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

Oil Price Decline Hurting Alaska the Most

This article first appeared online at TheNewAmerican.com on Monday, January 26, 2015:

State Seal of Alaska.

Although oil-producing states such as North Dakota and Texas are expected to suffer declines in revenues if oil prices continue to drop, other states such as Wyoming, Louisiana, and especially Alaska will feel much more than just a temporary pinch. According to the Standard & Poor’s (S&P) Ratings Service,

If lower prices persist through 2015, the economies and finances of the energy producing states — Louisiana, Alaska, Wyoming, New Mexico, Oklahoma and North Dakota — will be put to the test.

Oil and mineral revenues account for a third of Wyoming’s budget, one-sixth of New Mexico’s, and one-eighth of Louisiana’s, while Texas — the state that, standing alone, would be the eighth-largest oil-producing country in the world — counts on less than

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Canada’s Oil Sands Impervious to Crude Oil’s Price Decline

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, January 14, 2015:

 

On Monday – the same day that UAE’s Energy Minister Suhall al-Mazrouel said that OPEC was going to stick to its decision to keep pumping regardless of price declines – the same day that Goldman Sachs issued its negative outlook for prices – when crude oil prices dropped in response by 5 percent, hitting a six-year-low of $44.20 a barrel on Tuesday, the CFO of Canadian Natural Resources announced he was going to expand both its production and its output into 2015 and beyond.

Chief Financial Officer Corey Bleber was oblivious to the carnage, saying that his company expected its overall output for 2015 to be at least seven percent ahead of last year’s, and that it would continue

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Impacts of Lower Crude Oil Prices Continue to Spread

This article first appeared online at TheNewAmerican.com on Tuesday, January 13, 2015:

 

After oil forecaster Jeremy Warner got lucky last year when he accurately called the top in oil prices, with a fall to at least $80 a barrel, he doubled down by predicting “that the oil price will remain low for a long time, sinking to perhaps as little as $20 a barrel over the coming year before recovering a little.”

Warner got lucky once again when Goldman Sachs confirmed his prognosis, setting off an eye-popping five percent decline in oil to $45 a barrel which continued into Tuesday. Tuesday’s low was $44.20. As Goldman Sachs noted,

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Oil Patch Activity Is Starting to Slow

This article first appeared online at TheNewAmerican.com on Friday, January 9, 2015:

U.S. Steel

In a letter to his union workers at U.S. Steel’s pipe and tube plant in Lorain, Ohio, Tom McDermott, president of United Steelworkers local 1104, was blunt:

The company has suddenly lost a great deal of business because of the recent downturn in the oil industry. What appeared just a few short weeks ago as being a productive year … has most abruptly turned sour.

So sour that U.S. Steel is idling 614 or its 700 workers in Lorain, along with all 142 of its workers in its Houston, Texas plant.

This is likely to be just the beginning. Even as U.S. Steel poured hundreds of millions into its gamble that producing “oil country tubular goods,” or OCTG, would reverse years of losses, other steel makers have done the same:

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Politics Overwhelms Economics as Crude Drops into the $40s

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, January 7, 2015:

English: Kingdom Centre, Riyadh, Saudi Arabia....

Kingdom Centre, Riyadh, Saudi Arabia.

Most prognosticators are concentrating on their understanding of economics to inform their predictions on how much lower crude oil prices can go. It’s a simple matter of supply and demand: supply is increasing, demand is decreasing (and it’s inelastic, to boot), so when demand meets supply – and “clears the market” as economists call it – crude will find a bottom.

One analyst at CNN expects oil to drop into the $30s, declaring that

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Human Progress Is Accelerating, Says Cato

This article first appeared online at TheNewAmerican.com on Wednesday, December 31, 2014: 

Cato Institute

The Cato Institute continues to update its Human Progress website with sources from around the world showing graphically the enormous progress human beings have made in every conceivable area of their lives, especially over the last 50 years. 

From communications to the environment, from housing to transportation, there’s a data set that shows how far the human race has come in a very short period of time. 

Cato’s primary purpose in continuing to develop its HumanProgress.org website, already remarkably robust, is to dispel the common myth that things are getting worse, and at an accelerating rate: 

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Venezuela’s Welfare State Collapsing Along with Oil Prices

This article first appeared at The McAlvany Intelligence Advisor on Monday, December 29, 2014:

 

As oil prices have dropped, so has Venezuela’s revenue stream that supports its welfare state. Ninety-five percent of Venezuela’s export earnings come from crude oil, and the industry makes up one quarter of the country’s gross domestic product. With oil prices setting new lows last week, Venezuela’s economy, already on the ropes, is set to descend into chaos, anarchy, and looting. The decision by Saudi Arabia to continue to pump in order to maintain its market share reveals not only the inherent inability of any cartel to maintain itself over time, but also the inability of a welfare state to sustain itself without outside help.

With the world’s largest oil reserves, surpassing those even of Saudi Arabia, an uninformed observer would be unable to explain how a country as richly blessed with natural resources as Venezuela could go broke,

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Collapse in Oil and Natural Gas Prices Hitting OPEC the Hardest

This article first appeared online at TheNewAmerican.com on Monday, December 29, 2014: 

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

As prices for crude oil and natural gas continued their precipitous fall over the last five weeks, most commentators have been focusing on the impact — real or predicted — on the oil and gas industry in the United States. Little noticed, however, was the report from the U.S. Energy Information Administration (EIA) about how those declines are likely to affect OPEC.

OPEC’s total revenues, which hit an all-time high of $900 billion in 2012, are expected to decline by half next year, to just $446 billion. And that projection is based on the assumption that oil prices will average

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