US Oil Futures Plunge by Nearly 7%, to $26.55 a Barrel

[ThePythonicCow]

From Yves Smith, over at naked capitalism (http://www.nakedcapitalism.com/), comes this report, visible in various forms on numerous financial websites: US Oil Futures Plunge by Nearly 7%, to $26.55 a Barrel (http://www.nakedcapitalism.com/2016/01/us-oil-futures-plunge-by-nearly-7-to-26-55-a-barrel-stocks-swoon.html).

The price of oil has been falling for the last couple of years, as we can see at the gas pump, and as can be seen in this chart of the benchmark West Texas Intermediate (WTI) price of oil (US Dollars per barrel):

http://thepythoniccow.us/Nymex_WTI_Crude_2014-2015.png

The above is not news to anyone who has been following the markets, or even refilling their gas tank.

The reason I post this here, and now, is really just to make one specific observation:



The fundamental way that the Banking Bastards manipulate the economy to their advantage is a two step process:

Pump up economies with overly easy credit, lending easily, to those who figure that they can "make the payments", under the assumption that their income (whether wages, taxes, or earnings) will continue "forever."
Collapse economies by retracting credit and cutting off income streams, so that the loans fail and they can repossess, foreclose, buy cheap, "privatize" (sales of public property to private interests at dirt cheap prices), or otherwise take control of more land, resources, corporations, production capacity, infrastructure, ...

The Petro business is one of the main income streams on this planet for a number of major nations and corporations. The Banking Bastards have managed to cut this income stream to a small fraction of what it was. Debt will fail, large and small, around the world, as this, and numerous other income streams are throttled back and as easy credit is cut off and loans are called in.

They lend us enough rope for us to hang ourselves, and then they pull in on the rope.

This collapse of WTI is an excellent marker of the choking rope around the neck of the world's economy ... and a few stand to make or extend fortunes that will span generations.

[Matt P]

Yep, that's exactly what the banks do. But who is this hanging? A couple years ago it cost me over $80 to fill the tank on my work truck (which I never did). Now I fill it for $40. I am saving a lot of money on oil prices being low. As well, there has been a government and corporate conspiracy to artificially inflate the price of oil, and they have been literally stealing trillions of dollars from us (not just on the oil/gas but the prices inflated down the line as a result), so I'm not too beat up about oil prices tanking. Bring it on. If the "Petro business is one of the main income streams...for a number of major nations and corporations" shouldn't we be thrilled for them to lose some of that manipulative power and control?

Matt

[Carmody]

When bullies, war mongers, and power mongers ---all in disguise as friendly necessary integral parasites....when such a thing begins to lose it's grip, it reaches out and kills everything around it, in a last ditch attempt to regain control and power.

When oil prices tank, it's both part of a clandestine war, a bell of change ringing, a time when things become fluid. Not in a good way. A major component of a power structure that has built itself into what it is today, over a period of 150 years...is in the middle of losing it's sh!t, and it will make a mess when it goes. A complex, multi-faceted hydra of a component of a multifaceted group is in the middle of losing it's place at the table of power and control. A component that has vast, far reaching influence and effect.

We should be thrilled to see such a thing lose influence and control, but if we are not at the gate, ready to deliver final stomps, and, most importantly, to stop their flailing about (planned or otherwise) from killing all around us, then we're going to have a tremendous mess on our hands.

And that's the minimum that can be expected.

[Redstar Kachina]

..........

[Bill Ryan]

But who is this hanging?

It may hang us all, indirectly. It's all complicated, of course, but the problem is that money flow dries up, the tankers anchor in port as they're operating at a loss (this may already be happening), the stock of petrochemical companies plummets (the same for anyone who depends on that chain), and everything kind of grinds to a halt.

—>




The Petro business is one of the main income streams on this planet for a number of major nations and corporations. The Banking Bastards have managed to cut this income stream to a small fraction of what it was. Debt will fail, large and small, around the world, as this, and numerous other income streams are throttled back and as easy credit is cut off and loans are called in.

[mgray]

Yep, that's exactly what the banks do. But who is this hanging? A couple years ago it cost me over $80 to fill the tank on my work truck (which I never did). Now I fill it for $40. I am saving a lot of money on oil prices being low. As well, there has been a government and corporate conspiracy to artificially inflate the price of oil, and they have been literally stealing trillions of dollars from us (not just on the oil/gas but the prices inflated down the line as a result), so I'm not too beat up about oil prices tanking. Bring it on. If the "Petro business is one of the main income streams...for a number of major nations and corporations" shouldn't we be thrilled for them to lose some of that manipulative power and control?

Matt

Yes Matt there is savings at the pump. But there is creeping price inflation elsewhere. Food prices are stealthily rising with smaller sized boxes of cereal for same price. Meat and chicken rising. And of course wages staying stagnant.

Not to mention the falling value of everyone's retirement nest egg in 401(k)s.

[Latti]

Before the new monitory system can be implemented, the old one must be collapsed. We all have too much invested in the old system too abandon it; so, it by necessity must be destroyed.

The markets tanking is greatly reducing our 401Ks and other savings earn almost nothing. Social security system may collapse and our jobs are at risk as other revenue streams are affected.

Later this year and 2017 may be very painful for all of us, but hopefully, long term, we will develop a better system.

There have always been greedy controllers. Will that ever change? If not, it will only be a matter of time before the next generation of controllers manipulate the new systems.

By that time, some believe that the percentage of positive humans will be enough to completely change those patterns. For my grand children and others, I hope that is true.

[Bill Ryan]

Later this year and 2017 may be very painful for all of us, but hopefully, long term, we will develop a better system.



Or, it may be fully planned to be like this. (Ordo ab Chao...)

http://projectavalon.net/Iron_Fist.jpg

[zahra4me]

What is the cause of these low oil prices ?
Isn't it normally too much supply or too little demand that make prices dip ?
Which one applies here ?

[Bill Ryan]

What is the cause of these low oil prices ?
Isn't it normally too much supply or too little demand that make prices dip ?
Which one applies here ?

Good question. (And welcome to the forum! :star:)

From http://nytimes.com/interactive/2016/business/energy-environment/oil-prices.html (updated today)




Oil Prices: What’s Behind the Drop? Simple Economics

The oil industry, with its history of booms and busts, is in its deepest downturn since the 1990s, if not earlier.

Earnings are down for companies that have made record profits in recent years, leading them to decommission roughly two-thirds of their rigs and sharply cut investments in exploration and production. An estimated 250,000 oil workers have lost their jobs (http://www.nytimes.com/2016/01/13/business/energy-environment/bp-jobs-oil-prices.html), and manufacturing of drilling and production equipment has fallen sharply.

The cause is the plunging price of a barrel of oil, which has been cut roughly by more than 60 percent since June 2014.

Prices have recovered a few times last year, but a barrel of oil has already sunk this year to its lowest level since 2004. Executives think it will be years before oil returns to $90 or $100 a barrel, pretty much the norm over the last decade.

Why has the price of oil been dropping so fast? Why now?

This a complicated question, but it boils down to the simple economics of supply and demand.

United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.

There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments. But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects come online.

On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.

http://markets.on.nytimes.com/research/tools/builder/api.asp?sym=US@CL.1&duration=3650&chartstyle=ArticleSpan&scale=2&w=600&h=280&display=fillclose&showChange=1&backgroundColor=FFFFFF&fillColor=E3E9ED&line1Color=3E5A7F&line2Color=C7D0D5

Who benefits from the price drop?

Any motorist can tell you that gasoline prices have dropped. Diesel, heating oil and natural gas prices have also fallen sharply.

The latest drop in energy prices — regular gas nationally now averages under $2 a gallon (http://www.eia.gov/petroleum/gasdiesel/), roughly down about 14 cents from a year ago — is also disproportionately helping lower-income groups, because fuel costs eat up a larger share of their more limited earnings.

Households that use heating oil to warm their homes are also seeing savings.

Who loses?

For starters, oil-producing countries and states. Venezuela, Nigeria, Ecuador, Brazil and Russia are just a few petrostates that are suffering economic and perhaps even political turbulence.

The impact of Western sanctions caused Iranian production to drop (http://www.nytimes.com/2016/01/19/business/international/oil-iran-sanctions.html) by about one million barrels a day in recent years and blocked Iran from importing the latest Western oil field technology and equipment. With sanctions now lifted, though, the Iranian government has called on its oil industry to open the taps on production.

In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges.

Chevron (http://www.nytimes.com/2015/08/01/business/energy-environment/exxon-mobil-chevron-q2-earnings-oil-prices.html), Royal Dutch Shell (http://www.nytimes.com/2015/07/31/business/international/royal-dutch-shell-earnings-q2.html) and BP (http://www.nytimes.com/2016/01/13/business/energy-environment/bp-jobs-oil-prices.html) have all announced cuts to their payrolls to save cash, and they are in far better shape than many smaller independent oil and gas producers that are slashing dividends and selling assets as they report net losses. Other companies have slashed their dividends.

About 40 companies (http://www.nytimes.com/2016/01/07/business/energy-environment/oil-prices-decline-more-than-5-percent-as-stockpiles-increase.html) in North America have gone into bankruptcy protection.

http://i1.nyt.com/images/2016/01/12/business/energy-environment/opec-graphic-poster/opec-graphic-poster-jumbo-v5.png

World oil production has generally increased since 1996 to more than 80 million barrels a day, from 63 million. When demand doesn’t follow the same trajectory, prices are affected; that is the reason for the most recent spike in 2011 and the steep drop in 2015.

What happened to OPEC?

A central factor in the sharp price drops, analysts say, is the continuing unwillingness of OPEC, a cartel of oil producers, to intervene to stabilize markets that are widely viewed as oversupplied.

Iran, Venezuela, Ecuador and Algeria have been pressing the cartel to cut production to firm up prices, but Saudi Arabia, the United Arab Emirates and other gulf allies are refusing to do so. At the same time, Iraq is actually pumping more, and Iran is expected to become a major exporter again.

Saudi officials have said that if they cut production and prices go up, they will lose market share and merely benefit their competitors. They say they are willing to see oil prices go much lower, but some oil analysts think they are merely bluffing.

If prices remain low for another year or longer, the newly crowned King Salman may find it difficult to persuade other OPEC members to keep steady against the financial strains. The International Monetary Fund estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by $300 billion this year.

Is there a conspiracy to bring the price of oil down?

There are a number of conspiracy theories floating around. Even some oil executives are quietly noting that the Saudis want to hurt Russia and Iran, and so does the United States — motivation enough for the two oil-producing nations to force down prices. Dropping oil prices in the 1980s did help bring down the Soviet Union, after all.

But there is no evidence to support the conspiracy theories, and Saudi Arabia and the United States rarely coordinate smoothly. And the Obama administration is hardly in a position to coordinate the drilling of hundreds of oil companies seeking profits and answering to their shareholders.

When are oil prices likely to recover?

Not anytime soon. Oil production is not declining fast enough in the United States and other countries, though that could begin to change this year.

Demand for fuels is recovering in some countries, and that could help crude prices recover in the next year or two. There is now little or no spare production capacity to give the market a cushion in case of another crisis in a crucial oil-producing country.

The history of oil is of booms and busts followed by more of the same.

[pyrangello]

Then you have the baltic index of the amount of tankers running the oceans as the price of oil goes down the traveling costs vs the value of the shipment doesn't pay, On Jan 11 of this year the baltic index showed no tankers moving anywhere and overall export/import trade is down over 22% worldwide. What all this means is the world is slowing down all over.

[ThePythonicCow]

Debt will fail, large and small, around the world, as this, and numerous other income streams are throttled back and as easy credit is cut off and loans are called in.
Not just debt will fail ... debt is securitized and collateralized these days. Every dollar of "real" debt is supporting 10 or 100 dollars of derivatives, such as hedges on the price of oil, bundles of debt into more securities (collateralized debt obligations, CDO's), and so forth.

For example the major oil producers have long hedged their oil sales ... meaning that they pay some bank to guarantee them a certain price for the oil they sell. If the real price of oil is higher, the bank makes money on the fees charged for the hedging. If the real price of oil is lower, the bank loses money, matching the price guarantee. The hedges have expiration dates, after which they have to be renegotiated. Much of this hedging has been done for oil at prices such as $50 or $70 per barrel, the price that an oil producer might require to make a profit. Some major New York banks are under great stress right now, paying on these hedges, with oil below $30/barrel. Then when the current hedges expire, as many will in the coming few months, the stress will shift to the oil producers, who must keep selling oil to generate the cash needed to make debt payments, but can't make a profit at such low prices, and can't get any bank to issue new hedges at a profitable price.

It's a massive, tangled, web of financial instruments, predicated on the assumption that the price of oil couldn't possibly fall this far, this long.

Fire insurance works fine ... if it's just your house that burns down. But if a major comet collision ignites a firestorm across half a continent, then the fire insurance companies go bankrupt, and their insurance policies are worth no more than the charred paper they were printed on.

Most of these layered financial instruments, whether on oil, interest rates, debt guarantees, foreign exchange rates, insurance, or whatever, are a "zero sum" game ... superficially. But if too many of them trigger, as in a major unexpected change in the price of oil (down in this case) or in the case of a major unexpected change in interests rates or foreign exchange rates, or in the case of major bankruptcies (national or mega-corp) ... then the "winners" turn out to be losers too, because the losers can't pay out, as the bankruptcies start snowballing into an avalanche of financial collapse.

That avalanche was halted at the last minute in 2008, in the climax of the mortgage backed security crisis. But the "remedy" to halt the collapse was piling the financial instruments higher and deeper.

This avalanche won't be halted ... that I'm quite sure of ... and I am quite sure that it is the intention and expectation of the top bastards on this planet that this avalanche not be halted. The real purpose, in my cynical view, of the 2008 crisis was to motivate piling the financial instruments higher and deeper, to guarantee a financial collapse that could not be halted, this time around.

[Matt P]

Yep, that's exactly what the banks do. But who is this hanging? A couple years ago it cost me over $80 to fill the tank on my work truck (which I never did). Now I fill it for $40. I am saving a lot of money on oil prices being low. As well, there has been a government and corporate conspiracy to artificially inflate the price of oil, and they have been literally stealing trillions of dollars from us (not just on the oil/gas but the prices inflated down the line as a result), so I'm not too beat up about oil prices tanking. Bring it on. If the "Petro business is one of the main income streams...for a number of major nations and corporations" shouldn't we be thrilled for them to lose some of that manipulative power and control?

Matt

Yes Matt there is savings at the pump. But there is creeping price inflation elsewhere. Food prices are stealthily rising with smaller sized boxes of cereal for same price. Meat and chicken rising. And of course wages staying stagnant.

Not to mention the falling value of everyone's retirement nest egg in 401(k)s.

If I'm not mistaken, prices on all those goods were going up (and container size decreasing) because the cost of the energy to produce and transport was going up. With the decrease in production costs going down, I would expect a decrease in the prices of final goods, too.

I don't worry about those 401(k)s. People should be investing in sustainable and financially competent corporations, or diversifying away from the rigged game. Not all banks go for derivatives, for example.

Matt

[Wide-Eyed]

Yep, that's exactly what the banks do. But who is this hanging? A couple years ago it cost me over $80 to fill the tank on my work truck (which I never did). Now I fill it for $40. I am saving a lot of money on oil prices being low. As well, there has been a government and corporate conspiracy to artificially inflate the price of oil, and they have been literally stealing trillions of dollars from us (not just on the oil/gas but the prices inflated down the line as a result), so I'm not too beat up about oil prices tanking. Bring it on. If the "Petro business is one of the main income streams...for a number of major nations and corporations" shouldn't we be thrilled for them to lose some of that manipulative power and control?

Matt

Yes Matt there is savings at the pump. But there is creeping price inflation elsewhere. Food prices are stealthily rising with smaller sized boxes of cereal for same price. Meat and chicken rising. And of course wages staying stagnant.

Not to mention the falling value of everyone's retirement nest egg in 401(k)s.

As reported earlier in zerohedge

http://www.zerohedge.com/news/2016-01-21/something-blowing-oil

[Carmody]

Yep, that's exactly what the banks do. But who is this hanging? A couple years ago it cost me over $80 to fill the tank on my work truck (which I never did). Now I fill it for $40. I am saving a lot of money on oil prices being low. As well, there has been a government and corporate conspiracy to artificially inflate the price of oil, and they have been literally stealing trillions of dollars from us (not just on the oil/gas but the prices inflated down the line as a result), so I'm not too beat up about oil prices tanking. Bring it on. If the "Petro business is one of the main income streams...for a number of major nations and corporations" shouldn't we be thrilled for them to lose some of that manipulative power and control?

Matt

Yes Matt there is savings at the pump. But there is creeping price inflation elsewhere. Food prices are stealthily rising with smaller sized boxes of cereal for same price. Meat and chicken rising. And of course wages staying stagnant.

Not to mention the falling value of everyone's retirement nest egg in 401(k)s.

I always make jokes about the food scenario.

"The direction both aspects are headed in", I tell my fellow shopper at the supermarket, "is that we are getting smaller and smaller portions for higher and higher prices." "Soon", I say, "we'll be sitting at home, we'll think of food, and money will fly out of our accounts and we'll receive nothing".