Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Oil Prices

Energy Junk Bond Investors Heading for the Exits

This article first appeared online at TheNewAmerican.com on Sunday, December 14, 2014:

English: Oil well An oil rig used for training.

An oil rig used for training.

As crude oil prices continue their breath-taking fall, the ripple effect is beginning to reach far beyond the gas pump. On Friday crude oil dropped below $60 a barrel, causing some experts to predict $55 a barrel the following week and $40 a barrel within a few months.

That is putting pressure on oil producers to service their massive debts — some $550 billion incurred in the last five years — and scaring bond investors who are now looking to sell.

It’s a mania, said Tim Gramatovich of Peritus Asset Management who oversees a bond portfolio of $800 million: “Anything that becomes a mania — ends badly. And this is a mania.”

Bill Gross, who used to run PIMCO’s gigantic bond portfolio and now advises the Janus Capital Group, explained that “there’s very little liquidity” in junk bonds. This is the language a bond fund manager uses to tell people that

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Gas Prices: How Much Lower and Longer?

This article first appeared online at TheNewAmerican.com on Friday, December 5, 2014: 

On November 17, gas prices had dropped to $1.9...

It made headline news when a OnCue Express station in Oklahoma City dropped its price for regular unleaded gasoline to $1.99 gallon on Wednesday. What didn’t make the headlines is what happened next: Drivers seeking to save a few pennies created long lines at OnCue, and so another station down the street, responding to the competition, cut its price to $1.98 a gallon. By the end of the day, another station located in nearby Moore, Oklahoma, cut its price to $1.95 a gallon. 

Gas wars are back, helping consumers and providing living, breathing proof that, despite everything, the free market still works. 

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Crude Oil Price Declines Reveal Who’s Swimming Naked

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, December 3, 2014: 

Ali Al Naimi

Ali Al Naimi

One of the most famous homespun quotes Warren Buffett ever uttered is this: “Only when the tide goes out do you discover who’s been swimming naked.” With the decline in crude oil prices of nearly 50 percent since June, more and more people are finding themselves swimming naked, or they’re about to.

Consider the formerly invincible oil cartel, OPEC, which seems to be suffering from delusions of its former glory by taking on oil producers in America. Instead of cutting production in order to “stabilize” oil prices, the cartel, led by the aging big kahuna, Saudi Arabia, has decided to

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Lower Crude Oil Prices Already Pinching Producers

This article first appeared online at TheNewAmerican.com on Tuesday, December 2, 2014:

Coat of Arms of Saudi Arabia

Coat of Arms of Saudi Arabia

As crude oil prices continued their breathtaking drop, the CEO of Canadian Natural Resources, Canada’s largest oil company, Murray Edwards (the 14th wealthiest Canadian) was asked on Friday just how much further crude oil prices could decline. His response:

On a given day you can have market fluctuations where prices fluctuate far more than the underlying economic value of the unit. Prices could spike down to $30, $40. It got down to $35 in 2008, for a very short period of time.

On Monday crude oil prices briefly stabilized and then dropped further on Tuesday, hitting new four-year lows.

This pronouncement is at odds with an oil production estimate by the seemingly eternal oil optimist and economist Mark Perry, who rejoiced on Monday that

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George Mitchell: the one man most Likely Missing from Thanksgiving Day lists

This article first appeared at The McAlvany Intelligence Advisor on Friday, November 28, 2014:

English: "The First Thanksgiving at Plymo...

English: “The First Thanksgiving at Plymouth” (1914) By Jennie A. Brownscombe (Photo credit: Wikipedia)

It’s a safe bet that Americans, in compiling their list of blessings for which they were most thankful on Thanksgiving Day, didn’t put George Mitchell at the top. It’s even safer to bet that most Americans don’t even know who he was, or how his life has made life better for nearly every American today.

The Economist had it right: “Few businesspeople have done as much to change the world as George Mitchell.” The founder of Mitchell Energy & Development Company located in Galveston, Texas, Mitchell was responsible for drilling more than 10,000 natural gas wells and, in the process, resetting the world’s energy equation.

Although he passed away over a year ago at the age of 94, Mitchell’s advances in fracking technology are continuing to delight American drivers with

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Oil Market: Lower Gas Prices not the Only Reason to be Thankful

This article first appeared at TheNewAmerican.com on Thursday, Thanksgiving Day, November 27, 2014:

When news from Vienna arrived on Wall Street early Thanksgiving morning that OPEC wasn’t going to cut its production quotas to stabilize crude oil prices, those prices immediately fell even further, touching lows not seen in four years. West Texas Intermediate briefly touched $70 a barrel while Brent crude was close behind, at $73.

Oil hit a high of $147 a barrel in July 2008, so Thursday’s drop represents an astonishing 52-percent decline in just over six years. This coincides with an 80-percent increase in crude oil production by the United States over that same period. As economies around the world struggle to regain their footing, thanks to failing Keynesian policies, the demand for crude remains about where it was 10 years ago. With flat demand and increasing supply, it was only a matter of time before prices started to fall.

American consumers are benefitting enormously,

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Pressure Building to Repeal Two Laws Keeping Oil and Gas Prices High

This article first appeared at TheNewAmerican.com on Monday, November 17, 2014:

Senator Lisa Murkowski

Alaska Senator Lisa Murkowski

Alaskan Republican Senator Lisa Murkowski, soon to chair the Senate Committee on Energy and Natural Resources, is already setting the table for a serious conversation about getting rid of at least one archaic law dating back to the mid-1970s: the Energy Policy and Conservation Act of 1975.

That law bans the export of crude oil (with some minor exceptions) and could endanger the oil shale boom as a result. Said Murkowski:

The price American drivers pay for gasoline at their local station is linked to the price of oil set by the global market.

 

Exporting U.S. oil to our friends and allies will not raise gasoline prices here at home and should, in fact, help drive down prices.

As the price of crude oil drops, it increases the chances that smaller marginal crude oil producers will be forced to close unless they are allowed to find buyers outside the United States willing to pay more for their product. One of the bottlenecks has already been opened:

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OPEC’s Hegemony is over

This article was first published at The McAlvany Intelligence Advisor on Monday, October 27, 2014:

English: Saudi Arabia

Saudi Arabia

Tim Treadgold, a Forbes contributor who watches the world’s energy markets, decided to break the journalist’s unspoken rule: never forecast the demise of an individual (or an institution) until he is holding the coroner’s report (or bankruptcy judgment) in his hand:

At grave risk of committing [that] cardinal sin … this time it might be different because OPEC is steadily losing control of the oil market….

The irony, he said, was staggering:

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OPEC Continues to Unravel

This article first appeared at TheNewAmerican.com on Monday, October 13, 2014:

With oil production from the Bakken formation in North Dakota now exceeding one million barrels a day and the Eagle Ford and Permian Basin oil fields in Texas producing more than three million barrels per day, prices for crude are dropping worldwide and pushing gasoline prices down along with them.

Crude oil prices on the New York Mercantile Exchange hit a 52-week low of $83.59 a barrel last Friday, while Lundberg just reported average prices for gasoline across the country have dropped to $3.26 per gallon. As recently as May 2, gas in the United States cost $3.72 a gallon.

In response to these falling prices, Saudi Arabia, the largest producer in OPEC, earlier this summer

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Saudi Arabia Capitulates, Cuts Oil Prices

This article first appeared at The McAlvany Intelligence Advisor on Monday, October 65, 2014:

Saudi Arabia’s announcement last week that it was cutting prices to its Asian, European, and US customers by between $.40 and $1.00 a barrel represents a major capitulation and recognition of reality. It also represents a major departure in its role as the leading member of the OPEC cartel, proving once again that every cartel eventually blows up as its members seek their own interests over those of the cartel.

For decades, the role of the OPEC cartel has been to protect the cash flow of its members by manipulating oil prices through changes in production levels. If prices got too high and demand started falling as a result, the cartel would increase the supply of crude to the world markets. If prices got too low, on the other hand, it would gladly restrict those supplies to bring prices back up to a level acceptable to the cartel.

Those days now appear to be over.

By bringing its prices down below prices charged by OPEC member Qatar and non-OPEC member Oman, Saudi Arabia is setting the stage for an international oil price war. Futures traders, who have gotten hammered as crude oil prices have dropped almost 20% since June, are holding their collective breath to see if Qatar and Oman jump ship and reduce their prices as well. Energy analysts like John Kilduff with Again Capital are estimating that crude oil prices will consequently drop to the low $80s, while Fadal Gheit at Oppenheimer is predicting prices dropping into the low $70s. Gheit explained:

It’s both supply and demand. It’s basically the perfect storm that brought all these prices down. You have plenty of supply, which you never thought possible, and all of a sudden demand is shrinking: China is slowing down [and] Europe never recovered.

Gheit is a realist. He stated what every observer already knows: the OPEC cartel “is held together by scotch tape. They hate each other.” Now that the leader of the pack has decided to leave the pack, it’s going to be much easier for other OPEC members to join the fray and drive prices down even further.

Part of that perfect storm is the shale oil fracking revolution that has driven crude oil production in the United States to levels not seen in 50 years. Part of it is Russia’s increase in crude oil production to nearly post-Soviet era records as well. In addition, production from Kurdistan over the next 15 months is expected to more than provide China’s increased demands for energy, thus assuring that world supply will continue, in the short run at least, to outpace world demand.

Saudi Arabia’s admission of reality is already having welcome impacts. Gas prices in the United States have fallen to $3.32 a gallon on average, with more than half the states having at least one gas station selling gas for less than $3 a gallon. It’s also pulling the legs out from under the foreign policy justification of adventurism abroad in order to protect the supply of energy which America is now almost capable of providing all by herself.

As prices decline, consumers are able to redirect spending into other areas, helping along the modest economic recovery from the Great Recession. It may also prove to skeptics that, once again, Warren Buffett is right. His much ballyhooed announcement of his purchase of Van Tuyl Group, the nation’s largest US auto dealership chain, should help his company, Berkshire Hathaway, ride the wave of cheaper gas and the consequent willingness of customers to replace their aging fleet of vehicles with new ones.

It is possible, however, that prices may drop too far, causing capital that is currently flooding into the energy exploration business to go elsewhere where it will be treated better in the years to come. As Stephen Leeb, a writer at Forbes, put it: “It takes energy to get energy.” In the early 1950s, it took the energy from one barrel of oil to harvest five barrels. Today, because of improvements in technology, it takes about one barrel to produce nine in conventional fields.

But in unconventional fields – i.e., shale oil fracking – it takes the energy of one barrel of oil to discover, develop, and lift just four barrels, which, according to State University of New York Professor Charles Hall, isn’t enough to keep America’s modern industrial society operating at peak efficiency. The proper ratio, according to Hall, is that one barrel of energy must generate at least five barrels of new production, preferably more.

If the Old Farmers Almanac’s prognostications are correct, the US should enjoy another relatively mild winter, reducing chances of a spike in demand that would drive crude oil prices higher. For the time being then, Saudi Arabia’s capitulation and potential blowing up of OPEC will be enjoyed by American drivers and consumers. In the longer run, however, capital may be redirected away from the oil patch to more profitable areas if the price of crude stays too low, too long. In the meantime, America will once again enjoy the view from the catbird seat.

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Sources:

Commerzbank: ‘OPEC Appears to Be Gearing Up for Price War’

CNBC: Saudi signals price skirmish as oil heads to bear market

Bloomberg: Brent Oil Falls to Lowest Since June 2012 on Ample Supply

The Old Farmers Almanac: 2014–2015 Winter Weather Forecast Map (U.S.)

Forbes: Dangerous Times As Energy Sources Get Costlier To Extract

Auto Blog: Warren Buffet buys largest private US car dealership chain

Saudi Arabia Cuts Oil Prices, Could Spark Price War

This article first appeared at TheNewAmerican.com on Friday, October 3, 2014:

In a surprise move this week, Saudi Arabia cut the price of its flagship Arab light oil, which it sells mostly to its Asian customers, by one dollar a barrel. It also cut prices to its customers in the United States and Europe by $.40 a barrel. This brings Saudi Arabia’s prices below those offered by OPEC member Qatar and non-OPEC member Oman. Oil futures traders are holding their breaths, waiting for Qatar and Oman to cut their prices in response, setting off a full-scale oil price war.

The simple economics of supply and demand have already driven the price of oil down by almost 20 percent since June, and a number of traders and other observers are suggesting those prices have

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Fracking Boom Continues to Set Records

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, September 17, 2014:

Logo of International Energy Agency

Logo of International Energy Agency (Photo credit: Wikipedia)

The explosion in production in the oil patch makes it nearly impossible to keep up. Economist Mark Perry is trying. On September 2, he reported that Texas crude oil production in June topped three million barrels per day, noting that, as a separate nation, Texas would be the world’s eighth largest oil producer. The very next day Perry reported that natural gas production from the Utica Shale formation has increased by a factor of seven in just two years, and it’s just getting started.

Less than two weeks later, Perry reported that

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More Good News From the Oil Patch: Less Drilling, More Production

This article first appeared at TheNewAmerican.com on Tuesday, September 16, 2014:

A petroleum drilling rig capable of drilling t...

A petroleum drilling rig capable of drilling thousands of feet (Photo credit: Wikipedia)

It didn’t take long for naysayers at Newsweek magazine to declare that the fracking boom is at high risk of going bust. This followed an announcement from the Bank of America in July that the United States is now the world’s leading oil producer, ahead of both Saudi Arabia and Russia. In just the last five years, U.S. oil production has exploded from five million barrels a day to 11 million and, according to the International Energy Agency (IEA), that number will continue to climb for at least the next five years.

But what then? Newsweek posited: 

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The Rise of “Saudi America”

This article first appeared at The McAlvany Intelligence Advisor on Friday, December 6th, 2013:

 

Back in early February Citigroup apologized for missing the huge explosion of oil and natural gas occurring in Texas, North Dakota, and elsewhere. Its report, entitled “Energy 2020: Independence Day” began:

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Even Lower Gas Prices are Coming, says CNBC

On Friday Anthony Grisanti was jubilant. Writing for CNBC, he predicted that gas prices, down significantly from where they were in April, would continue to slide by at least another 10 cents per gallon, perhaps more. That would bring the average price, currently at $3.29 a gallon, closer to

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CFR expert calls for elimination of Laws restricting Crude Oil Exports

Sounding more like a free market economist than the thoroughly establishment analyst that he is, Blake Clayton, writing for the Council on Foreign Relations (CFR) in a paper published last week, built a carefully crafted case for the elimination of all federal controls on exporting crude oil. Clayton, who received two master’s degrees from the University of Chicago and Cambridge University along with a doctorate from Oxford, was blunt:

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When will the argument over Peak Oil end?

When it’s clear that we’re running out of oil, as predicted by M. King Hubbert in what’s known as the Peak Oil theory. The theory, roughly stated, is that there will come a point in time when

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Cheap Abundant Natural Gas is a Game Changer, Says the IMF

Expressing surprise at the enormous increase in US production of oil and natural gas by unconventional means, Thomas Helbling, a division chief in the IMF’s (International Monetary Fund) Research Department, was forced to admit that it was free enterprise that was responsible for it after all. In his March 2013 article he wrote:

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Does the Fed have a Plan B if inflation gets out of hand?

Two smart people from Cato don’t think so, and it makes them nervous. Henry Manne and Richard Rahn have a crystal ball but it’s cloudy. They stayed awake nights dreaming up scenarios that would trigger hyperinflation – a roaring escalation of prices at the retail level – and then ask

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Gasoline Prices Set to Decline, says the Energy Information Administration

Noting that gasoline prices have risen by 45 cents per gallon since the first of the year, the U.S. Energy Information Administration (EIA) said it’s seeing signs of easing in those prices in the near future. It reiterated various causes of the rise in prices (currently $3.75 per gallon at the pump nationwide), such as

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.