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Black Swan Coated With Crude Oil

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... it is not just the shale companies that are starting to look impaired. According to a Deutsche Bank analysis looking at what the "tipping point" for highly levered companies is in "oil price terms", things start to get really ugly should crude drop another $15 or so per barrell. Its conclusion: "we would expect to see 1/3rd of US energy Bs/CCCs to restructure, which would imply a 15% default rate for overall US HY energy, and a 2.5% contribution to the broad US HY default rate.... A shock of that magnitude could be sufficient to trigger a broader HY market default cycle, if materialized. It is not just the junk bond sector that is poised for a rout should there be no meaningful supply cuts later this week: recall that in another note over the weekend, DB said that should crude prices take another leg lower, then the most likely next outcome is a Profit recession, which while left unsaid, will almost certainly assure a full-blown, economic one as well. http://www.zerohedge.com/news/2014-11-24/brent-plunge-60-if-opec-fails-cut-junk-bond-rout-default-cycle-follow

Can US bankrupt itself?

Edited by rollover

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Tuesday's pre-summit meeting ended with no sign of an accord, prompting prices to dive. "It's pretty clear from today's meeting that the Saudis don't want a cut, and there's not going to be one." Losses were exacerbated by a report from U.S. industry group American Petroleum Institute showing domestic crude inventories rose almost 3 million barrels last week, about six times more than analysts expected.

http://www.reuters.com/article/2014/11/25/markets-oil-idUSL3N0TF27E20141125

The Saudis don't want to cut and lose more market share, especially to Iran and Iraq.

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The Saudis don't want to cut and lose more market share, especially to Iran and Iraq.

Just wonder whether the Saudis think manipulating production and the oil price has been the Mother of all Own goals.

There's enough shale gas to end the West being held hostage by despots. It's a game changer, shutting down wells will only lead to even more innovative competition.

You can extract the stuff at a loss and make the world oil price $65, or you can leave OPEC countries in charge of the energy and see the price at $200.

Guess what, better to extract it a loss....with Government subsidy if needs be.

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Apparently the Saudis need to modernise their sea rigs as they are, so I have read, falling to bits or near enough falling to bits.

A high oil price means that all the workers, service rigs, parts & bits and supply vessels are in demand and can charge more. A lower oil price means a slump in the industry and means that the Saudis can buy the parts and hire the workers & kit much cheaper. A lower oil price apparently means that they can save tens of billions in modernising their rigs.

However, I still think that they are using the lower oil price to put pressure on Putin over Syria and Ukraine and have probably agreed this with the Americans. They have the added benefit of then being able to squeeze the US and Canadian shale gas firms.

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However, I still think that they are using the lower oil price to put pressure on Putin over Syria and Ukraine and have probably agreed this with the Americans. They have the added benefit of then being able to squeeze the US and Canadian shale gas firms.

What will happen when Putin start to pump more oil to cover losses? And everybody else will do the same.

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What will happen when Putin start to pump more oil to cover losses? And everybody else will do the same.

Can he do that? Does he have the capacity?

I don't know the answer - just seems to me that the oil price at the moment is all part of some geo-political game that is going on.

Of course, tomorrow the Saudis could announce that they are cutting oil production by 1 million barrels a day and we would have $100 oil back in about... oh, a nano-second.

Edit:

If you have big balls today might be a good day to buy USO

Edited by The Masked Tulip

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Guess what, better to extract it a loss....with Government subsidy if needs be.

Woot! Maggie Thatcher must be turning in her grave. Remember we gave up our Hi-Tech coal mining industry because Columbian kids could do it cheaper by turning vast swathes into an ecological disaster zone.

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Woot! Maggie Thatcher must be turning in her grave. Remember we gave up our Hi-Tech coal mining industry because Columbian kids could do it cheaper by turning vast swathes into an ecological disaster zone.

Yes, but the Welsh were the enemy then. That is what she called the Welsh - the enemy. She just turned vast swathes of Wales into economic disaster zones.

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Yes, but the Welsh were one of the enemies then. That is what she called the Welsh - the enemy. She just turned vast swathes of Wales into economic disaster zones.

She had many enemies. The Welsh, Geordies, Yorkshire people, Scotties, Argies, French, Trains.

She also had many friends. Pinochet, Mugabe, Jimmy Saville, Leon Brittan, Anyone who spoke like Margot Leadbetter off of The Good life..

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The Saudis don't want to cut and lose more market share, especially to Iran and Iraq.

I suspect the Saudis have been told to because of.....

The plan appears to be to lower oil prices to put pressure on Putin over Ukraine and Syria.

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Can he do that? Does he have the capacity?

I don't know the answer - just seems to me that the oil price at the moment is all part of some geo-political game that is going on.

Of course, tomorrow the Saudis could announce that they are cutting oil production by 1 million barrels a day and we would have $100 oil back in about... oh, a nano-second.

Edit:

If you have big balls today might be a good day to buy USO

Crude prices plunged into a bear market this year amid the highest U.S. oil production in more than three decades and signs of slower demand growth.

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What will happen when Putin start to pump more oil to cover losses? And everybody else will do the same.

Russian Siberian oil is lower quality and cheaper than Brent. Extreme climates and remote locations make its wast resources much harder to harvest and transport since it requires building thousands of miles of expensive pipework. The ports are hard to access and freeze in winter (hence the Soviet projects of submarine tankers) and the Soviet-built infrastructure is starting to crumble. The margins are therefore thinner than even with hydraulic fracturing and time works against Russia because the much-needed upgrading gets delayed or altogether cancelled because of falling oil prices and Western sanctions, which in turn makes margins even thinner. Russian gas export, AFAIK is in better shape.

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Everybody here knows capital is more easily accessed today than probably at any other point. But falling prices are testing investors’ commitment to the Wall Street-funded shale boom. Seven years into the shale boom, the oil and gas industry relies more than ever on Wall Street financing, and Wall Street is even more exposed to an industry known for wild ups and downs. Drillers, bankers, and analysts agree the shale industry couldn’t have grown so big so fast without cheap and readily available capital. “It was a credit boom just as much as it was the shale boom.” Money has flowed to shale plays like it never flowed to conventional exploration.

The economics of shale production are easier for investment managers and analysts to model than those of conventional drilling. Investors didn’t have a wealth of other opportunities to choose from. “After the tech bubble and then the real estate bubble, Wall Street had to put its money somewhere.” Lower oil prices threaten to turn off the cash spigot. The U.S. benchmark price dropped to $79.44 a barrel on Oct. 27, the lowest since June 2012. At that level, about one-third of U.S. shale oil production would be unprofitable. The cash flow will go down as the prices go down. The amount of money advanced to these people to continue the drilling will dry up entirely.

The IEA predicted in November 2013 that the U.S. would pass Russia and Saudi Arabia to become the biggest oil producer in the world by 2015. Any slowdown in U.S. output, would reshape the way everybody would think about oil.

http://www.businessweek.com/articles/2014-10-30/will-wall-street-love-fracking-as-oil-prices-fall

No funny money and no profit? Hmmm?

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Why is market share important.

Because if Saudi acts alone, and reduce their market share, they will be selling fewer barrels? Therefore less money in to them overall?

Saudi Aramco continues to slash crude prices to Asia

New York (Platts)--1 Oct 2014

[..]As the US has backed out light sweet crude imports because of growing North American crude production, more crudes have become available to Asian refiners at lower prices. Aramco has had to compete for market share by cutting prices.

[..]With North American production growing, analysts have speculated that crude supply will need to be cut going forward, and that Saudi Arabia could play a key role in cutting.

Credit Suisse top oil economist Jan Stuart said Tuesday that so far the country has showed no signs they are willing to cut.

"Any indication will have to come from their actions," he said, noting the market will need to keep a close eye on Saudi exports, rather than production, as a swath of new refining capacity will likely eat into domestic production.

Nearly 800,000 b/d of Saudi refinery capacity is expected online in the next year in the form of the 400,000 b/d Yasref refinery in Yanbu, in addition to the 400,000 b/d Satorp refinery in Jubail.

"Those who think Saudi Arabia can stabilize the market alone seem misguided," energy economist Philip K. Verleger said in his Petroleum Economics Monthly published Tuesday. The economic slowdown, "the decline in global demand, and the surge in crude production seem to require" a large cut in production, he said.

But that would mean Saudi exports "must decline from around 6.5 million b/d to less than 2 million b/d if Saudi Arabia acts alone," Verleger said.

"Recent statements by Saudi officials suggest they understand the problem. The reduced price differentials announced in September underscored their words, making it clear that the kingdom has no intention of acting alone," he said.

http://www.platts.com/latest-news/oil/newyork/saudi-aramco-continues-to-slash-crude-prices-21323230

Too high an oil price for global conditions, also can bring about recessions in themselves, causing even weaker demand; so I am not too sure producers can just hold market hostage to whatever they want for price.

Aug 15 (Reuters) - Oil prices are now too low for most OPEC

countries to cover their spending needs, a Reuters survey shows.

Although the cost of getting oil out of the ground is low in

most countries in the cartel, growing social spending and

ambitious infrastructure plans mean many oil producers now earn

less from their oil sales than they need to fund their budgets.

The weighted average of oil prices collected by members of

the Organization of the Petroleum Exporting Countries was $106 a

barrel last year - just enough to cover the average budget

requirements of the group, according to figures compiled by one

team of analysts, who declined to be identified.

A drop in oil to the $50s or lower – Just another $20 drop in oil would cause tremendous pain in the entire energy sector and would quickly spread to the financial sector levered to higher prices.

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One US oilman, started off cleaning the vehicles so rumour goes, then set up company to wash them down (memory), later leasing land and hitting on a huge oil field, just finalises his divorce, her getting just $1 billion. Good thing about him, no fancy HQs.

Bought competitor's HQ cheap, when competitor built itself a fancy new HQ, and his company has way better profit margins - although I would like to see more shareholders to share that wealth.

The $1 billion divorce: Why Harold Hamm's ex-wife didn't win more

By Joshua Schneyer

Sun Nov 16, 2014 9:25am EST

(Reuters) - Just how much of Harold Hamm's fortune was amassed through his skill and hard work?

That was a key question that Oklahoma divorce judge Howard Haralson had to weigh in his decision last week, when he ordered Hamm, the chief executive officer of Continental Resources - and Oklahoma's richest person - to hand over more than $1 billion in cash and assets to his ex-wife in one of the largest-ever U.S. divorce judgments.

Haralson awarded Sue Ann Hamm just 6 percent of the $18 billion fortune her lawyers say the couple had amassed at the start of the divorce trial in August.

Harold Hamm called the judgment "fair and equitable," but his ex-wife called it unfair and plans to appeal.

Several divorce lawyers said they were surprised by how small the award was.

Through a series of shrewd land acquisitions and drilling campaigns approved by Harold Hamm, Continental’s value rose from less than $50 million when the couple wed to around $20 billion. Haralson's ruling allows the CEO to keep most of the 400-fold rise in his 68 percent Continental stake.

That stake was worth around $18 billion when the trial began but has since dropped to around $13.3 billion, after Continental's share price fell.

http://www.reuters.com/article/2014/11/16/us-hamm-divorce-ruling-insight-idUSKCN0J00J020141116

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Can he do that? Does he have the capacity?

I don't know the answer - just seems to me that the oil price at the moment is all part of some geo-political game that is going on.

Of course, tomorrow the Saudis could announce that they are cutting oil production by 1 million barrels a day and we would have $100 oil back in about... oh, a nano-second.

Edit:

If you have big balls today might be a good day to buy USO

I think your mistake is believing that western governments at any point in time aren't interested in the price of oil. Of course they are as it is an essential commodity for western societies to operate. There is nothing special going on at the moment, beyond the fact that some of the political objectives might be more overt than usual.

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Can he do that? Does he have the capacity?

I don't know the answer - just seems to me that the oil price at the moment is all part of some geo-political game that is going on.

Of course, tomorrow the Saudis could announce that they are cutting oil production by 1 million barrels a day and we would have $100 oil back in about... oh, a nano-second.

Edit:

If you have big balls today might be a good day to buy USO

Why would Saudis cut their production by 1 million b/d, when US almost double theirs in last four years?

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Because if Saudi acts alone, and reduce their market share, they will be selling fewer barrels? Therefore less money in to them overall?

Too high an oil price for global conditions, also can bring about recessions in themselves, causing even weaker demand; so I am not too sure producers can just hold market hostage to whatever they want for price.

Very interesting how this is going to pan out.

The increase in US energy production is surely going to lead to the US becoming more isolationist. That can't be good for anyone who has an economy built on exports to the US.

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US%20vs%20Saudi.jpg

It's good (for the moment) for anyone who lives in a country where the US (and UK) are prepared to kill hundreds of thousands of people in order to keep real oil priced in paper $

The above exponential chart will crash soon. e.g. http://shalebubble.org/

When it does, we'll be sending more 17 year olds to die in order to enforce the oil for paper exchange.

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Why would Saudis cut their production by 1 million b/d, when US almost double theirs in last four years?

Maybe because they know that US shale production will only last for a few years, then their remaining oil in the ground will be worth a lot more when the US oil production bubble pops?

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