The Mental Militia Forums

Special Interest => Money, Commerce, and Taxation => Topic started by: RVM45 on October 02, 2015, 12:23:57 pm

Title: ? About Petroleum Prices
Post by: RVM45 on October 02, 2015, 12:23:57 pm
Friends,

They were discussing fuel prices in the "Gulching Sub-Forum" and I started to ask this question there but then thought that it was more appropriate here.

Premise #1} The Current Economy is a stack of cards that has already lived well past its probable life expectancy.

Premise #2} At some Threshold Price an increase in Gasoline Prices could very well be the Watershed Event that starts the Avalanche.

This seems self evident to me—but not only will individuals have to cut their spending in other areas simply to buy gasoline; but transportation and production prices will also reflect the rise in the cost of Gas, Diesel, Petroleum, etc.

Obviously what Price per Barrel of Crude or Per Gallon of Gasoline represents a sort of Rubicon will change as the dollar devalues and other factors wax and wane…

But as things stand now:

Is there a Price per Barrel/Gallon that would make y'all start donning your life jackets? And can you explain your reasoning a bit?

Thanks.


…..RVM45
Title: Re: ? About Petroleum Prices
Post by: securitysix on October 04, 2015, 09:52:28 pm
Here's the thing about that:

Oil and gas companies aren't losing money at the price oil and gas are selling right now.  They're making less than they'd like to, sure.  Some of them are laying off employees, and some of the business that support the oil and gas industry (engineering and construction companies included) are having to do the same.

When oil prices were really high, the energy companies were spending a lot of money on expansion projects.  They were drilling new wells, building new compressor stations, building and upgrading refineries, laying new pipelines, and building new tank farms to hold all of the things they were pulling out of the ground.

With oil prices down, they'll complete the projects they already have in the works, but if it's not profitable to produce, they'll lower production.  Some of the smaller companies in the industry may fail, but the industry as a whole will hang in there.  With production lowered, there will be less to go around, demand will stay the same, or more likely go up, and the supply will dwindle.  As it does, the prices will go back up, it will become profitable to produce again, and as production increases, expansion will start again.

In the short term, things may start to get a little tight in the industry itself and the businesses that exist solely to support the industry, but in the long term, it's not going anywhere.  In the really long term, a viable alternative form of energy may be found, but with the sheer amount of oil and gas out there to be pulled out of the ground, I'm not going to hold my breath.
Title: Re: ? About Petroleum Prices
Post by: Silver on October 12, 2015, 12:42:08 pm
Premise #1 - agreed.

Premise #2 - while it is a true statement, that seems rather unlikely right now.  Precisely because of the years of free money and insane Zero Rate Interest Policy (ZIRP) there is a huge excess capacity in oil and gas right now.

Austrian economics predicts exactly this outcome.  Those investments with the longest time horizon are most susceptible to the false signals given by excess credit and artificially low interest rates.  Oil and gas wells take decades from exploration to production.  We have several years of excess capacity in both currently producing wells and wells that have been located but not advanced to production stage. 

Oil is an extractable resource, so eventually we'll use up the current glut, and then the price will rise as supply starts to fall below demand.  But that will probably not happen for at least 2-3 years, and perhaps many more.

While anything is possible, the most probable outcome is that oil and gas prices will stay depressed for years.  A hyperinflation or general high inflation could raise their dollar price, but that would make it hard to point to a tipping point for fuel prices to knock down the house of cards.

Something will pop this bubble, but seeing the sharp end of the pin in advance is extremely difficult.

Peace,

Silver
Title: Re: ? About Petroleum Prices
Post by: DiabloLoco on January 04, 2016, 07:00:23 am
I'm kinda wondering.......

With the recent tension and severing of diplomatic ties between Saudi Arabia and Iran, what the effects will be on the oil markets?

Thoughts?


https://finance.yahoo.com/news/asia-stocks-start-2016-weak-note-middle-east-030248559--finance.html

Quote
Saudi Arabia said Sunday it is severing diplomatic relations with Iran, a development that could potentially threaten oil supply. The world's largest oil supplier executed a prominent Shiite cleric that prompted protesters to set fire to the Saudi Embassy in Tehran and Iran's top leader to criticize Saudi Arabia.

"Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply," Ric Spooner, chief analyst at CMC Markets, said in a commentary.
Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 04, 2016, 07:13:26 am
I'm kinda wondering.......

With the recent tension and severing of diplomatic ties between Saudi Arabia and Iran, what the effects will be on the oil markets?

Since the US is now an oil exporter, I don't expect the mid east thing to affect America's supply much right away. What it could do to world prices is anyone's guess, of course, but if the price increases much our own supply will likely be sold elsewhere. Which would stimulate more production, of course... well, absent heavy handed meddling from government, naturally.  Since there are so many unknown and unknowable factors, I guess we won't know until it happens.
Title: Re: ? About Petroleum Prices
Post by: Silver on January 06, 2016, 05:44:12 pm
With the recent tension and severing of diplomatic ties between Saudi Arabia and Iran, what the effects will be on the oil markets?

Worf: Captain, we show no damage from the Borg weapon!

Data: That is confirmed, Captain.  The weapon is designed to drain our shields.

There is no recent tension.  Saudi has resented and hated the ascendant power in Tehran for decades.  The Sunni/Shia sectarian hatred is much older than the House of Saud.  It is a useful tool for despots: fan the flames of religious hatred to distract and direct the mob.  The vast majority of Iranians are Shia; the princes of Saud are Sunni.

The "tension" is an elaborate pantomine, and like most such performances its nuances are easily overlooked.

The primary purpose of the pantomine is to demonstrate the strength, control, and resolve of the current power behind the throne.  Saudi is officially led by an 80+ year old dotard.  His 30 year-old son, the minister of war, is flexing his muscles.

Saudi would like nothing better than to give American congressthings another excuse to scuttle the recent US rapprochement with Iran.  That would help preserve the rule of the Saudi tyrants.

But the young prince's display was also the mistake of a stupid, ignorant hot head.  War is already upon the middle east.  He may have thought to help bring his US ally to bear on Iran, but that seems unlikely to happen.

It's plain enough that all the middle east oil powers must pump as much as they can to maintain their slipping grasp on political power.  Maintaining 5,000 princes in the style to which they are accustomed is expensive!  Keeping the pathetic promises made to the masses will soon be impossible.  Tehran, Baghdad, Tripoli, all the regimes must pump as fast as they can even though the strategy of pumping slowly now to have oil left to pump when the price goes back up would produce far more revenue in the long run.

The tension is not about the price of oil, at least not directly, and it won't directly affect the price. 

The question that faces us in the US is whether there is anything in any of the middle east shitholes worth the tip of a single American soldier's pinky finger.  The answer is increasingly clear: there is nothing.  Leave them to rot and squabble.  We can pump our own oil if need be, and rely on market forces to keep the middle east oil flowing until they blow each other up. 

Good riddance.  The oil will still be in the ground, and when some stable civil society emerges from the ashes, they can trade access to that resource for the capital and expertise to extract it.  It worked before.

Peace,

Silver
Title: Re: ? About Petroleum Prices
Post by: DiabloLoco on January 06, 2016, 07:39:00 pm


Saudi would like nothing better than to give American congressthings another excuse to scuttle the recent US rapprochement with Iran.  That would help preserve the rule of the Saudi tyrants.

But the young prince's display was also the mistake of a stupid, ignorant hot head.  War is already upon the middle east.  He may have thought to help bring his US ally to bear on Iran, but that seems unlikely to happen.

What if Iran and the Saudi's try to force the US to choose a side? I can almost guarantee that if the US (Obama) will refuse to choose a side, prompting a response from the Saudi's.......Depegging from the US dollar, effectively killing the petrodollar. Game over.
Title: Re: ? About Petroleum Prices
Post by: Silver on January 06, 2016, 11:37:44 pm
The breakup of the petrodollar is already underway.  The Yaun is now a reserve currency. Part of the petrodollar deal was the Sauds keeping things stable and orderly.  The US killed that part (literally, a million times over) in Iraq, Libya, now Syria.  The house of Saud is having a steadily harder time keeping a lid on their own understandably upset underclass. 

Sure the Sauds will try to pressure the US, and granted that Bombya couldn't strategize escaping from a dead fish in a phone booth.  A sudden breakdown of dollar-denominated oil sales would be at least as tough on the Sauds as the US, and arguably a lot moreso.

So the game is changing, perhaps quickly, but I don't think it is over.  I doubt that the mass execution that deliberately provoked the current unrest will have any material impact on the price of oil.  I've been wrong many times before.  We'll see.

Peace,

Silver
Title: Re: ? About Petroleum Prices
Post by: DiabloLoco on January 11, 2016, 03:18:36 pm
Wowser! :thrshocker:


US oil settles down $1.75, or 5.28%, at $31.41 a barrel

Quote
U.S. West Texas Intermediate (WTI) crude settled at $31.41 a barrel, down $1.75, or 5.28, having early fallen to $31.88, an intraday low going back to December 2003.

Brent crude futures were down by $1.99 at $31.56 a barrel, after falling to the lowest level since April 2004.

The markets are positioned in a way where "traders are afraid to be long," said Clayton Vernon, a trader and economist with Aquivia LLC in New Jersey. "The firm push for normalization with Iran has taken the last shred of geopolitical risk out of traders' minds."

The European Union said on Monday that the lifting of sanctions on Iran could come soon, following a deal last year to curb the Middle East nation's nuclear program. Many market participants that Iran's return to the oil markets would add more pressure to the global glut that has knocked prices from more than $100 in mid-2014.

Goldman Sachs analysts, who have also said oil could hit $20 a barrel, said in a note on Friday that sustained lower prices were needed in the first quarter "so producers will move budgets down to reflect $40 a barrel oil for 2016."

Oil prices have fallen over 70 percent since the downturn began in mid-2014 as soaring global production sees hundreds of thousands of barrels of crude produced every day without a buyer.
Title: Re: ? About Petroleum Prices
Post by: Adventurer, Explorer, Inquiring Mind. on January 11, 2016, 06:16:47 pm
There's something you guys are missing.  It happens when people get myopically focused on their perceived enemy.

King Saud put a LOT of cash into a fairly large research town (as in the largest of its kind.)  Apparently the saudis aren't as stupid as the west, and are trying to diversify into new energy research.  What are we doing in the process?  Making religious excuses for why the status quo is the only way stuff could possibly go down.

I know this because I've been noticing lots of PHD research jobs come up out there.
Title: Re: ? About Petroleum Prices
Post by: DiabloLoco on January 11, 2016, 07:55:16 pm
There's something you guys are missing.  It happens when people get myopically focused on their perceived enemy.


Whahuh? My enemy? :laugh:

I'm just following the news and posting it as written. Enemy? Nah.... :rolleyes:
Title: Re: ? About Petroleum Prices
Post by: Adventurer, Explorer, Inquiring Mind. on January 12, 2016, 11:13:04 am
There's something you guys are missing.  It happens when people get myopically focused on their perceived enemy.


Whahuh? My enemy? :laugh:

I'm just following the news and posting it as written. Enemy? Nah.... :rolleyes:

C'mon bro, I expect more from you.  Latching onto a word and missing the point isn't it.

Enemy.  In this scenario = illuminati, corrupt, power hungry scumbags, centralized control schemes, etc.  Plug that into the above equations.
Title: Re: ? About Petroleum Prices
Post by: DiabloLoco on January 12, 2016, 02:25:44 pm

C'mon bro, I expect more from you.  Latching onto a word and missing the point isn't it.

Enemy.  In this scenario = illuminati, corrupt, power hungry scumbags, centralized control schemes, etc.  Plug that into the above equations.
Ok. I thought that you were referring to me personally. Please expand/explain. I would love to hear your thoughts. :thumbsup:
Title: Re: ? About Petroleum Prices
Post by: Rarick on January 12, 2016, 11:31:55 pm
My only question about the gas taxx, is does it really cost 55 cents a gallon to maintain the road infrastructure.  If not where is all that money going?
Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 13, 2016, 05:34:28 am
My only question about the gas taxx, is does it really cost 55 cents a gallon to maintain the road infrastructure.  If not where is all that money going?

The gas tax has been stolen for a very long time for all sorts of things politicians love. They use it to build "bike lanes," and all kinds of "beautification" projects. And I'm quite sure plenty of it goes into deep black holes and legislator's pockets.
Title: Re: ? About Petroleum Prices
Post by: Who...me? on January 13, 2016, 03:05:56 pm
I live in PA and drive past my share of construction workers as they are rebuilding/repairing roads all over PA.

The vast majority of the time I see multiple guys standing around watching one guy work.  The man hours involved must be staggering and at my last heavy equipment type job any work we did for the states was at union rates.  If I remember correctly the last state work I did paid 24 bucks hour.

I do not know how many guys work on state road jobs in the summer but I would be willing to bet there are thousands.   So say 1000 guys on the job with a 50% participation rate throughout the day at 24 bucks an hour. 500 guys at 24 and hour for 8 hours a day is 96,000 FRN.

A day.

Factor in that the job now takes longer to do and pay out 96 grand a day in wages plus all the equipment, maintenance and fuel costs for the extra time to do the job and it quickly becomes a very large number.
Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 14, 2016, 05:25:11 am
Used to see a lot of that in Calif. Six guys holding shovels, only one actually doing anything with it. Here I see road crews frequently, since the zero weather is hard on pavement, and I can't remember ever seeing anyone just standing around watching someone work. The crews here tend to be small and they work like beavers.  I don't know what they get paid.
Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 18, 2016, 08:32:50 am
Michigan Becomes First State to Welcome Back Sub-$1 Gas
http://www.fox5ny.com/news/76795410-story

I just did a search here on "gas prices" and had to chuckle at all of the anxiety over the last ten years about high gas prices, and "ever increasing" prices.

Recession is here... and lots of prices are going to tank. Right along with wages, of course.
Title: Re: ? About Petroleum Prices
Post by: Rarick on January 18, 2016, 09:18:45 am
Amory Lovins talked about a large set of gas price yoyos when the market started reaching criticality.  Could we be starting into that, or an artificially incuded set of yo yo's aimed at economic warfare?

Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 18, 2016, 09:59:04 am
Amory Lovins talked about a large set of gas price yoyos when the market started reaching criticality.  Could we be starting into that, or an artificially incuded set of yo yo's aimed at economic warfare?

Or maybe simply a market correction, since there is probably no more blood to squeeze out of the turnip. The "managed" market is a failure and there isn't any way to actually control it. No massive conspiracy or "artificial" elements required.
Title: Re: ? About Petroleum Prices
Post by: Silver on January 18, 2016, 01:04:03 pm
This is classic ABC - Austrian Business Cycle theory.

The fed pushes the cost of money and credit to well below market levels by creating Trillions of new dollars from nothing.

The low cost of borrowing stupendous sums allows well-connected players (think big banks, big corporations, big government) to take on huge amounts of debt with very little interest cost.  This makes the spreadsheets show positive return on investments, when they would show a huge loss if true market rates for the cost of borrowed money were applied.

This leads to massive mal-investment, putting money into things that don't make sense except because of the low cost of money.

In an honest market, a low cost of money happens when savers have saved so much that they are willing to lend money for a better return.  Their willingness to lend money sends a signal to entrepreneurs that there is pent-up demand for goods.

But there is no pent-up demand, the American consumer is tapped out, with credit cards maxed out and lines of credit on home mortgages and auto payments.  The typical "upper middle class" American is a two thousandaire, has no equity in their home, just monthly mortgage payment(s), two new cars in the driveway on lease or no money down loans, student loans piling up, and $2,000 in savings.  They are one layoff, one missed paycheck, one medical or major appliance failure away from bankruptcy. 

But the businessmen and entrepenuers who have to look 10 or 20 years into the future to determine what consumers might need then can't help but be fooled by the siren song of low cost money.  The time from prospecting for a mine or surveying a potential oil field to actual production is at least 10 years.

So the mal-investments end up in capital-intensive infrastructure projects like mines, wells, pipelines, ships, and factories.  In China they've built too many factories.  In the US the tax and labor laws make manufacturing a fool's game, so the tsunami of money went into oil shale and fracking.  In Canada it went into oil tar sands.

Today a barrel of bitumen from Canadian oil sands, won at great cost in both men, machinery, and energy, sells for a little over $8. The production cost is well over $40.  But shutting down a field can permanently damage the formation, so they continue to pump at a loss.

All of those malinvestments were made with newly created credit from nothing, but they consumed real resource.  Men, steel, energy, engineering time, construction equipment, housing and food for workers in far-off places, the list goes on and on.

These are all wasted.  You can't undrill a well, and undig a mine.  The boom towns become ghost towns, the investments in materials and labor gone.  Worthless.

So it is small consolation that gas and oil prices may be low for a while, perhaps a long while.  Because in truth the entire planet has been made poorer by this farce.  We've used fake money to squander real resources, scarce resources that would have been put to genuinely profitable and helpful uses if not for the machinations of the fed and their bankster ilk.

It is not an act of economic warfare, and the economically ignorant orator Lovins has no clue, although that never makes him shut up.  It is the free market responding to over a decade of systematic abuse.  It is reality setting in.  It is showing up in oil because the supply exceeds the demand, and there is no longer enough storage to dissemble about that fact.

Peace,

Silver
Title: Re: ? About Petroleum Prices
Post by: Rarick on January 18, 2016, 03:37:22 pm
Okay, that was the tart as usual rejoinder I was expecting. 
Title: Re: ? About Petroleum Prices
Post by: MamaLiberty on January 18, 2016, 04:47:59 pm
Okay, that was the tart as usual rejoinder I was expecting.

You'd rather be lied to and kissi-pooed?  :laugh: :laugh: :laugh:
Title: Re: ? About Petroleum Prices
Post by: Rarick on January 19, 2016, 04:12:13 am
No QQ here.