Aired on the Doomstead Diner on December 16, 2014
Discuss this Rant at the Podcast Table inside the Diner
Before going into the Rant, I thought it would be a good idea to review the price charts and profitability aspects as the price continues to crater here, with the Saudis now Jawboning a possible $40 Handle. Below some charts for where we are right now as background for the Rant.
Here we see how vast the decoupling of Stocks and Credit is from the cratering price of Oil. In all likelihood, both will catch up (or rather DOWN) here in short order.
On the international level, this chart gives you a good idea of how much Red Ink various OPEC countries are bleeding at the current price. It gets bigger obviously as the price goes further south. The Saudis are sitting on a pile of money to try to weather the storm, but Venezuela is already broke. The Ruskies are seeing a Run on the Ruble as well as dealing with sanctions.
At a price in the $50 Handle range, most of the Fracking Plays are money losers. They’ll probably pump dry what is already drilled as the costs are sunk in the ground already, but new drilling and new CapEx will not occur until prices come back up, if they ever do. Market Cap of Energy Companies is getting hammered and many will go into Chapter 11. Halliburton has lost half its Market Cap since July, EOG Resources about a third of theirs.
Bond Yields for the Energy Sector are skyrocketing, which means the Bond Prices are collapsing since Price moves inversely to Yield. Rolling over old debt and financing money losing operations is going to become increasingly more difficult.
Stocks are trailing Oil in the Crash, but are likely to get a lesson in Gravity soon.
Rig Counts are already declining, a pattern likely to accelerate after January 1st. Large Layoffs and Unemployment in the sector is likely soon.
Now, LET’S RANT!!!!
…The latest Jawboning from the Saudis is they are prepared to let it fall to the $40 range, but it is unclear that even a $40/bbl price will get demand to rebound here in countries now sporting 50% youth unemployment. If they start giving it away FREE, that might get it to rebound, which brings us right back to how this whole system got rolling.
In the beginning, when Oil came Spurting up out of the Ground on Jed Clampett’s farm, it cost close to nothing to extract it. John D. Rockefeller and Standard Oil provided cheap oil to leverage up all the industries that depend on consuming it, the automotive and airline industries primarily. For around 100 years from 1875 to 1975, Oil price was FLATLINED at below $1/bb, and then the first of the Oil Shocks hit with the Embargo from OPEC, and then around 2000 the price went parabolic and shot up to over $100, precipitating the crash of 2008.
The price dropped into the $30 range, and then Da Fed began its EZ money policies, providing a stream of ZIRP money for Wall Street to gamble with, which they did in spades, funding the Shale Revolution with a ton of junk bonds, now all set to go worthless. What they forgot to do here was fund the consumption end of the equation, and as a result demand has been dropping steadily, to the point now where there is a glut of oil on the market and the producers have to do a Liquidation Sale at whatever they can get for it, EVERYTHING MUST GO!…
For the rest, LISTEN TO THE RANT!!!
In case you missed it, here is Oil Crash!!! Part 1
Note: For non-native speakers of English and people who prefer to read rather than listen, you can find the Full Transcript HERE on Thursday