Posted on 11/29/2014 8:41:39 AM PST by Kaslin
The biggest news for the United States stock market and American consumers happened on Thanksgiving in a far off desert kingdom. Saudi Arabia has taken the big gambit of not cutting production which means downward pressure on oil will continue, and that means less revenue for them. Why would a nation that gets 90% of their revenue from oil allow the price to plunge? I’ve said it several times, but I’m more convinced this is their (last) chance to crush, or at least derail/stall, America’s fracking miracle.
It’s a war without bullets, but make no mistake, it's also about no prisoners. According to the Wall Street Journal, the Eagle Ford Region is the only drilling region still able to be profitable with oil prices at a 4-year low of approximately $69.27 per barrel.
| Drilling Region | Breakeven Begins |
| Permian Basin | $75 |
| Bakken | $75 |
| Eagle Ford | $65 |
| Mississippi Lime | $83 |
| Texas Panhandle | $81 |
| Niobrara | $78 |
| Scoop | $91 |
| Tuscaloosa Marine | $86 |
In the meantime, this is party time for American consumers as gasoline is poised to get even cheaper.
Early reports from retail land shows robust foot traffic at malls and shopping centers, but not sure how much people are buying, although it’s clear retailers are getting smarter and smarter about coaxing people to malls in the internet era and getting them to buy stuff.
Please note, due to the shortened trading session, there will not be an afternoon commentary. We hope everyone has a safe and wonderful weekend.
/johnny
One of my daily prayers, part of reviving America as a Nation under God, is to be energy independent.
This is an economic war. If we had the right people in office, they would break the Saudis hold on world energy.
Subsidize our producers until the Saudi economic terrorists quit.
You are correct. Back in the 1980’s, they capped a number of wells, in Huntington Beach, when the cost of oil dropped to a certain price. I moved out of town in 1990, but noticed, on a return visit, a few years later, there was an astonishing number of new wells.
Makes you wonder what the circumstances would be if XL were built three years ago and operational....
Very true ! Thanks :)
You are correct...this is not a market driven event, it is an economic war. They need to break the back of the marginal i.e. high cost new production market in the US. We are not yet energy independent and with this we will not be for a while, perhaps ever. This is not going to be a quick war as it will take time to drive these firms out of existance.
/johnny
It’s not that simple . . . re “the oil is still there and we can get it when we want it”.
1) When the industry folds, soon at these prices, they will screw over all their lenders. They will HAVE to default.
2) They will leave all their stuff behind on the well pads. NoDak will have to find money to clean it up because the small fry will be outright bankrupt.
3) All the workers are not going to put down roots in NoDak, they are going home.
So presto, a year from now with shale shut off and 3 million bpd extracted from global supply, the price goes back to $120. Can the shale work restart?
Probably not. The lenders who financed it all will have just been burned. They will say “not interested” unless they can get 15% or something interest, and may want collateral other than oil even then.
NoDak will have regulations insisting on bigger escrow for cleanup if it all happens again.
The workers will demand relocation packages and higher pay since THEY just got burned.
It will all translate to MUCH higher breakeven prices to get things started again, maybe almost $200/barrel.
Unless.
Unless the industry takes a government bailout of the Fed prints money to bailout the lenders. Then . . . it all works because there will never be capitalism again.
Gee, reading your post make me think this is the first bust of the oil boom-bust cycle.
“Why would a nation that gets 90% of their revenue from oil allow the price to plunge?”.....
On the surface, one would think the Saudi’s have more than enough money in the banks to “tide them over” for some time to come. Keeping the pumps flowing will only serve to HURT other producers and ultimately/possibly drive them out of business financially. Saudi wells have been producing for some time (years in fact) while many of the U.S. domestic producers still have to pay off their capital investments while getting lower prices for their oil. IMO, it comes down to “survival of the finically fittest”.
The Saudis need to start buying up North Dakota farmland. Before the Chinese do.
“They need to break the back of the marginal i.e. high cost new production market in the US.”
But their problem is that we will continue to evolve our production methods to further reduce our drilling costs, so they are on a fool’s mission. Remember, a few years ago, we couldn’t do what we are doing now. It’s over for the dune coons.
in a sane world, the Saudi dictator would be bowing to the “American” president, not the other way around.
(and America would be energy independent instead of having sell-out or enemy-agent politicians blocking USA Energy Independence)
in a sane world....
Right now, we have policy to suppress the export of oil; if we get another reasonable POTUS, I would expect that policy to suppress the importation of oil would be on the table. A small protective tariff should be enough to stabilize things by promoting domestic energy production enough to make it easier to respond to future increases in foreign oil prices - and by making the Saudis take our response capability into consideration. The Saudis do not want a big protective tariff against them - which we know now that we could live with.
And our oilfield rednecks (term of endearment) have proven their resilience to low oil prices many times in recent decades.
As they’ve done in the past, they will bleed off into other occupations and just lay low until the market comes back.
So, Saudis are sucking canal water if they think they can wait out a Texas Oilfield Redneck. All he needs is his pickup, a beer joint and a job doing just about anything and he’s fine! And, there are plenty jobs in Texas!....and beer joints!
Meantime Saudi Jihadis (internal and external) are coming for the terrorist money machine otherwise known as the Saudi Royal Family!
Yeah . . . except that there is a problem. The owners of that land know about the minerals underground - and although the Saudis may make the payoff of those minerals speculative, they cannot unring the bell of the knowledge of their potential value. I don’t think North Dakota “farmland” will be a glut on the mart. You can probably buy the land - but the mineral rights, not so much. The owners will be leaving those rights to their heirs in their wills.
Bull. It is about crippling Russia.
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