Rapid drop in Petroleum prices could be a warning....

[blankslate]

http://www.globalresearch.ca/guess-...me-the-price-of-oil-crashed-like-this/5417215

There has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months.

The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months. Well, now it is happening again, but this time the stakes are even higher.
When the price of oil falls dramatically, that is a sign that economic activity is slowing down.

It can also have a tremendously destabilizing affect on financial markets. As you will read about below, energy companies now account for approximately 20 percent of the junk bond market. And a junk bond implosion is usually a signal that a major stock market crash is on the way.

So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds. If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.

The above text summarizes the gist of the article.

Seems interesting. Apparently some energy companies are funding the search for and extraction of petroleum via fracking. It's a rather expensive way to extract fuel so if the energy prices stay low for any length of time the junk bonds used to fund the their fracking activities could collapse and those junk bonds crash hard enough then it might be bad news.

It's also known that OPEC could very well be raging a price war to put the fracking industry in the North American continent out of business.

http://www.vox.com/2014/11/28/7302827/oil-prices-opec

This marks a big shift in global oil politics. Essentially, OPEC is now engaged in a price war with oil producers in the United States. The cartel will let prices keep falling in the hopes that many of the newest drilling projects in the US will prove unprofitable and shut down.

I'm concerned because all we did in 2008 was bail out the banks. Nothing was really done to address the causes (there is disagreement in the P&N forums about what the causes are of course) that led to the 2008 implosion, now a situation that occurred before the 2008 crash has cropped up again.

Maybe this will be the only thing from the economic climate before the crash of 2008 that recurs and nothing will happen... but it is something to be aware of in my opinion.



....

 

[Blanky]

A year from now this post may be quoted and make me look like a schmuck. Nonetheless, if we have only seen a drop like this once we can't draw much from such a number.

Moreover, rising oil costs very regularly precede recessions, and that is the important thing to watch in 2008, I think, not the crash. The crash happened because rising oil costs contributed to a recession. We have not had a ramp up in oil costs to help trigger a recession, so what is essentially a crash now we haven't had to pay for; it's a freebie. I think it is a good thing and we ought not to always be looking for doom in everything.

 

[Jaskalas]

Two words: American Shale.

We're crushing the Middle East right now.

 

[rudeguy]

Yea...the US has been focusing on oil and that has brought prices down. Never mind that those prices were inflated by OPEC.

 

[rudeguy]

Two words: American Shale.

We're crushing the Middle East right now.

FRACKING IS EVIL AND WILL KILL THE CHILDREN!!!!!!!

Oh...cheap gas?


YAY FRACKING!!!

 

[Zstream]

FRACKING IS EVIL AND WILL KILL THE CHILDREN!!!!!!!

Oh...cheap gas?


YAY FRACKING!!!

Lol, so true. I don't mind fracking if it's done in a safe manner, just like coal, nuclear energy etc.

 

[blankslate]

FRACKING IS EVIL AND WILL KILL THE CHILDREN!!!!!!!

Oh...cheap gas?


YAY FRACKING!!!

So you gathered that the point of the original post was let's ban fracking and not there seems to be a rapid drop in oil prices which could be concern because it's a pattern that has only happened (according to the article) before the 2008 recession ?


OK...

OPEC is lowering prices that's a good consequence in the near term.

If however too many fracking operations were funded with junk bonds that could, perhaps be bad, since fracking is expensive (I know evil starts with the same letter as 'expensive' but they're really two different words) and oil prices have to be relatively high to make it worthwhile... aka profitable to frack.


but if you want....


strawman-mode-activated

ERMERGERD FRACKING IS EVIL!!!

cancel-strawman-mode

happy now?



....

 

[boomerang]

Two words: American Shale.

We're crushing the Middle East right now.

Yeah, well before we start the ticker tape parade, we could lose this battle very easily at least in the short term. It's much cheaper to pump oil out of the ground than to extract it from Shale. The Saudi's can afford to drop their price until it no longer makes economical sense to continue production from Shale in the U.S. But the pendulum will swing back because they won't be able to keep their price low forever.

The best thing to do is to enjoy the lower prices at the pump and figure out a good way to profit when the price of oil comes roaring back.

 

[rudeguy]

So you gathered that the point of the original post was let's ban fracking and not there seems to be a rapid drop in oil prices which could be concern because it's a pattern that has only happened (according to the article) before the 2008 recession ?


OK...

OPEC is lowering prices that's a good consequence in the near term.

If however too many fracking operations were funded with junk bonds that could, perhaps be bad, since fracking is expensive (I know evil starts with the same letter as 'expensive' but they're really two different words) and oil prices have to be relatively high to make it worthwhile... aka profitable to frack.


but if you want....


strawman-mode-activated

cancel-strawman-mode

happy now?



....

lol

Just trying to lighten things up in here. Perky wouldn't let me string Christmas lights and Esquared kicked over baby Jesus

 

[blankslate]

Esquared kicked over baby Jesus

I heard he was born in the spring (baby Jesus that is not Esquared)... must be misinformation...

/tinfoil hat


...

 

[desy]

Short term relief, shale isn't profitable at this price and demand in China has cooled cause they aren't into double digit growth mode anymore.
The middle east isnt being crushed its Russia but it still hurts their economies because almost all their government programs are funded by high oil revenue even though its still profitable so they are willing endure short term pain.
Oil is going to go back up because the marginal cost of oil on new fields is higher than the price being sold for

 

[lozina]

Two words: American Shale.

We're crushing the Middle East right now.

Except for the fact that these oil prices are going below the break-even costs of most of the shale oil producers:

http://www.bloomberg.com/news/2014-...heap-that-americans-won-t-profit-from-it.html

http://crudeoilpeak.info/wp-content...d_recent_on-stream_Goldman_Sachs_May_2012.jpg

 

[realibrad]

Except for the fact that these oil prices are going below the break-even costs of most of the shale oil producers:

http://www.bloomberg.com/news/2014-...heap-that-americans-won-t-profit-from-it.html

http://crudeoilpeak.info/wp-content...d_recent_on-stream_Goldman_Sachs_May_2012.jpg

Only until the price of oil goes back up. The US has MASSIVE amounts of Natural Gas. Because OPEC had tried to keep prices going up, competition found new innovative ways to produce other products. Russia and OPEC need to figure out quick what they are going to do, because the US economy is not very dependent on natural gas like oil with OPEC, and NG for Russia. The US can hold out for a long time, OPEC and Russia cannot.

 

[Spungo]

Except for the fact that these oil prices are going below the break-even costs of most of the shale oil producers:

http://www.bloomberg.com/news/2014-...heap-that-americans-won-t-profit-from-it.html

http://crudeoilpeak.info/wp-content...d_recent_on-stream_Goldman_Sachs_May_2012.jpg

Indeed. This might be the black swan we've all been waiting for.
A crash in oil price could trigger a crash in the high yield debt market since a lot of shale companies are funded through junk bonds.

You can keep an eye on the situation by keeping an eye on junk bonds. Ticker symbol is JNK
https://www.google.com/finance?chdn...NYSEARCA:JNK&ntsp=0&ei=PzJ-VPGDONH-qAH10ICwDQ

What's fascinating is that oil and junk bonds both peaked around June-July
http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=1y

 

[fskimospy]

Indeed. This might be the black swan we've all been waiting for.
A crash in oil price could trigger a crash in the high yield debt market since a lot of shale companies are funded through junk bonds.

You can keep an eye on the situation by keeping an eye on junk bonds. Ticker symbol is JNK
https://www.google.com/finance?chdn...NYSEARCA:JNK&ntsp=0&ei=PzJ-VPGDONH-qAH10ICwDQ

What's fascinating is that oil and junk bonds both peaked around June-July
http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=1y

Hey, remember when you said inflation was hiding in oil prices? Not that it wasn't proven wrong before, but in the face of this evidence do you want to reconsider it?

 

[desy]

The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.

Goodrich Petroleum plunged 34% on Friday; down 80% from June.
Sanchez Energy plunged 29.5% on Friday, down 71% from June.
Clayton Williams Energy plunged 25.6% on Friday, down 61% from May.
Callon Petroleum plunged 18.6% on Friday, down 60% from June.
Laredo Petroleum plunged 33.5% on Friday, down 66.5% from June.
Oasis Petroleum plunged 27.2% on Friday, down 68% from July.
Stone Energy plunged 24.1% on Friday, down 68% from April.
Triangle Petroleum plunged 25.6% on Friday, down 62% from June.
EP Energy plunged 25.3% on Friday, down 54% from June.

The list goes on. Even large oil companies got clobbered:

Exxon Mobil down 4.2% for the day and 13% from July.
ConocoPhillips down 6.7% for the day and 24% from July.
Marathon Oil down 11% for the day and 31% from early September.
Occidental Petroleum down 7.4% for the day and 24% from June.
Anadarko Petroleum down 10.5% for the day and 30% since late August.

 

[Spungo]

Hey, remember when you said inflation was hiding in oil prices? Not that it wasn't proven wrong before, but in the face of this evidence do you want to reconsider it?

You were right and I was wrong - Obama has successfully caused a deflationary collapse of the economy. I was expecting an inflationary collapse.

 

[fskimospy]

You were right and I was wrong - Obama has successfully caused a deflationary collapse of the economy. I was expecting an inflationary collapse.

No, almost certainly neither.

Still, if your school of economic thought can't distinguish between hyperinflation and a deflationary spiral that doesn't speak very highly of it does it?

Hopefully things like this will put even more nails in the coffin of the "hidden inflation" truthers. That coffin already has so many nails though...

 

[Fern]

Except for the fact that these oil prices are going below the break-even costs of most of the shale oil producers:

http://www.bloomberg.com/news/2014-...heap-that-americans-won-t-profit-from-it.html

http://crudeoilpeak.info/wp-content...d_recent_on-stream_Goldman_Sachs_May_2012.jpg

The article you linked doesn't support your claim:

But maybe the biggest question remaining is whether the bounty of U.S. fracking, which made America the world’s biggest oil and gas producer, will wither in the field.

The answer so far: not so much. Here’s a list of break-even points for some of America’s biggest shale-oil regions. Note that most regions continue to be profitable below $80, including the Bakken and Eagle Ford formations, two of the most important sources. Much of the Eagle Ford play would still be profitable with $50 oil.

Saudi Arabia needs Brent oil prices to exceed $91 a barrel to pay its bills, according to IMF estimates. That’s interesting, because Saudi Arabia actually has the ability to drive the price higher but has so far declined to do so. The biggest OPEC producer, with almost $800 billion in cash reserves to lean on, is opting instead to maintain market share and to test the break-even points of U.S. shale oil.

It’s a tough test, and OPEC may not like the results. The break-even for American oil has been falling as fracking techniques are refined. The U.S. is producing unconventional oil with acceptable returns in the range of $70 a barrel for oil, less than most OPEC nations can sustain.

Here's some more info. I've seen similar at other sites:

But data from the state of North Dakota says the average cost per barrel in America’s top oil-producing state is only $42 — to make a 10% return for rig owners. In McKenzie County, which boasts 72 of the state’s 188 oil rigs, the average production cost is just $30, the state says. Another 27 rigs are around $29.

http://www.marketwatch.com/story/opec-is-wrong-to-think-it-can-outlast-us-on-oil-prices-2014-12-02

Fern

 

[Fern]

The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.
-snip-

Doesn't matter much to oil companies unless they've planning to issue more/new shares.

Once the company issue shares, whether the stock price goes up or down affects only investor, not the company itself.

Other considerations:

Since CEO/exec compensation is often largely composed of stock options they might take hit. Personally I don't care. OTOH, most S.O. require at least a 3 yr holding period. The execs can just hang on til the price is back up.

The oil companies could do stock buy-backs. I.e., they can profit from the currently low prices anyway.

The low stock price could dampen new oil production. IMO, not a big deal now anyway.

For investors planning to hold long term might be a good time to buy.

Fern

 

[Svnla]

The US shale oil industry is in a world of hurt right now. Schlumberger is trying to join with Baker Hughes to survive.

States with budgets based on higher oil revenue such as Texas, Louisiana, North Dakota are in financial trouble too.

 

[dmcowen674]

The US shale oil industry is in a world of hurt right now. Schlumberger is trying to join with Baker Hughes to survive.

States with budgets based on higher oil revenue such as Texas, Louisiana, North Dakota are in financial trouble too.

 

[brycejones]

OP should be buying gold right now and stocking up on guns and bullets for the coming economic collapse.

 

[Zorba]

OP, notice how your story says "crashed by more than 40 dollars in less than 6 months." instead of "crashed by more than x% in less than 6 months." Considering oil never went above $40 until ~2004, this is obviously a misleading statistic.

 

[Bitek]

On one hand this sucks as I have a fair amt of shale stocks I held too long and am getting nailed on. OTOH cheap gas is a huge win.

I am curious to where this goes. Venezuela, Russia, Nigeria, Iran, others rely on high oil prices to fund their govt. programs. We could be looking at massive unrest if the price war is sustained. You wonder what their responces will be.

I'm wondering too what the us may do to protect our industry..