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Oil at $40 Possible as Market Transforms Caracas to Iran

Oil at $40 Possible as Market Transforms Caracas to Iran thumbnail

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

Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades.

“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS Inc. and author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.”

A world already unsettled by Russian-inspired insurrection in Ukraine to the onslaught of Islamic State in the Middle East is about be roiled further as crude prices plunge. Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing, the process of blasting shale rocks to release oil and gas.

Cheap Gasoline

Few expected the extent or speed of the U.S. oil resurgence. As wildcatters unlocked new energy supplies, some oil exporters abroad failed to invest in diversifying their economies. Coddled by years of $100 crude, governments instead spent that windfall subsidizing everything from 5 cents-per-gallon gasoline to cheap housing that kept a growing population of underemployed citizens content.

Those handouts are now at risk.

“If the governments aren’t able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval,” said Paul Stevens, distinguished fellow for energy, environment and resources at Chatham House in London, a U.K. policy group. “The majority of members of OPEC need well over $100 a barrel to balance their budgets. If they start cutting expenditure, this is likely to cause problems.”

Costs as Benchmark

Oil has dropped 37 percent this year and, in theory, production can continue to flow until prices fall below the day-to-day costs at existing wells. Stevens said some U.S. shale producers may break even at $40 a barrel or less. The International Energy Agency estimates most drilling in the Bakken formation — the shale producers that OPEC seeks to drive out of business — return cash at $42 a barrel.

“Right now we’re seeing a price shock coming out of the meeting and it will be a couple of weeks until we see where the price really falls,” said Yergin. Officials “have to figure out where the new price range is, and that’s the drama that’s going to play out in the weeks ahead.”

Brent crude finished last week around $70, and New York oil near $66. Brent is now at its lowest since the financial crisis — when it bottomed around $36.

Not All Suffer

To be sure, not all oil producers are suffering. The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.

“Saudi Arabia, U.A.E. and Qatar can live with relatively lower oil prices for a while, but this isn’t the case for Iran, Iraq, Nigeria, Venezuela, Algeria and Angola,” said Marie-Claire Aoun, director of the energy center at the French Institute for International Relations in Paris. “Strong demographic pressure is feeding their energy and budgetary requirements. The price of crude is paramount for their economies because they have failed to diversify.”

Brent crude is poised for the biggest annual decline since 2008 after OPEC last week rejected calls for production cuts that would address a global glut.

Like this year’s decline, oil’s crash in the 1980s was brought on by a Saudi-led decision to defend its market share, sending crude to about $12 a barrel.

Russia Vulnerable

“Russia in particular seems vulnerable,” said Allan von Mehren, chief analyst at Danske Banke A/S in Copenhagen. “A big decline in the oil price in 1997-98 was one factor causing pressure that eventually led to Russian default in August 1998.”

VTB Group, Russia’s second-largest bank, OAO Gazprombank, its third-largest lender, and Russian Agricultural Bank are already seeking government aid to replenish capital after sanctions cut them off from international financial markets. Now with sputtering economic growth, they also face a rise in bad loans.

Oil and gas provide 68 percent of Russia’s exports and 50 percent of its federal budget. Russia has already lost almost $90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down 31 percent against the dollar since June.

This Will Pass

While the country’s economy minister and some oil executives have warned of tough times ahead, President Vladimir Putin is sanguine, suggesting falling oil won’t force him to meet Western demands that he curb his country’s interference in Ukraine.

“Winter is coming and I am sure the market will come into balance again in the first quarter or toward the middle of next year,” he said Nov. 28 in Sochi.

Even before the price tumble, Iran’s oil exports were already crumbling because of sanctions imposed over its nuclear program. Production is at a 20-year low, exports have fallen by half since early 2012 to 1 million barrels a day, and the rial has plummeted 80 percent on the black market, says the IMF.

Lower oil may increase the pain on Iran’s population, though it may be insufficient to push its leaders to accept an end to the nuclear program, which they insist is peaceful.

‘Already Losing’

“The oil price decline is not a game changer for Iran,” said Suzanne Maloney, senior fellow at the Brookings Institution, a Washington-based research organization, who specializes on Iran. “The Iranians were already losing so many billions of dollars because of the sanctions that the oil price decline is just icing on the cake.”

While oil’s decline wrenches oil-rich nations that squandered the profits from recent high prices, the world economy overall may benefit. The Organization for Economic Cooperation and Development estimates a $20 drop in price adds 0.4 percentage point to growth of its members after two years. By knocking down inflation by 0.5 point over the same period, cheaper oil could also persuade central banks to either keep interest rates low or even add stimulus.

Energy accounts for 10 percent to 12 percent of consumer spending in European countries such as France and Germany, HSBC Holdings Plc said.

Nigerian Woes

As developed oil-importing nations benefit, some of the world’s poorest suffer. Nigeria’s authorities, which rely on oil for 75 percent of government revenue, have tightened monetary policy, devalued the naira and plan to cut public spending by 6 percent next year. Oil and gas account for 35 percent of Nigeria’s economic output and 90 percent of its exports, according to OPEC.

“The current drop in oil prices poses stark challenges for Nigeria’s external and fiscal accounts and puts heavy pressure on the exchange rate,” Oliver Masetti, an economist at Deutsche Bank AG, said in a report this month. “If oil prices remain at their current lows, Nigeria will face tough choices.”

Even before oil’s rout, Venezuela was teetering.

The nation is running a budget deficit of 16 percent of gross domestic product, partly because much of its declining oil production is sold domestically at subsidized prices. Oil is 95 percent of exports and 25 percent of GDP, OPEC says.

“Venezuela already qualifies for fiscal chaos,” Yergin said.

Venezuelan Rioting

The country was paralyzed by deadly riots earlier this year after police repressed protests about spiraling inflation, shortages of consumer goods and worsening crime.

“The dire state of the economy is likely to trigger renewed social unrest, while it seems that the government is running out of hard currency,” Capital Economics, a London research firm, wrote in a Nov. 28 report.

Declining oil may force the government to take steps to avoid a default including devaluing the currency, cutting imports, raising domestic energy prices and cutting subsidies shipments to poorer countries in the region, according to Francisco Rodriguez, an economist at Bank of America Merrill Lynch.

“Though all these entail difficult choices, default is not an appealing alternative,” he said. “Were Venezuela to default, bondholders would almost surely move to attach the country’s refineries and oil shipments abroad.”

China Bailout?

In an address on state television Nov. 28, President Nicolas Maduro said Venezuela would maintain social spending while pledging to form a commission to identify unnecessary spending to cut. He also said he was sending the economy minister to China to discuss development projects.

Mexico shows how an oil nation can build new industries and avoid relying on one commodity. Falling crude demand and prices in the early 1980s helped send the nation into a debt crisis.

Oil’s share of Mexico’s exports fell to 13 percent in 2013 from 38 percent in 1990, even as total exports more than quadrupled. Electronics and cars now account for a greater share of the country’s shipments. Though oil still accounts for 32 percent of government revenue, the Mexican government has based its 2015 budget on an average price of $79 a barrel.

Bloomberg



36 Comments on "Oil at $40 Possible as Market Transforms Caracas to Iran"

  1. andya on Sun, 30th Nov 2014 6:31 pm 

    Of course the US government is dependent on borrowing for 30% of its spending. LOL
    So the cheap oil hurts the bad guys and helps the good guys, got it. Thanks

  2. Makati1 on Sun, 30th Nov 2014 6:55 pm 

    Fear mongering by Bloom? Or just more propaganda from our masters? Or Both. $30 oil crashes the US economy and financial system when the Market crashes and the oil companies ALL go bankrupt.

  3. Makati1 on Sun, 30th Nov 2014 6:56 pm 

    Ooops! $40 oil…

  4. Plantagenet on Sun, 30th Nov 2014 7:06 pm 

    Makati doesn’t get it.

    The US is still a net oil IMPORTER. $40 oil doesn’t crash the US economy. $40 oil HELPS the US economy.

    Yes, the oil exporting states in the US (Texas, ND, Alaska, etc.) are hurt, but overall the rest of the US comes out ahead.

    Meanwhile petrostates like Russia, Venezuela, Iran etc. are net losers

  5. SugarSeam on Sun, 30th Nov 2014 7:13 pm 

    Not sure how Plant can snap reply as soon as every post on this forum goes up, yet still doesn’t appear to understand what is at play here.

    The U.S. industry is in deep, deep trouble, just like everyone else. Take off the red, white and blue tinted glasses.

  6. Apneaman on Sun, 30th Nov 2014 7:29 pm 

    Like every empire before it, the American empire thinks it is immune to collapse. Collapse is built in to empires and civilization itself.

    The Myth of Human Progress
    The technical and scientific forces that created a life of luxury for the industrial elites are now the ones that doom us.

    http://www.alternet.org/environment/myth-human-progress-0?paging=off&current_page=1&utm_content=buffer3149a&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer#bookmark

  7. rockman on Sun, 30th Nov 2014 10:37 pm 

    “Yes, the oil exporting states in the US (Texas…)are hurt”. If oil sells for $40/bbl for the next 12 months revenue from oil production in Texas will be the same revenue as produced in 2010.

    Don’t cry for me, Argentina. LOL.

  8. Speculawyer on Mon, 1st Dec 2014 12:13 am 

    “West Texas Intermediate fell as much as $2.05 to $64.10 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday level since July 2009, and was at $64.44 at 12:07 p.m. Singapore time. Brent dropped 2.9 percent to $68.13.”

    OK, I’d say that we are now into oversold territory. But what do I know? Nothing. I’m just guessing. It certainly could drop further.

  9. Plantagenet on Mon, 1st Dec 2014 12:14 am 

    @rockman

    Yes, Revenue will be the same. But EXPENSES will be much higher. It costs a great deal more to drill a horizontal well and frack it in the Eagle Ford then a conventional well used to cost.

    So it really doesn’t matter what revenue is if expenses are now greater then the revenue—the result is the oilcos will be losing money.

  10. Perk Earl on Mon, 1st Dec 2014 12:47 am 

    http://www.bloomberg.com/energy/

    Oil price is already on the decline on the other side of the planet where it is Monday AM.

    WTI -1.71 to 64.44
    Brent -1.79 to 68.36

    And away we go!

  11. Norm on Mon, 1st Dec 2014 3:07 am 

    OK everybody, I am trying to come up with something intelligent to say.

    Here goes…. An excellent economic indicator, is the price of scrap metal. If the economy getting worse, people not smelting metals to rebar and they dont’ need as much steel.

    Similarly.. I think the price of oil is an economic indicator. For the price of oil to significantly fall…. the whole global economy must be tanking. Ya think? But the talking heads and the spin doctors pretend its all ok, just keep shopping from now to Christmas.

  12. meld on Mon, 1st Dec 2014 3:33 am 

    The playbook seems to be – Bankrupt the oil producing nations that are members of the Axis and bail out the US shale plays when the bubble pops. Mark my words when those shale plays start to pop the US government will be in there quicker than you can say nationalization

  13. Davy on Mon, 1st Dec 2014 6:21 am 

    Meld, nationalization will come with a crisis but a big crisis. We are heading that direction but a guess on time frame is futile. The infrastructure for fracking is there and energy is vital to survival. The same is going to happen in production AG. There are two too-important-to-fail sectors. If nationalization ever occurs we know it is ‘Katie bar the door”.

    The theory the western TPTB are attempting to bankrupt the evil oil nations that seems simplistic. These oil exporting nations know economics and they surely know the economy is not healthy. They understand that oil is dropping because growth is subpar. I am sure they are gambling on a stability point close to where we are. It seems reasonable to assume we are near a stability point for the economy and oil prices.

    I have read in many places there is plenty of economic turbulence under the surface from QE ending and China slowing. Then we have Japan sinking into oblivion. I am sure the benefits of the evil oil producers suffering is a consolation prize but I believe when it comes down to it the oil business is just that a business.

    There are other ways to play politics. Politics is politics and business is business when all is said and done. There is the propaganda game then there is the real game. Just look at Russia and the sanctions. There are real and effective sanction and Russian retaliation steps that could be taken. These steps are not being taken because of the severe results to all involved. We are in an interconnected world that can only do so much brinkmanship without hurting all involved. What is more there is no country strong enough to play a game of uncle. Every country today is suffering limits of growth and diminishing returns with populations in distress.

  14. rockman on Mon, 1st Dec 2014 6:59 am 

    P – “But EXPENSES will be much higher.” Actually costs are already coming down. During a boom drilling period as we just went thru much of the expense is in the service company’s’ profit margin. Fuel, sand, labor, etc. represent a relative small %. I don’t know the exact number so I make some up:

    A well that cost $12 million to drill, complete and frac might actually cost the service companies $4 million to drill. But it’s not as though they’re making an $8 million profit. They may have collectively spent $200+ million on equipment (drill rigs, frac trucks, etc.) expansion to handle the drilling surge. So technically those costs need to be amortized to know their true profit.

    But here’s the situation when there’s a big downturn in demand for those service companies: amortization factors get tossed away. Just as with the producers it becomes purely cash flow driven. If you have $40 million of new frac trucks sitting in a yard collecting dust you’re not amortizing nuthin. Same with drilling rigs. At the end of the late 70’s drilling boom I used pass a yard that had 4 huge new drilling rigs. I’ll guess they would cost a total of $100+ million in today’s dollars. They never left the yard…never drilled a single foot of hole. They sat there for several years before they were cut up and sold for scrap metal.

    I mentioned the other day that I use the same direction drillers for my hz conventional wells as they use for the Eagle Ford shale. I’ve already told the companies bidding on my next well I was expecting significantly lower numbers. And my big hook: whoever won the bid for my next well will the get the next two wells I drill. It will be the same story with every service company involved in the EFS.

    Of course if there’s a significant decrease in EFS drilling revenue will fall. But remember: the state and the mineral owners have invested nothing in the EFS so what revenue they receive is cost free. And companies? Actually some pubcos may look better on the books in some aspects by the end of 2015: the surest way to post a larger net income for the year is to significantly reduce your spending…which will often include laying off employees. Not replacing your declining reserves doesn’t forecast a rosy future but during times like we may be going into the future is often totally ignored in favor of day to day survival.

  15. rockman on Mon, 1st Dec 2014 7:20 am 

    If nationalization ever occurs we know it If nationalization ever occurs we know it is ‘Katie bar the door”. is ‘Katie bar the door”. I’m always amazed when folks toss out the “n” word. LOL. “Nationalization” seems to be cure all for some folks but they never explain exactly what will happen. Will the govt take all the revenue for the oil companies without compensation? Remember the oil pubcos are widely held by millions of citizens in the savings and retirement accounts: so they govt robs them??? Or does the govt set a max for oil prices: so now companies won’t invest in more drilling. Or the govt takes over management of the oil companies: and what…people with no oil patch experience now make drilling decisions? All I ask is that if someone wants to throw the “n” into the discussion: please describe what you mean.

    And the govt “bail out” of the oil patch LOLLLLLLLLLL. And do what: force the refiners (and thus ultimately the consumers) to pay the oil patch way above market price for its production? Yeah, I can see it now: the POTUS has just signed an executive order forcing the public to give ExxonMobil more money than it’s been making. Or better yet: the govt will loan XOM et al $BILLIONS to drill wells that will never recover their cost and thus the loans can’t be repaid.
    Just like “nationalization” tossing out terms like “bail out” without describing exactly what one envisions doesn’t tend to communicate the expectations very clearly.

  16. Davy on Mon, 1st Dec 2014 7:48 am 

    Rock, it is what it is and that is called a major crisis where normal markets have shut down. If this situation occurs then the economy will be on a new footing with vital services and resources considered emergency and essential. I am amazed by people that do not acknowledge we are that close to this situation. In fact one wrong move in 2008 and we were there. There is no reason why we were going to make the decision to go all in with debt to bail the global economy out. If the Tea baggers would have been in charge then it may have turned out different with an attitude let them fail with tough medicine.

    If you will notice Rock I am referencing the “n” word in regards to a breakdown in normal activity. This does not relate to anything we have now. The nationalization of any sector whether overt or covert will be the end of our markets as we know it. It will likely be an end to BAU and the first steps in what surely will be an action by the government to prevent mayhem because that is what happens when grocery store shelves empty. Grocery store shelves empty when they are not supplied by liquid fuel transport. Next year’s crops will not be planted without liquid fuels. Some of you may want to wake up and realize the gravity of a contraction at this point. This time may be different

  17. buddavis on Mon, 1st Dec 2014 7:58 am 

    Nationalization, bail outs, bankrupties, Domestic Oil Industry melting away, etc.

    You would think this is the first price crash the Oil patch has seen.

  18. Davy on Mon, 1st Dec 2014 9:01 am 

    Bud, is this the first QE trillions the economy has ever seen? Yes. You guys have this view like the oil industry is something special immune from anything because it is the “Mighty Oil industry”. Times are changing and there is no reason to think the oil industry might be in a destructive process along with the economy that is going to leave no sector and no industry untouched. If we are lucky you guys will be correct that this is just another cycle. That would be great as far as I am concerned. I need and want another 3-5 years for my preparations. If drastic changes are made to the oil sector it will be because SHTF and a return to normalcy is gone. I see more and more reasons why the statement “This time is different” is possible.

  19. marmico on Mon, 1st Dec 2014 9:06 am 

    Any wiggle, up or down, in the price of oil is cause for celebration for the doom crowd.

    The energy component of the high yield bond market is ~15% or ~$250 billion. Chicken feed in the context of $40 trillion nonfinancial outstanding debt!

  20. buddavis on Mon, 1st Dec 2014 9:15 am 

    Davy

    I don’t know what I don’t know. But I do not think there is any way in hell that the government nationalizes the oil patch OR bails us out.

    You may be right, but this has happened before. recently. While not common, it is expected.

    I appreciate all the external forces on why this time it may be different, I just do not think it is.

    Just my opinion.

  21. shortonoil on Mon, 1st Dec 2014 9:21 am 

    Our model is the most accurate pricing model that has ever been devised. Over the last 53 years it has had an average yearly error margin of 4.5% when compared to WTI prices that were reported by the EIA. It is derived from the Etp model which employs a thermodynamic analysis for evaluation of petroleum production:

    http://www.thehillsgroup.org/depletion2_022.htm

    The model projects that the average yearly 2015 price of WTI will be $76/barrel. The present $64.71 price is probably a short term over shoot that will rebound later this year. Longer term, however, prices will continue to decline.

    Bloomberg states:

    While oil’s decline wrenches oil-rich nations that squandered the profits from recent high prices, the world economy overall may benefit.

    This statement we highly disagree with. 30% of US capex spending occurs in the energy sector, and at petroleum’s present price level that will be substantially reduced. The impact of lower prices will be far reaching; embracing everything from HY bonds to pension funds, employment levels to consumer spending. The loss of consumer income will not be compensated for by the resulting small reduction to be seen in fuel prices.

    http://www.thehillsgroup.org/

  22. Davy on Mon, 1st Dec 2014 9:32 am 

    http://www.zerohedge.com/news/2014-12-01/oil-drenched-black-swan-part-1

    It is my contention that the recent free-fall in the price of oil qualifies as a financial Black Swan. Let’s go through the criteria:

  23. marmico on Mon, 1st Dec 2014 10:36 am 

    30% of US capex spending occurs in the energy sector

    No. It’s 30% of capex on nonresidential structures which in turn are 20% of total private capex. At the most capex on oil and gas leaseholds is 6% of private capex.

  24. shortonoil on Mon, 1st Dec 2014 11:01 am 

    It is my contention that the recent free-fall in the price of oil qualifies as a financial Black Swan.

    If you look at the second graph on this page, chart# 160 it is dated 9/18/14

    http://www.thehillsgroup.org/depletion2_022.htm

    Oil prices began their descent in early August, after a rebound in late July:

    http://oil-price.net/dashboard.php?lang=en

    It wasn’t a surprise to us!

    We would have put that page up in May, but we didn’t think anyone would believe it!

  25. Davy on Mon, 1st Dec 2014 11:03 am 

    Marm, check this out:

    http://www.zerohedge.com/news/2014-11-30/imploding-energy-sector-responsible-third-sp-500-capex

    per Deutsche Bank:

    US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spend, 15-20% US

  26. marmico on Mon, 1st Dec 2014 11:19 am 

    Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total.

    Exactly my arithmetic, Davy-boy. 30% of 20% equals 6%.

    Q32014 oil and gas leasehold (‘upstream’) capex is $157 billion divided by total private capex of $2.8 trillion equals 6%. You could look it up in the NIPA. Now there is additional midstream (truck, rail car, pipeline, barge, etc.) and downstream capex.

    Remember the quart shy’s model is at the wellhead.

  27. Davy on Mon, 1st Dec 2014 11:36 am 

    Marm, I would never doubt the board financial mathematician. I was more wanting your opinion on the effects to the S&P. Are you worried or do I need to look for doom elsewhere?

  28. marmico on Mon, 1st Dec 2014 11:47 am 

    I was more wanting your opinion on the effects to the S&P.

    The oil and gas (O&G) sector in the S&P500 has been clobbered (Figure 8) since June. The other sectors keep on truckin’. I have no idea whether the O&G bloodbath is over. I’m just a low cost index fund investor.

  29. Perk Earl on Mon, 1st Dec 2014 11:51 am 

    “If you look at the second graph on this page, chart# 160 it is dated 9/18/14”

    Great chart, short! Big difference between projected price and affordable price in line with actual extractable energy. Looks like what is currently occurring oil price wise is happening earlier than even the lower projected affordable price. In any case the thinking is sound as affordability bites against projected, i.e. price needed to keep finding new sources.

    This lower price for oil is reducing long term supply as more reliance is placed on existing conventional.

    The situation is a box, the boundries of which are marked by limits from which we cannot blast our way out. In fact the walls of the box are closing in.

  30. marmico on Mon, 1st Dec 2014 12:01 pm 

    Great chart

    How many Btus does a dollar buy today?

  31. andya on Mon, 1st Dec 2014 1:11 pm 

    Shale is doing so well that one company’s stock is down 84% since June 2014, GDP, and second is 82% down being EOX……

    Thus far 1 oil bunker company in Denmark has gone bust, one hedge has gone bust in US and BankAm/Wells Fargo have lost USD 850m….so thus far everything related to oil troubles is in US or Europe……while the stupid media and the stupid advisors on big websites keep telling that the problems will arise in Iran, Venezuela, Russia etc….Can anyone even remember when the last bankruptcy happened in Iran, Russia or Venezuela?

    This whole price collapse will collapse the US shale system.

    Over USD 1 trillion has been lost in market cap of oil companies just in US and EU in a few months…

    Stay tuned for more bankruptcies to come in EU/US.

    Last time we found that Madoff was in US, Lehman was in US and Merrill and Bear Stearns were in the US, when the last oil rout occured in 2008, let us see where they will find new bankruptcies and new IPO crooks!

    I am willing to bet the bankruptcies will be in US and EU and not in Iran or Venezuela or Russia! 🙂

  32. andya on Mon, 1st Dec 2014 1:31 pm 

    Shortonoil your graphs seem about right until you predict oil at 11.25 by 2020, while it would be nice if you are right, I doubt the economy is that fragile. I’ll have a glance around the website to try and find out how you came to the conclusion that the EROEI of oil hit 2 in 2012. Time will tell and I’m hedging both ways 🙂

  33. shortonoil on Mon, 1st Dec 2014 2:11 pm 

    Shortonoil your graphs seem about right until you predict oil at 11.25 by 2020, while it would be nice if you are right,

    If you look at that chart again you will see arrows starting to point to the right at about $30. (I am going to get those dam arrows changed to bright red flashing arrows. Everyone seems to miss them)!!! At some point during the price decline the producers will quit replacing their infrastructure as it wear out. They will literally start extracting the energy that is remaining in that infrastructure. By our estimate that is equal to about 87 Gb. A that point the price decline should start to slow as relatively cheap energy hits the market. How fast, and exactly where that will happen is only an educated guess on our part.

  34. andya on Mon, 1st Dec 2014 4:43 pm 

    Yep I missed the arrows, but I read this:-
    “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy. Its only function will be as an energy carrier for other sources.”
    May be other people do as well. Cheers.

  35. Makati1 on Tue, 2nd Dec 2014 8:00 am 

    As if the US economy will be functioning in 2020. I see a 3rd world banana republic with a fascist dictator in place. He/She may be called President, but that title is already meaningless in the faux voting system current in America. He already bypasses Congress and declares war without their consent. Next big war will likely be nuclear, or the US will go isolationist and pull back to the lower 48. We shall see.

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