Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on December 14, 2014
Rapid fall in oil prices may portend global recession
Cratering crude-oil prices may be a blessing to cash-strapped American consumers, but it’s a double-edged sword when it comes to the overall economy.
The problem for the overall economy is not so much the drop in oil prices as it is the velocity at which oil prices have fallen.
The plunge from a peak of just over $100 per barrel in the early summer to today’s $58 — a massive 42 percent drop in just a few short months, most of which has come in the last 90 days — could make anyone’s head spin.
The rapid fall in crude prices is a telling sign to some Wall Street analysts and economists that there may be a global recession taking hold and the slowing growth is pushing oil lower.
Remember, at the height of the financial crisis, crude got down into the high $30s a barrel at the end of 2008 as the US and Europe went into a recession.
But some on Wall Street see pricing forces that go beyond the supply-and-demand model to take in geo-political intrigue.
There will be plenty of Commodity Pool Operators (CPOs) and some hedge-fund managers holding high-yield energy bonds that are taking it on the chin.
And, yes, several of the big banks came out this week saying that while business in general was good, trading revenue will be down from last quarter.
The banks did not attribute it to oil’s slide but, for anyone who’s seen movies like this before, it’s safe to assume their profits from rising bond prices were dampened by plummeting oil prices in their commodity holdings and cratering high-yield energy prices.
This slowdown may also hit the fastest-growing US industry and our country’s No. 1 job producer since the recession: domestic drilling for oil and natural gas.
As the price nears $50 a barrel, domestic drillers in Pennsylvania and the upper Midwest may be hard-pressed to keep production going full throttle.
Roe Patterson, president and CEO of Basic Energy Services, a large shale contractor, summed it up well at a Cowen energy conference last week: “If it [the price] gets ugly, we’ll get ugly with it.”
At stake are nearly 2 million well-paying jobs. Per the most recent Bureau of Labor Statistics figures, the average worker in the oil and natural gas industry was making $107,198. That’s $57,909 higher than the average annual pay across all industries.
Even Big Oil is feeling the pinch. ConocoPhillips just slashed its 2015 capital-expenditures budget by a whopping 20 percent to $13.5 billion. The more than $3 billion budget cut was higher than analysts were expecting.
Why? Because “it’s prudent given the current environment,” CEO Ryan Lance said on Monday at an analysts meeting, a comment that sparked a sell-off in the oil sector that then spilled over into the markets.
Yes, in the past, lower oil prices were beneficial to the US economy. But as domestic production ramped up over the last six years, today’s collapse — which is second only to the financial crisis of 2008 — is different.
So while it feels good at the pump this holiday season, be warned: This time oil’s fall has a binary outcome for many Americans.
6 Comments on "Rapid fall in oil prices may portend global recession"
Kenz300 on Sun, 14th Dec 2014 9:55 am
NY POST — owned by the Murdoch (Faux Noise) empire and head cheerleader for the top 1% and the fossil fuel industry……..
Agenda driven reporting with a pro fossil fuel spin in every article…………
tahoe1780 on Sun, 14th Dec 2014 10:32 am
A wealthy friend just sent me this: http://www.joshuakennon.com/watching-oil-decline-45-made-excited/
Northwest Resident on Sun, 14th Dec 2014 11:11 am
tahoe1780 — Very interesting article which expresses exactly what many if not most people truly want to believe. Shoot, reading that article, I found myself starting to feel a warm glow inside and a slight urge to go out and buy some energy stocks now while the price is good. The example of the little old lady warmed my heart. But fact is, articles like the one you posted ignore a long list of very unpleasant and inconvenient truths. By the time those truths become apparent, investors and investment managers who suck up feel-good illusions like the one presented in your posted article will be in for a very rude and devastating wake-up call, and the tops of tall buildings will be crowded with them, all waiting for their turn to jump.
Perk Earl on Sun, 14th Dec 2014 1:57 pm
“And, yes, several of the big banks came out this week saying that while business in general was good, trading revenue will be down from last quarter.”
Trading revenue down? Is that code for a lack of QE play money?
And by the way there seems to be this preoccupation with providing the banks with incredible levels of profit. What a crock that they need to make so much money at our expense; little to nothing on savings, high credit card interest rates with fees and penalties, stock and bond investment returns, interest on car, business and home loans. I mean how much is enough?
I use to be a liaison for a bankcard servicing company in San Mateo, CA. I had three banks; Bank of Oregon in Portland, a bank in Salem, Oregon and one in Anchorage Alaska. They made bucko bucks on credit cards and at the time they didn’t really make all that much on the rest of their services. Now it’s transitioned into this billion dollar bonanza and yet there is all this worry about how much the banks are making. I’m perplexed over that development.
Northwest Resident on Sun, 14th Dec 2014 2:04 pm
Perk — My guess is that if your whole life has revolved around making excessive profits, and if your reason for existence and sense of self worth also revolves around making excessive profits, then there is only one thing that is worth doing, and that is, making excessive profits. When the banks and their executives and stock holders cease to make excessive profits, they’re going to do whatever they have to do in order to return to “normal”, and if that ends up being at the expense of everybody else in the world, so be it. That world view is of course unsustainable and is heading for a shattering experience. There’s going to be a lot of bummed out rich people when it happens.
synapsid on Sun, 14th Dec 2014 3:39 pm
I was impressed by “…has a binary outcome…”