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Oil Is Back to $40 What Does That Signal?

Consumption
After dipping into negative territory crude is back ato $40. What does that mean?
Oil analyst Phil Flynn says Oil’s Road Back to $40 Signals Economic and Job Snap Back.

The road back to $40-a-barrel oil was fraught with fear and uncertainty, but eclipsing that benchmark indicates the beginning of a strong recovery from the economic shutdown. The global economy crashed to a screeching halt as the coronavirus shut down the world, causing global oil demand to crater like never before.

Overthinking or Underthinking Oil?

I am not sure which Flynn did, but I am sure it’s at least one of them.

No Jobs Recovery 

Continued Unemployment Claims in 2020-06-18

There was no jobs recovery. Continuing Unemployment Claims Tell a Bleak Story.

For 7 consecutive weeks, continued unemployment claims have topped the 20 million mark.

Historical Perspective

Continued Unemployment Claims 1970-Present 2020-06-18

Continuing claims only topped the 5 million mark in the depths of the Great Recession.

Retail Sales

On June 16, I reported Retail Sales Surge Most on Record But Number is Misleading.

  • Retail sales surged a greater than expected 17.7% in May but the numbers are still well below the pre-pandemic levels.
  • Despite the surge, sales numbers are back to levels seen in late 2015 and early 2016.

People got money and spent it, but they also skipped mortgage payments and credit card payments.

What happens when the checks run out?

Manufacturing Tells the Same Story as Claims

The Fed’s Industrial Production and Capacity Utilization puts a big negative spotlight on the emerging V-shaped recovery thesis.

The Myth of the V-Shaped Recovery in One Chart

Industrial Production, Manufacturing, Motor Vehicles

For discussion, please see The Myth of the V-Shaped Recovery in One Chart.

Housing Starts

Housing Starts, Permits, Completions May 2020

Comparisons

  • In January of 1959 there were 1,657,000 housing starts.
  • In May of 2020 housing starts rebounded to 974,000.
  • The number of housing starts in May 2020 were 41.8% below the level in January 1959.
  • The recessions in 1960, 1970, and 1980 had better numbers.

For details and more charts, please see Housing Recovery Not Much to Crow About.

What’s Really Happening?

  1. Fed’s New Facility Will Buy Junk Bonds With 7-1 Leverage
  2. ZeroHedge reports Hedge Funds Go “All In” As Net Leverage Hits 99%

Biggest Speculative Bubble in History

The Fed has unleashed the biggest speculative bubble in history. There no true price discovery on stocks, junk bonds, or oil.

In regards to that latter, some 20 million people of work and not driving to jobs they do not have. Still more working from home.

Industrial production and air traffic represent two more non-recovery oil usages.

US Oil Production

US Weekly Crude Poduction 2020-06-10

US Oil Production March-June 2020

US Oil Production March-June 2020

Data from EIA, US Energy Information.

Why is the Price of Oil Up?

  1. Speculation is Up
  2. Production is Down

US oil production has fallen for 13 weeks since the peak on March 13.

Production has declined from 13,100 thousands of barrels per day to 10,500 thousands of barrels per day.

That is a decline of 19.8%.

The price of oil can stay high as long as production does not exceed storage capacity.

Overthinking or Underthinking?

How about overthinking the recovery and underthinking production.

Mish

the street



8 Comments on "Oil Is Back to $40 What Does That Signal?"

  1. Famlin on Mon, 22nd Jun 2020 10:35 am 

    While ethanol production is gradually climbing up, the oil production is going down as the rigs were shut down. Big oil cannot sell at $40/barrel, so they are not going to bring the rigs back. Expect further downtrend in oil production.

  2. Famlin on Mon, 22nd Jun 2020 10:38 am 

    Oil companies are asking taxpayers to foot the money to plug the oil worn out oil wells.

    There are 800,000 + such wells. Many oil companies who produced oil from these wells have gone bankrupt. Ideally the states should pay for it since they earned the royalty.

    I believe there are still some 400,000 stripper wells which product @ 10 barrels/day. I dont want to pay for this dirty oil in the 1st place and thats why I drive an electric car. Do you?

    https://oilprice.com/Energy/Energy-General/Taxpayers-Are-Footing-The-Bill-For-100-Year-Old-Oil-Wells.html

  3. FamousDrScanlon on Mon, 22nd Jun 2020 11:22 am 

    Oil Is Back to $40 What Does That Signal?

    That Oil Is Back to $40.

  4. SocialRevolutionComing on Mon, 22nd Jun 2020 11:57 am 

    Oil back to 40$ means that oil is depleted. It is caused be reopening Westerns economies.

    If you don’t reopen them, you lose the supply chain like shoes making, if you reopened it you accelerate depletion.

    We are totally fucked one way or the other.

    shortonoil say it best and I agree:

    The ERoEI of petroleum is now 7.9 : 1 and heading for its “dead state” of 6.9 in 2030, where energy for use by the end user can no longer be extracted from oil. The old paradigm of using ever greater quantities of energy to power the economy has come to its conclusion. With much of our present technology now going obsolete, our social-economic order is also following. We are no longer the master of events; we are now just the observers.

    We are no longer in control of anything. My internet DSL goes up, down. How long internet infrastructure will last.

    I love to see the look of desperation in politicians faces. I enjoy every minute of it.I will gladly piss on their cadaver once they are killed by a mob of enraged leftists.

  5. SocialRevolutionComing on Mon, 22nd Jun 2020 12:17 pm 

    My personality has been determined elsewhere to be linked to the lunatic Miami Beach fuck. It is disturbing this bad behavior has drifted over to the moderated side. It has also been determined I have a low IQ.

  6. Abraham van Helsing on Mon, 22nd Jun 2020 12:35 pm 

    As long as there’s enough oil to lube my butt plugs I couldn’t care less about this.

  7. Dick Toole on Mon, 22nd Jun 2020 12:47 pm 

    Butt plugs should only be used with water soluble lubricants.

  8. Davy on Mon, 22nd Jun 2020 5:04 pm 

    Cloggo, you keep claiming to be REAL GREEN, but here on the farm, we use REAL NATURAL lubricants only, to help reduce friction and keep things mooving along. If you like, I can send you a sample.

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