They won't last forever.

Over the holiday weekend, OPEC (that's another name for Saudi Arabia) decided not to cut back on oil production. Good news, right? Well, it's not so great for U.S. fracking businesses, or for those companies working the Canadian oil sands. West Texas crude hit $65/barrel earlier this morning, and at about $40/barrel or so, these operations become unprofitable.

Saudi Arabia may well be trying to drive these companies out of business. Saudi Arabia, being the world's low-cost producer, can afford to do this. But it's not the only producer, and this could be a problem for several other countries . Countries like Russia, Iran, and Venezuela - already strapped for cash - are going to be facing even harder times that they are now.

What's going to be the result of all this? well, there's going to be a lot of pressure on Saudi Arabia to cut production. But if they refuse, things could get interesting. Really interesting.

In the meantime, enjoy these gas prices!

Onward and upward,
airforce

Gas Heading Below $2.00 a Gallon in Southern U.S.


Decline in oil prices point to global recession

Kit Daniels
Prison Planet.com
December 1, 2014

Gas prices are headed below $2.00 a gallon in the southern U.S. due to the region’s low taxes and numerous refineries as oil prices continue to fall, but the decline points to the beginnings of a global recession.


The price of crude oil is falling towards $40 a barrel, and while this benefits American consumers, especially those in the south, it indicates a global recession because production alone is unlikely to cause such a drastic decline in oil prices.

“Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union,” Bloomberg reported.

The prices are declining partially due to the Organization of Petroleum Exporting Countries’ decision not to cut production to try and force the U.S. shale industry out of business.

It’s already beginning to work. Several American oil exploration and drilling companies are slowing down because the industry is already close to unprofitable.

“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” industry insider Leonid Fedun told Bloomberg. “The [U.S.] shale boom is on a par with the dot-com boom.”

“The strong players will remain, the weak ones will vanish.”

But can production alone account entirely for the 37% decline in oil prices since July? It would appear a lack of demand combined with no cuts in production are driving oil’s free fall, and imploding demand is indicative of a global recession.

For one thing, there doesn’t appear to be any market analysts who predicted such a huge drop this past summer when oil was still above $100 per barrel and analysts are typically hesitant to predict major recessions.

“Given the presumed 17% to 20+% expansion of the global economy since 2009, the small increases in production could not possibly flood the world in oil unless demand has cratered,” Zero Hedge wrote. “The ‘we’re pumping so much oil’ rationalizations for the 37% free-fall in oil don’t hold up.”

“That leaves a sharp drop in demand and the rats fleeing the sinking ship exit from ‘risk-on’ trades as the only explanations left.”

Docs Note: Time to start filling some 55 gallon barrels while you can.

Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

By Michael Snyder, on November 30th, 2014

There has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months. The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months. Well, now it is happening again, but this time the stakes are even higher. When the price of oil falls dramatically, that is a sign that economic activity is slowing down. It can also have a tremendously destabilizing affect on financial markets. As you will read about below, energy companies now account for approximately 20 percent of the junk bond market. And a junk bond implosion is usually a signal that a major stock market crash is on the way. So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds. If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.

It would be difficult to overstate the importance of the shale oil boom to the U.S. economy. Thanks to this boom, the United States has become the largest oil producer on the entire planet.

Yes, the U.S. now actually produces more oil than either Saudi Arabia or Russia. This “revolution” has resulted in the creation of millions of jobs since the last recession, and it has been one of the key factors that has kept the percentage of Americans that are employed fairly stable.

Unfortunately, the shale oil boom is coming to an abrupt end. As a recent Vox article discussed, OPEC has essentially declared a price war on U.S. shale oil producers…

For all intents and purposes, OPEC is now engaged in a “price war” with the United States. What that means is that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share.

If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost. The Saudis know how to play hardball, and they are absolutely ruthless. In fact, we have seen this kind of scenario happen before…

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

But the energy sector has been one of the only bright spots for the U.S. economy in recent years. If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook. For example, just consider the following numbers from a recent Business Insider article…

Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs.

“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.

Even more troubling is what this could mean for the financial markets.

As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market. As those companies start to fail and those bonds start to go bad, that is going to hit our major banks really hard…

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis.

Why could that happen?

Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.

It would be hard to overstate the seriousness of what the markets could potentially be facing.

One analyst summed it up to CNBC this way…

“This is the one thing I’ve seen over and over again,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.“

The last time junk bonds collapsed, a major stock market crash followed fairly rapidly.

And those that were hardest hit were the big Wall Street banks…

During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half.

I understand that some of this information is too technical for a lot of people, but the bottom line is this…

Watch junk bonds. When they start crashing it is a sign that a major stock market collapse is right at the door.

At this point, even the mainstream media is warning about this. Just consider the following excerpt from a recent CNN article…

That swing away from junk bonds often happens shortly before stock market downturns.

“High yield does provide useful sell signals to equity investors,” Barclays analysts concluded in a recent report.

Barclays combed through the past dozen years of data. The warning signal they found is a 30% or greater increase in the spread between Treasuries and junk bonds before a dip.

If you have been waiting for the next major financial collapse, what you have just read in this article indicates that it is now closer than it has ever been.

Over the coming weeks, keep your eye on the price of oil, keep your eye on the junk bond market and keep your eye on the big banks.

Trouble is brewing, and nobody is quite sure exactly what comes next.

Also read this...

http://etfdailynews.com/2014/12/04/...ding-trillions-in-commodity-derivatives/

West Texas crude fell to just over $55/barrel today. OPEC is saying they will keep producing at the current levels, even if crude falls to $40. This could get interesting.

Onward and upward,
airforce

A Full-Blown Economic Crisis Has Erupted In Russia


Michael Snyder
Economic Collapse
December 17, 2014

The 8th largest economy on the entire planet is in a state of turmoil right now. The shocking collapse of the price of oil has hit a lot of countries really hard, but very few nations are as dependent on energy production as Russia is. Sales of oil and natural gas account for approximately two-thirds of all Russian exports and approximately 50 percent of all government revenue. So it should be no surprise that the fact that the price of oil has declined by almost 50 percent since June is absolutely catastrophic for the Russian economy. And when you throw in international sanctions, wild money printing by the Central Bank of Russia and unprecedented capital flight, you get the ingredients for an almost perfect storm. But those of us living in the western world should not be too smug about what is happening in Russia, because the nightmare that is unfolding over there is just a preview of the economic chaos that will soon envelop the whole world.

So far this year, the Russian ruble has fallen nearly 50 percent against the U.S. dollar. That is a monumental shift. And as the collapse of the ruble has accelerated in recent days, we are seeing scenes in Russia that are reminiscent of the Weimar Republic. For example, just consider the following excerpt from an article that just appeared in the New York Times…

Scenes that Russians hoped had receded into the past reappeared on the streets: Currency exchange signs blinked ever-changing digits, and Russians rushed to appliance stores to buy washing machines or televisions to unload rubles.

“We are seeing an economic crisis,” Natalia V. Akindinova, a professor at the Higher School of Economics, said in a telephone interview. “We are seeing a sharp devaluation of the ruble at a time when the central bank doesn’t have the reserves to influence the market, as it did in the past crises.”

In a desperate attempt to stop the bleeding, the Central Bank of Russia made an astounding move. Last night it raised its key interest rate from 10.5 percent all the way up to 17 percent.

It was hoped that this desperate move would keep the ruble from plummeting any further.

And it did work for a few minutes, but then the collapse of the ruble resumed. This is how Zero Hedge described the carnage…

For those wondering if the CBR’s intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes… for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74, and sending the Russian stock market plummeting by over 15%.

So why is this happening now?

Well, the biggest reason for the freefall of the ruble is the fact that the Central Bank of Russia just printed up about 625 billion rubles and gave it to their friends at Rosneft.

Rosneft is an absolutely massive oil company that is controlled by the Russian government. For months, Rosneft has been asking for a bailout (sound familiar?) to refinance loans that can no longer be rolled over with western banks because of economic sanctions.

And on Friday they got one.

In an attempt to quietly slip this massive injection of new money past everyone, Rosneft issued 625 billion rubles worth of new bonds just before the weekend and the Central Bank of Russia gobbled most of those new bonds up with freshly created money. Unfortunately for Rosneft and the Central Bank of Russia, the rest of the world took notice…

With the oil giant in a bind, the central bank ruled that it would accept Rosneft bonds held by commercial banks as collateral for loans.

Rosneft issued 625 billion rubles, about $10.9 billion at the exchange rate at the time, in new bonds on Friday. The identities of the buyers were not publicly disclosed, but analysts say that large state banks bought the issue.

When these banks deposit the bonds with the central bank in exchange for loans, Rosneft will have been financed, in effect, with an emission of rubles from the central bank.

So that is what led to the panic selling that we witnessed on Monday.

Meanwhile, money is being pulled out of Russia at an absolutely staggering pace. As confidence in the ruble and in the Russian financial system disappears, wealthy people are feverishly trying to protect their wealth by moving it somewhere else. The following is an excerpt from an editorial that Mohamed A. El-Erian recently penned for Business Insider…

Rather than bring in buyers at these substantially cheaper levels, Russian currency weakness is inducing more selling, including by a growing number of worried bank depositors who, instead of holding their savings in ruble, are opting for safer dollars. The larger the extent of this “currency substitution,” the bigger the scope for capital flight out of Russia. This puts even greater pressure on the currency, aggravating the output contraction, imported inflation, and the general sense economic and financial instability.

It has been estimated that total capital outflows for 2015 will reach an astounding $128 billion.

And this could just be the beginning of the economic troubles for Russia.

If the price of oil stays this low or goes even lower, the Russian economy will shrink. The only question is how much it will contract…

The Bank of Russia said Monday that the country could sink into a deep recession next year if oil prices remain at $60 a barrel. GDP could contract by as much as 4.7% in 2015, and then by a further 1.1% in 2016 unless oil prices pick up.

Sadly, it isn’t just oil producing nations such as Russia that are going to be devastated by the coming crisis.

Eventually, the entire globe is going to feel the pain.

Last week was the worst week for global financial markets in three years, and so many of the exact same patterns that we witnessed just prior to the great financial crisis of 2008 are happening once again. We have been living in a false bubble of relative stability for the past couple of years, but now time is running out. The next great financial crisis is rapidly approaching, and 2015 promises to be the most “interesting” year that we have seen in ages.

Putin's choices appear to be pretty limited now. It will be interesting to see what he decides to do.

Oh, and the United States and Cuba agreed to normalize diplomatic relations . I don't believe in coincidences.

Onward and upward,
airforce

I have seen sub-$2.50 in a few places, but a lot of stations are price gouging just under $3. I won't sweat a nickel or two difference, but .50 kinda matters when you have a 30 gallon tank.

Debating on whether or not to top the tank off today or run the way I usually do with less in the tank to save weight. Either way, the gas cans ought to get filled if you have any.

A couple of days ago it was down to $2.26 per gallon here. On Fridays we get 30 cents off so I'm bringing a couple of 55 gallon drums to town.

Hear that gurgling sound? It\'s the Russian Ruble going down the drain. Russians are standing in line waiting to but cameras, washing machines, refrigerators, cars, anything - before the prices go up.

Onward and upward,
airforce

We are at $1.99 here in eastern Nebraska. I'd like to see the US massively increase our "strategic reserve" of crude oil. Do this at the deflated prices... Use this as a way to moderate price spikes in the future.

If any of you are going to store gas remember one this. If you are getting gas infused with ethanol, it has a shelf life of 60 to 90 days. Some places still have the old gas but the price is substantially higher.

Simply rotate your fuel. Use the oldest first. I use the 85% ethanol (70% in winter) fuel. This fuel keeps MUCH longer, especially if kept in sealed containers. I would like to get 2-3 USGI/NATO "jerry-cans" to rotate annually. It is nice having a flex-fuel vehicle (FFV) so that multiple fuels can be used.

The Saudi oil minister - effectively the head of OPEC - says they will not cut production even if oil hits $20/barrel . I think they seriously intend to put their competition into bankruptcy.

Onward and upward
airforce

I drove by a place this evening at $2.29 per gallon. By my house, $2.45 Everyone is on the road right now, everyone. Wall to wall traffic everywhere and the economy here right now seems booming because of it.

Another thing I would be stocking up on right now but just don't have the right storage situation is lumber. Fuel prices tie into that pretty closely, so lumber is not just running cheap now in the off season, but production and transport costs which are largely tied in with fuel will go down. More stuff for the same money. If gas prices stay low into the spring, then the same will be said for most farm product prices.

Cheap diesel = cheaper food, and in case nobody knows, that's something we can make a profit on shipping to the Arabs. Cheap fuel is a no lose proposition.

As soon as the Arabs think they got somewhere on market share, and jack prices, we simply turn our wells back on. Heck, at this rate it would be a good idea to build strategic oil reserves up again, get some good training in for the military, produce a lot of petroleum dependent stuff.

The price of diesel in Nebraska and Iowa has remained inexplicably high... $3.65... I know the refiners ship a lot of their diesel production to Europe where the profit margin is greater... But this still doesn't make sense. My family is worried about this because corn and soybean prices are WAY down... Diesel, seed, fertilizer and chemicals (not to mention land taxes)... The main inputs, are still at peek rates.

Is few gas stations here still have diesel prices jacked up. Nearly a buck a gallon difference at some places.

Regular is $1.81.9 here in Tulsa. I've never understood why gas is priced in fractions of a cent. Nothing else is.

Onward and upward,
airforce

Not everyone is thrilled with low gas prices. For instance, Venezuela is now on the brink of a financial collapse . High oil prices was the only thing keeping that socialist country afloat.

Panic in Russia, and a failed state in South America. And this is just the beginning. Interesting times, indeed.

Onward and upward,
airforce

$2.19 in Hillsboro tonight. I should have filled up again.. That's like early 1990s prices.

Closer to the center of Portland, it could go $2.89 to $3.05 in some spots. Really big differences in price depending I think, on when and where the stations expect to get their resupply from. Some diesel is below $3, but often not.

Did The Saudis And The US Collude In Dropping Oil Prices?

By Andrew Topf | Tue, 23 December 2014

The oil price drop that has dominated the headlines in recent weeks has been framed almost exclusively in terms of oil market economics, with most media outlets blaming Saudi Arabia, through its OPEC Trojan horse, for driving down the price, thus causing serious damage to the world's major oil exporters – most notably Russia.

While the market explanation is partially true, it is simplistic, and fails to address key geopolitical pressure points in the Middle East.

Oilprice.com looked beyond the headlines for the reason behind the oil price drop, and found that the explanation, while difficult to prove, may revolve around control of oil and gas in the Middle East and the weakening of Russia, Iran and Syria by flooding the market with cheap oil.

The oil weapon

We don't have to look too far back in history to see Saudi Arabia, the world's largest oil exporter and producer, using the oil price to achieve its foreign policy objectives. In 1973, Egyptian President Anwar Sadat convinced Saudi King Faisal to cut production and raise prices, then to go as far as embargoing oil exports, all with the goal of punishing the United States for supporting Israel against the Arab states. It worked. The “oil price shock” quadrupled prices.

It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt.

The Saudis and other OPEC members have, of course, used the oil price for the obverse effect, that is, suppressing production to keep prices artificially high and member states swimming in “petrodollars”. In 2008, oil peaked at $147 a barrel.

Related: OPEC Ministers Decry Price War Conspiracy Theories

Turning to the current price drop, the Saudis and OPEC have a vested interest in taking out higher-cost competitors, such as US shale oil producers, who will certainly be hurt by the lower price. Even before the price drop, the Saudis were selling their oil to China at a discount. OPEC's refusal on Nov. 27 to cut production seemed like the baldest evidence yet that the oil price drop was really an oil price war between Saudi Arabia and the US.

However, analysis shows the reasoning is complex, and may go beyond simply taking down the price to gain back lost marketshare.

“What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. “To harm Russia.”

Many believe the oil price plunge is the result of deliberate and well-planned collusion on the part of the United States and Saudi Arabia to punish Russia and Iran for supporting the murderous Assad regime in Syria.

Punishing Assad and friends

Proponents of this theory point to a Sept. 11 meeting between US Secretary of State John Kerry and Saudi King Abdullah at his palace on the Red Sea. According to an article in the Wall Street Journal, it was during that meeting that a deal was hammered out between Kerry and Abdullah. In it, the Saudis would support Syrian airstrikes against Islamic State (ISIS), in exchange for Washington backing the Saudis in toppling Assad.

If in fact a deal was struck, it would make sense, considering the long-simmering rivalry between Saudi Arabia and its chief rival in the region: Iran. By opposing Syria, Abdullah grabs the opportunity to strike a blow against Iran, which he sees as a powerful regional rival due to its nuclear ambitions, its support for militant groups Hamas and Hezbollah, and its alliance with Syria, which it provides with weapons and funding. The two nations are also divided by religion, with the majority of Saudis following the Sunni version of Islam, and most Iranians considering themselves Shi’ites.

“The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing out across the region,” Reuters reported on Dec. 15. “Both sides increasingly see their rivalry as a winner-take-all conflict: if the Shi’ite Hezbollah gains an upper hand in Lebanon, then the Sunnis of Lebanon—and by extension, their Saudi patrons—lose a round to Iran. If a Shi’ite-led government solidifies its control of Iraq, then Iran will have won another round.”

The Saudis know the Iranians are vulnerable on the oil price. Experts say the country needs $140 a barrel oil to balance its budget; at sub-$60 prices, the Saudis succeed in pressuring Iran's supreme leader, Ayatollah Ali Khamanei, possibly containing its nuclear ambitions and making the country more pliable to the West, which has the power to reduce or lift sanctions if Iran cooperates.

Adding credence to this theory, Iranian President Hassan Rouhani told a Cabinet meeting earlier this month that the fall in oil prices was “politically motivated” and a “conspiracy against the interests of the region, the Muslim people and the Muslim world.”

Pipeline conspiracy

Some commentators have offered a more conspiratorial theory for the Saudis wanting to get rid of Assad. They point to a 2011 agreement between Syria, Iran and Iraq that would see a pipeline running from the Iranian Port Assalouyeh to Damascus via Iraq. The $10-billion project would take three years to complete and would be fed gas from the South Pars gas field, which Iran shares with Qatar. Iranian officials have said they plan to extend the pipeline to the Mediterranean to supply gas to Europe – in competition with Qatar, the world's largest LNG exporter.

“The Iran-Iraq-Syria pipeline – if it’s ever built – would solidify a predominantly Shi’ite axis through an economic, steel umbilical cord,” wrote Asia Times correspondent Pepe Escobar.

Global Research, a Canada-based think tank, goes further to suggest that Assad's refusal in 2009 to allow Qatar to construct a gas pipeline from its North Field through Syria and on to Turkey and the EU, combined with the 2011 pipeline deal, “ignited the full-scale Saudi and Qatari assault on Assad’s power.”

“Today the US-backed wars in Ukraine and in Syria are but two fronts in the same strategic war to cripple Russia and China and to rupture any Eurasian counter-pole to a US-controlled New World Order. In each, control of energy pipelines, this time primarily of natural gas pipelines—from Russia to the EU via Ukraine and from Iran and Syria to the EU via Syria—is the strategic goal,” Global Research wrote in an Oct. 26 post.

Poking the Russian bear

How does Russia play into the oil price drop? As a key ally of Syria, supplying Assad with billions in weaponry, President Vladimir Putin has, along with Iran, found himself targeted by the House of Saud. Putin's territorial ambitions in the Ukraine have also put him at odds with US President Barack Obama and leaders of the EU, which in May of this year imposed a set of sanctions on Russia.

As has been noted, Saudi Arabia's manipulation of the oil price has twice targeted Russia. This time, the effects of a low price have hit Moscow especially hard due to sanctions already in place combined with the low ruble. Last week, in an effort to defend its currency, the Bank of Russia raised interest rates to 17 percent. The measure failed, with the ruble dropping another 20 percent, leading to speculation the country could impose capital controls. Meanwhile, Putin took the opportunity in his annual televised address to announce that while the economy is likely to suffer for the next two years and that Russians should brace for a recession, “Our economy will get diversified and oil prices will go back up.”

He may be right, but what will the effect be on Russia of a sustained period of low oil prices? Eric Reguly, writing in The Globe and Mail last Saturday, points out that with foreign exchange reserves at around $400 billion, the Russian state is “in no danger of collapse” even in the event of a deep recession. Reguly predicts the greater threat is to the Russian private sector, which has a debt overhang of some $700 billion.

“This month alone, $30-billion of that amount must be repaid, with another $100-billion coming due next year. The problem is made worse by the economic sanctions, which have made it all but impossible for Russian companies to finance themselves in Western markets,” he writes.

Will it work?

Whether one is a conspiracy theorist or a market theorist, in explaining the oil price drop, it really matters little, for the effect is surely more important than the cause. Putin has already shown himself to be a master player in the chess game of energy politics, so the suggestion that sub-$60 oil will crush the Russian leader has to be met with a healthy degree of skepticism.

Related: OPEC Calls For Widespread Production Cuts

Moscow's decision on Dec. 1 to drop the $45-billion South Stream natural gas pipeline project in favor of a new pipeline deal with Turkey shows Putin's willingness to circumvent European partners to continue deliveries of natural gas to European countries that depend heavily on Russia for its energy requirements. The deal also puts Turkey squarely in the Russian energy camp at a time when Russia has been alienated by the West.

Of course, the Russian dalliance with China is a key part of Putin's great Eastern pivot that will keep stoking demand for Russian gas even as the Saudis and OPEC, perhaps with US collusion, keep pumping to hold down the price. The November agreement, that would see Gazprom supply Chinese state oil company CNPC with 30 billion cubic meters of gas per year, builds on an earlier deal to sell China 38 bcm annually in an agreement valued at $400 billion.

As Oilprice.com commented on Sunday, “ongoing projects are soldiering on and Russian oil output is projected to remain unchanged into 2015.”

“Russia will go down with the ship before ceding market share – especially in Asia, where Putin reaffirmed the pivot is real. Saudi Arabia and North America will have to keep pumping as Putin plans to uphold his end in this game of brinksmanship.”

By Andrew Topf of Oilprice.com

Hmmm... That's an interesting theory. It doesn't do anything for President Obama's "green energy" fans right now, but if they succeed in putting shale oil producers out of business, then maybe it will come back. I'm not so sure Obama really wants to hurt his fans in Venezuela, either.

It certainly does poke a stick at Russia and Iran, though. But I just don't think anyone in this administration is that smart.

I can see why the Saudis are doing this. Every dollar drop in the oil price puts another marginal producer on the ropes. When they dropped the oil price in the 1980's the U.S. closed up thousands of marginal "stripper wells," setting the stage for huge increases later. But again, I'm not sure this well have the same desired effect - new technologies are decreasing the cost of shale oil production every day.

What this means for the world's political situations, I don't know. Interesting times lie ahead.

Onward and upward,
airforce

The problem is that Russia's Putin is not going to sit idly by and watch his country eaten alive from the inside out. His kleptocracy depends upon high oil prices to float the Russian government and keep currency flowing to organized crime and other buddies.

It would be nice to watch Putin squirm but for some reason I feel like at the end of this we'll be wishing we didn't roll the die.

Our foreign policy since WW2 has generally hinged on keeping the "bad guys" from being "the big guys". The US liked its hegemony, wasted it, but liked it nonetheless. So all of these other possible rivals are like balls we're juggling. We can't let any hit the ground, so we just throw the one that's closest to the ground back up in the air.

This foreign policy cannot work forever. Your arms get tired and some balls drop eventually. And then it's all over.

I got gas last night in rural washington at an Indian reservation for $1.99 per gallon. The next town up $2.49....

If Prices Keep Falling, OPEC Must Act To Restore ‘Fair’ Rate Of $70-$80

By Andy Tully | Sun, 28 December 2014

The consensus among many Arab OPEC producers is that, one way or another, the worldwide price of oil will stabilize then rise again during 2015, settling between $70 and $80 per barrel by the end of the year, probably without intervention from the cartel’s leadership.

Reuters interviewed several OPEC representatives during the week ending Dec. 28, some from what it called “core [Persian] Gulf” oil countries, who said a return to stronger global economic growth should increase demand for oil, particularly in China and Europe.

“‎The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told the news service.

A separate Gulf OPEC source told Reuters, “We have to wait and see. We don’t see $100 for next year unless there is a sudden supply disruption. But average of $70 to $80 dollars for next year – yes.”

Nor do any of these delegates want a return to oil averaging $100 a barrel very soon. They say that would only turn this year’s precipitous drop in oil prices into a boom-and-bust cycle by encouraging excessive oil production by high-cost non-OPEC producers such as those in North America, who lately have been relying on hydraulic fracturing, or fracking, for their oil boom.

Instead, these Arab OPEC members see prices settling at a “fair” price around $10 or $20 per barrel above the current rate, which has been hovering around $60 per barrel. Many observers believe that shale oil extracted through fracking isn’t profitable at such a low price.

They also say this “fair” price can be reached without emergency action by OPEC. The cartel’s next meeting to discuss, and perhaps set, new production levels isn’t scheduled until June 5, 2015, and its secretary -general, Abdullah al-Badri, says there are no plans for any action before then.

Yet there is a possibility that OPEC eventually may have to intervene if the global price of oil remains stubbornly around $60 per barrel or falls further, said Iraqi Oil Minister Adel Abdul Mahdi, one OPEC representative who allowed his name to be used in an interview with Bloomberg News.

“If prices keep falling to very low levels where the whole equation is not balanced, then definitely OPEC has to step in,” Abdul Mahdi said. But he said nothing about OPEC remedying the problem through production cuts, which Iran, along with Venezuela, have been calling for in vain.

That plea has been ignored by the influential Gulf OPEC members who are rich enough to withstand a finite period of lower oil revenues and were behind the cartel’s decision on Nov. 27 to keep production levels at 30 million barrels a day.

Influential OPEC leaders such as Saudi Oil Minister Ali al-Naimi have since argued that the reason for maintaining the production level was to recoup market share lost to high-cost or “inefficient” non-OPEC oil producers such as American frackers or Russians, making oil production unprofitable for them.

Despite Iraq’s previous outspokenness on cutting production, it now appears to have accepted OPEC’s strategy. Abdul Mahdi told Bloomberg that the Saudi strategy eventually “made sense to all of us,” And on Dec. 23, the Iraqi cabinet approved a budget for 2015 predicated on oil priced at $60 per barrel.

By Andy Tully of Oilprice.com

I think it's rather interesting that Iraq can come up with a realistic budget, when our own government can't. That sort of says a lot, doesn't it?

Oil is an interchangeable commodity, like grains or metals. When the Saudi oil minister says he wants to improve "market share," he's really saying he wants to drive weaker oil producers out of business. That's obviously bad news for shale oil producers, but probably worse news for oil nations like Russia, Venezuela, Syria, Nigeria, and Iran. This could get exciting.

Onward and upward,
airforce

U.S. oil futures dipped below $50 this morning. Brent crude is about $53. That's less than half what they were six months ago.

Onward and upward,
airforce

Hmm, crude prices went in half, pump prices went down 30%...

That's to be expected. The price for crude went down, but the costs of transporting and refining it remain about the same. If the price of crude went down to zero, the cost at the gas pump would still be around a dollar or so.

To the surprise of no one, politicians on both sides of the aisle are already talking about raising the federal gas tax.

Onward and upward,
airforce

How OPEC Weaponized the Price of Oil Against U.S. Drillers

By Grant Smith 2015-01-09


If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.

Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want -- and are achieving -- further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.

Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target on Nov. 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.

Oil Prices

“The faster you bring the price down, the quicker you will have a response from U.S. production -- that is the expectation and the hope,” said Jamie Webster, an analyst at consultants IHS Inc. in Washington. “I cannot recall a time when several members were actively pushing the price down in both word and deed.”
Holding Out

U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million barrels from a year ago and 49,000 from the OPEC meeting in November. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels a day in November, according to the Energy Information Administration.

The group will stand by its decision not to cut output even if prices fall and wait at... Read More

The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren’t answered.

The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. President Nicolas Maduro said Dec. 13 that “there is no possibility of default” and on Jan. 7 that the country has “the capacity to obtain the financing” it needs.

Maintain Course

OPEC won’t reverse course even if oil prices fall as low as $20 a barrel or non-OPEC countries offer to help with production cuts, Saudi Arabian Oil Minister Ali Al-Naimi said in an interview with the Middle East Economic Survey on Dec. 21. The kingdom may even bolster output if non-OPEC nations do so, he said. The global oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates.

The group will stand by its decision not to cut output even if prices fall and wait at least three months before considering an emergency meeting, U.A.E. Energy Minister Suhail Al-Mazrouei said Dec. 14. He said clearing the surplus may take years, Abu Dhabi-based newspaper The National reported Jan. 6.

OPEC has no plans to meet before its next scheduled conference in June, Kuwaiti Oil Minister Ali al-Omair said on Dec. 16. Prices will recover in the second half as oil producers with the highest costs are compelled to scale back operations, he said.
‘Swift Fall’

It wouldn’t be the first time U.S. drillers are caught up in an OPEC battle for market share. In 1986, Saudi Arabia opened its taps and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

“It seems in their interest to have a swift fall rather than a slow, grinding fall,” Miswin Mahesh, an analyst at Barclays in London, said by phone. “A swift drop in prices would bring more changes to non-OPEC supply,” while a more gradual decline would let companies in other oil nations “merge and become more efficient.”

Not all share this view. UBS Group AG analysts said that hastening a price slump isn’t a practical strategy because oil demand and supply respond too slowly to price changes.
Undermine Prices

“I doubt that they target a lower price,” Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail on Jan. 5. “Supply and demand are quite inelastic in the short-term.”

Brent for February settlement decreased 85 cents, or 1.7 percent, to $50.11 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since April 28, 2009.

Saudi Arabian oil ministers sought to undermine prices in the 1980s and 1990s with their public comments, according to Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. The tactic was used to pressure other OPEC members into agreeing to quota changes, she said.

There are signs that OPEC’s approach is starting to work. Rigs targeting oil in the U.S. declined for the sixth time in seven weeks, by 17 to 1,482 last week, Baker Hughes Inc. said on its website on Jan. 5. There will be a serious decline in U.S. shale oil investment in 2015, Fatih Birol, chief economist of the International Energy Agency in Paris, said on Dec. 22.

“Some OPEC countries, most specifically Gulf states, obviously think that it’s best to get unpleasant things over and done with,” Eugen Weinberg, head of commodities research at Commerzbank AG, said by e-mail from Frankfurt. “The recent wordings showed they are still firm about this strategy.”

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Stephen Cunningham

Fuel here in the Desert dropped to $2.79 for about a week then went right back up to $2.89 where its been for months.

West Texas crude went below $47 this morning. And a Saudi prince says we will never see $100 oil again. This is putting a hurt on shale oil producers, which is obviously their intention.

Onward and upward,
airforce

1.99-2.09 is the norm here for the past few weeks

Oil Projects Cancelled, ‘Rippling’ Layoffs and Defaults: “Money to Fund the Drilling Boom is Drying Up”

Posted on January 9, 2015 by Perpetual Assets

From SHTF Plan

Falling oil prices have been hammering the energy sector and crimping the one part of the American economy that was actually expanding. Instead, that momentum is shifting towards rapid market contraction and possible collapse.

The sustained drop in oil prices is not only hitting Russia and vulnerable OPEC nations, it is hitting domestic projects here at home as well.

As Michael Snyder warned in December, the potential for falling oil prices to topple the fragile house of cards on Wall Street is enormous, particularly with the massive derivatives placed in the energy and commodities markets.

Wolf Richter, financial guru and CEO of Wolf Street Corp. is warning about the oil bust happening now.

Layoffs are taking place, future drilling and explorations are being canceled or put on hold, and investment money to finance new production sites is drying up, or becoming much more expensive:

Drilling for oil these days is all about endless amounts of no-questions-asked cheap money. And now, as the price of oil plunges relentlessly, the cheap money is drying up faster than ceiling paint.

WTI traded at $46.90 Tuesday evening. Down 56% from June. At these prices, the entire North American oil equation is out of whack, regardless of what Wall Street is telling investors to bamboozle them into surrendering more of their money cheaply in order to keep the house of cards from collapsing. But it seems, investors are catching on.

After dousing energy companies with super-cheap money for years in a Fed-designed drunken stupor, investors came out of it in the second half of 2014. All heck has since broken loose. Energy stocks, particularly of smaller exploration and production companies, are crashing. Energy junk-bond yields – and spreads over US Treasuries – are spiking beautifully to the highest level since the Financial Crisis (chart).

And new money, the fuel required to keep the mirage going, has suddenly become scarcer and a lot more expensive. With funding uncertain and oil prices collapsing, capital expenditures are getting slashed, and it’s beginning to show up in the Baker Hughes rig count. Rigs drilling for oil and gas in Canada have plunged 64% in five weeks, from 438 rigs on November 26 to 156 by January 2. Canada is shutting down its drilling operations.

The effects on the stock market and Wall Street are as inevitable as any game of musical chairs… just wait for the music to stop:

There are suddenly fewer investors willing to stick their heads out, and those that are willing, won’t stick their heads out quite as far, and they’re asking for more yield to be compensated for the risk.

Wall Street and the oil boom are joined at the hip. Years of ceaseless and extraordinary hype brought in piles of new money from investors driven to sheer madness by the pandemic of central-bank zero-interest-rate policies. It forced even pension funds into high-risk deals to make up for the lack of yield on conservative investments. It kept the boom going for years. The likelihood that the price of oil could ever plunge, as it had done periodically in the past, never entered into the equation because central banks, with their ingenious policies, had eliminated all forms of risk.

Investors in these risk-free investments are learning that some of their capital has already gone up in smoke, and that more of it will go up in smoke.A sense of reality is setting in. Money to fund what is left of the drilling boom is drying up and getting a lot more expensive.And the consequences are spilling into other sectors of the economy.

All that worry for 2015, ready to set in, once the energy hit seeps into the rest of the economy.

Saudi Arabia's King Abdullah has died. His brother Salman will become king.

I don't think there will be any change in Saudi oil production, but we'll see.

Onward and upward,
airforce

Gas is average of $1.77 here in Texas. It feels weird but good filling up the truck for $40. Now if we could just get grocery prices back to what they were several years ago.

I have seen as low as $1.85, but averages are slightly over $2.

Switched to an economy car for much of my daily driving and my fuel expenditures have dropped so much that it's like I can afford to plan trips more frequently, and projects which involve hauling stuff.

I am. Now factory I g lower costs on commenting, construction projects,more which is farther rom home, bidding jobs that I would normally not risk travel expenses to go see. It was hurting to drive 35 miles each way to go look at of bid a job in my 12mpg truck at $4.50 per gallon.

Landlords and real estate types were jacking prices in the middle of the city because of commute costs as they searched for the pain threshold of what people could afford, especially once people gave up cars. I tried the bike commuting thing. I spent twice the money on food and was glad to have kept my car at the time, since I saw rents in my area go up, and taking a good bike on the bus always scared me. If I forget it when rushed off the bus, the whammy, that's a few hundred bucks.

If gas prices stay down, I don't see how grocery prices would be remaining the same since they really tie into fuel prices, but there is a delay on that of several months.

Gas can be found in my area for $1.58 now. Kerosene has finally dropped from $4.30 to 3.90 a gallon. Hopefully it will drop considerably more after the winter heating season is over; so I can stock up.

I would be all about getting some 55 gallon drums filled at those prices.

Weld up a rack for one of the drums tilted sideways, the small bung on those is 3/4" female pipe thread right? I am finding gas nozzle, filter and hoses on amazon for pretty reasonable prices. The filter is maybe not entirely necessary, but is a good excuse for buying some of those inline filter assemblies which have "alternative uses", like the WIX 24003.

I am thinking two drums upright on the ground, one about six feet high and sideways with the large bung up as the filler station. Safety shutoff ball valve on the small hole at the bottom, short length of hose, the filter, then more hose, then the pump nozzle (only around $50 for the same basic thing they use as gas stations). It is around $140-$160ish in parts, plus a drum which is cheap if you know where to hustle them for reasonable prices.

A hand pump for transferring fuel from the ground drums to the filling drum, which never gets quite topped off but is periodically filled through the upper bung.

Am I missing something on this? Seems pretty simple, and the cost of building it is all recovered fairly quickly when fuel prices recover.

They talk about short storage life on modern gasoline, but even if I store two months worth and rotate it, I am holding a fair amount of fuel and nowhere near the danger point of contamination even on the six month thing, and fuel stabilizer seems fairly cheap.

Breacher,
For gas I have 2 55 gallon drums plus a small 20 gallon already set up in the shed. Numerous 5 gallon jugs also.

For kero, there is a 55 gallon drum and another 20.

I looked into buying a manual fuel transfer pump but they're pricey. Then it dawned on me that I already have what I need. I have several old vehicles that I'm going to sell for scrap metal. All of them have 12 volt fuel pumps mounted on brackets near the tank. Going to pull them off and build essentially the same thing you're talking about.

To keep it rotated I'll stop going to the store to fill up. Will just pull up to the shed instead. About once a month I'll go to town and get enough to replenish what has been used.

These are great ideas for fuel storage. In my neck of the woods I'm not so much worried about the storage portion but the all seeing eyes in the neighbourhood. I need to get a shed up and more concealment around my hobbies.