It's the winter. Diesel and fuel oil prices do not go down. A good portion of the north east uses fuel oil to heat their homes, thankfully mine is natural gas. Anyone that locked in their fuel price for the year is going to take it up the proverbial backside. But considering they've come out ahead the past few years the oil companies will be happy. Looked at the price of K1 for the garage heater and it's at $3.78. Won't be buying any at that price.
Do you guys remember when the liberal politicians said "you can't drill your way out of this problem" and Sara Palin was saying "drill baby drill". Well guess who was right.
Yes, I remember. Diesel prices around here are all over the place, at least a 50 cent spread.Originally Posted by skeet1
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We paid about $2.25 a week ago for the middle grade gas and a friend told me he paid $2 for diesel today.
$2.329 @ Costco Northern California. $2.659 @ all other gas stations in area.
Best price in central CA $2.39 but the idiots of this state approved a gas tax that in practice could double the price
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1.80 for regular unlead, Festus Mo last night.
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Enjoy the low prices while you can. The Saudis are crushing the oil industry in the USA by selling oil cheaper than we can get it out of the ground. There will be bankruptcies by some of the producers and this will send a message to lenders that the shale oil business can be wrecked by the Saudis whenever they want to. Many oil producers will shut down rigs, stop exploring or making investments for the future or just go broke. In any event a lot of the loans to oil producers will go bad and lenders will be slow to make loans in the future to shale firms as long as they remember what can happen whenever it threatens Saudi dominance. After the industry is hurt badly what makes anyone think they are better off again more dependent on the Saudis/Russians and other producers with cheap to get out of the ground oil.
Consider that these loans to shale producers will go bad. Anyone think the bad debt will not work through the system and create a bit of havoc? A bank experiences havoc and naturally withdraws credit to everyone while licking their wounds. Consider the effect of a short term reduction in oil costs on the alternative energy businesses and say goodbye to it even though it is a step away from oil that we have been unable to do for decades. It is like a drug pusher saying the first one is free.
Want a bit more fun? There seem to be bonds (lots of them) that have their interest rates related to the price of oil and also their backing (security) dependent on the price of oil. These are just derivatives that are creations of mathematical finance folks and they apparently are going in the direction of going bad. It will hurt some lenders again reducing the pool of lenders willing to make loans. It works through a system as everything is connected and how many here borrow money for a home, car, small business, anything?
Think Mr. Putin is hoping for a problem in the Saudi oil fields? Best time for it is after the US fracking business is run out of business by low oil prices thanks to the Saudis making a point and saying they have the power and don't mess with them.
Don't you think this is a bit of an exaggeration? The average cost to produce a barrel of oil in the U.S. is still under $40 per barrel and from and offshore well it is around $60. I don't see $60 dollar a barrel oil crushing U.S. oil business. The exploration business will get be scaled back a lot until the price recovers and if it never recovers then it will be because there is just too much oil and no need to find more.
As far as the impacts to financial markets, we will have to see. One of the things with derivatives is they are really either a hedge or a bet depending on whether they are held by a producer or a speculator. Either way there is a winner and a loser, it is not like everyone loses someone will have a profit to reinvest or if it was a hedge they will have a gain to offset the loss on product. It is not like the fracking business will be wiped out. It will still be around for when or if the price goes back up.
If the price does not go back up then the Saudi's will be in big trouble. They can afford to deal with prices at this level for no more than a decade before their government would fall apart and other producing countries will not stand even that long. The producing countries including Russia have a balance of payments problem not a cost of production problem. Most of the exporters are Totalitarian Governments that basically operate at a loss but make up the loss by exporting raw materials, they stay in power by providing handout to their people. When the government can't provide the handouts anymore the people will bring down the government or the government will crush its people.
Tim
P.S. With the producers the problems is not really price it is total revenue. Price times quantity because what they need is Dollars. If either the price or the quantity delivered goes down then they bring in less Dollars. The Saudi's could have cut production to try and keep the price up but that would still mean less Dollars and it was no garuntee that someone else would not replace that missing production and the price would still fall meaning even less Dollars for them.
Tim
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The tongue is mightier than the blade - Euripides
$2.439 in southeast MA yesterday. If the decrease continues, it may get down to where it was when Obama first took office.
Saw Diesel for $4.25 cash and $4.58 credit at a Lukoil in Bucks County, PA. Lukoil's prices are always high but this one was just ridiculous.
$1.98 near Ft Knox Ky for 2 days now.
2.39 here. never thought I would whine about low gas prices lol...
Just filled up $1.88 for reg here in Whitehall Mi.
Phil
Tim, the derivatives based upon oil price are more than the futures or options traded. Some of them are supposedly already failing or very close to doing so. It will be a default on a debt instrument where many of its features are based upon the price of oil.
The frackng industry has how much debt and how do they pay it when it is no longer profitable to stay in business? Should make for some interesting times.
As for oil producing nations crushing their people what else is new? Problem is the system is rather brittle and that is enough to complicate the issue. If anything is true it is that many unexpected things can happen and surprise the heck out of you and me. A lack of stability is a lack of ability to see into the future and makes capital investment harder to make.
Just a messy situtation that we are interested in seeing how it turns out. All the best for the Christmas, the New Year and those following.
I never considered Options or Futures to be derivatives but I guess that technically they are but they were around a long time before the term derivatives entered the scene. I was thinking about credit default swaps but I can understand how I confused you because I mixed things up a bit.
It is clear that you understand the risks associated with capital investment in oil and gas extraction. Brittle is a good word. With unpredictable demand and politics controlling the supply, only the fool hardy would make big capital investments or lend money to those that would without hedging their bets. I am not aware of any of the players being too big to fail but I have not seen the audits of the big banks, they did get good marks so the people holding losing hands must be smaller fish.
I am not on the inside and it would be nice if you could share more of your insights.
Tim
Merry Christmas to all.
Words are weapons sharper than knives - INXS
The pen is mightier than the sword - Edward Bulwer-Lytton
The tongue is mightier than the blade - Euripides
I filled up today for 1.98 a gal in the Cleveland town Buckeye lowest I have seen it yet
DOGG!!!
MERRY CHRISTMAS ALL !
WARNING
TRESPASSERS
WILL BE SHOT
SURVIVORS
WILL BE SHOT AGAIN
[SIGPIC][/SIGPIC]
Tim, I would be naive to say I understand what is going on. Just a guy who reads a bit and now reading the loans to shale oil are about $500 billion dollars (bonds & leveraged loans) and the security for the loans (oil) is now questionable because it is worth less. I read that funding has dried up which means loans can't be refinanced as they come due and many are predicting that a considerable amount of the loans will go bad because the debt can't be serviced. I read the fear for shale oil related junk bonds is now starting to spread to other junk bonds for other uses than energy which some term contagion. Junk debt is a $2 trillion dollar market.
Obviously it is not little people like us who own these bonds except maybe a bit in an employee retirement plan, so it must be institutionally/pension managers/bank/insurance company, etc. owned. Lets say this gets ugly and blocks up the financial system the way the home lending financial instruments almost took it down a handful of years ago. It would be very messy. Would we again have the government taking over the bad loans as they did with housing? Who is on the hook for government debt? You, me, and all the other citizens on the hook for government debt? Even though the government can print money it is not free for the citizens.
I understand that interest rates on junk bonds have gone up a lot recently reflecting the problems in the oil related junk debt. From 4% to about 10% ? One has to laugh at the idea that issuers of junk debt can afford much higher interest rates. Debt funding for shale may have dried up.
If the holders of the junk debt get slaughtered and peoples' pensions and future prospects decline badly you can understand the pain that will be felt. If it slams a few big institutions either the government steps in again and does the best it can or perhaps the financial system grinds towards a stall for a while. If one wonders about their counter-party in a proposed transaction one does not do the transaction. I don't follow the commercial paper market which was at risk when housing bonds disturbed the market. Back then people were scared that commercial paper would stop dead. It means many large safe corporations that used commercial paper would not be able to fund operations. Think what this means.
I am just a spectator. The game is far beyond my head and so maybe even as a spectator I see it completely wrong. Imagine how Mr. Putin sees it
Things can get out of hand and go haywire especially in a complex interrelated system where the things one assumed would continue (like interest rates efficiently allocating capital) have stopped. What kind of free market is there when interest rates are held too low and capital is underpriced and sent to risky businesses where risk has been under estimated?
I have no great vision and hope it works out just fine. Lots of alternative futures possible so one just hopes for the best.
Paid $1.749 in Springfield Missouri today.
Ed Barrett
AKA; elbStJoeMO
If vegans love animal so much, why do they eat all their food?
I paid the extremely high price of $1.999 today ! We're almost back to where we were when O came on board.
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