Considerable pain to come for US Energy stocks

26 Comments on "Considerable pain to come for US Energy stocks"

Plantagenet on Fri, 12th Dec 2014 12:09 pm 



Low oil prices hurt US energy companies and their stocks go down.

Who is surprised by that?

bobinget on Fri, 12th Dec 2014 12:19 pm 



If you think US energy stocks in The House of Pain
U gotta read this;
http://www.bloomberg.com/news/2014-12-12/venezuela-s-got-21-billion-owes-21-billion-as-crisis-builds.html

Keep in mind, had the Saudis simply admitted it would fall short for November deliveries.. it did..
We would not be in this free-fall.

Had IEA or KSA put precise wording into press releases We would not be in free fall.

Had our celebrity fond press paid more attention to
the Syrian Proxy Civil War, followed more closely
terrorist financing, (follow the money, BBC did)
We would not be encouraging self fulfilling prophecies of demand destruction.

Had anyone bothered to notice Libya becoming an ISIS failed state, US ‘tight oil’ providers would not be closing shop.

Had anyone bothered to notice and report US consumption is going higher 100,000 Bp/d almost every week.

How many people know Iran and Saudi Arabia
are engaged in a do or die religious battle of Koranic proportions?

Do you know the world is expected to make and sell
73 million new cars in 2014? That number does not include six million motor bikes or trucks or jet aircraft.

Best of all, did you know fuels the Pentagon consumes are NOT counted with domestic consumption? (pentagon consumption equals that of Denmark)

Did you know how much defense related fuels were use today fighting world-wide insurgent and terrorists? No, because if you did ‘they’ would have to kill you (-;

(“Allies” performed over a thousand airstrikes)
(thats a billion dollars in missiles)

http://www.sunherald.com/2014/12/12/5965592/us-providing-little-information.html

Did you know the US sent an additional 1000 troops back to Iraq TODAY to protect all that glutted oil?

If you think a few leveraged US drillers are in difficulty, try 15 MILLION war related Syrian refugees Talk about a house of pain! In particular because the Syrian Proxy war is all about oil.

Or, If you count black skinned folks millions in oil rich Nigeria being terrorized daily by another Islamic terrorist group calling itself Boko Haram.

Pveroi on Fri, 12th Dec 2014 12:29 pm 



I think the piece was just an update, not meant to be a revelation. Personally I don’t have those graphs so although the message is an obv one the numbers are still good to see.

Bob where do you get pentagon numbers? I’ve always wanted to get a handle on that. Not discounting your post but just wondering: I remember hearing that the move to drones was supposed to save a lot of fuel. Any numbers there?

shortonoil on Fri, 12th Dec 2014 1:21 pm 



Had anyone bothered to notice and report US consumption is going higher 100,000 Bp/d almost every week.

That is a 1/2 of 1% increase for a 40% drop in price. Apparently lower prices aren’t going to increase consumption. Like the old saying, “you can’t get blood out of a stone”.

bobinget on Fri, 12th Dec 2014 1:32 pm 



Google tells all. Simply ask: “Pentagon fuel consumption”.
Drones (cost $28,000 each) do save on fuel, that’s for sure. In my book drones will in time entirely replace manned aircraft.. However, we are nowhere near that. Carrier based fighter bombers still have strong advocates. An old saying but true today;
“Generals and Admirals always fight a current war the same way they fought the last conflict”.

We are not fighting standing armies, even in Iraq,
ISIL forces blend in with population forbidding
Vietnam style carpet bombing even drone Hellfire
select attacks without terrible loss of civilian life.
AKA ‘collateral damage”.

Unless we change our entire ways of living. IOW’s
leaving fossil fuels in the ground. Forgetting motorized transport, accepting world wide famine,
limit population growth, eliminating conventional armed forces, on and on, we DESPERATELY need that proven Iraqi and Libyan resource.

Clever holes in tight shale rock is a cute trick but it can’t compare with an elephant field output that could equal that of hundreds of 500 B p/d oil wells.
It would take many years of shale drilling just to equal the oil lost during 90 days of BP’s ‘Lost Horizon’oil ‘spill’.

Iraq, Iran, Libya’s oils are pivotal. IMO Saudi Arabia will self destruct preventing orderly exports for decades.

The West will need to send in additional ground troops to aid the Iraqi army unless we cede control of this oil to Iran or Russia or ISIS.

There is no government in Libya. Only ISIS and a weird bunch of militias each looking out for themselves, not the nation.

Libya presents the greatest difficulty.

I have no idea how all this will shake out.
I do know, the probability of ME reliable supply
diminishes each hour.

Speaking of oil, it’s being sold for $58 bucks
around $100 below what we should pay unless we spend another three trillion dollars to try to settle down the ME. It didn’t work before but Hell ya never know, do ya. Please, contribute YOUR child, forego medical insurance, higher education, so America can once again live free.

bobinget on Fri, 12th Dec 2014 1:46 pm 



Maybe not blood shortonoil, but we seem to be able to get oil from stone. (symbol crash!)

Speaking of blood. how much OPB (other people’s blood) do ‘we’ spend keeping oil prices low?

Another million darker skinned peoples sounds about right don’t ya think shortonoil?

Low prices are just now hitting your local supermarket gasoline pump.

Watch traffic levels increase. The next clear day stand on a freeway (expressway) overpass for an hour. Then, check with your local truck weighing station for volume and weights.
If you still not convinced, watch accident levels
go higher as folks exceed speed limits cause, hey,
“my time is worth more then two bucks a gallon,
hand me that phone”.

Perk Earl on Fri, 12th Dec 2014 3:04 pm 



Off topic but on target:

http://www.nbcnews.com/news/us-news/critics-say-spending-bill-includes-bonanza-wall-street-n267211

Critics Say Spending Bill Includes a Bonanza for Wall Street

“One of the provisions of the law says that if banks want to trade certain types of the risky, complex financial instruments known as derivatives, they must do so in a subsidiary that is not backed by federal deposit insurance.
As proponents of tighter financial regulation point out, repealing that provision makes it more likely that taxpayers will be on the hook for another bailout if the banks’ risky bets on derivatives trigger big losses.”

Citigroup is pushing the revision in the favor of too big to fail banks via the GOP, and so far it has passed the House and is now up for a vote in the Senate with O already saying he will sign it even though there are things in the bill he doesn’t like.

Obama is completely spineless.

sunweb on Fri, 12th Dec 2014 3:11 pm 



bobinget – thanks

shortonoil on Fri, 12th Dec 2014 4:01 pm 



Maybe not blood shortonoil, but we seem to be able to get oil from stone. (symbol crash!)

1) Two errors here: anything with an API greater than 45 isn’t oil; it’s mislabeled paint thinner. It is stuff that you put 1.1 BTU into to get 1.0 BTU out of. Small wonder they are now going broke!

2) Stone is what you build buildings out of, it has a density of about 163 lb per cubic foot or better. This stuff is so weak that it fractures with a few thousand pounds of water pressure. Try that with a piece of granite. The only thing this stuff would be good for is to grind it up into road fill.

The hype, and mythology that has been embedded into the Shale aura makes African Voodoo look like quantum mechanics. If anyone is betting on shale they are betting on the wrong horse, this one is heading for the glue factory.

steve on Fri, 12th Dec 2014 4:42 pm 



can’t a fat finger just push the price of oil up…it seems like all markets are manipulated so much today….I would not be surprised if they slowly push oil up to a price around $65 and keep it there for a while.

Plantagenet on Fri, 12th Dec 2014 4:45 pm 



@shortonoil:

The legal definition what is “oil” is set by the US Government. In 2011 the obama administration changed the definition of oil to include things like gas condensates, biofuels, etc.

I understand your point, but the legal definition of oil, as defined by the DOE and the US Governrnment for purposes of regulation, pricing, export controls etc.—the legal definition of oil actually does now include liquid hydrocarbons with API above 45.

shortonoil on Fri, 12th Dec 2014 5:13 pm 



I would not be surprised if they slowly push oil up to a price around $65 and keep it there for a while.

Our model puts crude at $76/barrel for 2015:

http://www.thehillsgroup.org/depletion2_022.htm

We think that oil has been over sold by the market at this point. But the other side of the coin is that you will never see oil at $100/barrel again, at least for not more than a day. It would be like the 2008 rush to $147. That was obviously not sustainable either. Oil, like any other commodity has a maximum price that the economy can afford to pay for it. That maximum price can be determined by the energy dynamics of the crude, and the processes needed to produce it, and its products.

Davy on Fri, 12th Dec 2014 6:18 pm 



I imagine the $100 oil is gone because economic juice is gone and gone for good with no recovery. The bumpy descent has started. A bounce back in oil will likely occur with supply scares either production, cartel policy, and or war. Without a healthy economy price spikes will not have momentum and each spike will be like a knife twist. Unhealthy oil in unison with an unhealthy economy sounds like a BAU end game to me. The key issue is timing. 3-5-10 always seems to pop into my head.

The financial repression policies are not gone. The CB Houdini’s still has some tricks. I imagine the central banks will start going rogue using unconventional actions even by today’s standards. IOW look for CB desperation. There may have to be bail-ins and debt forgiveness. Eventually the Plutocrats will have to take a haircut when the sheeples have no blood left.

Bob Owens on Fri, 12th Dec 2014 6:28 pm 



The financial pain has already arrived. DOW down over 300 points today. Oil under $58 per barrel. Is this the start of something big? Maybe… All the stars seem to be in alignment. We will know in a couple of months (or weeks; or days).

Davy on Fri, 12th Dec 2014 6:29 pm 



http://www.theautomaticearth.com/will-oil-kill-the-zombies/

“When you’re as addicted to debt as the shale industry has been – and still would be if they could still get their fix -, then seeing prices for your products drop over 40% and the yields on your bonds just about double (just for starters), then you have not a problem, but a disaster. And one that’s going to reverberate through all asset markets. It’s already by no means just oil that’s plunging, – industrial – commodities (iron ore, nickel, copper etc.) as a whole are way down from just a few months ago. I read a nice expression somewhere: “the economy is topped with a copper roof”, which supposedly means to say that where copper goes, the economy will follow.”

Davy on Fri, 12th Dec 2014 6:37 pm 



Here is different view:

http://www.zerohedge.com/news/2014-12-12/5-things-ponder-crude-oppositeness

For a speculative trader looking for a short-term opportunity, as shown in the chart below, oil is now 4-standard deviations oversold and a fairly strong bounce is likely.

Makati1 on Fri, 12th Dec 2014 7:26 pm 



Maybe the Markets will finally correct to the 6,000 DOW or lower. But, I doubt it. The Mafia still has some blood in the sheeple to drain before it is allowed to crash with only the suckers still aboard. Those super computers tied to the market will all beat the average Joe and Jane in the rush to dump at the top. Milliseconds will beat a cell phone anytime. Gettin’ interesting, don’t you think?

Perk Earl on Fri, 12th Dec 2014 11:53 pm 



“The Mafia still has some blood in the sheeple to drain before it is allowed to crash with only the suckers still aboard.”

They’re milking those sheeple alright, Mak. The middle class is the silent majority always good for another fleecing. The nice part is they remain silent either out of ignorance about being fleeced, simply see it as their patriotic duty to be rolled or realize they have no power so just drop their chins and take it some more. To the benefit of the Mafia, the middle class always keep trying their hardest no matter what is thrown at them so they are always good for another rip-off.

Perk Earl on Sat, 13th Dec 2014 12:29 am 



I found the following post at Ron Patterson’s site, and thought it was so good I’ve pasted it below. Read the part about why there is a glut of oil – the reason is very well put.

BC says:

December 13, 2014 at 12:02 am

US Peak Oil II is here and soon will be gone. Print it. Peak Oil is history, i.e., in the rear view mirror.

The energy junk debt bubble is bursting, which will precipitate defaults on US and Canadian C&I bank loans and bust the offshore shadow banking’s carry trade that is levered 50-80:1, increasingly via emerging market (EM) debt, US Treasuries and MBS, and equity index futures.

The current debt bubble is global in scale and now larger than that which preceded 2008-09. The coming debt-deflationary collapse will be unprecedented in history, making 2008-09, 1929-33, and 1893-98 look like an amateur-hour rehearsal.

This is what the collapse in oil and $2 or lower gasoline in 2015 is signaling.

Japan’s monetary base now exceeds the value of loans of the largest Japanese banks. At the current rate of growth of the Japanese monetary base, the base will reach par with total loans by late 2016. The US is on the same course, implying that the Fed will eventually be directed by the TBTE banks to print another $2-$4 trillion in bank reserves to liquefy banks’ balance sheets and to provide sufficient liquidity to clear (monetize) US Treasury issuances to run the necessary fiscal deficits to prevent nominal GDP from contracting hereafter.

This implies the 10-year Treasury yield at 1% (like Japan and the EZ) and, by extension, wages, CPI, and nominal GDP decelerating to 1-1.5% in the years ahead.

The shale boom/bubble was not economically justified given the level and no growth of US consumption and the uneconomic energy costs of extracting costly, lower-quality crude oil substitutes.

Some argue that the price of oil is collapsing because of a glut of oil, but the glut is a result of Peak Oil pushing up the price of oil that we cannot afford to burn and grow real GDP per capita. We will have a permanent glut of costly crude oil substitutes that we cannot afford in terms of energy costs to extract that permits a sufficient supply of affordable costly oil in order to grow the economy.

Peak Oil, LTG, the end of growth, population overshoot, the onset of the post-Oil Age epoch, over the Seneca Cliff, and back to Olduvai we go.

Davy on Sat, 13th Dec 2014 6:18 am 



Excellent post going in my notes Perk!

Davy on Sat, 13th Dec 2014 6:35 am 



“Rutt-Roww” energy corns Marm-a-NOo

http://www.zerohedge.com/news/2014-12-12/550-billion-mania-ends-badly-energy-companies-are-shut-out-credit-market

“This $550 Billion Mania Ends Badly,” Energy Companies Are “Shut Out Of The Credit Market”

“Anything that becomes a mania — it ends badly,” warns one bond manager, reflecting on the $550 billion of new bonds and loans issued by energy producers since 2010, “and this is a mania.” As Bloomberg quite eloquently notes, the danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt – as HY energy spreads near 1000bps – all thanks to the mal-investment boom sparked by artificially low rates manufactured by The Fed. “It’s been super cheap,” notes one credit analyst. That is over!! As oil & gas companies are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines. Welcome to the boom-induced bust…

rockman on Sat, 13th Dec 2014 8:59 am 



“Apparently lower prices aren’t going to increase consumption.” And folks don’t have to go far back to see the proof of that: yearly average price of oil in 2008 – $99/bbl. Average yearly price of oil in 2009 – $67/bbl. And average oil consumption during 2009 wasn’t higher but slightly less than during 2008. And oil prices crashed during the second half of 2008 just as we’ve seen this year. In 12 months we’ll know if the dynamic is repeated.

rockman on Sat, 13th Dec 2014 9:39 am 



Earl – “We will have a permanent glut of costly crude oil…” Yes, exactly the way we can respond to the anti PO crowd that want to use lower oil prices and roughly stable oil consumption to argue their position. Eventually there was a “glut” of undeveloped oil reserves that cost $90+/bbl to extract. Unfortunately the global economy has shown that it can no longer afford to acquire that oil. It doesn’t appear we have a “glut” of $65/bbl oil since the global economy appears to be buying every bbl available. But we’ll need to wait at least 6 months IMHO to know if we develop a “glut” of $65/bbl oil should the global economy not be able to afford that price.

Bottom line: there is always a “glut” of oil. The glut is the amount of oil that cannot be developed or sold above the price of oil at any point in time. If oil prices stay at current levels we’ll develop a big glut of unconventional oil reserves: all that shale production that would have been developed at $100/bbl but won’t at $65/bbl.

There is not a “glut” of oil at today’s prices…the world is buying every bbl available…at those prices.

shortonoil on Sat, 13th Dec 2014 9:49 am 



“For a speculative trader looking for a short-term opportunity, as shown in the chart below, oil is now 4-standard deviations oversold and a fairly strong bounce is likely.”

The author of the graph mentioned above does not seem to realize that the petroleum price curve hit a discontinuity in 2012. That year was when petroleum production reached the energy half way point. It was when it required one half of the energy in a barrel of oil to produce the petroleum, and its products. The danger of focusing on production volume, in lieu of petroleum’s primary use which is as an energy source, is leaving anyone in the markets in jeopardy. This disconnect from the real issue is analogous to a dairy farmer measuring the prosperity of his farm by counting the number of cattle in his herd, and ignoring how much milk they produce.

We agree that prices have now over shot their equilibrium point. Our projections for 2015, which is based on how affordable oil is to the economy, is $76/barrel.

http://www.thehillsgroup.org/depletion2_022.htm

Prices are almost definitely going to rebound this coming year, but that is not end of the story. Prices will continue to fall throughout 2016 into 2020 as petroleum’s ability to support its own production declines. The result will be an industry that within five years will not even begin to resemble the industry that we have today. The petroleum industry will be significantly down sized as the functionality of petroleum declines. As a foundational component to the economy, all other sectors from manufacturing to finance, will follow.

http://www.thehillsgroup.org/

Perk Earl on Sat, 13th Dec 2014 12:05 pm 



“The petroleum industry will be significantly down sized as the functionality of petroleum declines. As a foundational component to the economy, all other sectors from manufacturing to finance, will follow.”

And then what happens? I know the trend here and the outcome as outlined above, but it’s hard to know how that plays out for the one’s unemployed, for the governments with insufficient funds to support the programs that holds low income people back from unrest, etcetera. At some point there will be tens of millions seeking sustenance, shelter and all the rest without enough of a system capable of supporting them. I guess it’s hard to know what happens then exactly besides the obvious chaos that will occur.

Northwest Resident on Sat, 13th Dec 2014 12:16 pm 



“As a foundational component to the economy, all other sectors from manufacturing to finance, will follow.”

I think shortonoil may have just hit the nail on the head, except, not nearly hard enough. Saying that the oil industry is a foundational component to the economy is a little bit of an understatement, in my opinion. Isn’t it more accurate to say that the oil industry is THE primary and absolutely essential foundational component to our industrial and high-tech civilization? Manufacturing and finance are built on top of the oil industry. Now, the oil industry is in a world of hurt and on a deteriorating path to irrelevancy over time — finite resources and mother nature say so. And that says a lot about where the rest of us are headed.