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Something big is happening in the world economy and I am not in a position to make sense of it.
Read Zero Hedge to keep up with this.
Crude
Crashing: Brent Is Most. Oversold. EVER
Yesterday we
lamented the
ridiculously oversold levels in West Texas Intermediate, which as
BofA calculated, has hit "oversold" levels for only the
third time in six years. We assumed that this could be the basis for
a short-term rebound. We were wrong, because we clearly had no idea
just how determined the Saudis are to crush Putin into the ground
courtesy of plunging oil prices.
As
of moments ago, WTI has tumbled nearly $4, some 5%, to just over
$81...
...
which just goes to show how idiotic any reliance on charts is in a
centrally-planned world, in which commodities are nothing but
political weapons. Bottom line: based on its weekly RSI chart, WTI
has just hit the most oversold levels since Lehman.
But
to our rather great dismay, what is gong on with Brent turned out to
be far worse, and as the weekly RSI indicator shows the
selloff in Brent is now the worst, well, ever!
In
other news: Andrew Hall, our condolences.
IEA
sees 2015 oil demand growth much lower, supply hitting prices
(Reuters)
- Demand for oil in 2015 will grow far slower than previously
forecast as global economies remain weak, the International Energy
Agency said on Tuesday, and prices may extend their sharp fall so
long as OPEC shows no sign of countering a supply surge.
The
IEA said it cut its 2015 estimate for oil demand growth by 300,000
barrels per day (bpd) from its previous forecast and now expects
demand growth of 1.1 million bpd to 93.5 million. It cut its 2014
estimate by 200,000 bpd to 0.7 million bpd.
It
said demand would be supported by prices near four year lows - oil
LCOc1 is around $88 a barrel from above $115 in June, a 25 percent
drop resulting from a boom in U.S. shale oil production, slow global
growth and a strong dollar.
But
it added that those low prices would remain under pressure because of
supply levels: Global oil supply rose by almost 910,000 bpd in
September to 93.8 million bpd, almost 2.8 million bpd higher than the
previous year.
Saudi Prince "Astonished" At Oil Minister's "Disastrous Underestimation" Of Effect Of Price Cuts
As
the US-Saudi
'secret' oil deal continues to depress the price of oil, pressure
Russian revenues, squeeze European budgets,
andraise
doubts about the status quo (OPEC and the rest of the world),
not all of The Kingdom's elites are happy. Infamous billionaire Prince
Alwaleed bin Talal has written an open letter to
Oil Minister Ali al-Naimi and
other ministers, as Reuters reports, saying the world's top oil
exporter should start worrying about the recent slide in global oil
prices and warned against the negative effect of such a drop on the
state revenue: "Ninety
percent of the 2014 budget is based on it (oil), so to underestimate
(these implications) is in itself a disaster which cannot pass
unnoticed," he
wrote in the letter.
Saudi's
budget breakeven oil price is $86.1 in 2014, according to
International Monetary Fund (IMF) estimates. But, as Reuters reports,
not all the Saudi royal family are happy...
Saudi billionaire Prince Alwaleed bin Talal said the world's top oil exporter should start worrying about the recent slide in global oil prices and warned against the negative effect of such a drop on the state revenue.
In an open letter to Oil Minister Ali al-Naimi and other ministers, dated Oct. 13, Prince Alwaleed said he was "astonished" about comments reportedly made by Naimi aiming "to alleviate the substantial negative implications on the Saudi budget and economy due to the big drop in oil prices".
He was referring to comments made by the oil minister in Kuwait on Sept. 11 where he played down concerns about the drop in oil prices below $100 per barrel.
...
Last week, Saudi officials briefed oil market participants in New York on the kingdom's policy, making clear that Saudi is prepared to tolerate a period of lower prices - perhaps as low as $80 a barrel - in order to retain market share, Reuters reported on Monday.
...
Prince Alwaleed has repeated previous warnings that the Gulf Arab kingdom needed to reduce its reliance on crude oil and diversify its revenues.
He said in the letter, posted on his Twitter account on Monday, that the kingdom's budget this year and in 2015 could incur losses worth billions of riyals.
Owner of international investment firm Kingdom Holding, Prince Alwaleed is unusually outspoken for a top Saudi businessman.
But his warning may reflect growing concern in private among many Saudis about the impact of declining oil prices on the country's economy and its dependence on oil revenues.
"Ninety percent of the 2014 budget is based on it (oil), so to underestimate (these implications) is in itself a disaster which cannot pass unnoticed," he wrote in the letter.
*
* *
This is a major development in world politics, it’s not just some financial market-driven move.
World power relations are being hugely changed on the fly as we’re all watching and trying to figure what to make of all this. One thing’s for sure: the world will never be the same.
Why it happens now is a great question, which is impossible to answer. And that’s fine: it’s enough to try and understand exactly what is going on, let alone why.
But I bet you it has to do with the US and Europe realizing they can no longer keep pretending their economies are growing or recovering or doing fine.
We’ve landed in the next phase of what arguably started in 2007, but what you could place back many years before that, an economic system based on the fantasy that is debt driven growth, inflated by a factor of a trillion, give or take a few zeros.
That system is in the process of dying. And the people who have tried to make you believe, and succeeded, that it would all be fine in the end, are now jockeying for position in the aftermath of the demise of a world built on debt.
And they are the same people who built that world, profited from it to an insane degree, and want to use those profits to hang on to power in a world that will be dramatically different from the one they called the shots in. And that doesn’t bode well; it tells us violent clashes will be on the horizon.
*
* *
And
today we already see tensions in The Kingdom rising:
- *TWO U.S. CONTRACTOR EMPLOYEES SHOT IN SAUDI ARABIA: OFFICIAL
- *U.S. OFFICIAL SAYS ONE DEFENSE CONTRACTOR KILLED, ONE INJURED
As
Bloomberg reports, U.S. Saudi Embassy Issuing Security Message After
Shooting
We are in the process of evaluating our security posture and will take appropriate steps to ensure the safety of all U.S. mission personnel,” State Dept spokeswoman Jen Psaki says in e-mailed statement
Says U.S. embassy is issuing security message to advise U.S. citizens of situation, security precautions
Not
good.
U.S. Oil Producers May Drill Themselves Into Oblivion
Photograph by Andrew Burton/Getty Images
Remember
the fall of 2008? As the world spun out of control and the price of
everything crashed, a barrel of oil lost 70 percent of its value over
about five months. Of course, prices never should’ve been as high
as $146 that summer, but they shouldn’t have crashed to $40 by the
end of that year either.
As
the oil market has recovered, there have since been three major
corrections, when prices have fallen at least 15 percent over a few
months. We’re now in the midst of a fourth, with oil prices down
more than 20 percent since peaking in late June at around $115 a
barrel. They’re now hovering in the mid-$80 range and could
certainly go lower. That’s good
news for U.S. consumers,
who are finally starting to reap the rewards of the shale boom
through low gasoline prices. But it could spell serious trouble for a
lot of oil producers, many of whom are laden with debt
andexaggerating their
oil reserves.
In
a way, oil companies in the U.S. are perpetuating the crash by
continuing to drill and push up U.S. oil production to its fastest
pace ever. Rather than pulling back in hopes of slowing the amount of
supply on the market to try and boost prices, drillers are instead
operating at full tilt and pumping oil as fast as they can. Just look
at the number of horizontal rigs in the field:
BloombergThere
is a record number of horizontal oil rigs in the field
Over
the past five years, the amount of horizontal rigs deployed in the
U.S. has almost quadrupled, from 379 in early 2009 to more than 1,300
today. This is of course purely a fracking story. Almost all the
recent gains in U.S. oil production are the result of horizontal
drilling techniques being used across much of the Midwest, from Texas
to North Dakota. Unlike conventional vertical wells, where more wells
do not always equal more oil, the strategy in a shale field appears
to be to drill as many as possible to unlock oil trapped in rock
formations.
As
the number of horizontal drill rigs has exploded, the number of
vertical rigs in the U.S. has gone in the opposite direction, falling
almost 70 percent over the past seven years.
BloombergVertical
drilling is so 2006
So
will U.S. oil producers frack their way into bankruptcy? That’s a
real possibility now. They’ve certainly gotten more efficient at
drilling, and don’t need the same price they did to remain
profitable. But we’re getting pretty close. Back in July, Goldman
Sachs estimated that U.S. shale producers needed $85
a barrel to break even.
That’s about where we are right now. The futures market points to
even lower prices next year, with contracts for oil next April
trading at about $82 a barrel. Certainly, some producers need higher
prices than others. Those at the bottom of the cost curve could
benefit from a potential wave of bankruptcy that spreads across the
oil patch; they could then scoop up some assets on the cheap.
One
final note of caution: The U.S. natural gas industry ran through this
same cycle a few years ago with companies getting themselves into
trouble by flooding the market with gas, crashing the price and
themselves in the process. By mid-2012, the price of natural gas
got too
cheap to drill.
The number of natural gas rigs in the field still isn’t anywhere
close to returning to where it was a few years ago.
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