying 250K decline . . . is 10% for the poster children of shale.
I think that’s low. The older wells don’t do 70% year 1 declines, but 70% of Bakken production is from very young wells (and thus wells with very high decline rates).
I’m gonna throw out 500K bpd loss in 1 month of no drilling. Double Stockman.
And if the boom narrative death has synergy and truckers head home (home is NOT north dakota) because they know they will be fired soon anyway, then presently producing wells stop getting their oil picked up and 500K is low.
The idea that “truckers” are going to go home to California. or Missouri and there will not be anybody to haul Bakken oil, therefore decline rates will increase, is pretty much, well, not correct. People don’t quit $100,000 jobs for fear they are going to get fired. Some practical experience in real life situations help when predicting the future.
Of all the service related jobs in the Bakken, the least likely to lose their jobs will be crude oil picker uppers and produced water hauler outers.
Mike
“Of all the service related jobs in the Bakken, the least likely to lose their jobs will be crude oil picker uppers and produced water hauler outers. ”
That seems 100% correct.
But . . . this is kind of a shrug, Mike. These guys are not multi decade guys from the oil business. They were lured up there to -20 degree temps with songs of PERPETUAL GROWTH. “Your kids will work these oil fields and their kids, too!!!!!!!’
They have been lied to. They WILL seek alternatives. If they find any, they’re gone. Loyalty ZERO. Commitment to the industry, ZERO. Belief in anything they’ll ever be told by those same people again, ZERO.
If they were NoDak natives, there would be an aspect of nowhere-else-to-go to it. They aren’t. They probably think of themselves as transient anyway.
They were “lured” up in to North Dakota by plus $100,000 a year jobs. That is a very good living for lots of people and they don’t have to pass the bar exam to earn that. They were NOT lied to, Watcher. The price of oil declined 40%; things changed.
I know this if your very first experience with the oil business, it is not, however, the fist time the industry has been thru a downturn in oil prices and might go thru a loss of valuable personal. In the early 1980’s there were over 4000 rigs running in the US; we lost about all of those laborers by 1987. If we lose them this time, they’ll be back. People want to work, most people need to work. There is nothing demeaning about having to go where the work is, or being cold, or hot, or having to get one’s hands dirty.
I know, marketing professor in an Eastern university?
Mike, the issue is Relentless Decline.
Pre Shale, the graph had a very clear direction. Down. Down. Down. You got your workers back? Great. They pumped less oil when they came back.
Shale added liquid to the flow. There is a very real possibility that as this stuff all dies, it stays dead. Look ahead 20 years and it will all recover? Why? Why do you get 20 years?
Because all the conventional fields will keep society functioning, as they, too, decline? How is it going to be easier to restart than it was to start originally, when there is a rich history of defaults on lender money and, perhaps, supplier shipments.
But wait, that’s the doomster scenario. Those things aren’t allowed when the Fed can fix it, and it can. Probably will.
It will be like the stock market guys who want to point at squiggly graphs going back to 1910 and what happened when, but never consider that 4 Trillion dollars has been printed in the past 5 yrs. Somehow history pre printing is relevant.
So . . . don’t sweat it. If it’s bad enough, the bailout will arrive.
I am not in the shale business, though I get the decline thing pretty well, thanks. I don’t want people to lose their jobs. Jobs are important. They are not my workers, they are Americas’ workers. I am rootin’ for ’em.
Mortician?
Best mortician thing I have seen was Broderick in Ferris Beuhler. The mortician in Contagion was excellent, too.
Bought a cremation urn once, $40 (like Bakken oil). It was buried behind all the samples of $1800 coffins.
How do you feel about the American workers at Goldman Sachs?
I feel bad for them too. I think I used them once out near Monahans. Nice clean rig, if I recall.
Mike,
I like your dry sense of humour. lol
http://www.angelfire.com/ak2/intelligencerreport/robots.html
Future oil field workers.
Unless a condition for bailout is arranged to be that there is a union requirement from now on.
I am most certainly not a marketing professor.
I am PROUD to be a whiskey swilling pistol packing university educated scientifically literate REDNECK HILLBILLY who just happens to be the FIRST member of his family to earn a degree.
( There are numerous others now including a professor, a cpa, and a doc or two to be in med school.Couple of engineers.Some business administratiion types. A whole bunch of teachers and nurses.)
The economy is in about the same shape as a man with leukemia AND a heart condition and the truckers in the oil fields ARE NOT GOING TO QUIT because they know their chances of finding work back home are slim and the chances finding work that pays as well are essentially NIL.
It takes somebody like me or Mike to truly understand what people like truckers are going to do.
Some of them (ENOUGH of them) are going to stay there even if wages fall to thirty thousand bucks so long as the rent is cheap- because they cannot necessarily find a job making even that much back home – wherever home may be.
And the rent WILL get to be dirt cheap because as the drillers shut down there will be a big housing surplus instead of a big housing shortage.
And to the best of my knowledge a trucker in ND gets to sleep in the same place just about every night – and might even have his wife or girlfriend there to sleep with him.
VACANT trucking jobs in most places that allow you to get home every night are scarce as chicken teeth and generally pay chicken feed.
There are exceptions of course. But not many.
Incidentally I learned to drive a truck on the farm before I was old enough to get a license and kept a class A commercial license most of my life. That sort of thing is good backup insurance and a few times I took a full time job driving for a few months between other jobs such as during the off season on the farm.
And when the job involves being a certified welder or a power plant mechanic or whatever that CDL -A class often means the difference in getting hired or being kept on. It means the boss can get rid of a driver who is sitting around too often and put you in a truck on a day he is short of drivers and long on welders or mechanics.
I made close to a hundred grand on an annual basis as a mechanic back in the eighties.There used to be money in trade work. Not anymore not around here at least.
I could have stayed on as an ag teacher and been making fifty grand at retirement.
Farming and logging and welding and just plain loafing paid better and was more interesting.Could have been a county agent or the manager of a Southern States COOP store or even a researcher at the university farm.
MY BIG MISTAKE was not marrying a really sweet girl who would have made an excellent life partner and who was the only child of parents who owned a big spread free and clear in the edge of town.
I guess she got ten million easy when she subdivided it.Last I heard she lives part time in NY and part time someplace out in Montana or Wyoming.
Such is life.
And about quitting- ya quit and you generally can’t collect unemployment. That means sticking it out so as to able to get that check in the mail for anywhere from six months to a couple of years depending on the politics.It can be a pretty decent check in a lot of states if you have been making a lot of money.
I saw that, but I hold it likely that Stockman meant a drop in oil output (flow) of 90% in less than 2 years.
And FWIIW my type well has 50% of its EUR recovered between 2 and 3 years after it started to flow.
http://market-ticker.org/akcs-www?post=229654
“The high-yield concerns we are seeing are somewhat-overdone.” Oh really?
I can’t read this due to bumping into the free limit.
http://www.economist.com/news/finance-and-economics/21636089-fears-are-growing-trades-share-worlds-gdp-has-peaked-far
But hopefully somebody else will and comment on it. This sort of thing is highly relevant to oil given that so much of it is traded internationally.
I am personally convinced that a lot of developing countries are flat out going to be unable to pay for oil in the not too distant future.
On the other hand, there is the recent history to consider:
Countries such as China and India have established industries that can process raw materials and export finished goods to pay for imports. This will work so long as they are price and quality competitive.And so long as there are customers able to pay for their exports.
But as soon as real wages start creeping up- those industries may head for greener pastures.
Countries such as Egypt so far as I can see just aren’t going to have anything to sell to pay for ever scarcer and ever more expensive imported oil.
Exporting to pay for non renewable imports is a game where in the participants are racing to the bottom. We used to make clothing and furniture locally here where I live. These industries are gone now to places with lower wages and looser environmental standards. Some companies in these industries are already in the process of moving a second or third time to new low cost homes.
A country like Germany that can make it so long as they manage to stay on top of the technological heap and maintain a world class skilled work force.But if they ever have to compete on the basis of wages or environmental degradation … it will be all over for them.
The automakers fled Detroit to get away from the high cost operating environment even though it cost them dearly in other respects.
Companies will flee Germany if and when they can no longer turn a profit paying German wages and observing German working condition rules and environmental regulations.
In my estimation the Germans aren’t giving it the old school try on renewables because they are environmentalists at heart.
They are doing it because they understand in the bottom of their beer soaked hearts that if they don’t win the race to renewables it is all over for them insofar as being a powerful prosperous country.
The fact that they have their sxxt together as a nation far more so than most nations is what enables them to COLLECTIVELY not only UNDERSTAND this reality but also to COLLECTIVELY ACT on it AS a nation.
WTI settled at $57.80ish, lowest since blah blah blah.
Mikael Lewis in one of his first books (Liars Poker?) talked about the bond market being zillions of times larger than the stock market and when he worked at Saloman Brothers it was well known that economically “the bond market usually gets it right”. Forget stocks. Bonds tell you what is and what is coming. Stocks tell you nothing.
This time last year 10 year US Treasuries were at 3.0% and the T word (taper) was already in place for QE and projections of 4% were so thick in the air that you could not breathe. The analysts and brokers were bringing firearms to interviews to point at clients ORDERING them to get out of bonds (and buy stocks, that they’d be happy to advise them on the trading of) because when yield goes up, price goes down (and thus their portfolio shrinks).
The smartest guys in the room yawned. They didn’t care about taper. They cared about reality and reality, per the bond markets of the world, is crapola. The German govt can borrow money for 10 years and pay less than 1% for it. Because? Because deflation. Oil scarcity is draining the energy, as it were, out of Everything with a capital E.
So those scum last year this time were saying 3% is going to 4%. 10 year US Treasury paper today, without the Fed buying it, given QE done, 2.05-2.09% today. That ain’t 4%. The growth narrative is bullshit, and has been for 5 years.
Even more juicy? JGBs, Japanese Govt Bonds, 10 year paper, 0.39%. You can lend the Japanese govt money for 10 years and they’ll pay you 0.39% per year. And people do this. Every day. Lots of them.
Behold oil scarcity.
1 year paper for Belgium: MINUS 0.04%. Give us 10.000 and you will get 9.996 at the end of the year. 😀
Watcher,
“BOND MARKET ALWAYS GETS IT RIGHT.” Of course it does when it is also propped up by the 100’s of trillion of interest rate swaps.
Yeah.. the madness of the US TREASURY MARKET.will continue until the day it goes MADOFF.
steve
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTYzNjkyfENoaWxkSUQ9MjYzODI0fFR5cGU9MQ==&t=1
Rig count down 27 for the US
Permian down 2o
Bakken only down 1
Vertical rigs down 24
Oil down 29
How seasonal is that.
Watcher,
What are the seasons in Texas, hot to cool? we are at the cool time at the moment. If the Bakken had fallen by 20 rigs, you could ask the season question. But Texas???
nod, but I thought more historical. Is there always a downclick this time of year.
If it is any help the Permian went up 71 this time last year.
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTYzNjg5fENoaWxkSUQ9MjYzODIxfFR5cGU9MQ==&t=1
Whoa
Oasis stacked ten rigs today. Their price is 12.33, a gain of 1.28. They were at 10.89 this morning and looks like they’re going to cut back to six rigs working McKenzie. At an eps of 3.87, the price to earnings ratio makes it tempting.
NOG is at 5.16 today and was at one time thirty dollars. It started out at about 3.85 when the Bakken started rolling, so it might end up there again. You’re not going to win them all.
If you check the dates on the active drill rig list, the drilling has just begun again.
https://www.dmr.nd.gov/oilgas/riglist.asp
The price of crude is the knight in Monty Python and the Holy Grail, missing both arms and both legs, exclaiming it’s only a flesh wound.
Mrs. Hamm needs 33 million shares now, not twenty.
How about nobody wants to pay a hundred bucks for oil, it can’t be afforded no matter what.
When you steal it, it’s free. When will ISIS be a ticker symbol on the NYSE?
Ronald,
“Undetermined” seems a very popular next location. Is this normal? I would have suspected companies that has rigs on contract, would normally have a plan of where the rig will drill next.
Oasis 10 rigs are being laid down over a period up the end of March, from their presentation. I believe 6 will be gone by January.
I thought this graph from ZH was pretty revealing – yields on junk bonds from the energy companies shooting up through the roof, and starting to take the rest of the high yield market with it:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/12/20141212_EOD3.jpg
Well there’s your first takeover.
http://www.ft.com/intl/cms/s/0/6c74867e-8202-11e4-a9bb-00144feabdc0.html
Gasoline low prices at $2.05 in Central NM.
And without Newt’s help!