Oil is Plunging...Good or bad for economy? (1 Viewer)

[heropretend]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

Lower oil prices (due to excess supply, not decreased demand) are good for the overall economy because the cost of doing business is lower. There's really no debating this.

A lot of economists like Krugman have been saying that low oil prices are good for the overall economy is but a crashing oil industry and high yield debt can cause destabilization, political worries, etc and hurt the overall outlook. So low and lower oil and gas is good, but 99 cent store oil and gas is not good.

 

[cstu]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

Lower oil prices (due to excess supply, not decreased demand) are good for the overall economy because the cost of doing business is lower. There's really no debating this.

A lot of economists like Krugman have been saying that low oil prices are good for the overall economy is but a crashing oil industry and high yield debt can cause destabilization, political worries, etc and hurt the overall outlook. So low and lower oil and gas is good, but 99 cent store oil and gas is not good.

It's the speed at which oil dropping that is the problem because as you said it creates rapid instability and credit defaults. If oil dropped say $10 a year then companies could make adjustments and higher cost producers could slowly make their way out.

These are not natural price swings - Middle East producers are actively trying to crash the price of oil drive in order to drive out competition knowing there's a long lag time until production can go back online.

 

[Faust]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

Lower oil prices (due to excess supply, not decreased demand) are good for the overall economy because the cost of doing business is lower. There's really no debating this.

A lot of economists like Krugman have been saying that low oil prices are good for the overall economy is but a crashing oil industry and high yield debt can cause destabilization, political worries, etc and hurt the overall outlook. So low and lower oil and gas is good, but 99 cent store oil and gas is not good.

It's the speed at which oil dropping that is the problem because as you said it creates rapid instability and credit defaults. If oil dropped say $10 a year then companies could make adjustments and higher cost producers could slowly make their way out.These are not natural price swings - Middle East producers are actively trying to crash the price of oil drive in order to drive out competition knowing there's a long lag time until production can go back online.

The middle eastern producers are doing it to preserve market share; however, it is a dangerous game for them as they all require higher oil prices to reach break even points for their budgets:

Oil prices and budgets:The OPEC countries most at risk

 

[Ministry of Pain]

I didn't know Faust posted in here.

 

[Officer Pete Malloy]

This is horrible for the economy, you dolts.

 

[yak651]

$140/barrel oil gas is $4.00/gal, $30/barrel oil gas is $2.00/gal ~ something doesn't add up...oh yeah for those in manufacturing or something that relies on shipping and the shippers are still adding fuel surcharges, WTF?

 

[culdeus]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

Lower oil prices (due to excess supply, not decreased demand) are good for the overall economy because the cost of doing business is lower. There's really no debating this.

A lot of economists like Krugman have been saying that low oil prices are good for the overall economy is but a crashing oil industry and high yield debt can cause destabilization, political worries, etc and hurt the overall outlook. So low and lower oil and gas is good, but 99 cent store oil and gas is not good.

It's the speed at which oil dropping that is the problem because as you said it creates rapid instability and credit defaults. If oil dropped say $10 a year then companies could make adjustments and higher cost producers could slowly make their way out.

These are not natural price swings - Middle East producers are actively trying to crash the price of oil drive in order to drive out competition knowing there's a long lag time until production can go back online.

Not totally sure this is a play to drive out anyone but Russia. And it's working

 

[parasaurolophus]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

Lower oil prices (due to excess supply, not decreased demand) are good for the overall economy because the cost of doing business is lower. There's really no debating this.

A lot of economists like Krugman have been saying that low oil prices are good for the overall economy is but a crashing oil industry and high yield debt can cause destabilization, political worries, etc and hurt the overall outlook. So low and lower oil and gas is good, but 99 cent store oil and gas is not good.

The fall is definitely bad for short term, but cheap oil is absolutely better for the overall economy. And due to sticky pricing we haven't really even begun to see the benefit yet. Diesel is dropping below two bucks a gallon tons of places. The national diesel index has been slowly going down. As it has fallen one by one companies are being forced to reduce the fees they are passing on to customers and are scrambling to create new policies to retain some of that revenue all the while enjoying increased profits because the fees never truly covered the increased expense since contrary to popular belief, you can't always just pass on cost increases.

I realize most people don't see these things on a daily basis or even know about them. When a schoolteacher in Bakersfield orders more post it notes or gold star stickers, she doesn't see everything involved with getting those things from point A to point B. She definitely doesn't see everything involved with getting the raw materials from point A to point B either. She doesn't see all of the "energy surcharges" that are involved.

American companies kind of all follow the same formula for this stuff. When costs go down they don't want to pass those savings on. Eventually their competitors start hitting the market with lower prices attempting to grab more market share or savvy buyers force the price down. Lower prices on pretty much everything you can hold in your hands is good for the economy.

Exxon/Mobil may be hurting now, but they have been making a killing on the lubes side of their business, have put in place some better union deals during this drop, have consolidated corporate locations into a beautiful new campus in Houston, have shored up their distributor network, and will be positioned quite well when oil starts going back up eventually.

Oil distributors haven't been hurt at all by this and in fact are loving it, so to be clear the whole oil industry isn't suffering.

 

[Chadstroma]

You would think investment in alternative energy sources (renewable) would decline with oil dropping as it has but I read an article the other day that stated that investment continues to grow worldwide lead by wind and solar.

Renewable is finally becoming cost-competitive with fossil fuels without the crazy price swings. I've said for a decade that getting less reliant on fossil fuels is a national security issue so that we can have stability in our markets.

Yea, I think a lot of the people who have been favorable to renewables have approached it the wrong way. I have been a big supporter of renewable for a long time and it really centers around economic advantage and as you point out national security. Sending our money overseas in exchange for oil happens to prop up a lot of our adversaries around the world.

I have always advocated a federal push via the military to further push development of renewables. Now, sure, you are not going to be charging up a PriusAbrams anytime soon but the more you cut the need and reliance of oil on vehicles there is a huge military tactical and strategic advantage inherent in that.

There is so much good and not really any bad that comes out of it. But when the left pushes renewables as a way to stop drilling etc then they are dooming themselves into an argument that will go in the same circles as always. Even if you magically switched every motorcycle, car, truck, boat, plane, helicopter and scooter away from fossil fuel and did the same for heating and energy for every domicile- we would still need oil. Now, sure, a lot less, but still need oil for the foreseeable future.

 

[Chadstroma]

Should be good for the economy overall and bad for the oil sector. There is something wrong when oil prices are too high and they hurt the market and when oil prices are too low they hurt the market.

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

 

[Doug B]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

In evaluating whether or not federal oil subsidies make sense, it seems hard to estimate for just how long Saudi Arabia can "over-produce". Since the entire Saudi economy is oil-based, some say it's not as long as many think.

 

[Chadstroma]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

In evaluating whether or not federal oil subsidies make sense, it seems hard to estimate for just how long Saudi Arabia can "over-produce". Since the entire Saudi economy is oil-based, some say it's not as long as many think.

Not just the Saudis but now we will have Iranian oil hitting the market. Most of the oil producing economies have the same problems as the US operations have in terms of propping things up by producing or keeping production stable rather than cutting. If the foreign oil cuts production, it actually works against them because it saves the US production while they have less revenue.

 

[Godsbrother]

Just hit $1.96 in my neck of the woods. Thanks Obama!

 

[Sand]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

 

[Ignoramus]

$140/barrel oil gas is $4.00/gal, $30/barrel oil gas is $2.00/gal ~ something doesn't add up...oh yeah for those in manufacturing or something that relies on shipping and the shippers are still adding fuel surcharges, WTF?

How much of the $4 gas is taxes? Now how about the $2 gas?

 

[Jobber]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

Shale Oil essentially flipped OPEC on its head. No longer do they have the control over prices they did for the last several decades. And they can't do a damn thing about it - which is nice. The biggest winner in the oil game? The United States of 'Murica. Like you said, we can bring production back online fairly quickly once the price of oil rises to profitability. And in the meantime, everyone else is sucking their fields dry becuase they can't afford not to (Russia, Saudis, Iran...and maybe Venezuela).

 

[culdeus]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

That's all well and good but lots of the leases have minimum payout covenants that will be broken in this situation. Nobody wrote the leases with the idea that they would ever just shut the taps off and now the accountants are ####ting their pants. North Dakota leases in particular were god awful from this perspective as few, if any, had mineral rights on deeds prior to about 2011.

 

[Ignoramus]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

Exactly. While Saudi Arabia and other state-oil countries *have* to produce to meet their financial obligations and the bureaucracy means that ramping up or ramping down is a sloooooooooooooooow process, shale production could just about take off again overnight if prices justified it. US production continues to grow despite the deep, deep cuts in drilling, plus there are thousands of Wells that have been drilled but not completed that are just waiting for prices to recover. We've got lots of oil.

 

[Ditka Butkus]

http://money.cnn.com/2016/01/22/news/economy/oil-prices-soar/index.html

Oil skyrockets 23% in 48 hours, tops $32

There didn't appear to be an obvious trigger for the rebound. Traders pointed to extremely oversold conditions that simply couldn't last.

"A bounce at some point was inevitable. Things don't go one direction all the time. It was primed for turnaround," said Darin Newsom, senior commodities analyst at DTN.

I'm glad to see we adhere to the good old fundamentals of supply and demand. This is what is wrong with our economy overall, bunch of yahoos on Wall Street sure can f**k s**t up,.

 

[Chadstroma]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

They have to produce to make their loan payments. So, the flexibility is there but not as nearly as simple and turn on and turn off depending on oil price.

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

Exactly. While Saudi Arabia and other state-oil countries *have* to produce to meet their financial obligations and the bureaucracy means that ramping up or ramping down is a sloooooooooooooooow process, shale production could just about take off again overnight if prices justified it. US production continues to grow despite the deep, deep cuts in drilling, plus there are thousands of Wells that have been drilled but not completed that are just waiting for prices to recover. We've got lots of oil.

We have the largest energy* reserves in the world and it is not even close.

*all fossil fuels.

 

[Chadstroma]

http://money.cnn.com/2016/01/22/news/economy/oil-prices-soar/index.html

Oil skyrockets 23% in 48 hours, tops $32

There didn't appear to be an obvious trigger for the rebound. Traders pointed to extremely oversold conditions that simply couldn't last.

"A bounce at some point was inevitable. Things don't go one direction all the time. It was primed for turnaround," said Darin Newsom, senior commodities analyst at DTN.

I'm glad to see we adhere to the good old fundamentals of supply and demand. This is what is wrong with our economy overall, bunch of yahoos on Wall Street sure can f**k s**t up,.

Not sure what the "right" price is right now but I do suspect we will see bouncing all over like a rubber ball.

 

[rascal]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

They have to produce to make their loan payments. So, the flexibility is there but not as nearly as simple and turn on and turn off depending on oil price.

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

Exactly. While Saudi Arabia and other state-oil countries *have* to produce to meet their financial obligations and the bureaucracy means that ramping up or ramping down is a sloooooooooooooooow process, shale production could just about take off again overnight if prices justified it. US production continues to grow despite the deep, deep cuts in drilling, plus there are thousands of Wells that have been drilled but not completed that are just waiting for prices to recover. We've got lots of oil.

We have the largest energy* reserves in the world and it is not even close.*all fossil fuels.

We do?

 

[culdeus]

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

They have to produce to make their loan payments. So, the flexibility is there but not as nearly as simple and turn on and turn off depending on oil price.

The big problem right now for the US is that the high prices drove huge investments in exploration and extraction of hard to get and costlier oil here in the US. With oil dropping there is a lot of those investments now in trouble and the choice is to either generate more income through more production or fold up shop. Obviously, you try to protect your investment with more production and when everyone in the same situation also trying to increase production it drives prices down. Operations fold which means lost jobs and unpaid loans. Other supporting industries lose jobs because they lost customers and that means unpaid loans. Enough unpaid loans means reserves go up which means less lending overall which if enough happens slow economic growth. The oil sector has really been a prop for the economy for many years. It has done well and attracted a lot of investment. Almost a bubble even.

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

Exactly. While Saudi Arabia and other state-oil countries *have* to produce to meet their financial obligations and the bureaucracy means that ramping up or ramping down is a sloooooooooooooooow process, shale production could just about take off again overnight if prices justified it. US production continues to grow despite the deep, deep cuts in drilling, plus there are thousands of Wells that have been drilled but not completed that are just waiting for prices to recover. We've got lots of oil.

We have the largest energy* reserves in the world and it is not even close.*all fossil fuels.

We do?

Counting coal this is true IIRC.

 

[Doug B]

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

That's all well and good but lots of the leases have minimum payout covenants that will be broken in this situation. Nobody wrote the leases with the idea that they would ever just shut the taps off and now the accountants are ####ting their pants. North Dakota leases in particular were god awful from this perspective as few, if any, had mineral rights on deeds prior to about 2011.

Question stands: does it make sense for the U.S. government to make these minimum payouts? Or is not desirable to introduce federal "guarantee" money into the lease equation?

 

[culdeus]

Thinking out loud: Does it make sense for the U.S. government, as a long-term national security measure, to subsidize these exploration/extraction investments in an effort to wait out Saudi Arabia & Friends?

No, as we're actually on track to produce more oil in the US in 2016 than 2015. That combined with the fact that shale producing plays are very flexible means more capacity will come back online quite quickly after the price of oil allows it to be profitable.

That's all well and good but lots of the leases have minimum payout covenants that will be broken in this situation. Nobody wrote the leases with the idea that they would ever just shut the taps off and now the accountants are ####ting their pants. North Dakota leases in particular were god awful from this perspective as few, if any, had mineral rights on deeds prior to about 2011.

Question stands: does it make sense for the U.S. government to make these minimum payouts? Or is not desirable to introduce federal "guarantee" money into the lease equation?

Talk about a slippery slope.

 

[Chadstroma]

We have the largest energy* reserves in the world and it is not even close.*all fossil fuels.

We do?

Yes. Someone already replied that this includes coal which is why I made it clear that that included all fossil fuels but even if we focus on oil....

I think we are 11th in the world in proven oil. I believe that ranking is excluding the national strategic reserve. More importantly, it does not count oil shale and oil sands. Also, that does not count natural gas in which we have a significant amount of. Include those and we are pretty close to the top of the list if not on top. Coal makes it not even close.

 

[Sabertooth]

It's good for me. #### the economy. The sooner we good MAD MAX, the sooner I get to eat the poor.

 

[Rove!]

Thanks Sarah Palin and the drill baby drill movement.

 

[cstu]

Is Saudi Arabia winning the war against shale? Kemp



LONDON | By John Kemp









Saudi officials insist the kingdom's oil production strategy is not aimed at putting U.S. shale producers out of business, a message that has been repeated to visiting U.S. policymakers.

The United States remains the kingdom's most important security partner, and Saudi officials do not want to be seen to be deliberately trying to halt the shale revolution.

Rising domestic oil production is important to U.S. policymakers because it has given the United States a greater sense of energy security, and the Saudis remain keen not to offend their most important ally.

Saudi officials talk about defending market share and refusing to subsidize "high cost" production which encompasses unconventional output such as oil sands and frontier areas such as deep water and the Arctic.

In response to the plunge in prices, capital expenditures totaling almost $400 billion on a range of exploration and development projects have been axed or postponed, which will reduce non-shale non-OPEC production in the latter part of the decade.

In the short term, however, the brunt of the oil market adjustment has fallen on shale producers, since other forms of exploration and production have much longer lead times.

The battle between Saudi Arabia and the shale producers has been a war of attrition in which progress has been slow so far.

But the most recent data show the tide may finally be turning in the kingdom's favor, as U.S. shale producers run out of cash and fresh financing, and are unable to maintain output.

TURNING THE TIDE

Even after oil prices began falling in June 2014, U.S. production (including condensates) continued to increase by another 1 million barrels per day (bpd).

Between June 2014 and its peak in April 2015, oil output rose from an estimated 8.7 million bpd to 9.7 million bpd, according to the U.S. Energy Information Administration.

Since April 2015, production has fallen, but it was still running at 9.3 million bpd in November 2015, the latest month for which reasonably comprehensive estimates are available.

How much progress this represents depends on the baseline against which it is measured. In absolute terms, output has fallen by around 375,000 bpd between the peak in April 2015 and November 2015.

If output had continued to increase on its pre-June 2014 trend, it would have been running at almost 11 million bpd by November 2015.

The reduction compared to the pre-June 2014 trend is around 1.6 million bpd, which is one measure of how far the strategy has worked (tmsnrt.rs/1RQ86rg).

The EIA was more cautious about the outlook for U.S. oil output; in June 2014 the agency predicted oil output would be running at 9.5 million bpd in November 2015.

The price war has reduced production by around 150,000 bpd compared with this more conservative baseline (tmsnrt.rs/1RQ9eeq).

So the impact of the price war on U.S. shale output could be estimated at anything between 150,000 bpd and 1.6 million bpd.

Shale proved far more resilient than almost anyone thought possible as producers concentrated drilling and expenditure on the most promising areas, accelerated drilling times and optimized fracturing operations.

The result is that the Saudis have been forced to push prices much lower for much longer than they anticipated to defend their market share and rebalance the market.

WINNING BUT AT A COST

The effort may finally be paying off as a result of the latest downward lurch in prices. The U.S. shale industry finally appears to have reached a tipping point where output is contracting rather than just flat-lining.

The EIA has revised its projection for end-2016 output down from 9.7 million bpd in July 2014 to just 8.5 million bpd in February 2015 ("Short-Term Energy Outlook", EIA, July 2014 and February 2015).

Low prices are expected to remove another 800,000 bpd from the market by the end of this year. Even that may prove to be too low because the EIA's forecast is conditioned on WTI recovering to $43 by end-2016.

Oil production in North Dakota, one of the states at the heart of the shale boom, fell to just 1.15 million bpd in December 2015, down almost 6 percent from the all-time high of 1.23 million bpd in December 2014 (tmsnrt.rs/1RQ8KoD).

"Oil price weakness is now anticipated to last into at least the third quarter of this year and is the main reason for the continued slowdown," according to the chief of the state's Department of Mineral Resources (tmsnrt.rs/1RQ8Oob).

In the meantime, however, the market remains severely oversupplied. Global inventories of crude and refined products have climbed by 1 billion barrels according to the International Energy Agency (IEA).

The precise scale of the stock build is disputed but there is no doubt inventories have climbed substantially as a result of the supply-demand imbalance.

In the United States alone, for which there is high-quality data, stocks of crude and products have risen by more than 300 million barrels over the last two years, or 220 million since prices started sliding.

The EIA currently projects global oil inventories will continue increasing by 1.0 million bpd in 2016 and 0.3 million bpd in 2017.

The market is not expected to rebalance until the second half of 2017, after 14 quarters of inventory builds, according to the EIA ("Crude oil prices expected to remain relatively low through 2016 and 2017", EIA, January 2016).

For its part, the Paris-based IEA predicts global stocks will increase by 2.0 million bpd in the first quarter of 2016, 1.5 million bpd in the second, and 0.3 million bpd on average in the third and fourth ("Oil Market Report", IEA, February 2016).

"If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased," the agency warned earlier this month.

LONG-TERM ATTRITION

As one of the lowest cost producers, with ample financial reserves, Saudi Arabia can eventually win any price war provided it pushes prices low enough for long enough.

There are serious questions about whether Saudi Arabia's strategy of flooding the market in the short term in order to strengthen its long-term position is worth the cost.

The improved techniques which enabled the shale revolution cannot be unlearned. If and when prices eventually rise, shale production will eventually increase again.

The cancellation of conventional, unconventional and frontier projects will be harder and slower to reverse but they too will eventually come back if oil prices recover.

The most durable gain Saudi Arabia can hope to achieve is if the price war scatters and dismantles much of the skilled workforce and ecosystem of specialist oilfield service and supply companies.

That would create a much bigger and longer lasting disruption of competing oil supplies which in turn will give the kingdom more pricing power in the medium term.

In the meantime, the strategy is costing the kingdom more than $100 billion per year in terms of extra borrowing and lower foreign reserves.

Rating agency Standard and Poor's estimates the kingdom will run budget deficits averaging 9 percent of GDP between 2016 and 2019.

The government has budgeted for a deficit of about 13 percent in 2016, based on an oil price of around $45 per barrel, Standard and Poor's estimates.

The kingdom is also forecast to run a deficit on the current account of its international balance of payments equivalent to 14 percent of GDP in 2016.

On Feb. 17, Standard and Poor's cut the kingdom's foreign currency credit rating two notches from A+ to A-, with a stable outlook.

Protecting the kingdom's market share is proving expensive. The question in the end will be: was it worth it? Only the Saudis themselves will know the answer.

 

[cstu]

The government has budgeted for a deficit of about 13 percent in 2016, based on an oil price of around $45 per barrel, Standard and Poor's estimates.

Running higher cost oil producers out of business isn't a long-term solution for Saudi Arabia.

Will be an interesting next decade as the number of electric and hydrogen vehicles grow as well as finding out the impact self-driving cars have on overall fuel consumption.

I never expected to see too much oil to be a problem, but the that's the era we're headed.

 

[cstu]

Wells Fargo set aside more than $1 billion to cover bad loans and said its energy portfolio remained under "significant distress".

About a third of oil and gas companies, with about $150 billion in debt, are at high risk of bankruptcy this year.

 

[Sand]

Wells Fargo set aside more than $1 billion to cover bad loans and said its energy portfolio remained under "significant distress".

About a third of oil and gas companies, with about $150 billion in debt, are at high risk of bankruptcy this year.

Bad for debt and equity holders of highly levered oil companies and certainly bad for banks, but for the economy overall this price level is a still good thing.

 

[msommer]

Bad for debt and equity holders of highly levered oil companies and certainly bad for banks, but for the economy overall this price level is a still good thing.

Agreed in the short term. Strategically - long term, .if this diminished/delays a shift to renewables it may be regretted 

In terms of the loans/bad debt; This is why banks charge interest, to guard against risk, even unforseen risk. And why banks should diversify their loan portfolio so as to not be expsed to the vagaries of any particular sector. IMHO, this is part of the cost of doing business.

 

[Sand]

Agreed in the short term. Strategically - long term, .if this diminished/delays a shift to renewables it may be regretted 

In terms of the loans/bad debt; This is why banks charge interest, to guard against risk, even unforseen risk. And why banks should diversify their loan portfolio so as to not be expsed to the vagaries of any particular sector. IMHO, this is part of the cost of doing business.

Agree on the latter.  On the former there is lots of evidence (and many recent articles) that are talking about how renewable use is accelerating right now rather than decelerating.  The inference there would be your former statement isn't holding water right now.  

 

[msommer]

Agree on the latter.  On the former there is lots of evidence (and many recent articles) that are talking about how renewable use is accelerating right now rather than decelerating.  The inference there would be your former statement isn't holding water right now.  

Hence the qualification "if". It allows for future unforeseen events  

ETA: I hope the momentum behind the shift to renewables is not unstoppable. It might make the world a better place, over time. 
It does leave us with a pickle in the Middle East. Will the crash in their economy spark the reforms that take these countries closer to  modern society, or will they bcome even more angry and radicalized.
Recent studies following the Arabic spring suggest that the populations affected now value stability (even with severe restrictions on freedom) over democracy. This might be bad news in places such as Saudi Arabia - if te house of Saud falls, what, other than religious extremism will take it's place?

 

[Sand]

Hence the qualification "if". It allows for future unforeseen events  

ETA: I hope the momentum behind the shift to renewables is not unstoppable. It might make the world a better place, over time. 
It does leave us with a pickle in the Middle East. Will the crash in their economy spark the reforms that take these countries closer to  modern society, or will they bcome even more angry and radicalized.
Recent studies following the Arabic spring suggest that the populations affected now value stability (even with severe restrictions on freedom) over democracy. This might be bad news in places such as Saudi Arabia - if te house of Saud falls, what, other than religious extremism will take it's place?

The overall energy needs of the world keeps going up and the anticipated demand for hydrocarbons is also going up, just muted a bit by renewables.  I don't expect a huge crash in demand unless something radically transformative comes around.  Even if fusion becomes real we will still want gas as it is transportable and the energy density is fantastic.  We would have to see a battery an order of magnitude better than what we have now to really throw oil in a tailspin.  That's a tough order.

 

[Tiger Fan]

Wells Fargo set aside more than $1 billion to cover bad loans and said its energy portfolio remained under "significant distress".

About a third of oil and gas companies, with about $150 billion in debt, are at high risk of bankruptcy this year.

are these actual oil and gas operators they are referring to, or all energy sector (including service companies)?

 

[msommer]

The overall energy needs of the world keeps going up and the anticipated demand for hydrocarbons is also going up, just muted a bit by renewables.  I don't expect a huge crash in demand unless something radically transformative comes around.  Even if fusion becomes real we will still want gas as it is transportable and the energy density is fantastic.  We would have to see a battery an order of magnitude better than what we have now to really throw oil in a tailspin.  That's a tough order.

It may be closer than you think

also relevant on batteries

 

[cstu]

are these actual oil and gas operators they are referring to, or all energy sector (including service companies)?

The article referred to 'oil and gas-related companies'.

http://www.reuters.com/article/us-wells-fargo-results-idUSKCN0XB1E4

 

[cstu]

The overall energy needs of the world keeps going up and the anticipated demand for hydrocarbons is also going up, just muted a bit by renewables.  I don't expect a huge crash in demand unless something radically transformative comes around.  Even if fusion becomes real we will still want gas as it is transportable and the energy density is fantastic.  We would have to see a battery an order of magnitude better than what we have now to really throw oil in a tailspin.  That's a tough order.

Hydrogen is transportable and its energy density is fantastic.

One kilogram (2.2 lbs.) of hydrogen has the same energy as a gallon of gas (PDF link).  By comparison, a gallon of gas weighs ~6 lbs.

 

[msommer]

Hydrogen is transportable and its energy density is fantastic.

One kilogram (2.2 lbs.) of hydrogen has the same energy as a gallon of gas (PDF link).  By comparison, a gallon of gas weighs ~6 lbs.

One kg of hydrogen at atmospheric pressure takes up 11 cbm or 423 cubic feet. Thus the tank holding it in your vehicle or at he gas station has to be severely reinforced ti handle the pressure which adds to the cost of use and weight of the vehicle/installation.
Don't forget to add the negatives in the equation, if you aim is not propaganda 

 

[cstu]

One kg of hydrogen at atmospheric pressure takes up 11 cbm or 423 cubic feet. Thus the tank holding it in your vehicle or at he gas station has to be severely reinforced ti handle the pressure which adds to the cost of use and weight of the vehicle/installation.
Don't forget to add the negatives in the equation, if you aim is not propaganda 

With some industry members and analysts questioning both the viability and durability of hydrogen fuel-cell electric vehicles, Toyota executive Bob Carter, speaking at the Automotive News World Congress this week, says the Japanese automaker went all Clint Eastwood on the fuel tanks of a fuel-cell prototype. Carter says that bullets from a small-caliber gun bounced off the carbon-fiber tanks, and that .50-caliber bullets barely made dents.

http://www.autoblog.com/2014/01/16/toyota-fires-bullets-hydrogen-fuel-tanks-shoots-ev-supporter/

Toyota, Honda, and Hyundai are all making hydrogen fuel cell cars and BMW is working on one.

Those companies all seem to think hydrogen fuel cell cars are worth investing in, even cost and weight - by the way, the battery on a Tesla weighs 1200 lbs. compared to 193 lbs. for the Mirai's tank:

Fuel cell stack weight is 123.5 lbs (56 kg), while the hydrogen tank’s weight is 192.9 lbs (87.5 kg).

 

[msommer]

http://www.autoblog.com/2014/01/16/toyota-fires-bullets-hydrogen-fuel-tanks-shoots-ev-supporter/

Toyota, Honda, and Hyundai are all making hydrogen fuel cell cars and BMW is working on one.

Those companies all seem to think hydrogen fuel cell cars are worth investing in, even cost and weight - by the way, the battery on a Tesla weighs 1200 lbs. compared to 193 lbs. for the Mirai's tank:

I know, all of those are available in Denmark

 

[Sand]

Hydrogen is transportable and its energy density is fantastic.

One kilogram (2.2 lbs.) of hydrogen has the same energy as a gallon of gas (PDF link).  By comparison, a gallon of gas weighs ~6 lbs.

No design is complete without a corresponding LOX tank. 

 

[Chadstroma]

Hydrogen always seemed to me to be the logical successor for transportation energy. All transportation could be migrated to it where as other alternative energies.... not so much or at least it would take huge leaps in technology to make them happen.

 

[Chadstroma]

Wells Fargo set aside more than $1 billion to cover bad loans and said its energy portfolio remained under "significant distress".

About a third of oil and gas companies, with about $150 billion in debt, are at high risk of bankruptcy this year.

Wells made a huge investment in energy business. They will weather the storm but there are some regional banks that made a strong push there too and it could end up pushing them towards selling.

 

[Jobber]

How long have we been talking about hydrogen vehicles? I don't see it happening en masse. Electric is here right now. 

 

[cstu]

Wells made a huge investment in energy business. They will weather the storm but there are some regional banks that made a strong push there too and it could end up pushing them towards selling.

They are the safest lender in the country so I have no doubt they've structured their energy loans so they will come out ahead overall in the end.

 

[Chadstroma]

How long have we been talking about hydrogen vehicles? I don't see it happening en masse. Electric is here right now. 

Vehicles. But I don't see them happening 'en masse' either until they are more attractive to the average driver- which they are not now. And again, electric vehicles is only a portion of transportation. You can't migrate all vehicle transportation to electric right now let alone other transportation. Hydrogen is a solution for all transportation.

 

[Chadstroma]

They are the safest lender in the country so I have no doubt they've structured their energy loans so they will come out ahead overall in the end.

There are some other 'safe' lenders in terms of their underwriting- perhaps more so than Wells. However, yes, Wells tends to be a well run bank and it's size mean that it will be fine. It is really going to pressure some of the regional banks that made a strong push to lend in the energy sector not towards failure but perhaps to seek a buyer.