AuthorTopic: Oil Price Crash!!!  (Read 39576 times)

Offline Eddie

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Re: Oil Price Crash!!!
« Reply #150 on: January 09, 2015, 10:04:43 AM »
Sounds like your father was a fine man.

What makes the desert beautiful is that somewhere it hides a well.

Offline Karpatok

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Re: Oil Price Crash!!!
« Reply #151 on: January 09, 2015, 10:30:06 AM »
Sounds like your father was a fine man.
   Yes he was. And so was my mother a good and hard working person. Somehow they escaped from origins very similar to MKing's description of his own. It truly was some indefinable ability to focus as a team towards survival and rising up. I often ponder on what gave them the psychological wherewithall to continue. I think such people were common at that point in American history where they had the fire in the belly and the ability and foresight to feed that fire and succeed. Very similar to you and MKing. But more like you in regard to taking care of family and love of nature. In the end, my father bought an island and turned it into a nature preserve. He had given up any earlier impulse for hunting. I have searched as best I can and have not found any evidence of cheating or fraud on his part. I think as I have expressed in other threads that it was a different time with a different vision of morality and fairness when hard work and perseverance and FAITH could be brought to bear on the outcome. And let's not forget all the PERSONAL RESPONSIBILITY in the world. A different time, at least thirty years long gone, and seemingly never coming back. Karpatok

Offline MKing

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Re: Oil Price Crash!!!
« Reply #152 on: January 09, 2015, 11:43:23 AM »
I think as I have expressed in other threads that it was a different time with a different vision of morality and fairness when hard work and perseverance and FAITH could be brought to bear on the outcome. And let's not forget all the PERSONAL RESPONSIBILITY in the world. A different time, at least thirty years long gone, and seemingly never coming back. Karpatok

Big K you are making me depressed. Why CAN'T we bring back the qualities that made America more than a great market for consumers and iphone users? Are those qualities so far gone nowadays that people don't even KNOW we've lost them?
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
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Offline jdwheeler42

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Re: Oil Price Crash!!!
« Reply #153 on: January 09, 2015, 01:43:16 PM »
Of course I have always said that everyone coming to this land in the first place were of necessity of low origins otherwise why would they have come?
Just remember, as the aristocracy lost its power, being of noble birth no longer meant automatically being rich.  They may have had large estates but not necessarily the cash flow to keep up their lifestyle.  The new world represented a way to fill up their coffers.

Not that this was a common occurrence, mind you, but for those aristocrats who did come over, I'll bet that was a major driving force.
Making pigs fly is easy... that is, of course, after you have built the catapult....

Offline JoeP

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Re: Oil Price Crash!!!
« Reply #154 on: January 09, 2015, 03:04:38 PM »
In the end, my father bought an island and turned it into a nature preserve. He had given up any earlier impulse for hunting.

So it's acceptable for a person to "brag" about daddy's island buying wealth, just be sure not to divulge any information about your own situation? 

Sounds like your father was a fine man.
Yes he was. And so was my mother a good and hard working person.

Well that blows a huge fucking hole through the "apple not falling far from the tree" idiom, now doesn't it?
 
just my straight shooting honest opinion

Offline Petty Tyrant

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Re: Oil Price Crash!!!
« Reply #155 on: January 09, 2015, 03:58:10 PM »
Of course I have always said that everyone coming to this land in the first place were of necessity of low origins otherwise why would they have come?
Just remember, as the aristocracy lost its power, being of noble birth no longer meant automatically being rich.  They may have had large estates but not necessarily the cash flow to keep up their lifestyle.  The new world represented a way to fill up their coffers.

Not that this was a common occurrence, mind you, but for those aristocrats who did come over, I'll bet that was a major driving force.

Thats colonization not immigration. Both high and low origins could get to own land in all the new world continents, the main difference being the size of the grant (not purchase) and also being given the labour to work or build it. In the old world, younger or unfavoured heirs of landholders, who were still part of the aristocratic connected class could come to the new world and be granted a large estate as well as serfs, be they natives, immigrants or convicts (The american use of the word "pilgrim" is an absolute misnomer, pilgrims go to places like Jerusalem, Mecca or Marakesh, pay their respects and then go home FFS).

immigration OTOH in those early days meant poor people could also get a land grant, something they could not dream of owning in europe, but only small and they were still effectively serfs working subsistence and tribute. They did not get any european or native labourers, convicts, slaves assigned, but had a decent chance of aboriginals/africans/american indians raiding their animals at best and raiding their house at worst, wheras the connected colonist class could send out a punitive expedition.



« Last Edit: January 09, 2015, 04:01:39 PM by Uncle Bob »
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Offline JoeP

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Re: Oil Price Crash!!!
« Reply #156 on: January 09, 2015, 05:10:31 PM »
I have no idea what happened to the last couple of comments I made in this thread, but I would still appreciate it if someone could explain to me the difference between laying out your current paradigm and doing the same (in a historical sense) for a daddy.  If someone chooses to call it bragging, then OK.  I'm interested in the DIFFERENCE.



« Last Edit: January 09, 2015, 05:45:43 PM by JoeP »
just my straight shooting honest opinion

Offline RE

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Re: Oil Price Crash!!!
« Reply #157 on: January 10, 2015, 06:10:57 PM »

Oil Price Blowback: Is Putin Creating A New World Order?

Tyler Durden's picture


 

Submitted by Mike Whitney via Emerging Equity blog,

“If undercharging for energy products occurs deliberately, it also effects those who introduce these limitations. Problems will arise and grow, worsening the situation not only for Russia but also for our partners.” – Russian President Vladimir Putin

It’s hard to know which country is going to suffer the most from falling oil prices. Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit, but that will probably change as time goes on. What the Obama administration should be worried about is the second-order effects that will eventually show up in terms of higher unemployment, market volatility, and wobbly bank balance sheets. That’s where the real damage is going to crop up because that’s where red ink and bad loans can metastasize into a full-blown financial crisis. Check out this blurb from Nick Cunningham at Oilprice.com and you’ll see what I mean:

“According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

 

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas… One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

 

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

 

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.” (Low Prices Lead To Layoffs In The Oil Patch, Nick Cunningham, Oilprice.com)

Of course industries lay-off workers all the time and it doesn’t always lead to a financial crisis. But unemployment is just one part of the picture, lower personal consumption is another. Take a look:

“Falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer…..Another way to show this graphically is to look at the annual changes in Personal Consumption Expenditures (PCE) in aggregate as compared to the subsection of PCE spent on energy and related products. This is shown in the chart below.

 

Lower Energy Prices To Lower PCE (Personal Consumption Expenditures):

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(The Gasoline Price Myth, Lance Roberts, oilprice.com)

See? So despite what you might have read in the MSM, lower gas prices do not translate into greater personal consumption or more robust growth. Quiet the contrary, they tend to intensify deflationary pressures and reduce activity which is a damper on growth.

Then there’s the knock-on effects that crashing prices and layoffs have on other industries like mining, manufacturing and chemical production. Here’s more from Oil Price:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve…

 

The majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail….

 

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprise almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability…

 

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy than the “savings” provided to consumers.” (The Gasoline Price Myth, Lance Roberts, oilprice.com)

None of this sounds very reassuring, does it? And yet, all we hear from the media is how the economy is going to reach “escape velocity” on the back of cheap oil. Nonsense. This is just more “green shoots” baloney wrapped in public relations hype. The fact is, the economy needs the good-paying jobs more than it needs low-priced energy. But now that prices are tumbling, those jobs are going to disappear which is going to be a drag on growth. Now check out these headlines I picked up on Google News that help to show what’s going on off the radar:

“Texas is in danger of a recession”, CNN Money.

 

“Texas Could Be Headed for an Oil-Fueled Recession, JP Morgan Economist Says”, Wall Street Journal “Good Times From Texas to North Dakota May Turn Bad on Oil-Price Drop”, Bloomberg

 

“Low Oil Prices in the New Year Are Screwing Petrostates”, Vice News

 

“Top US Oil States Are Taking A Hit From Plunging Crude Prices”, Business Insider

Get the picture? If oil prices continue to fall, unemployment is going to spike, activity is going to slow, and the economy is going tank. And the damage won’t be limited to the US either. Get a load of this from the UK Telegraph:

“A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research.

 

Financial risk management group Company Watch believes that 70pc of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of £1.8bn.

 

Such is the extent of the financial pressure now bearing down on highly leveraged drillers in the UK that Company Watch estimates that a third of the 126 quoted oil and gas companies on AIM and the London Stock Exchange are generating no revenues.

 

The findings are the latest warning to hit the oil and gas industry since a slump in the price of crude accelerated in November when the Organisation of Petroleum Exporting Countries (Opec) decided to keep its output levels unchanged. The decision has caused carnage in oil markets with a barrel of Brent crude falling 45pc since June to around $60 per barrel.” (Third of listed UK oil and gas drillers face bankruptcy, Telegraph)

“Carnage in oil markets,” you say?

Indeed. Many of the oil-drilling newcomers set up shop to take advantage of the low rates and easy money available in the bond market. Now that prices have crashed, investors are avoiding energy-related junk bonds like the plague which is making it impossible for the smaller companies to roll over their debt or attract fresh capital. When these companies start to default en masse, as they certainly will if prices don’t rebound, the blowback will be felt on bank balance sheets across the country creating the possibility of another financial meltdown. (Now we ARE talking about a financial crisis.)

The basic problem is that the banks have bundled a lot of their dodgy debt into financially-engineered products like Collateralized Loan Obligations (CLOs) and Collateralized Debt Obligations (CDOs) that will inevitably fail when borrowers are no longer able to service the loans. The rot can be concealed for a while, but eventually, if prices don’t recover, a significant number of these companies are going to go under which will push the perennially-undercapitalized banking system to the brink once again. That’s why Washington’s plan to push down oil prices (to hurt the Russian economy) might have made sense on a short-term basis (to shock Putin into submission) but as a long-term strategy, it’s nuts. And what’s even crazier, is that Obama has decided to double-down on the same wacky plan even though Putin hasn’t given an inch. Check this out from Reuters on Monday:

“The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world…

 

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad.

 

The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand…

 

With global oil markets in flux, it is far from clear how much U.S. condensate will find a market overseas.”

 

(Analysis – U.S. opening of oil export tap widens battle for global market, Reuters)

Does that make sense to you, dear reader? Why would Obama suddenly opt to change the rules of the game when he knows it will increase supply and push prices down even further? Why would he do that? Certainly, he doesn’t want to inflict more pain on domestic producers, does he?

Let’s let Obama answer the question for himself. Here’s a clip from an NPR interview with the president just last week. About halfway through the interview, NPR’s Steve Inskeep asks Obama: “Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

Barack Obama: If you’ll recall, their (Russia) economy was already contracting and capital was fleeing even before oil collapsed. And part of our rationale in this process was that the only thing keeping that economy afloat was the price of oil. And if, in fact, we were steady in applying sanction pressure, which we have been, that over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they’d have enormous difficulty managing it.” (Transcript: President Obama’s Full NPR Interview)

Am I mistaken or did Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy? It sure sounds like it. And that would also explain why Obama decided to allow domestic producers to dump more oil on the market even though it’s going to send prices lower. Apparently, none of that matters as long as the policy hurts Russia.

So maybe the US-Saudi oil collusion theory isn’t so far fetched after all. Maybe Salon’s Patrick L. Smith was right when he said:

“Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

 

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105.

 

Shortly after Kerry’s visit, the Saudis began increasing production, sure enough — by more than 100,000 barrels daily during the rest of September, more apparently to come…

 

Think about this. Winter is coming, there are serious production outages now in Iraq, Nigeria, Venezuela and Libya, other OPEC members are screaming for relief, and the Saudis make back-to-back moves certain to push falling prices still lower? You do the math, with Kerry’s unreported itinerary in mind, and to help you along I offer this from an extremely well-positioned source in the commodities markets: “There are very big hands pushing oil into global supply now,” this source wrote in an e-mail note the other day.” (“What Really Happened in Beijing: Putin, Obama, Xi And The Back Story The Media Won’t Tell You”, Patrick L. Smith, Salon)

Vladimir Putin: Public Enemy Number 1

Let’s cut to the chase: All these oil shenanigans are really aimed at just one man: Vladimir Putin. There are a number of reasons why Washington wants to get rid of Putin, the first of which is that the Russian president has become an obstacle to US plans to pivot to Asia. That’s the main issue. As long as Putin is calling the shots, there’s going to be growing resistance to NATO’s push eastward and Washington’s military expansion across Central Asia which could undermine US plans to encircle China and remain the world’s only superpower. Here’s an excerpt from Zbigniew Brzezinski’s The Grand Chessboard which helps to explain the importance Eurasia is in terms of Washington’s global ambitions:

“..how America ‘manages’ Eurasia is critical. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa’s subordination, rendering the Western Hemisphere and Oceania (Australia) geopolitically peripheral to the world’s central continent. About 75 per cent of the world’s people live in Eurasia, and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for about three-fourths of the world’s known energy resources.” (p.31) (Zbigniew Brzezinski,The Grand Chessboard: American Primacy And It’s Geostrategic Imperatives, Key Quotes From Zbigniew Brzezinksi’s Seminal Book)

Get it? Prevailing in Asia is the administration’s top priority, which is why the US is rapidly moving its military assets into place. Check this out from the World Socialist Web Site:

“Under Obama’s “pivot to Asia,” the Pacific Command will account for more than 60 percent of all US military forces, up from 50 percent under the Bush administration. This includes new US basing arrangements in the Philippines, Singapore and Australia, as well as renewed close military ties to New Zealand, and ongoing US military exercises in Thailand, Malaysia, Indonesia and Taiwan….(as well as) large troop deployments in Japan and South Korea, including nuclear-armed units.” (The global scale of US militarism, Patrick Martin, World Socialist Web Site)

The “Big Shift” is already underway, which is why obstacles have to be removed and Putin’s got to go.

Second, Putin has made himself a general nuisance vis a vis US strategic objectives in Syria, Iran and Ukraine. In Syria, Putin has thrown his support behind Assad who the US wants to topple in order to redraw the map of the Middle East and build gas pipelines from Qatar to Turkey to access the lucrative EU market.

Third, Putin has strengthened a number of coalitions and alliances –the BRICS bank, the Eurasian Economic Union, and the Shanghai Cooperation Organization–all of which pose a challenge to US dominance in the region as well as a viable alternative to neoliberal financial institutions like the IMF and World Bank. Going back to Brzezinski’s “chessboard” once again, we see that the US should not feel threatened by any one nation, but should be constantly on-the-lookout for “regional coalitions” which could derail its plans to rule the world. Here’s Brzezinski again:

“…the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together.” (p.40)

 

“Henceforth, the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America’s status as a global power.” (p.55) (Zbigniew Brzezinski, The Grand Chessboard: American Primacy And It’s Geostrategic Imperatives, Key Quotes From Zbigniew Brzezinksi’s Seminal Book)

As a founding member and primary backer of these organizations, (and initiator of giant energy deals with China, India and Turkey) Putin has become Washington’s biggest headache and a logical target for regime change.

Finally, Putin is doing whatever he can to circumvent dollar-denominated business and financial transactions. The move away from the buck is a direct attack on the US’s greatest source of power, the ability to control the de facto international currency and to require that other nation’s stockpile dollars for their energy purchases which are then recycled into US financial assets, stocks bonds and US Treasuries. This petrodollar-recycling scam allows the US to run gigantic current account deficits without raising interest rates or reducing government spending. Putin’s anti-dollar policies could diminish the greenback’s role as reserve currency and put an end to a system that institutionalizes looting.

This is why Putin is Public Enemy Number 1. It’s because he’s blocking the US pivot to Asia, strengthening anti-Washington coalitions, sabotaging US foreign policy objectives in the Middle East, creating institutions that rival the IMF and World Bank, transacting massive energy deals with critical US allies, increasing membership in an integrated, single-market Eurasian Economic Union, and attacking the structural foundation upon which the entire US empire rests, the dollar.

Naturally, Washington’s powerbrokers are worried about these developments, just as they are worried about the new world order which is gradually taking shape under Putin’s guidance. But, so far, they haven’t been able to do anything about it. The administration’s regime change schemers and fantasists have shown time-and-again that they’re no match for Bad Vlad who has beaten them at every turn.

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Offline RE

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Re: Oil Price Crash!!!
« Reply #158 on: January 10, 2015, 06:46:52 PM »
As I mentioned a few times here, the Frackers are bleeding red ink like an Ebola victim in the Wood Chipper.  :icon_sunny:

RE


Oil-Bust Bloodletting: Projects Cancelled, Layoffs Ripple to Other Areas, Default Hits Private-Equity and Pension Funds

by Wolf Richter • January 7, 2015   

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.

Many of these rigs were operated by smaller drillers. But even oil giants have reacted by cancelling or postponing multi-billion dollar oil-sands projects: Shell’s Pierre River project, Total’s Joslyn mine, and Statoil’s Corner project. Cancelling projects before they become massive capital investments is the easier thing to do. It doesn’t lower current production, but it stops the cash drain.

In the US, the trend has started a week later and is happening more slowly at this point. Rig count dropped by 109 in four weeks, from 1,920 rigs in the week ending December 5 to 1,811 in the most recent week. But the side-effects are already rippling through the economy.

US Steel is going to shutter plants in Houston, Texas, and Lorain, Ohio, that together produce annually over 800,000 tons of steel pipe for the oil and gas industry. In total, 756 workers will be axed starting in March, the majority in Ohio.

“The company has suddenly lost a great deal of business because of the recent downturn in the oil industry,” wrote Tom McDermott, president of United Steelworkers local 1104 in Lorain, according to the Wall Street Journal. “What appeared just a few short weeks ago as being a productive year, [with new hires in December and extra turns going on], has most abruptly turned sour.”

The steel industry has been one of the big beneficiaries of the fracking boom. A number of steelmakers from around the world have crowded into the space. As the drilling boom craters, orders for steel pipe and tubes – US Steel’s “most reliable profit driver,” according to Wells Fargo analyst Sam Dubinsky – are fizzling. There will be a lot more bloodletting.

And so, with projects getting cancelled, orders disappearing, and cheap money drying up, the first default stumbles into the scene: privately-held Canadian oil-sands producer Laricina Energy.

As so often these days in the oil and gas business, there is a private-equity and “alternative-investment” angle to it. US private equity firm Lime Rock Partners made an initial investment in 2005 when Laricina was founded. Two other US PE firms have invested in it: Kayne Anderson Capital and Mount Kellett Capital. However, the biggest shareholder is Canada’s largest pension fund, CPP Investment Board, looking to spike its performance with hot “alternative investments.”

In total, Laricina raised approximately C$1.3 billion in equity financings. It also sold C$150 million in four-year notes, secured by the company’s assets, to CPPIB in March 2014. The notes were supposed to provide interim funding for a commercial project.

“Supposed to” because now, that debt is in default.

In a statement, Laricina said that it “missed its bitumen production covenant” of the notes as average production in Q4 was 18% below the minimum of 1,225 barrels a day – “an event of default for which there is no cure period under the indenture.” It’s in discussions with CPPIB, but warns that “the failure to reach an agreement may result in the inability for the Company to operate as a going concern.”

In November, it had already warned that it might not be able to move forward with the commercialization of its projects unless it received C$350 million in additional financing. Alas….

“The capital markets are not putting a lot of new money to work,” CEO Glen Schmidt explained in an interview after the default. “The flow of capital changed materially between the middle of 2014 and the end of 2014 and that clearly had an impact on the numbers of players but also the amounts of capital.”

In other words, his company is confronted with a new reality: 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.

Meanwhile, the company is trying to slash operating expenses to remain liquid a little longer, as it said, “in this challenging external environment.”

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.

But there were supposed to be beneficiaries of the oil-price crash. It was supposed to goose consumer spending, and thus the economy. But companies are not seeing it that way. Read…   Consumer Companies Issue Most Negative Guidance Ever, Despite Lower Gasoline Prices
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Offline RE

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Oil Price Crash!!!: Brazilian Goliath Heading for a Fall
« Reply #159 on: January 10, 2015, 07:02:14 PM »
If/When Petrobras goes Mammaries Skyward  :icon_mrgreen:, we'll really see some Fireworks in the markets!


RE


This Giant Oil Company Is Headed for Disaster
by Growth Stock Wire • January 9, 2015   

By Matt Badiali, editor, Stansberry Resource Report:

Of all the companies hurting from lower oil prices, few are in more danger than Brazilian oil giant Petrobras.

The state-owned oil company owns some of the largest untapped oilfields in the world; so it’s a darling of emerging-market investors. And with shares down around 50% over the past year, many investors now think it’s cheap enough to buy.

But it isn’t. The company’s spending is out of control, its profit margins are shrinking, and its debt is soaring. In short, Petrobras is a study in how not to run an oil company.

As longtime Growth Stock Wire readers know, “partnering up with a government” is generally a terrible idea.Bureaucrats running government agencies are not incentivized to produce profits. They are not incentivized to improve the long-term value of a business. Bureaucrats are incentivized to spend their entire budgets and grow larger. This allows them to acquire more power, and bigger budgets for next year, which allows them to acquire more power and bigger budgets for the year after that.

That’s exactly what we’ve seen with Petrobras over the past few years. In 2008, the company had a series of giant oil discoveries offshore. Industry reports I read at the time described many of Petrobras’ projects as the world’s “deepest,” “longest,” or “first.”

But the oil Petrobras found was difficult to produce. Developing its offshore oilfields has taken billions of dollars and years. And the company being run by bureaucrats hasn’t helped.

Petrobras spent $135 billion in capital expenditures (a broad measure of how much energy companies spend to find oil and gas) from 2011 to June 2014. Meanwhile, its debt has doubled from $70 billion in 2010 to $140 billion in June 2014. Petrobras’ debt was just $21 billion at the end of 2007. That’s a huge increase in a short time. Petrobras now holds the largest amount of debt of any oil producer in the world.

For comparison, giant oil and gas companies BP, Shell, and ExxonMobil have debt of $54 billion, $43 billion, and $22 billion, respectively.

In return for taking on more debt and investing in new equipment and upgrades, Petrobras added just 300 million barrels of oil reserves from 2011 to 2013 (the most recent data available). And it has increased its oil production by just 400,000 barrels of oil per day. That means the company spent $450 per new barrel of reserve or $337,000 per barrel of daily production.

Those are ludicrous numbers.

For example, oil producer Whiting Petroleum just paid $6 billion to acquire oil producer Kodiak Oil & Gas. Based on Kodiak’s most recent oil reserves (at the end of 2013), Whiting paid just $36 per barrel of reserve.

Petrobras’ revenues haven’t increased much over the past few years. And because of the insane cost to slightly increase its reserves and production, its profit margins have declined and EBITDA (earnings before interest, taxes, depreciation, and amortization) is down.
   
2010
   
2011
   
2012
   
2013
   
2014
Revenue
   
$128B
   
$131B
   
$137B
   
$129B
   
$130B*
EBITDA
   
$46B
   
$41B
   
$34B
   
$28B
   
$27B*
Profit Margin
   
36%
   
31%
   
25%
   
23%
   
22%**
* Consensus estimates
** For the year ended 6/30/14
Source: S&P Capital IQ and Bloomberg

In summary, Petrobras is a highly indebted oil company that spends way too much on growth. That’s a stick of dynamite waiting for a match… which we’re now seeing with crashing oil prices.

From 2010 to mid-2014, the average price of oil was $92.75 per barrel. Most oil companies can earn profits at that price… even Petrobras. The price of crude oil recently fell to a six-year low. With oil now at $50 per barrel, most oil companies are struggling to remain profitable.

But Petrobras isn’t your average oil company. With its high debt and expensive growth, it will soon become more difficult to pay its bills if oil prices remain low. It may even need a government bailout. And that means shares can fall even more.

Even if oil prices increase, Petrobras may still continue to suffer. Remember, it’s a state-owned company. And most every government agency or program isn’t run for a profit. It’s not incentivized to keep costs down. It’s incentivized to grow bloated and inefficient. That’s why shares of Petrobras are down almost 80% over the past six years.

And the trend lower will continue. Anyone bargain hunting in the oil sector right now needs to remember how government works and stay far away from Petrobras. By Matt Badiali, editor, Stansberry Resource Report, The Growth Stock Wire.

And in the American Oil Patch, all heck is now breaking loose. Read…   Oil-Bust Bloodletting: Projects Cancelled, Layoffs Ripple to Other Areas, Default Hits Private-Equity and Pension Funds
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Oil Price Crash!!!: SAUDIS NOT READING THE RIGHT BLOGS
« Reply #160 on: January 11, 2015, 05:41:01 PM »
Quote from: Saudi Prince Alwaleed bin Talal
Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.

NO ONE?
Obviously the Saudi Princes haven't been following the Doomstead Diner or Economic Undertow.   ::)

TRIANGLE OF DOOM 2012


TRIANGLE OF DOOM 2014


RE

Saudi Prince Warns "We Will Not See $100 Oil Again", Calls Anti-Russia Conspiracy "Baloney"

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Speaking to his favorite money-honey, billionaire Saudi Prince Alwaleed bin Talal told Maria Bartiromo that the negative impact of a 50% decline in oil has been wide and deep. As USA Today reports, the prince of the Saudi royal family said that while he disagrees with the government on most aspects, he agreed with their decision on keeping production where it is, adding that "if supply stays where it is, and demand remains weak, you better believe it is gonna go down more. I'm sure we're never going to see $100 anymore... oil above $100 is artificial. It's not correct." On the theory that the US and the Saudis have agreed to keep prices low to pressure Russia, the prince exclaimed, that is "baloney and rubbish," adding that, "Saudi Arabia and Russia are in bed together here... both being hurt simultaneously."

 

Excerpted from USA Today,

Q: Can you explain Saudi Arabia's strategy in terms of not cutting oil production?

A: Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.

 

Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%.

 

Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.

Q: So this is about not losing market share?

A: Yes. Although I am in full disagreement with the Saudi government, and the minister of oil, and the minister of finance on most aspects, on this particular incident I agree with the Saudi government of keeping production where it is.

Q: What is moving prices? Is this a supply or a demand story? Some say there's too much oil in the world, and that is pressuring prices. But others say the global economy is slow, so it's weak demand.

A: It is both. We have an oversupply. Iraq right now is producing very much. Even in Libya, where they have civil war, they are still producing. The U.S. is now producing shale oil and gas. So, there's oversupply in the market. But also demand is weak. We all know Japan is hovering around 0% growth. China said that they'll grow 6% or 7%. India's growth has been cut in half. Germany acknowledged just two months ago they will cut the growth potential from 2% to 1%. There's less demand, and there's oversupply. And both are recipes for a crash in oil. And that's what happened. It's a no-brainer.

Q: Will prices continue to fall?

A: If supply stays where it is, and demand remains weak, you better believe it is gonna go down more. But if some supply is taken off the market, and there's some growth in demand, prices may go up. But I'm sure we're never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It's not correct.

Q: Wow. And you said you are in agreement with the Saudi government to not give up market share?

A: This is the only point I'm agreeing with the Saudi Arabian government on oil. That's the only point, yes.

Q: Should the Saudis cut production if they get an agreement with other oil producing countries to take oil off the market?

A: Frankly speaking, to get all OPEC countries to approve and accept it, including Russia and Iran, and everybody else, is almost impossible You can never have an agreement whereby everybody cuts production. We can't trust all OPEC countries. And can't trust the non-OPEC countries. So it's not on the table because the others will cheat. The past has proven that. When Saudi Arabia cut production in the '80s and '90s, everybody cheated and took market share from us. Plus, remember there is an agenda here also. Although Saudi Arabia and OPEC countries did not engineer the reduction in the price of oil, there's a positive side effect, whereby at a certain price, we will see how many shale oil production companies run out of business. So although we are caught off guard by this, we are capitalizing on this matter whereby we'll live with $50 temporarily, to see how much new supply there will be, because this will render many new projects economically unfeasible.

 

Q: What about the theory of the pressure on the Russians? There's a theory that the U.S. and the Saudis have agreed to keep prices low to pressure Russia because of what Putin has done in Ukraine.

A: Two words: baloney and rubbish. I'm telling you, there's no way Saudis will do this. Because Saudi Arabia is hurting as much as Russia, period. Now, we don't show it because of our big reserves. But I'll tell you Saudi Arabia and Russia are in bed together here. And both are being hurt simultaneously. And there's no political conspiracy whatsoever against Russia. Because we are shooting ourselves in the foot if we do that.

Q: You said the price of oil will dampen the shale revolution in America. How?

A: Shale oil and shale gas, these are new products in the market. And we see big ranges. no one knows for sure what price is the breaking point for shale. Wells have a higher production cost. And very clearly these will run out of business, or at least not be economical. At $50, will it still be economically feasible? Unclear. This is a very much developing story.

Read more here...

« Last Edit: January 11, 2015, 05:49:14 PM by RE »
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Offline RE

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Re: Oil Price Crash!!!
« Reply #161 on: January 15, 2015, 01:40:51 AM »
Looking Uglier by the Day here.

Gold Bugs are doing better than average, but personally I would not bet this trade right now.  Margin Calls are coming, and you should see a fairly significant unwind through all asset classes over the next few weeks.

RE

Oil Collapses and Copper Crashes 8% in Day - Great Recession Cometh?

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Oil Collapses and Copper Crashes 8% This Morning - Great Recession Deepens
Oil prices fell another 1 per cent this morning  and continue their collapse - down 57% in just over 6 months. Copper crashed 8% on the London Metal Exchange, plunging to 5 and a half year lows.


Doctor Copper -  Usually a good indicator for economic trends and markets via Marketwatch

Oil fell to fresh six-year lows and has fallen almost 60 per cent since June 30, 2014 to levels last seen in early 2009 after the 2008 crash (see chart).

February Brent crude dropped another 79 cents to $45.80 a barrel and West Texas Intermediate crude for was at $45.34, down 55 cents. Copper for delivery in three months on the LME dropped as much as 8.7 percent to $5,353.25 a metric ton, the lowest intraday price since July 2009. Nickel slid 4.6 percent and lead fell 3.8 percent to the lowest in more than two years.


NYMEX Light Sweet Crude Oil (WTI) - 1985 to January 14, 2015 (Thomson Reuters)

Commodities came under further pressure after the World Bank cut its forecasts for global growth,
reinforcing worries of a gloomy economic outlook.

There has been much speculation in recent months as to the causes of oil's dramatic crash in price. Some analysts have suggested that Saudi Arabia is attempting to put the U.S. shale oil industry out of business in order to keep the U.S. dependent on Saudi oil exports. Others suggest that prices were forced down by the Gulf states and the U.S. in order to damage Russia's exports and its economy.


Copper Comex Spot HG Index- 1997 to January 14, 2015 (Thomson Reuters)

These may be factors but it is becoming increasingly clear that if they are, they are secondary factors to the major trend which is falling demand and a slowdown in the global economy - this is most pronounced in China, in Japan and in Europe.

We already have witnessed the customary New Year's hype from many banks and governments that this year will finally be the year when economies come off the life-support of ultra low interest rates - even as they cheer-lead the ECB's expected foray into QE and euro money printing.

However, the fact is that the omens for the economy this year are far from good. The most telling sign is not specifically that oil prices are collapsing but that it is happening in conjunction with the most widely used industrial metal - copper.

Copper fell over 8 per cent today, after a 1.3 per cent fall yesterday hitting its lowest level in nearly five years on the back of an 18% decline last year.

China has been the major user of the metal in recent years as its construction industry boomed. The Chinese housing and property market is now slowing down with the potential for a staggering collapse as dozens of "ghost cities" - brand new cities financed by reckless banks with nobody to occupy them - unwind.

The effects of such would be harsh on metal and commodity exporting countries, particularly those exposed to China like Australia and Brazil.

While copper has seen the most notable declines, other industrial metals are also faring poorly. According to Bloomberg, "A gauge of the six main industrial metals has declined 9.3 percent in the past 12 months to the lowest since June 7, 2010."

Clearly global industrial production is slowing down.

When oil price declines are viewed against this backdrop a more worrying picture emerges. Oil prices are now at almost six-year lows and this despite record imports of oil by China.

The Financial Times report that trade data showed “China imported 30.37m tonnes of crude in December, up 19.5 per cent month-on-month."

In only six months oil has lost 60% of it's value. This may have been partly exacerbated by strategic maneuvering by various players but, by any standard, such a decline must be viewed with alarm.

The recent plunge in commodity prices and especially copper should also be viewed with alarm. It is said that copper should be known as Doctor Copper as the metal is said to have a PhD in Economics and the ability to predict future economic growth or a lack thereof.

Are we on the verge of a global depression?

Only, time will tell. The inability of central banks to stoke inflation and sustainable economic growth, statistics from Europe suggesting deflation, and stubborn and rising unemployment across the western world would suggest that it is a real possibility.

At the very least, the ‘great recession’ seems likely to continue. A serious recession or depression will likely collapse the already fragile banking system, especially in Europe, and the savings of ordinary people and companies will become exposed to bail-ins.

As ever, there are so many actors, factors and potential outcomes, it is unwise to predict exact outcomes. All we can be sure of is that the outlook is uncertain and unfortunately negative and we should prepare accordingly.

From a financial perspective, now is the time to be risk averse and diversify and favour safe haven assets such as safer forms of cash, bonds, hard assets and of course physical gold.


MARKET UPDATE
Today’s AM fix was USD 1,228.75, EUR 1,044.99 and GBP 808.76 per ounce.
Yesterday’s AM fix was USD 1,239.00, EUR 1,049.91 and GBP 820.97 per ounce.

Spot gold fell $3.40 or 0.28% to $1,230.40 per ounce yesterday and silver climbed $0.44 or 2.66%  to $17.01 per ounce.


Gold in Euros - 2 Years (Thomson Reuters)

Gold prices are little changed near $1,230 early in late trading in London, after hitting a 12-week high of $1,243.60 in the previous session.

Spot gold in Singapore fell marginally as demand in China was muted and there were COMEX resting offers. Intraday stops were triggered pushing gold lower before quickly rebounding back to $1,230 per ounce, where gold remains.

The euro was pinned near nine-year lows today and euro gold remained near EUR 1,050 per ounce on investor concerns  regarding ‘Gexit’ and the possibility of ECB QE. The metal rose to  EUR 1,054.74 per ounce yesterday, its strongest since September 2013.

Gold in euros remained just short of its highest level since September 2013 after Greek Finance Minister Gikas Hardouvelis said that Greece could exit the currency bloc as the opposition party holds a slim lead heading into the election on January 25th.

Sentiment remains poor - ETF gold bullion holdings slipped 3.2 metric tons to 1,595.9 tons yesterday, the lowest since April 2009.

On the wider markets , concerns about the global economy saw Asian equities lower and European stocks are down, mirroring a slump in copper and oil prices after the World Bank cut its global growth forecast for this year.

Benchmark Brent crude oil futures are 1.4% lower, extending their recent sharp slide as commodities were sold off (see above).

Silver is down 2 per cent after a near 3 percent jump yesterday. Platinum lost 0.6 percent to $1,233.13 an ounce and palladium dropped 2.6 percent, to reach $785.80 an ounce.

Gold remains the most resilient of the metals and indeed the commodities and is down just 0.15% despite its recent strong gains and the losses in stocks markets and the sharp losses seen in commodity markets.


REVIEW of 2014 – Gold Second Best Currency, +13% in EUR, +6% GBP

OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY

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Offline MKing

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Re: Oil Price Crash!!!
« Reply #162 on: January 15, 2015, 05:57:20 AM »
So...a commodity is changing in price. Must be a recession coming. Yeah...that one doesn't quite work for me. One of those always claimed but rarely in evidence kind of problems.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

 

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