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Goldman: “Oil Prices Can Go Lower For Longer”

Goldman: “Oil Prices Can Go Lower For Longer” thumbnail

What a difference 5 months makes.

It seems like it was yesterday when Goldman’s commodity strategist, Jeffrey Curie, wrote in a July 28, 2014 note that:

The long-awaited global recovery appears to be getting on track, lifting commodity demand

Apparently unaware that just 5 months later precisely the opposite narrative would be used by everyone, Goldman included, namely that plunging commodity prices (and demand) is a boost to the economy, Currie added the following:

One of our key macro views for 2014 has been a gradual return to the ‘Recovery’ phase of the business cycle – where accelerating growth would drive a gradual (but persistent) closing of the large negative output gap which opened following the 2008/09 crisis. Disappointing 1Q14 growth raised question marks over this view and appeared reminiscent of the previous “stop-start” recovery patterns of 2010-13. On aggregate, DM growth fell to +0.4% annualized (from +1.9% in 4Q13) and EM growth fell to +2.5% annualized (from +4.7% in 4Q13).

 

Our economists continue to see global growth accelerating to above trend later this year and into 2015. Accordingly, we expect a narrowing of the still sizeable global output gap, with DM economies leading the recovery.

 

As we have argued for some time, commodity prices and volatility are sensitive to the business cycle2. As a pro-cyclical asset, returns tend to be weakest in the Slowdown and Contraction phases of the business cycle as consumers spend less and previously planned capex projects are either delayed or abandoned altogether. In contrast, the Recovery phases of the business cycle tends to see improving consumption and investment demand, which eventually peaks at the end of the Expansion phase. This stronger demand for goods (particularly investment goods) boosts commodity demand.

Uhm… OOOPS. Guess we aren’t in the Recovery phase of the business cycle after all.

Which means we are either in the expansion phase (which means the peak is nigh), or more likely, already in slowdown.

And, lo and behold, after predicting that “Brent will stay at $100 for the coming few years” just in mid-October, here is Goldman again, thoroughly destroying its “Recovery” narrative and saying it expects even more downside (!) for oil from here on out.

Here is what Jeffrey “The long-awaited global recovery appears to be getting on track” Curie sent out to Goldman’s muppets overnight:

The New Oil Order: Finding a new equilibrium

1.The decline in oil prices continues unabated. We believe the oil market is experiencing a cost re-basement which makes determining when the market is oversold extremely difficult, as the price at which rebalancing occurs is now a moving target to the downside. For the market to be oversold, it requires prices to be far below costs, which are in flux as much as the oil price given the sharp declines in other commodities, currencies, rig rates and oil services costs. On top of downward cost pressures, efficiency is being forced on the industry with evidence of ‘high grading’ where rigs in non-core areas are being re-directed towards core, lower-cost resource plays. All this suggests that costs are falling nearly as fast as the price, which means oil producers can spend less to get the same or potentially even more in terms of production.

2.Although we are not willing to take a strong directional view at current price levels, there is some evidence of rebalancing beginning to happen, and it is trending faster than our forecast which was based upon $70/bbl. But the rebalancing is far from sufficient which creates more downside risks. While the overall rig count in the US dropped by 29 last week, this was almost entirely in vertical rigs, not the horizontal rigs used in shale production. Since early November, 12 US producers representing an estimated 8% of 3Q 2014 US oil production have issued 2015 capex/production growth guidance. Weighted average capex budgets are down 12% yoy. However, each is still forecasting production growth on average in 2015 vs. 2014, except one which is guiding to flat yoy production. So while reductions in capex are coming faster than expected, it is unlikely to translate into less supply than expected, highlighting both the rapid cost reductions with rig rates already down by 15-20% and efficiency gains through high grading.

3.Slowing the rebalancing and creating further downside risk is a very strong consensus view that this pull back is temporary and that oil prices will quickly rebound as they did in 2009. According to a recent Bloomberg survey, the median WTI forecast for 2016 is $86/bbl (even we forecast it going back to $80/bbl). All of these forecasts are based upon now outdated cost data that is shifting as fast as the price. It is precisely this strong view for a rebound in prices and the behavior it creates, that not only suggests that oil prices can go lower for longer, but also that the new normal is far lower than we thought just one month ago. Instead of optimizing against a lower price environment, many oil producers are trying to position themselves for the rebound in prices. There are many options available to an oil producer than just simply cutting production in response to lower oil prices – lower costs and increase volumes, sell more equity, tap a revolver or preserve liquidity to survive until another player with deeper pockets buys them even if the cost is more leverage.

4.As we argued several months ago, this sell-off has been driven by long-dated prices (a proxy for the normal price) as opposed to a weakening in the forward curve timespreads as in past bear markets. The current shape of the forward curve does not incentivize the storage of oil. Although the spot price is only at $58/bbl, the 5-year forward oil price is already lower today at $69/bbl than it was in December 2008 ($70.50/bbl) when spot WTI prices fell to $33/bbl. The reason that the forward curve was in such a deep “contango” in 2008 was that OECD inventories had swelled by 60 million barrels on a seasonally adjusted basis in October and November of that year. This October and November, the seasonally adjusted build was only 18 million barrels – far from being a significant surplus that challenges storage capacity and requires a deep contango. It is instead the expectation for forward balances to be in severe surpluses that is driving the longer-dated price decline and will ultimately help rebalance the market. We have used the phrase “long-term surpluses create near-term shortages” to characterize this trading pattern i.e. sell the forward prices on concerns of long-term surpluses that can make the reality of surpluses self-negating.

5.While this is the first time we have seen a backend driven bear market, the bull market of the 2000s was also backend driven but with weak timespreads, i.e. “long-term shortages create near-term surpluses” – the near opposite of what we are seeing today. As low-cost oil supplies were exhausted in the early 2000s the market turned to higher cost resources and input costs escalated quickly as demand increased. The higher oil prices resulting from higher costs slowed US growth, weakened the US dollar which in turn strengthened the commodity producer currencies which further drove up the cost of producing other commodities that were inputs into oil. It was a reinforcing dynamic to the upside that created cost inflation that drove up the long-dated (normal) oil price. Now it is all working in reverse as the market searches for a new equilibrium – lower oil prices, weaker commodity currencies, lower material and oil service costs and increased efficiency are all reinforcing to the downside.

6.The natural gas experience of 2011-13 is the rule, not the exception. Despite the collapse in natural gas prices several years ago, US natural gas production has continued to grow above expectations. It is often cited as an exception as the higher oil prices subsidized the associated gas output and new low-cost fields such as the Marcellus and Utica were available. In other words, the industry just shifted its activity to the lower part of the cost curve and continued to grow output. The reasons we see this as the rule, and not the exception is that we have seen this in iron ore, coal and gold as well. So there is a likelihood we could see this in oil as producers shift all their efforts to the lower part of the cost curve.

7.With no obvious new low-cost US shale oil field, beyond the high grading to each play’s sweet spot, we believe that the oil market’s Marcellus is most likely to come from abroad. Kurdistan and Southern Iraq will likely continue to grow production, with Iran potentially contributing medium term as well. Further, in a market anchored at shale’s marginal cost of production, it is in OPEC’s interest to maximize revenue through volumes, pointing to potential increases in production over time in core OPEC too. Russia could be the oil market’s Marcellus field as well. It is important to stress that the Russian ruble has weakened almost as much as the oil price has declined, leaving oil prices in Russian ruble near an all-time high. This is important as all costs are Ruble denominated while revenues are USD denominated, leaving Russian oil companies’ margins insulated despite the dollar decline in price. In addition, the Russian government is easing the export taxes which further improve the profitability of Russian oil.

8.While core-OPEC such as Saudi Arabia have substantial dollar reserves to weather low oil prices for a very long time, distressed-OPEC like Venezuela are in a very difficult position. In fact, these producers are some of the top candidates to aide in the rebalancing of the market in 2015. In addition, Libya has experienced setbacks with increased fighting over the weekend leading to another output loss to below 500 thousand barrels per day. While this may help keep the market from experiencing near-term surpluses, the temporary nature of it doesn’t help solve the longer-term imbalances.

9.While historically a 40% pull back in prices would stimulate demand by 50bp, the responsiveness of demand and global growth is likely far less than what it was historically. In the US, net imports are around 25% of demand, levels only seen during the depths of the early 1980s recession. In China and other emerging markets, governments are taking advantage of the decline in oil prices to reduce subsidies and/or introduce consumption taxes as nearly all developed markets have. Further, the sharp decline in nearly all commodity prices and the weakening in commodity currencies creates headwinds for oil demand in the commodity producing emerging markets in Latin America and the Middle East. Historically these regions didn’t contribute much to oil demand, today they do.

10.It is important to emphasize that this is a supply driven bear market and not demand driven. We have to go back to the mid-1980s to find another supply driven bear market. Because the surplus is supply driven it is easily observable in the future unlike demand shocks that are instantaneous, so the market is trying to rebalance the future, not so much the present. In the 2000s we forecasted severe supply driven shortages that never came, because long dated prices dragged the market high enough to slow demand and bring on marginal supplies –hence long-term shortages created near-term surpluses. Once again the market is trying to rebalance the future, by re-basing industry costs to take out the excess marginal production. As the industry takes the ‘fat’ out of the system that was built up over the past decade, the new equilibrium price is dropping sharply – where it settles is unknown right now, but we can comfortably say it is likely below our estimates from last month. Once we have cost data early next year from this time period we will have a better idea, but in the meantime volatility will likely remain high with risks skewed to the downside as the market searches for a new equilibrium.

Zero Hedge



39 Comments on "Goldman: “Oil Prices Can Go Lower For Longer”"

  1. Makati1 on Tue, 16th Dec 2014 6:22 am 

    “…Russia could be the oil market’s Marcellus field as well. It is important to stress that the Russian ruble has weakened almost as much as the oil price has declined, leaving oil prices in Russian ruble near an all-time high. This is important as all costs are Ruble denominated while revenues are USD denominated, leaving Russian oil companies’ margins insulated despite the dollar decline in price. In addition, the Russian government is easing the export taxes which further improve the profitability of Russian oil…”

    Well, someone finally got out of the BS rut and tells it like it is. The Russophobes don’t understand economics or they would have already known this and not be forecasting Russia’s demise. Hurt yes, but not as much as the West will be if oil prices continue to decline.

    China is still stocking up on cheap oil. “Record Oil Tankers Sailing to China Amid Stockpiling Signs”. (12/13/2014)

    http://www.hellenicshippingnews.com/record-oil-tankers-sailing-to-china-amid-stockpiling-signs/

    Interesting world, huh?

  2. bobinget on Tue, 16th Dec 2014 7:12 am 

    A question often asked– where is ‘all that surplus’
    oil going?
    Makati answers that question with his shipping link.
    What’s in error then? No one has proved the oil is going into storage. China, the world’s largest economy says nothing of the sort. Why should they,
    China, like the US is a net oil importer.
    In five short years China (and India) will be capable
    of importing most of the world’s available petroleum.

    The US has in effect shunned Canadian “tar” sands.
    Preparations under way to ship oil-sands Eastern Canada. The way has been cleared (paid off first nations tribes) to open LNG exports in BC

    Mexico, not often spoken of in this phony crisis,
    is also suffering deep economic pain. While not as oil dependent as Venezuela, many government projects will be suspended. Civil unrest will doubtless result.

    I’m of the opinion plans to discredit “enemies of the US” Russia, Venezuela, Iran, promoting regime change can and likely will back-fire.

    Venezuela, perhaps Mexico move closer to China
    for BK protection. In return, China will remove imported Venezuelan oil from US balance of payments problems. Mexico’s oil is in steep decline
    it will take big bucks (or yen) invested. Which will it be?

    The result of this momentous *POLITICAL crisis
    will be loss of Venezuelan oil. This leaves the US
    dependent on Iraqi’s copious supplies.
    Watch for additional ‘advisors’ to be sent to
    the Iraq/Syrian front. (1000 additional troops went to Iraq Friday)

    * on so many levels. For instance, if the US were to
    replenish SPR 100,000 bpd oil prices would stabilize. Instead, we read propaganda half truths like the article above.

  3. rockman on Tue, 16th Dec 2014 7:40 am 

    Amazing how they contradict themselves in the same breath: “It is important to emphasize that this is a supply driven bear market and not demand driven…Because the surplus is supply driven… In the 2000s we forecasted severe supply driven shortages that never came, because long dated prices dragged the market high enough to slow demand and bring on marginal supplies…”.

    So high prices slowed demand. With demand down there was a surplus of production. Yet oddly demand (as in how much oil was purchased) increased with the higher prices…for a while. And yet when prices get high “enough to slow demand” we see prices fall because there’s a surplus of production and not a lack of demand? It just astounds me to think how much folks like this get paid to write such analysis.

    BTW: “We have to go back to the mid-1980s to find another supply driven bear market.” They are referring to the time when OPEC decreased production from 32 million bopd in the late 70’s to a low of 14 million bopd in 1986. Maybe they are just talking about the global production of oil: as when the world decreased oil production from 62 million bopd in 1969 to 52 million bop in the mid 80’s. Yeah….that sort of huge surplus brought to the market place that killed the price of oil in the mid 80’s. It certainly wasn’t due to demand destruction.

    To summarize: oil was selling for $80/bbl (inflation adjusted) when the world was consuming 62 million bopd in 1979 and then in the mid 80’s when the price dropped to $28/bbl the world consumed 52 million bopd. Obviously prices fell because supplying the world with 52 million bopd just flooded the market compared to the 62 million bopd previously supplied. Obviously that’s why consumption decreased…too much oil available to buy at 1/3 the price it was just 6 years earlier. It certainly wasn’t due to demand destruction brought on by the price of oil increasing from $20/bbl to $106/bbl in just 8 years in the 70’s.

    IMHO their words really do seem more than a tad strange when you post the actual volumes and prices alongside their analysis.

  4. rockman on Tue, 16th Dec 2014 7:44 am 

    Bob – I get some of your points. But “The US has in effect shunned Canadian “tar” sands.” Last month Canada exported more oil to the US then ever before in history with most of it coming from the oil sands. Where do you see this “shunning” of the oil sands by the US?

  5. paulo1 on Tue, 16th Dec 2014 8:49 am 

    @ Rockman

    I believe it is the delay of keystone and current admin demonizing source as opposed to saying, “wow, nice to have a stable supply from a northern neighbour that doesn’t hate us.” Hey, we’re used to it. Softwood lumber restrictions a case in point. US has been a pretty ‘shitty friend’ when it comes to our lumber exports. That is why we sell as much as we can to…..China. (You guessed it).

    re article: “On top of downward cost pressures, efficiency is being forced on the industry with evidence of ‘high grading’ where rigs in non-core areas are being re-directed towards core, lower-cost resource plays. All this suggests that costs are falling nearly as fast as the price, which means oil producers can spend less to get the same or potentially even more in terms of production.” It seems to me high grading happened with the first well. What, you think companies say, “let’s get the marginal stuff first and lose money for awhile, and then when times get tough we’ll drill the sweet spots and get a lower dollar than we would have at the beginning of the play”.

    Has anyone ever heard of a company/industry putting themselves on a freaking ‘profit quota’? I haven’t.

  6. bobinget on Tue, 16th Dec 2014 8:55 am 

    It’s my belief US have become complacent on the subject of Canadian oil imports.
    Admittedly, apart from Alberta, most Canadians feel
    a bit defensive about oil sands.

    This Keystone business, going on for years as it has, forced Canadian heavy oil producers to seek alternative markets.
    Eastern Canada imports US and Brent priced crude because of geography. Canada pays, for light oil it’s true, almost 40% more then Alberta’s heavy oil exports bound for US markets. The big bottleneck
    is of course shipping. Several underused gas pipelines headed to Eastern Canada are now awaiting final approval from Quebec.
    IOW’s Western Canada needs no US permission
    to ship East.

    Obviously, unless oil sands operations continue to expand, there will be less oil going South.

  7. Davy on Tue, 16th Dec 2014 10:39 am 

    http://www.bloomberg.com/news/2014-12-16/fed-seen-looking-past-low-inflation-to-drop-considerable-time-.html

    Is it not a sad commentary on our global economy that the markets that should be in free fall are rising because of Fed jawboning accommodation? Is that any kind of economy you can trust. Sounds like blackmail to me. There are no free markets anymore.

  8. Perk Earl on Tue, 16th Dec 2014 10:52 am 

    This article is no surprise as oil price descends sharply, putting at risk future supply.

    http://www.zerohedge.com/news/2014-12-16/1-trilliion-global-capex-unambiguous-risk-result-crude-crash

    $1 Trillion In Global CapEx At “Unambiguous” Risk As A Result Of Crude Crash

    The price plunge has shaken the energy industry, throwing some of the majors’ most ambitious plans into doubt and pummelling oil company shares. Projects in challenging frontier regions like the deep waters of the Gulf of Mexico are predicated on high oil prices and may not be economic with oil at $60 a barrel — the level Brent was trading at on Monday afternoon.

    Goldman has examined 400 oil and gasfields around the world, many of which are still awaiting a final investment decision. Its analysis, based on a $70 oil price, shows that fields representing 2.3m b/d of output by 2020 and awaiting a green light have now become uneconomic.

  9. Northwest Resident on Tue, 16th Dec 2014 11:01 am 

    Davy, good point on how relevant the stock market is these days to actual reality.

    For so many years, the American and even world public was trained Pavlovian style to trust the stock market as being the one single indicator of economic health that they could trust.

    Knowing that, and recognizing the need to completely manage and manipulate public perceptions of global economic health, TPTB and their agents implemented technologies and schemes to manipulate the stock market. Now days, it seems like the worse the geopolitical and global economy news is, the higher the stock market soars. Serious downturns are abruptly halted by some computer program or some trading algo fired off by some agent pushing a button somewhere to halt the decline before it ignites investor panic and develops into a real problem. There is just so much manipulation going on in the stock market it is surreal.

    The manipulation of the stock market goes hand-in-hand with the vast amounts of propaganda that we are being blitzed with 24/7/365. They are two tools wielded by the same unseen but omnipresent force. To say that the massive propaganda that we are being blitzed with derives from a large number of independently thinking and acting sources is to try to argue that the stock market manipulations that we are seeing also come from a large number of independent and disconnected sources, which is most definitely not the case.

    Some unseen force has the power and the knowledge to greatly manipulate the stock market. That same unseen force has the power to do many other things — blitz us with propaganda through numerous media channels, for example. The GOAL is and has always been to manage public opinion and perception.

  10. rockman on Tue, 16th Dec 2014 11:27 am 

    “This Keystone business, going on for years as it has, forced Canadian heavy oil producers to seek alternative markets.” The answer is still the same: without the Keystone XL border crossing permit Canada is exporting more oil than ever before to the US. And thanks to an additional 1 million bopd pipeline capacity from Cushing to Texas refineries the Canadians have significantly expanded their market from the US mid-west to not just Texas refineries but to any foreign market that wishes to buy the Canadian oil: every bbl of Alberta oil that makes it to Texas can be LEGALLY EXPORTED to any foreign buyer. Which does seem to beg the question: if Canadian oil sands producers can export every bbl they ship to Texas why are they going to build a pipeline to the east coast? Except for what is currently being sold under long term contracts Canadian companies can ship every bbl of their oil sands production to China, India, the EU, etc. starting as soon as they can charter the tankers.

    Paulo – In my world “shun” means to reject…to conduct no business. The US has not rejected 1 bbl of Canadian oil. And not doing business with them? Currently we are doing about $65 BILLION per year business with them even at today’s low prices.
    Now “bad mouthing” is another matter altogether. But I doubt any oil sands producer really gives a sh*t about anything an American says about their operations as long as we keep sending them $5+ BILLION per month. LOL.

  11. Rodster on Tue, 16th Dec 2014 11:57 am 

    The lower the price the more chaos it generates for the markets and governments who need higher oil prices to fund their economies.

    The Russian Ruble was halted from trading today.

  12. Perk Earl on Tue, 16th Dec 2014 12:56 pm 

    “There is just so much manipulation going on in the stock market it is surreal.”

    I’m sure there is a lot of manipulation, NWR, but also companies are buying back their shares at a record, unsustainable rate. See the article below.

    Share buy-backs
    Corporate cocaine
    Companies are spending record amounts on buying back their own shares. Investors should be worried

    FINANCIAL excess is more commonly associated with banks than with blue-chip companies. While the rich world’s finance industry—supposedly the brain of the economy—went berserk in the run-up to the 2007-08 crash, other big firms behaved sensibly, avoiding too much debt, keeping their costs under control and their eyes on long-term opportunities in emerging markets. But in the era of weak growth and low interest rates that has characterised the aftermath of that crash, there is growing evidence that the blue chips are engaged in their own kind of financial excess: a dangerous addiction to share buy-backs. Over the past 12 months American firms have bought more than $500 billion of their own shares, close to a record amount.

    The announcement of a buy-back scheme can prompt a sudden spike in share prices and a quick buck for the short-term investor. By reducing the number of shares outstanding, buy-back schemes can also artificially boost a firm’s earnings per share.

    Second, some firms may be borrowing too much to pay for their buy-back habit. American companies, if one includes their global operations as a whole, are only moderately indebted; record buy-backs are being paid out of record profits. But the overall figures are skewed by a few cash-rich giants, such as Google. In 2013, 38% of firms paid more in buy-backs than their cashflows could support, an unsustainable position.

  13. Perk Earl on Tue, 16th Dec 2014 1:06 pm 

    Here’s another one in which CEO’s compensation tied to stock price. This is probably not a good long term strategy, i.e. unsustainable.

    http://www.foxnews.com/leisure/2013/05/22/ceo-compensation-from-stock-keeps-growing-as-companies-respond-to-shareholder/

    CEO compensation from stock keeps growing as companies respond to shareholder activists

    CEO pay has been going in one direction for the past three years: up.

    The head of a typical large public company made $9.7 million in 2012, a 6.5 percent increase from a year earlier that was aided by a rising stock market, according to an analysis by The Associated Press using data from Equilar, an executive pay research firm.

    CEO pay, which fell two years straight during the Great Recession but rose 24 percent in 2010 and 6 percent in 2011, has never been higher.

    But the numbers don’t tell the whole story. After years of pressure from corporate governance activists unhappy about big payouts, many companies have revamped their compensation formulas. They have awarded a bigger chunk of compensation in stock to align pay more closely to performance, become more transparent about how compensation decisions are made and in some cases promised to claw back pay from fired executives.

  14. Northwest Resident on Tue, 16th Dec 2014 1:24 pm 

    Perk — Yeah, corporate stock buybacks is one of the reasons that many equities are dramatically inflated relative to what their true value (probably) is. But that isn’t the whole story. You do enough reading obviously to know what the term “plunge protection team” means, and where we see that “team” in action. You have no doubt seen the mystery buyers in Belgium buying up many billion$ in US treasuries where there were not many other takers. You have no doubt been witness to the many last-minute end-of-week stock market spikes which turned losing week to a winner at the very last second. These and many other anomalies are indicative of an unseen yet very powerful force that has the technical and the financial ability to exert dramatic impacts on the stock market(s). I don’t know if anybody has a smoking gun that they can hold up with identifiable fingerprints as direct evidence. But I believe that the circumstantial evidence of that unseen powerful force manipulating the stock market is overwhelming. Just my observation and opinion.

  15. Apneaman on Tue, 16th Dec 2014 1:29 pm 

    Jobs and royalties (not enough imo) for Canadians, but the majority of “ownership” is foreign. The worst of the environmental damage has been confined to the region so far, but when a major flood event happens (a when not an if) and the tailings ponds breech and/or collapse it will end up in the Arctic ocean and spread around the world. Canadians love to share. All tailings ponds/lakes leak and are not permanent. All you fossil fuel promoters who are also Christians should do a Google image search of the tar sands, take a good long look and get back to me with your arguments that, the destruction is indeed what the good lord wants. I worked up there for a few years and it looked like hell on earth to me.

    “More than two-thirds of all oil sands production in Canada is owned by foreign entities, sending a majority of the industry’s profits out of the country, says a new analysis released Thursday by a British Columbia-based conservation group.”

    http://oilsandstruth.org/majority-tar-sands-ownership-and-profits-are-foreign-says-analysis

  16. shortonoil on Tue, 16th Dec 2014 1:34 pm 

    “4.As we argued several months ago, this sell-off has been driven by long-dated prices (a proxy for the normal price) as opposed to a weakening in the forward curve timespreads as in past bear markets. The current shape of the forward curve does not incentivize the storage of oil. Although the spot price is only at $58/bbl, the 5-year forward oil price is already lower today at $69/bbl than it was in December 2008 ($70.50/bbl) when spot WTI prices fell to $33/bbl.”

    As they say on ZH, this is major muppet slaying goobly gook.

    Absolutely no mention of the fact that the average per unit production cost in nominal $ terms has risen 52% since 2008 (shale, and etc are expensive) – or, that what the consumer can afford to pay for oil has fallen by 32%. Instead we get some lame economic jive like, “The current shape of the forward curve does not incentivize the storage of oil.”

    Sure — make your trading plans on that! Sucker. What’s the old saying, “if you can’t dazzle them with brilliance, baffle them with bull***.” Another long winded Goldman article with zero substance. Surprise, surprise.

    http://www.thehillsgroup.org/

  17. Perk Earl on Tue, 16th Dec 2014 2:33 pm 

    “Another long winded Goldman article with zero substance. Surprise, surprise.”

    Interesting point, Short. I read it and couldn’t make heads or tails of it. But maybe that is the strategy – to spin a convoluted yarn to make it seem like all is happening as expected – much like Greenspan use to about the economy which most couldn’t understand – nothing to see here folks – move on and keep investing, working and pursuing BAU. Probably the less the masses can determine fact from fiction the better to keep them in the game.

  18. Perk Earl on Tue, 16th Dec 2014 3:39 pm 

    NWR, another losing day on the stock market. Since hitting 18k only days ago it’s been going down sharply. So this will be a good test to see if it gets manipulated back up.

    https://www.google.com/?gws_rd=ssl#q=dow

    17,068.87 -111.97

  19. Northwest Resident on Tue, 16th Dec 2014 4:00 pm 

    Perk — Sure, let’s keep an eye out for that rescue squad. But the way things are going with the ongoing plunge in oil prices which “they” don’t seem to be able to manipulate, maybe they’ve given up and are just letting go. There had to be a point where the hard cold facts overcame the illusion of all is well — maybe we’ve reached that point in time. If so, I sense a fast ride to the bottom coming up just around the next curve. Hold on tight!

  20. Davy on Tue, 16th Dec 2014 4:04 pm 

    Yea, short, that zoomed over my head when I read it too. It is something the Marm-a-NOo would salivate over. Yet when I read your explanation it makes perfect sense could That be related to the logic of science and math? Do beavers have big round tails?

  21. Davy on Tue, 16th Dec 2014 4:14 pm 

    NR, I think at this point anything could happen. We are so far out on the lake in the dark and the fog is rolling in. We are in a small boat with no compass and fuel is running low. Later in the night a strong gale is due to move in with temps dropping 40 degrees. Does that sound like panic material?

    Planes crashes are significantly more likely with multiple failures for example pilot error, low fuel, and adverse weather. We have multiple issues going on in the financial system that makes these latest events very dangerous. The other issues is the swiftness of the changing environment. Finally no one can hide because each and everyone of us has our own little local nakedly dependent on the global.

  22. Northwest Resident on Tue, 16th Dec 2014 4:21 pm 

    And for anyone who gives a damn:

    I am one of those who have long speculated and hypothesized that there ARE indeed certain consolidated and like-minded powers in this world acting together in a concerted effort to manipulate public opinion, to stretch out BAU and to otherwise “manage” things from a very high level perspective.

    And I’ve always thought and frequently posted that there will come a point in time where “they” — TPTB — will simply pull the plug and send BAU swirling down the tube. I’ve speculated often that THAT is what the plan seems to be, based on my non-expert but otherwise at times rather intuitive insight and analysis (or so they said).

    To which, many others have pointed out that the world is too complex, the economy too big, the existing centers of wealth too decentralized for any one single person or power to be able to pull the plug on BAU.

    To which, I have responded that hey, if you’ve got a brain dead patient (BAU) being kept alive only via artificial life support (QE, massive debt injections, propaganda, etc…), then all you have to do to put that poor patient out of its misery is to just cut the artificial life support — flip the switch, pull the plug, whatever you want to call it.

    And so, here we are. Will “they” juice the economy again by pumping a few more trillion$ in debt through the IV drip and into the collapsed blood vessels of BAU? Will they try to send in the plunge protection team (probably not, too many plunges all occurring simultaneously). Or, will they simply do nothing — in effect, pull the artificial life support, stand back and watch BAU swirl down the tube?

    It had to come to that sooner or later anyway. Why not now?

    We shall find out soon enough.

  23. Northwest Resident on Tue, 16th Dec 2014 4:28 pm 

    Yeah, Davy, I get your metaphorically excellent doom. My guess is that Christmas retail sales are really going to suck, even worse than Black Friday. Retailers going rolling over and going belly up, floating to the surface along with an accelerating number of former oil production operators. It will be tough paddling through all the dead bodies floating around, and very difficult for the nervous passengers aboard the good ship Global BAU to not notice, especially once the stench starts kicking in. We have to go down this path. There is no other way out of the predicaments that humanity has gotten itself into. I just hope that along the way we’ll find a glimmer of light at the end of the tunnel.

  24. Perk Earl on Tue, 16th Dec 2014 5:16 pm 

    “There had to be a point where the hard cold facts overcame the illusion of all is well — maybe we’ve reached that point in time. If so, I sense a fast ride to the bottom coming up just around the next curve. Hold on tight!”

    Yes, I absolutely agree cold facts should overcome illusion at some point. Maybe that is this point the stock market is finally going down after oil has been dive bombing for the past few weeks.

    The whole thing is getting laughable with oil, QE, stocks, bonds, rubles, abenomics, ISIL, Ukraine, Russia, Taliban, bombings, riots, protests, followed by feel good MSM stories about the so called recovery. It’s all getting kind of jokey at this point, but later will turn to a Greek tragedy as the s will certainly and most assuredly h the f. Maybe there’s a smattering of it already.

  25. Apneaman on Tue, 16th Dec 2014 5:50 pm 

    NWR. It’s not that TPTB don’t collude when convenient, but they are not some cohesive single minded unit. Many competing factions playing both ends from the middle. The bankers (owners) are probably at the top of the food chain, but I don’t believe they call up Rex Tillerson or Obama for permission before making every play. If you look at elites from an historical perspective you will see that they spend just as much time fucking each other over. They don’t spend a hell of a lot of time strategizing about how to manage us; never ending propaganda and threat of force;same as always using the same people;priest class & thugs just more refined and complex for the modern world. It’s a given that we are just pawns to be used. (Happily that over confidence can back fire in the end) I would bet anything that Game of Thrones author George R.R. Martin is a history reader and spun his tale based on elites behaving badly over the centuries. It really is just a game for TPTB and todays enemy is tomorrows ally and vice versa. Look how fast the U.S.S.R. went from being an ally to the evil empire. Just an ever changing game with ever shifting alliances and the only point is to get more at anyone else’s expense. Same as it ever was.

  26. Perk Earl on Tue, 16th Dec 2014 5:57 pm 

    “Just an ever changing game with ever shifting alliances and the only point is to get more at anyone else’s expense. Same as it ever was.”

    That’s well out, Apneaman. That last line; ‘Same as it ever was’ I think is part of the lyrics to an 80’s song, but I can’t recall which one.

  27. Apneaman on Tue, 16th Dec 2014 6:08 pm 

    Here is how I picture Lloyd Blankfein,Jamie Dimon and the rest of them will end-up.

    http://www.custermen.com/ItalyWW2/ILDUCE/Mussolini.htm

  28. Apneaman on Tue, 16th Dec 2014 6:10 pm 

    Good eye Peak. I grew up in the 1980’s

    https://www.youtube.com/watch?v=98AJUj-qxHI

  29. Davy on Tue, 16th Dec 2014 6:26 pm 

    Perk “Talking Heads” Man.
    https://www.google.com/#q=talking+heads+true+stories

    Here is one of my favorites:
    http://www.lyricsfreak.com/t/talking+heads/burning+down+the+house_20135067.html

    Perk, do you remember the movie True Stories:
    https://thedissolve.com/features/one-and-done/695-david-byrne-only-made-one-movie-but-its-one-nobody/

    It was a great satire on 1980’s suburban America with all its ridiculousness. I remember I watched the movie when I lived in Germany in the mid 80’s.

  30. Perk Earl on Tue, 16th Dec 2014 7:05 pm 

    Ah, yes, thanks for the link Ap. Talking Heads did some great songs. Here’s another link to one ‘Life During Wartime’ – This ain’t no disco, this ain’t no nightclub…

    https://www.youtube.com/watch?v=obAtn6I5rbY

    Never have seen True Stories, Davy, but will make a point to soon and report back. Went to the link – looks like a fun movie. Thanks.

  31. Northwest Resident on Tue, 16th Dec 2014 9:17 pm 

    Apneaman — I agree that the those who I theorize are behind concentrated sources of single-minded power in the world and who are really running the show do not call up Rex Tillerson or Obama for permission before they do whatever it is they want to do.

    They don’t need to. They have an army of bought-and-paid for senators, congressmen, judges, all kinds of elected and unelected officials and government apparatchiks to do their bidding for them. These powers control the purse strings, they are the ultimate money men. They more or less control who gets elected by financing the campaigns of those they want to win, by instructing their media corporations to back or not back any given candidate, and by severely punishing those who betray them or who don’t follow instructions by putting up very well financed contenders against them and by cutting funding to those who don’t toe the line.

    Through bribes, payoffs, lobbying, retainers and all kinds of behind-the-scenes money moves, they really do have a powerful influence on policy, much more so than any president.

    They are entrenched. They’ve been there all along — long before any passing elected official during his brief time in the spotlight, and they’ll be there long after they are gone.

    And they aren’t likely to make snap decisions that require calls to the president or other officials to get what they want. Their planning is much more sophisticated, and their plans are played out over long periods of time.

    Well, that’s my theory. It is what seems to be most likely to me. Actually, it seems obvious to me, but I admit that not a lot of people share my point of view. I’ll never be able to prove my point of view of course, but on the other hand, nobody will ever be able to disprove it either!

  32. Apneaman on Tue, 16th Dec 2014 10:46 pm 

    They always own bureaucrats/regulators, (still own the old priest class too where it matters along with the new priest class:economists, professors and most so called experts) because unlike presidents and other politicians they are there for life. As long as enough of the public plays along nothing will change. There is still too much hope. People who have already been thrown under the bus are still hoping to get back on. Never gonna happen, but the illusion must be maintained. When the elite start to offer up one their own for sacrifice we’ll know the domino’s have started. Anyone paying attention knows the common man is going to get screwed, but there is never very much talk about what the elite are going to do about each other. They all know what the other guy is capable of. Think they will come up with a power sharing scheme amongst each other where they are all included as the pie continues to shrink? Think they trust each other? I always look to the documented reoccurring patterns of our 5000 plus years of civilization and collapse. Many people somehow think 300 years of industrialization and technology null and voids the worst parts of human nature. I think not.

  33. Apneaman on Tue, 16th Dec 2014 11:32 pm 

    Will we ever get to see artists again who are freaky weird original and brilliant as David Byrne in this oppressive corporate mono culture?

  34. Northwest Resident on Tue, 16th Dec 2014 11:41 pm 

    Apneaman — I think of the power elite as being a disperse group of thieves.

    As long as times are good and there are plenty of resources to exploit and plenty of peasants to plunder, they operate more or less independently, each running their own kingdom and maintaining control of their own turf, developing their own disciplined and hierarchical army of elected officials, company CEOs, members of boards of directors, lobbyists, bankers and agents in high places.

    During good times, they compete with each other and play by rules that are probably not the same rules that most of us are obligated to play by.

    That’s during good times. In hard times, when under direct threat, the thieves are likely to band together and form common cause, to pool their resources and circle their wagons to protect their way of life and their kingdoms.

    Now, they are under direct threat like never before, and my guess is they have seen this coming for a very long time. After all, they sit on top of it all and are in a position to know just about everything about geopolitical, industrial and scientific developments.

    Seeing what was coming long ago, they’ve had plenty of time to prepare plans and to enact those plans over a long time period.

    Maybe, as times get very hard, some of thieves will have a falling out. But my guess is that most will stick together knowing that they all have a better chance of survival on terms they deem fit if they do stick together.

    That may all seem far fetched, but I read a study not long ago that detailed how wealthy individuals share much more in common with other wealthy individuals than they do with the “common folk”, and those commonalities cut across nationalities and international borders.

    A very wealthy person in America is likely to feel and share much more in common with a wealthy Chinese person than he is with other “common” Americans.

    And when we get to the level of the super-power elite, there aren’t very many of them, and my guess is that they all share much more in common in terms of their views, their goals, their outlook on life and other ways than they would with any lowly multi-millionaire or God forbid, a regular Joe.

    They’ll stick together, even more so as the pressure ramps up, that’s my guess. At least, unless their plans don’t work out and they too are subjected to the chaos that I’m sure they are and have been planning very hard to avoid.

  35. Davy on Wed, 17th Dec 2014 5:14 am 

    NR, I read a good book a few years ago called:
    http://www.amazon.com/Plutocrats-Rise-Global-Super-Rich-Everyone-ebook/dp/B007V65OQG/ref=sr_1_1?ie=UTF8&qid=1418813911&sr=8-1&keywords=plutocrates

    This book is a great analysis of the topic of your comment. You are spot on with the high net worth individuals. When you get beyond a certain net worth you are in a different world. You have no borders and your affiliations are with other high net worth individuals. This is part of the reason I have to constantly mention the US has been hijacked by this global elite. I agree the majority of the world’s HNW individuals are centered in the devils triangle between NY/DC so it is valid to go after these thieves.

    Yet, it is unbalanced and unfair to target America without acknowledging the significance of the rest of the world’s HNW individuals and how the US government is doing their bidding. The politicians and professionals are of this class through the revolving door of influence. A politician may or may not be a HNW individual but he may command a position of influence that gives him membership. Power is money and vice versa.

  36. GregT on Wed, 17th Dec 2014 5:14 am 

    “Anyone paying attention knows the common man is going to get screwed, but there is never very much talk about what the elite are going to do about each other.”

    Sure there is Apnea. It is ‘talked about’ in the news every day. They will try their best to screw each other over politically and economically, and if that doesn’t work, they will use the ‘common man’ as cannon fodder in more of their wars. The same things that they have been doing to each other for centuries. What surprises me the most, is how so many people still fall for the propaganda.

    “Those who fail to learn from history are doomed to repeat it.”

  37. Northwest Resident on Wed, 17th Dec 2014 9:32 am 

    Davy — Thanks for that feedback, and the link. I’ll check it out.

    I do a lot of speculating on this subject. I’m a little bit fascinated by the fact that individuals with such immense wealth and power actually can and do control so much of what we common people can only observe as world events. The application of Machiavellian principles combined with all that wealth and power means that the majority of us are nothing more and nothing less than mere pawns on the board. As one of those pawns, I guess I’m keenly interested in who it is that is moving me around and why they’re doing it, with the main interest being, what’s the next move?!! When you know there is an invisible hand (or hands) having such a significant impact on your life and on the lives of those around you, it seems natural (to me) to try to figure out exactly who that hand is attached to and what their motivations and inclinations are. Since there is so little written on the topic — for obvious reasons — that leaves a big void that can only be filled with guesses and speculations.

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