Price of Oil hits new low

[TheBeastie]

So if you haven't been reading the headlines lately the price of oil per barrel is hitting new lows that we haven't see since the GFC, below $70 a barrel depending on the type.
http://www.nasdaq.com/markets/crude-oil.aspx

One thing I realized though is compared to iron ore per ton the oil market comparatively makes a killing. According to wikipedia or general calculations 1 ton of oil is about 6.5 barrels of oil.
http://en.wikipedia.org/wiki/Barrel_%28unit%29

The largest mining company in the world BHP is selling iron ore per ton on the spot market is about $80 per ton it has slid down from $114 from 6 months ago (and now probably $70).
http://www.indexmundi.com/commodities/?commodity=iron-ore

So if the crude oil guys were selling it by the ton like miners then it would be $70 x 6.5 = $455.
And the reality is oil is easier to get out of the ground as its just pumping instead of digging.

Funny thing is that China was said to be so upset about the price of iron ore per ton that the Chinese government authorized hacking into BHP and Rio-Tinto networks to spy on the executives and see what they could find out.
http://www.bloomberg.com/news/2010-04-19/rio-tinto-bhp-billiton-fortescue-hit-by-china-computer-hackers-abc-says.html
http://www.abc.net.au/4corners/stories/2013/05/27/3766576.htm

Interestingly there has been a bunch of stories about this from ABC but never ever a single story about it from the AU commercial TV stations, I believe if there is even %1+ chance of a Chinese company buying your TV station then broadcasting such stories are a definite no-no.

Anyway for Australia the taxing of mining companies for iron ore of the last 8 years has been a big windfall the government even if the price per ton is arguably crappy compared to crude oil.

The price of these commodities have the ability to make and break governments in countries around the world. Some attribute the collapse of the Soviet Union in the late 80s / early 90s was due to the 1987 stock market crash which brought down the price of crude oil along with it sucking money out of Russia's budget.
*edit*, Originally didn't want to say it, but since the start of the oil price drop there has been a demon inside me hoping it will destroy Putin, signs are now possible this could happen. Unfortunately I do see the fact you can't hurt Putin without hurting a lot of innocent Russians.

Australia with iron ore is in same boat, originally spending 50 bilion USD on a fiber to the home network seemed to some quite doable but now is looking a tough goal.

Anyway what am I saying about all this? I dunno exactly I just mostly thought it was worth pointing out and maybe I am just saying welcome to our world!

Putting in "welcome to my world" in google I picked two of the most appropriate images, and an extra one I am a tad hesitant on.

 

[wineboyrider]

What's sort of depressing being from oil rich? New Mexico is the price for WTI needs to be at least around $70 for the fracking of the oil to be profitable. So for a state like mine with about the only thing really running the economy right now this could be a double whammy for our economy. The only industry doing strong in this state has to do with the Permian Basin's oil extraction. So welcome to my world? LOL
http://www.nasdaq.com/article/wti-drops-6-to-fall-below-70-for-first-time-since-may-2010-cm417916

 

[dnmun]

CLR, continental resources price was cut in half, from $80 on 9/04 to 40 today. 70 days. denbury DNR, went from $18 in the summer to $8 today.

 

[markz]

"as its just pumping instead of digging"
............Its way more then that!
Dig deeper and you will know the truth!

 

[dnmun]

current WTI contract traded as low as $63.77 this morning before rebounding. last was $69.19 and gold is up $43 from the lows too.

 

[Thud]

Any one speculating on who the Saudis are really trying to starve out with this price/production war?
Are they presuring russia? or shutting down the american/canadian producers (with thier higher extraction costs?

Whats the end game?
Nothing is free...

 

[dnmun]

the common theory has been that saudi is putting the financial hurt on russia and iran because of the US interest in exerting force on both of them along with the saudi annoyance with the russian/iranian support of the assad regime and their opposition to iran being allowed to go this far with their nuclear program.

the statement on thursday that they are also acting because of the huge increase in shale production here in the US that is reducing the imports of saudi crude into the US market and the attempts by US producers to have the export ban removed so they can export the light crude form the bakken and eagle ford to world markets which also will hurt saudi interests.

when nobody would agree to go along with shared production cuts they just made it clear that they would not shoulder the burden of cutting production themselves if other producing nations did not also share in production cuts to support the price.

the ruble reached a low of 1.86 cents today because of this and this is from a recent high of 25 rubles/dollar.

the saudis now have their own futures desk too so i expect they had already built out a futures position for their production before this was announced so i expect they are making money as the price of crude has collapsed from the common view that the world is oversupplied with oil and the slowdown in china.

 

[spinningmagnets]

I read a lot, but every written story has an agenda so take what I'm about to write with a grain of salt...The way I understand it, gasoline got down to $3/gallon because of the long-term commitment to fracking and the oil that is coming onto the world market from the Bakken oil field in N. Dakota/S.Canada.

I've heard it's taken an additional bump down (to $2.55/gal in Missouri/Tennessee, etc) because OPEC has decided to hurt US oil interests by keeping pumping volumes UP since their oil production uses much cheaper labor and processes, so they have calculated that they can survive low oil prices better than their US competitors. Whether that speculation is true or not IDK, but if it is true, who knows if it is wise and will ever help them?

The way I understand it, the massive hurt on the Ruble is just a collateral effect, with the sanctions being on purpose, and the low oil prices at the same time being a happy coincidence.

I've also read that ISIS is getting $20 barrel for stolen Iraqi oil on the Turkish black market. They will never slow down their pumping, and the west is hesitant to bomb their pumping capacity on the outside chance we will re-acquire the territory soon.

I wouldn't rush out an buy a Hummer just yet, cheap oil will not last. Any benefit to your monthly budget should be used to reduce debt. Not just credit cards, pay off your student loan, pay off your car (and don't buy a new one with a loan).

 

[wineboyrider]

I read a lot, but every written story has an agenda so take what I'm about to write with a grain of salt...The way I understand it, gasoline got down to $3/gallon because of the long-term commitment to fracking and the oil that is coming onto the world market from the Bakken oil field in N. Dakota/S.Canada.

I've heard it's taken an additional bump down (to $2.55/gal in Missouri/Tennessee, etc) because OPEC has decided to hurt US oil interests by keeping pumping volumes UP since their oil production uses much cheaper labor and processes, so they have calculated that they can survive low oil prices better than their US competitors. Whether that speculation is true or not IDK, but if it is true, who knows if it is wise and will ever help them?

The way I understand it, the massive hurt on the Ruble is just a collateral effect, with the sanctions being on purpose, and the low oil prices at the same time being a happy coincidence.

I've also read that ISIS is getting $20 barrel for stolen Iraqi oil on the Turkish black market. They will never slow down their pumping, and the west is hesitant to bomb their pumping capacity on the outside chance we will re-acquire the territory soon.

I wouldn't rush out an buy a Hummer just yet, cheap oil will not last. Any benefit to your monthly budget should be used to reduce debt. Not just credit cards, pay off your student loan, pay off your car (and don't buy a new one with a loan).

I think I'll buy some more batteries and another bicycle... Well said as usual SM

 

[Dauntless]

I read a lot, but every written story has an agenda so take what I'm about to write with a grain of salt...The way I understand it. . . .

That is all well said, although the financial assault on Russia is a big motivating factor. Fracking not only brought more oil, it brought more natural gas. The U.S. was looking to import natural gas a decade ago, (Owner of the restaurant O.J. victim Ron Brown worked at was leading the charge) the direction shifted to exporting. Gas replaced oil in so many ways, including production of liquid fuels and lubricants. The demand for the oil is not as great as it would be. The chart says it all, this is only the dry gas, which there'd be more of if it was as useful as the wet gas. There are so many capped dry gas wells, waiting for the price of oil to go up again and bring up demand.

 

[dnmun]

WTI just traded intraday at $60.43 and i think you have to go back to 2008 or so to see that one.

so even bigger SUVs and more of them to run over anyone in their way.

 

[chvidgov.bc.ca]

World oil demand is weak - Japan and Europe and probably China weakening. Supply is more than adequate and Saudis keeping the pressure on to hurt their supposed enemies (Iran Russia etc.). I expect a rash of small companies to go out of business next year, and drying up of fracking malinvestment credit availability, reduced capex etc., and failure to support outstanding oil junk-bond paper with cashflow. This is bad for Venezuela, Alberta and Russia and frackers. As far as big SUVs, those are uneconomic in any weakening economic scenario and often a product of the same malinvestment "crack-up" booms that just occurred and are currently popping. I expect a lot of cheap trucks for sale in Alberta, and probably a real-estate shakeout as well in Western Canada and fracking states. I understand these cycles occur on a regular basis in this industry due to things like this Saudi artificiality, but I can't help thinking "we are winning" (renewables that is) in the long run. That says "long term oil bear" to me, and especially more downside next year.

 

[dnmun]

it has cost me a lot to learn this much. i never ever expected to see brent below $100 again.

about 1/3 of the economic growth in this country has been on the back of the increased demand for oil field labor and equipment so this is gonna hurt the US economy too.

but the good side is that all of those little mom and pop motels and trailer parks will soon be empty of their $300/night roughnecks so you will be able to find a place to stop if traveling across west texas and north dakota.

 

[Eclectic]

I felt that "Consumer Confidence" has always been significantly influenced by the price of gasoline. Virtually all adult consumers buy gas. A smaller percentage of consumers are exposed to the price of other commodities like food or even items like real estate. When all consumers are exposed to rapidly changing prices several times a week, it tends to have a psychological effect on their spending habits. If the price rises very fast, consumers stop spending, if it drops quickly, hopefully they will start spending again (IMO the crash of 2008 was mostly caused by the increase in gas prices and the end of consumer spending and less about the financial markets).

 

[Punx0r]

It goes to show how the price of oil is primarily driven by speculation and not its scarcity.

In the UK we've seen the price of pump fuel go down around 10%, despite this ~50% reduction in the price of crude. As with many countries outside the U.S., our fuel prices are mostly made up of tax. Along with direct taxation on vehicles considered "gas guzzlers", there's unlikely to be much, if any, increase in demand for thirsty vehicles, despite an international glut of oil.

 

[dnmun]

new low a few minutes ago. WTI just traded @ $58.96 on the back of a stronger dollar

 

[teklektik]

It goes to show how the price of oil is primarily driven by speculation and not its scarcity.

Interesting CBS video: Gus the Gas - the life of crude oil from well to tank.

 

[dnmun]

just traded down to $58.27, then it rebounded close to $58.8 and has started back down and last i saw was $58.67 headed lower.

 

[dnmun]

another print, $57.34, low so far today.

 

[spinningmagnets]

87-octane gasoline at $2.23/gal where Interstate 70 crosses state highway 77 in N.E. Kansas, central USA.

$2.07/gal on Dec 20...edit: it kept stumbling down every few days. it's now

$1.77/gal on 05 Jan, 2015

 

[chvidgov.bc.ca]

Hi dnmun...hope you're not trying to "catch the falling knife", and are not "long" oil related assets. I am, namely my life savings in Canadian dollars. Ouch. No trips to USA until the loonie recovers.

 

[Dauntless]

It goes to show how the price of oil is primarily driven by speculation and not its scarcity.

What the. . . ? This is a demonstration of the complete lack of involvement of speculation in pricing, and the sheer power of scarcity or lack thereof driving prices. The decreasing world demand, this week's downward readjustment of projected oil usage, the Saudi admission they are trying to underprice the cost of fracking for oil in the U.S. with huge supply, etc., has really made oil available. But then, cornering the market attempting to drive the price up has quite a history of backfiring and losing fortunes for those who try it:

Ask Emperor Norton. The young Englishman made a fortune in Africa and ran off to Northern California to corner the rice market and drive up the cost of the San Francisco treat. They turned around and bought rice from someone else, Norton spent the next 5 years in court fighting creditors, followed by 21 years of madness. Then there's Bunker Hunt, buying up a huge chunk of the world's available silver to run up the price selling it to Kodak, then the major consumer of silver for photography. Not only did Kodak find a few new sources, they pushed forward a new process that involved less silver. Bunker lost a bundle.

It's wishful thinking that somehow speculation is more important than supply and demand. Those who don't understand economics have interesting security blankets. But no, if you try to buy more than is available there won't be enough and the price will go up. Making money speculating works at times like these when there's so much they're trying to get out of the cost of storing it. The business needs to keep running and producing. But that requires SELLING. You buy low, the supply starts drying up on its' own, you sell high. But you can't buy enough to force the price to go up. Just hope it goes up enough, quickly enough, to cover the cost of storage.

 

[Punx0r]

My point was that when oil prices went high, the story was that we were running out of easily available oil. The low hanging fruit was all gone, and the only way for the price to go was up.

Now the price has fallen 50%. When it was $150/bbl it was pure speculation. The price swing from $150 to $57 is almost nothing to do with the scarcity of it as a resource - every day the world has less of it left and AFAIK no new sources have been found recently. Is extraction from tar sands even viable at current prices?

There is supply and demand, but changes in this is what is speculated upon. Let's be realistic if it's coming out the ground in Saudi Arabi at $5/bbl and after one boat ride it's $150, something is going on there beyond the effects of normal profit-making and taxation.

 

[dnmun]

what happened is the use of modern multistage hydraulic fracturing of the source rock in the Bakken and the Eagle Ford along with more production from the Permian using these more advanced drilling procedures that allow them to drill horizontally and allow more of the oil in the formation to be produced than ever before.

this technology is not available anywhere else in the world now. only drillers in the USA have mastered it and in the rest of the developed world like the UK and france the ignoranti have held public demonstrations to block the use of hydraulic fracturing.

the russians are paying good money to finance these misinformation campaigns by the 'activists' in UK and france and over here in the US because the more oil we produce in the US using these modern production techniques then the less money they make selling their oil to us.

USA production has gone up by 5mm bopd and we rank right back up there with russia and SA now.

but this overproduction is what has caused the saudis to lose market share so they are fighting back by refusing to cut their production to balance supply with demand and demand is falling at the same time. that is the news from the OPEC and IEC on thursday that led to the precipitous selloff through friday.

the other side of this decline in price is that the saudis and the US have common purpose in destroying the economy of russia and iran because of their support for the rebels in ukraine and Assad in syria.

 

[USAEBIKECO]

I think the stock market is going to crash in 2015 and the trigger is falling oil prices.

My rationale is that the big banks made loans to smaller oil/fracking companies based on the assumption oil prices stays above $80. So if those oil/fracking companies default on their corporate debt, the banks will lose too. Then what? Citigroup alone is on the hook for $800+ million dollars in loans. Who is going to cover those losses?

Will the Federal Reserve step in and print money (QE4) to cover the banks losses? Nobody knows for sure how this plays out.

As I write this WTI oil is at $57.81

Electric vehicle/green energy growth is based on the price of oil. So these declining oil prices will definitely hurt EV sales.