Crashing Price Of Oil Is Going To Rip The Global Economy To Shreds

[Serpo]

Boom Goes The Dynamite: The Crashing Price Of Oil Is Going To Rip The Global Economy To Shreds
http://theeconomiccollapseblog.com/wp-content/themes/atahualpa/images/icons/user.gif By Michael Snyder, on January 12th, 2015

http://theeconomiccollapseblog.com/wp-content/uploads/2015/01/Boom-Goes-The-Dynamite-Public-Domain-300x300.jpg (http://theeconomiccollapseblog.com/archives/boom-goes-dynamite-crashing-price-oil-going-rip-global-economy-shreds/boom-goes-the-dynamite-public-domain)If you were waiting for a “black swan event” to come along and devastate the global economy, you don’t have to wait any longer. As I write this, the price of U.S. oil is sitting at $45.76 a barrel. It has fallen by more than 60 dollars a barrel since June. There is only one other time in history when we have seen anything like this happen before. That was in 2008, just prior to the worst financial crisis since the Great Depression. But following the financial crisis of 2008, the price of oil rebounded fairly rapidly. As you will see below, there are very strong reasons to believe that it will not happen this time. And the longer the price of oil stays this low, the worse our problems are going to get. At a price of less than $50 a barrel, it is just a matter of time before we see a huge wave of energy company bankruptcies, massive job losses, a junk bond crash (http://theeconomiccollapseblog.com/archives/junk-bonds-going-tell-us-stock-market-heading-2015) followed by a stock market crash, and a crisis in commodity derivatives unlike anything that we have ever seen before. So let’s hope that a very unlikely miracle happens and the price of oil rebounds substantially in the months ahead. Because if not, the price of oil is going to absolutely rip the global economy to shreds.
What amazes me is that there are still many economic “experts” in the mainstream media that are proclaiming that the collapse in the price of oil is going to be a good thing for the U.S. economy.
The only precedent that we can compare the current crash to is the oil price collapse of 2008. You can see both crashes on the chart below…
http://theeconomiccollapseblog.com/wp-content/uploads/2015/01/Price-Of-Oil-Since-2006-425x282.png (http://theeconomiccollapseblog.com/archives/boom-goes-dynamite-crashing-price-oil-going-rip-global-economy-shreds/price-of-oil-since-2006)
If rapidly falling oil prices are good economic news, that collapse should have pushed the U.S. economy into overdrive.
But that didn’t happen, did it? Instead, we plunged into the deepest recession that we have seen since the Great Depression.
And unless there is a miracle rebound in the price of oil now, we are going to experience something similar this time.
Already, we are seeing oil rigs shut down at a staggering pace. The following is from Bloomberg (http://www.bloomberg.com/news/2015-01-06/biggest-oil-rig-drop-since-2009-spells-tough-year-ahead.html)…

U.S. oil drillers laid down the most rigs in the fourth quarter since 2009. And things are about to get much worse.
The rig count fell by 93 in the three months through Dec. 26, and lost another 17 last week, Baker Hughes Inc. data show. About 200 more will be idled over the next quarter as U.S. oil explorers make good on their promises to curb spending, according to Moody’s Corp.
But that was just the beginning of the carnage. 61 more oil rigs (http://www.zerohedge.com/news/2015-01-09/us-rig-count-crashes-fastest-pace-2009-14-month-lows) shut down last week alone, and hundreds more are being projected to shut down in the months ahead.
For those that cannot connect the dots, that is going to translate into the loss of large numbers of good paying jobs. Just check out what is happening in Texas (http://www.businessinsider.com/the-great-american-oil-bust-is-only-just-beginning-2015-1)…

A few days ago, Helmerich & Payne, announced (http://www.nytimes.com/2015/01/08/business/us-oil-producers-cut-rigs-as-price-declines.html) that it would idle 50 more drilling rigs in February, after having already idled 11 rigs. Each rig accounts for about 100 jobs. This will cut its shale drilling activities by 20%. The other two large drillers, Nabors Industries and Patterson-UTI Energy are on a similar program. All three combined are “likely to cut approximately 15,000 jobs out of the 50,000 people they currently employ,” said Oilpro Managing Director Joseph Triepke.
Unfortunately, this crisis will not just be localized to states such as Texas. There are tens of thousands of small and mid-size firms that will be affected. The following is from a recent CNBC report (http://www.cnbc.com/id/102318531)…

More than 20,000 small and midsize firms drive the “hydrocarbon revolution” in the U.S. that has helped the oil and gas industry thrive in recent years, and they produce more than 75 percent of the nation’s oil and gas output, according to the Manhattan Institute for Policy Research’s February 2014 Power & Growth Initiative Report. The Manhattan Institute is a conservative think tank in New York City.
A sustained decline in prices could lead to layoffs at these firms, say experts. “The energy industry has been one of the job-growth areas leading us out of the recession,” said Chad Mabry, a Houston-based analyst in the energy and natural resources research department of boutique investment bank MLV & Co. in New York City. “In 2015, that changes in this price environment,” he said. “We’re probably going to see some job losses on a fairy significant scale if this keeps up.”
If the price of oil makes a major comeback, the carnage will ultimately not be that bad.
But if it stays at this level or keeps going down for an extended period of time, it is inevitable that a whole bunch of those firms will go bankrupt and their debt will go bad.
That would mean a junk bond crash (http://theeconomiccollapseblog.com/archives/junk-bonds-going-tell-us-stock-market-heading-2015) unlike anything that Wall Street has ever experienced.
And as I have written about previously (http://theeconomiccollapseblog.com/archives/near-perfect-indicator-precedes-almost-every-stock-market-correction-flashing-warning-signal), a stock market crash almost always follows a junk bond crash.
These are things that happened during the last financial crisis (http://theeconomiccollapseblog.com/archives/10-key-events-preceded-last-financial-crisis-happening-right-now) and that are repeating again right in front of our eyes.
Another thing that happened in 2008 that is happening again is a crash in industrial commodity prices.
At this point, industrial commodity prices have hit a 12 year low (http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01/20150112_WTI451.jpg). I am talking about industrial commodities such as copper, iron ore, steel and aluminum. This is a huge sign that global economic activity is slowing down and that big trouble is on the way.
So what is driving this? The following excerpt from a recent Zero Hedge article (http://www.zerohedge.com/news/2015-01-07/whats-happening-commodities-just-tip-derivatives-iceberg) gives us a clue…

Globally there are over $9 trillion worth of borrowed US Dollars in the financial system. When you borrow in US Dollars, you are effectively SHORTING the US Dollar.
Which means that when the US Dollar rallies, your returns implode regardless of where you invested the borrowed money (another currency, stocks, oil, infrastructure projects, derivatives).
Take a look at commodities. Globally, there are over $22 TRILLION worth of derivatives trades involving commodities. ALL of these were at risk of blowing up if the US Dollar rallied.
Unfortunately, starting in mid-2014, it did in a big way.
This move in the US Dollar imploded those derivatives trades. If you want an explanation for why commodities are crashing (aside from the fact the global economy is slowing) this is it.
Once again, much of this could be avoided if the price of oil starts going back up substantially.
Unfortunately, that does not appear likely. In fact, many of the big banks are projecting that it could go even lower (http://www.usatoday.com/story/money/business/2015/01/12/crude-oil-prices-renew-slide/21628479/)…

Goldman Sachs, CitiGroup, Societe General and Commerzbank are among the latest investment banks to reduce crude oil price estimates, and without production cuts, there appears to be more room for lower prices.
“We’re going to keep on going lower,” says industry analyst Brian Milne of energy manager Schneider Electric. “Even with fresher new lows, there’s still more downside.”
OPEC could stabilize global oil prices with a single announcement, but so far OPEC has refused to do this. Many believe that the OPEC countries actually want the price of oil to fall (http://www.bloomberg.com/news/2015-01-09/why-opec-is-talking-oil-down-not-up-after-48-selloff.html) for competitive reasons…

Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want — and are achieving — further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.
The oil producing countries in the Middle East seem to be settling in for the long haul. In fact, one prominent Saudi prince made headlines all over the world this week (http://www.usatoday.com/story/money/columnist/bartiromo/2015/01/11/bartiromo-saudi-prince-alwaleed-oil-100-barrel/21484911/) when he said that “I’m sure we’re never going to see $100 anymore.”
Never is a very strong word.
Could there be such a massive worldwide oil glut going on right now that the price of oil will never get that high again?
Well, without a doubt there is a huge amount of unsold oil floating around out there at the moment.
It has gotten so bad that some big trading companies are actually hiring supertankers (http://www.reuters.com/article/2015/01/08/us-oil-tankers-storage-idUSKBN0KH1M520150108) to store large quantities of unsold crude oil at sea…

Some of the world’s largest oil traders have this week hired supertankers to store crude at sea, marking a milestone in the build-up of the global glut.
Trading firms including Vitol, Trafiguraand energy major Shell have all booked crude tankers for up to 12 months, freight brokers and shipping sources told Reuters.
They said the flurry of long-term bookings was unusual and suggested traders could use the vessels to store excess crude at sea until prices rebound, repeating a popular 2009 trading gambit when prices last crashed.
The fundamentals for the price of oil are so much worse than they were back in 2008.
We could potentially be looking at sub-$50 oil for an extended period of time.
If that is indeed the case, there will be catastrophic damage to the global economy and to the global financial system.
So hold on to your hats, because it looks like we are going to be in for quite a bumpy ride in 2015.

http://theeconomiccollapseblog.com/archives/boom-goes-dynamite-crashing-price-oil-going-rip-global-economy-shreds

[JohnQPublic]

The change was pretty drastic. I must admit, filling up over the last few weeks, I felt other than ripped to shreds!

[Cebu_4_2]

Doom Drastic!

[Twisted Titan]

The bottom line is this.

Ever since Putin kicked the Halfrican's @$$ on Syria the only card they had left to play was oil.

The problem is they think they are punishing russia when the reality is they are forcing russia to grow up at a excellerated pace

Russia is building out its infastructure free from western influence from banking to bilateral trade agreements

The only people that are really suffering is washington and dollar reliant companies.

So the wound is self inflicted.

[expat4ever]

Once they shut down all the rigs and curb production, wont that lead to higher prices? Even if it doesnt and it all falls apart, its about time. I need more toilet paper though.

[Ares]

I think I'll sit back and watch oil fall. The key is timing the oil drop right to buy back in and hold. :)

If it gets into the teens and 20's I'll probably buy in.

[Spectrism]

Once they shut down all the rigs and curb production, wont that lead to higher prices? Even if it doesnt and it all falls apart, its about time. I need more toilet paper though.

Yes, if there is sufficient demand. But if there is a collateral shut-down of more industries as demand for everything drops, the demand for oil will also slip. It has been a fairly inflexible market- the demand side, with a fairly stable sweet spot. Produce a little more than needed and prices crash. Produce a little less than needed and prices skyrocket and rationing begins.

I think we are beginning to see the depression break out of the whitewashed walls, like a cancerous limb oozing from an open sore that previously was cosmetically covered. They kept the central core of the body animated by pumping in adrenaline and sugar while the limbs withered.

Macro view: If the US had its manufacturing base still, the country could be fairly self-sufficient. When 90% of its technology, materials handling, parts and products manufacturing, and engineering were sent to China, this caused an eco-system to become disrupted. What was a grand marketplace for all products in America began to fade as the workforce lost its core jobs. Also lost was the incentive to invent and develop new products. Empowered was a cheating international system that would steal your ideas and copy your products using slave labor. And government predatory practices would help the cheater snuff your business.

Ever make a camp fire in cold weather? You need to get the right fuel into a sheltered space, nurture the little flame until a critical level of heat is reached and the fire becomes strong enough to survive and spread. America lost its shelter and China not only built its own but occasionally would come over to your shelter and kick it away. And once your fire is burning, what happens when you take the collection of burning sticks and separate them? Separated, the cold and wind snuffs them. America's burning sticks were separated and snuffed.

The lower oil prices would normally self-adjust and the economy would normally come out stronger after the adjustment. But things are not normal. We are on the edge of world war with increasingly aggressive enemies. I can't think of a time when America was weaker over the last 130 years.

[mick silver]

Saudi Prince: Oil will never return to $100 http://money.cnn.com/2015/01/12/investing/oil-prices-saudi-prince/index.html

Light Crude
45.49

[Neuro]

I'll stick out my neck and predict that the falling guillotine knife of the oil price stops now. No way the oil price will go into the 30's!

[slvrbugjim]

I'll stick out my neck and predict that the falling guillotine knife of the oil price stops now. No way the oil price will go into the 30's!

Hope you are correct, my family's welfare depends on this

[BarnkleBob]

Global DAILY oil consumption, deliveries & sales: 92 million barrels per day

Which means that there are 92 mm bbls of oil in transit every day, 7 days a week, 52 Weeks of the year..... And the oils value while in transit is recognized & used to create short term dollar denominated credit by the banks & the credit/repo markets..... When the POO collapsed by 50+ %, so to did the value of the collateral that is used in the credit creation process.... IOW POO @ $100+ bbl creates twice as much instant credit than @ $50 or less a bbl can..... And most importantly, the instant credit is dollar denominated credit......

The collapse in POO effectively reduced the global circulating dollar denominated credit by 50+ %..... this will in time create a shortage of available dollar credits to service or extinguish dollar denominated loans.... borrowers who borrowed in dollar credit will be unable & incapable of servicing or extinguishing their obligations, which will result in defaults...

The defaults will then result in confiscation via foreclosure upon the collateral.... lets just call it what it is: "Co-ordinated Global Economic Warfare!"

[mick silver]

if your right bob on Global Economic Warfare were will this lead too ?

[Uncle Salty]

This article has it backwards.

Crashing oil prices are not going to rip the economy to shreds.

The crashing oil prices are the result of an economy that is being ripped to shreds by a financial system that has raped the world for decades.

It is the effect, not the cause. He has it backwards.

[Spectrism]

Global DAILY oil consumption, deliveries & sales: 92 million barrels per day

Which means that there are 92 mm bbls of oil in transit every day, 7 days a week, 52 Weeks of the year..... And the oils value while in transit is recognized & used to create short term dollar denominated credit by the banks & the credit/repo markets..... When the POO collapsed by 50+ %, so to did the value of the collateral that is used in the credit creation process.... IOW POO @ $100+ bbl creates twice as much instant credit than @ $50 or less a bbl can..... And most importantly, the instant credit is dollar denominated credit......

The collapse in POO effectively reduced the global circulating dollar denominated credit by 50+ %..... this will in time create a shortage of available dollar credits to service or extinguish dollar denominated loans.... borrowers who borrowed in dollar credit will be unable & incapable of servicing or extinguishing their obligations, which will result in defaults...

The defaults will then result in confiscation via foreclosure upon the collateral.... lets just call it what it is: "Co-ordinated Global Economic Warfare!"

In general I get the gist of what you are saying, but I am not sure it is so. Maybe I am just not understanding it well enough. The "credit" you are talking about is just agreed pricing and contract delivery terms. It is not money changing hands. It is not even digital money yet.

And the transfer of funds when deliveries are made are not used to extinguish extra obligations. If they were, give examples of such. The oil suppliers typically are not those in debt, except, of course, for small start ups and high cost locations. Those high cost locations will be mothballed until prices rise if they can weather this storm and not go bankrupt.

[Spectrism]

This article has it backwards.

Crashing oil prices are not going to rip the economy to shreds.

The crashing oil prices are the result of an economy that is being ripped to shreds by a financial system that has raped the world for decades.

It is the effect, not the cause. He has it backwards.

Now that I can agree with!

[Neuro]

Global DAILY oil consumption, deliveries & sales: 92 million barrels per day

Which means that there are 92 mm bbls of oil in transit every day, 7 days a week, 52 Weeks of the year..... And the oils value while in transit is recognized & used to create short term dollar denominated credit by the banks & the credit/repo markets..... When the POO collapsed by 50+ %, so to did the value of the collateral that is used in the credit creation process.... IOW POO @ $100+ bbl creates twice as much instant credit than @ $50 or less a bbl can..... And most importantly, the instant credit is dollar denominated credit......

The collapse in POO effectively reduced the global circulating dollar denominated credit by 50+ %..... this will in time create a shortage of available dollar credits to service or extinguish dollar denominated loans.... borrowers who borrowed in dollar credit will be unable & incapable of servicing or extinguishing their obligations, which will result in defaults...

The defaults will then result in confiscation via foreclosure upon the collateral.... lets just call it what it is: "Co-ordinated Global Economic Warfare!"
I have never heard of this connection between credit creation and price of oil. Do you have a link, or could you explain it a bit more. I am sure there is a connection, but if I understand you correctly you say if POO goes down 50% automatically credit will go down 50% too? Doesn't banks create credit to other endeavors apart from purchasing of oil?

[Spectrism]

The drop in oil price will hit key sectors of the oil industry but not destroy the economy in general. It will hit some newer and higher cost suppliers especially hard and even the cheap oil suppliers like Saudi Arabia are taking much lower profits. These profits were rip-offs the economy was bleeding to these elite before.

BUT the benefit is not so evident in the economy. One reason is the cost of healthcare. Thankyou Komrade Obama.

To fix all of this Obama has increased tax rates. Surely that will help the economy.

[BarnkleBob]

I have never heard of this connection between credit creation and price of oil. Do you have a link, or could you explain it a bit more. I am sure there is a connection, but if I understand you correctly you say if POO goes down 50% automatically credit will go down 50% too? Doesn't banks create credit to other endeavors apart from purchasing of oil?

Only oil created credit will be dimished..... The Oil in transit (92 mm bbls daily) can be & is used as collateral to create instant credit.... remenber the oil in transit has value which can be hypothecated for credit!

Its the same "float" that exists in your bank account.... lets say you write a check for $5000, and it requires 5 days for the bank to process your check & debit your account.... in effect you have 5 days use of that $5000 before it is charged out of your account...

Float is a term derived from maritime/admiralty jurisdiction.... An exporters goods were said to be "floating in transit" as the sailing ship sailed to its destination... the exporter for instance may have to wait six months for the return of his capital & profit (3 months voyage each way), this left many exporters w/o capital & cash.... The London Bankers would create an instant loan for a discounted value of the cargo when the exporter produced a "bill of lading" less the bankers commission to the exporter.... When the ship returned with the payment, the exporter would repay the banker.... By this means the exporter could keep his activities alive while his goods were "floating" at sea.... The bankers who loaned on these "floatations" would later become known as "investment bankers." The first maritime insurance company, Lloyds of London was organized to insure the "floating cargo" which served as loan collateral to protect the bankers loans from losses incurred at sea.....

The same scheme is utilized not only in the oil markets, but in almost all markets where shipping occurs.... The producer produces a bill of lading and pledges the cargo as collateral until payment is received, at which time the lender is repaid and the lenders lien on the cargo is released..... By this means the producer, exporter, etc. has instant access to their capital value when it is in transit.... And 92 mm barrels in constant transit is a tremendous amount of $ that would otherwise be inaccessable to the producers & exporters......

[Spectrism]

I don't see oil being "re-hypothecated" like gold. The oil is a shortly consumed commodity whereas gold remains unseen in "safe storage".

The concept of floated credit is not so devastating. If the oil exporter cut production 50% when it was at the $90 price and shipped half the normal quantity, it would really be no different than what we have today. It affects the oil producer and the shipping companies.... not much more.

[BarnkleBob]

Is it not true that an audit of the Fed revealed that the Fed loaned $16 TRILLION post the 2007/08 crisis?

THE FED AUDIT

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.

http://www.sanders.senate.gov/newsroom/press-releases/the-fed-audit


Where, in this period did the Fed get $16 tt in currency or credit? Since there was less than $1 tt in currency in circulation, the $16 tt had to be credit! Where did the Fed at a time when unencumbered collateral was not available and the value of existing collateral was crashing did the Fed find $16 tt in unencumbered collateral to create $16 tt in new credit???

The only market that could possibly stand for $16 tt in collateral is the oil markets! There is no other markets that possess the size & volumes to accomodate such a massive credit creation... None! Thus on the other side of the equation there is no other market that can provide for the extinguishment of that credit either....None!

It seems to me theoretically that future oil production was used as collateral for the $16 tt loan and the much greater POO was employed as a global tax to extinguish said loans..... This in effect aided in repairing balance sheets and reflating the system...... Now that the loans are extinguished, the balance sheets are recovering and the global economy is reflating there is no longer the need for the higher POO and the global tax.

Just a theory tho.....

[Spectrism]

The Fed did not need any oil collateral to create "credit". That is plain silly.

This is how they did it.... watch me create money right here and now....

I will now create money: $1,000,000,000,000.

See how easy that was?

[Serpo]

RECORD GLOBAL OIL DEMAND: Even As The Price Of Oil Declined (http://srsroccoreport.com/record-global-oil-demand-even-as-the-price-of-oil-declined/record-global-oil-demand-even-as-the-price-of-oil-declined/) Filed in Energy (http://srsroccoreport.com/category/categories/energy/) by SRSrocco (http://srsroccoreport.com/author/srsrocco/) on January 8, 2015 • 35 Comments (http://srsroccoreport.com/record-global-oil-demand-even-as-the-price-of-oil-declined/record-global-oil-demand-even-as-the-price-of-oil-declined/#comments)

http://www.linksalpha.com/images/social_share_button.png (http://www.linksalpha.com/social/mobile?link=http%3A%2F%2Fsrsroccoreport.com%2Freco rd-global-oil-demand-even-as-the-price-of-oil-declined%2Frecord-global-oil-demand-even-as-the-price-of-oil-declined%2F&title=RECORD%20GLOBAL%20OIL%20DEMAND%3A%20Even%20A s%20The%20Price%20Of%20Oil%20Declined&body=There%20is%20this%20notion%20put%20forth%20by %20the%20media%20that%20a%20decline%20in%20global% 20oil%20demand%20caused%20the%20huge%20drop%20in%2 0the%20price%20of%20oil.%C2%A0%20Ironically%2C%20g lobal%20oil%20demand%20is%20higher%20than%20ever.. .%20that%20is%2C%20according%20to%20the%20IEA%20-%20International%20Energy%20Agency.%20Not%20only%2 0did%20the%20world%20consume%20the%20most%20oil%20 it%20had%20ever%20in%20the&image=http%3A%2F%2Fsrsroccoreport.com%2Fwp-content%2Fuploads%2FTotal-Global-Oil-Demand-2013-2014-FIMAGE-1-90x67.jpg)
There is this notion put forth by the media that a decline in global oil demand caused the huge drop in the price of oil. Ironically, global oil demand is higher than ever… that is, according to the IEA – International Energy Agency.
Not only did the world consume the most oil it had ever in the third quarter of 2014, it was 600,000 barrels per day more than it did in the same period last year. In Q3 2013, global oil demand was 92.5 million barrels per day (mbd), compared to 93.1 mbd in Q3 2014:

http://srsroccoreport.com/wp-content/uploads/Total-Global-Oil-Demand-2013-2014-1.jpg (http://srsroccoreport.com/wp-content/uploads/Total-Global-Oil-Demand-2013-2014-1.jpg) As we can see from the chart, global oil demand was only 90.6 mbd in the first quarter of 2013, increased 1 mbd in Q1 2014 to 91.6 mbd and then jumped up to 93.1 mbd in Q3 2014. I don’t see any falling demand here.
Now, if we go back to the 2008 collapse in the price of oil from $148 down to $30, it did occur on the back of falling world oil demand. In the first quarter of 2008, global oil demand was 87.4 mbd, but just three-quarters later, it declined 2 mbd to 85.4 mbd:

http://srsroccoreport.com/wp-content/uploads/Total-Global-Oil-Demand-2007-2008-1.jpg (http://srsroccoreport.com/wp-content/uploads/Total-Global-Oil-Demand-2007-2008-1.jpg) Furthermore, global oil demand was down 1.9 mbd in a year’s time from 87.2 mbd in Q4 2007, compared to 85.4 mbd in Q4 2008. Thus, the fall in the price of oil did take place as world oil demand declined significantly.
On the other hand, global oil demand is forecasted to increase from 92.8 mbd in Q4 2013 to 93.5 mbd in Q4 2014. So… what gives?? How can the price of oil fall as demand increases??
Well, that’s a good question. I believe the fall in the price of oil is due to a DECLINE OF EXPECTED DEMAND on top of INCREASED SUPPLY. In their May 2014 OMR Report (https://www.iea.org/oilmarketreport/reports/2014/0514/), the IEA forecasted that global oil demand would be 93.5 mbd in Q3 and 94 mbd in Q4. Unfortunately, demand is 400,000-500,000 barrels per day less than what was forecasted.
You see, it doesn’t take much to disrupt the balance and price. However, as we can see, actual global oil demand is higher not lower than what took place during 2008 when overall demand fell 2 mbd.
Did the U.S. Purposely Destroy Global Oil Demand? There are many opinions as to why the price of oil has fallen more than 50% in the past four months. Some believe it’s the Saudi’s and the U.S. working together to destroy Russia, while others believe it’s the Saudi’s trying to kill the U.S. Shale Oil Industry. And then we have the media who attributes the huge fall in the price of oil due to weakening demand as economic activity falls.
I actually believe the fall in EXPECTED OIL DEMAND is due to the U.S. instigating sanctions on Russia. Let me explain. Sanctions on Russia really began to have an impact in the beginning of the second quarter of 2014. According to the article, U.S. Sanctions On Russia Begin To Bite (http://money.cnn.com/2014/03/21/news/economy/russia-sanctions-impact/):
Russian markets took another knock Friday as sanctions imposed by the U.S. over the annexation of Crimea began to hit oligarchs and their businesses.
Moscow’s MICEX index fell more than 2% — taking its losses for the year to 14%. The ruble was steady, after dipping early in the day, but has still lost about 10% since the start of the year.
And President Obama warned Moscow the U.S. would target key sectors of the economy if Russia escalates the crisis in Ukraine.
Then in the third quarter, economic activity continued to soften… Russia’s Economic Growth Slows For A Third Quarter (http://www.wsj.com/articles/russias-economic-growth-slows-for-third-quarter-in-a-row-1415884330):
MOSCOW—Russia’s annual economic growth continued to slow in the third quarter, as gross domestic product added 0.7% compared to the same period of 2013, the Federal Statistics Service preliminary data showed Thursday.
Russia is on track to post its weakest economic growth since 2000, the first year Vladimir Putin was president, excluding the year 2009 when the economy contracted under the burden of the global financial crisis. Massive capital flight on the back of Western sanctions and a recent decline in oil prices pose additional headwinds for the commodity-dependent economy.
Not only has Russia’s economy suffered, so have countries in the European Union that were dependent on trade with Russia. According to the article, Eurozone Growth To Slow As Germany And France Falter (http://www.telegraph.co.uk/finance/economics/11040964/Eurozone-growth-to-slow-as-Germany-and-France-falter.html):
The eurozone economy will grow more slowly than expected during the rest of this year as global conflicts continue to undermine business confidence, Europe’s largest central bank has warned.
…. It said conflicts in Ukraine and elsewhere – and European sanctions against Russia – were also affecting corporate sentiment, undermining the growth predicted for the rest of 2014.
If Russia and the European countries are experiencing a weakening of economic activity… how does that impact OIL DEMAND?? When you start to consider all the countries impacted by the Russian sanctions, then a decline of “Expected oil demand” starts to add up.
One more thing, the IEA forecasted that global oil demand would be 94 mbd in Q4 2014. However, it fell short by 0.5 mbd of the expected 94 mbd, which is only a decline of a half percent. Think about that for a minute. The price of oil declined 50% in the past four months on a decline of 0.5% of expected demand.
I dear say… it doesn’t take much to curtail economic activity to slow down global oil consumption by 0.5%.
Let’s take a look at the current SUPPLY vs DEMAND situation in the global oil market:

http://srsroccoreport.com/wp-content/uploads/Global-Oil-Supply-vs-Demand-JUL-NOV-2014-1.jpg (http://srsroccoreport.com/wp-content/uploads/Global-Oil-Supply-vs-Demand-JUL-NOV-2014-1.jpg) According to the IEA’s May 2014 OMR Report, the world was expected to consume 93.5 mbd of oil in Q3 and 94 mbd in Q4. As we can see (shown by the RED BARS), overall oil demand was 400,000 barrels a day (bd) less than forecasted in Q3 and 500,000 bd less than Q4.
As economic activity weakened due to the Russian sanctions, the IEA’s expected global oil demand fell short. The RED BARS are quarterly oil demand figures released by the IEA and the OIL BARREL BARS are actual monthly supply. From Jul-Nov, global oil demand averaged about 600,000 bd less than supply.
However, the oil supply vs demand equation was a much less than what took place in the second half of 2008:

http://srsroccoreport.com/wp-content/uploads/Global-Oil-Supply-vs-Demand-JUL-DEC-2008-1.jpg (http://srsroccoreport.com/wp-content/uploads/Global-Oil-Supply-vs-Demand-JUL-DEC-2008-1.jpg) In the chart above, global oil supply was 2 mbd higher than demand in July 2008. Demand continued to fall in the last quarter of 2008… and so did supply. The reason for the big decline in global oil supply in September was due to hurricane activity in the Gulf of Mexico.
The huge decline in the price of oil in 2008 was due to demand destruction stemming from a collapse of economic activity as the U.S. Housing and Investment Banking System imploded. However, I believe the present decline in the price of oil is a direct result from an U.S. orchestrated collapse of the Russian economy.
We must remember, a slight decline in economic activity across many countries will also impact oil consumption… a few ten’s of a thousand barrels a day lost here and there add up.
A Rising U.S. Dollar Also Negatively Impacts Oil Producing Countries Economic Growth While the Main Stream media continues regurgitate the notion that falling oil prices act as an economic stimulus, they only do so for countries that act as a PARASITE on others… such as the United States.
Before I get into that, let’s look at the U.S. Dollar vs Oil Price chart:

http://srsroccoreport.com/wp-content/uploads/DOLLAR-vs-OIL-PRICE.png (http://srsroccoreport.com/wp-content/uploads/DOLLAR-vs-OIL-PRICE.png) What a perfect MIRROR IMAGE… the price of oil declined in exact opposite fashion as the rise in U.S. Dollar index. This is one of the benefits of being the world’s reserve currency. Not have the U.S. sanctions on Russia impacted the Russian and European economies… it’s also wreaking havoc on Middle Eastern and other oil-producing nations.
According to the IEA’s December OMR Report (https://www.iea.org/oilmarketreport/reports/2014/1214/):


sharp declines in the value of many currencies, compared to the US dollar, have minimised, if not negated, the impact of lower crude prices on local-currency, retail product markets, even as they have raised the price of imported goods and services, thus putting a dampener on consumption.
lower oil prices significantly dent potential export revenues in net oil-exporting countries, slashing their income streams and in turn denting demand. In particularly cash-strapped economies, such as Venezuela and Russia, this impact is likely to be magnified as the risk of default escalates.

So, what we have here is a typical DOMINO EFFECT set off by the U.S. sanctions on Russia. I believe if the United States didn’t meddle in Ukraine or apply sanctions on Russia, economic activity and oil demand would have remained strong… along with the price of oil.
How about China? Some believe the weakening Chinese economy is to blame for a fall in oil demand. Again, according to the IEA, China is forecasted to consume 10.3 mbd of total oil products in 2014, up from 10.1 mbd in 2013. This turns out to be 100,000 barrels a day less than the 10.4 mbd, the IEA forecasted at the beginning of the year.
So… while China is consuming less than expected, it’s only one-fifth of the 500,000 barrels a day of lost global demand forecasted by the IEA in May of 2014. Regardless, global oil demand continues to increase even though its less than previously forecasted. This is a much different situation than FALLING DEMAND as we experienced in the second half of 2008.
Furthermore, the IEA forecasts that global oil demand will continue to increase in 2015 at 900,000 barrels per day more than 2014… even with the downward reversions due to weakened economic activity and geopolitical factors.
The U.S. Shale Oil Industry Has The Most To Lose The U.S. Government may have shot itself in the foot by instigating sanctions against Russia, which negatively impacted economic activity and global oil demand…. thus causing a 50%+ drop in the price of oil.
While Russia and Saudi Arabia would much rather receive $100 for their oil rather than $50, the high-cost U.S. Shale Oil Industry is about to receive an enema.
Already CLR – Continental Resources, the largest company drilling in the Bakken, spent $1.1 billion more on capital expenditures Q1-Q3 2014 than they received from operating cash flow. And this was when the price of oil was $93 a barrel. How bad will it be for Continental at $45-$50 oil??
Sure, maybe some of these companies have hedged production at higher prices, but I doubt they hedged 100% and for what time period? I believe we may soon see a peak and decline of oil production at the Bakken and then at the Eagle Ford.. the two largest shale oil fields in the United States.
The lower oil price is already impacting the U.S. shale oil industry as drilling rigs at the Bakken and Eagle Ford are declining . I would imagine the situation will get much worse in the second quarter of 2015, when the majority of backlogged wells already drilled (awaiting fracking) have been brought into production.
If the price of oil does not recover in the first half of 2015, we will likely start to see a decline in production at the Bakken, followed by the Eagle Ford.
As I have stated several times before, the peak and decline of U.S. Shale Oil Production is the DEATH KNELL to the U.S. and global economy. This will have grave implications for most paper assets going forward.
Gold and Silver will turn out to be some of the best investments to own in a peak oil environment.

http://srsroccoreport.com/record-global-oil-demand-even-as-the-price-of-oil-declined/record-global-oil-demand-even-as-the-price-of-oil-declined/

[mick silver]

could it also be we are using less oil ...

[Neuro]

The Fed did not need any oil collateral to create "credit". That is plain silly.

This is how they did it.... watch me create money right here and now....

I will now create money: $1,000,000,000,000.

See how easy that was?
Exactly! The petrodollar, isn't backed by oil, it is backed by guns. The fed doesn't require collateral to create USD, it may if it so pleases demand a collateral from the counterparty it lends the money too, but that isn't what happened as it made those emergency loans to the banks that own the Fed to the tune of $16T...

[jimswift]

The Fed did not need any oil collateral to create "credit". That is plain silly.

This is how they did it.... watch me create money right here and now....

I will now create money: $1,000,000,000,000.

See how easy that was?


At some point in this interview Bernanke says it is just a matter of adding zeros to an account via a computer to raise the levels.


https://www.youtube.com/watch?v=odPfHY4ekHA
https://www.youtube.com/watch?v=odPfHY4ekHA


https://www.youtube.com/watch?v=e0zY8o0laZY
https://www.youtube.com/watch?v=e0zY8o0laZY

[Neuro]

could it also be we are using less oil ...
But we are using more, not less. The Saudi cleptocracy were told in no uncertain words, that either you increase your production to max of what our rigs can handle, or we dethrone and behead you and feed your intestines to your fanatical people. The oil price will eventually be beyond your imagination, and then you can build more palaces and yachts, but for now you have to make do with the illgotten gains you already stole. Capiche?

[BarnkleBob]

The Fed did not need any oil collateral to create "credit". That is plain silly.

This is how they did it.... watch me create money right here and now....

I will now create money: $1,000,000,000,000.

See how easy that was?

Only problem is that it doesnt work that way.... there must be some form of collateral behind the operation, even if its worthless.... and its even better if it has some value.... for the most part, at least for "the little people" like us its acceptable.... but amongst the REAL PTB a completetly different system & set of rules exist.... LMAO, Ben Bernanke learned real quick and got the hell out with a quickness.... there is the fake chit he was familiar with and theorized about, and then he was introduced to the way things REALLY works.... SURPRISE!

[expat4ever]

The US is the strong arm of the NWO, England the money behind it, China is the production zone.

Not sure what the rest of the players are thinking but they have been offered something in the NWO. There's no resistence to it from anyone. Strange times for sure.

[Spectrism]

http://srsroccoreport.com/wp-content/uploads/DOLLAR-vs-OIL-PRICE.png



This picture says it all. The dollar increased against other currencies in this scary time of money seeking safety. The increased dollar value means it can buy more oil.... so oil price dropped relative to the dollar and any other currency pegged to the dollar.

When will oil prices rise? When the dollar drops against other currencies.... which is not in the foreseeable future. As war threats loom in the distance, people will be seeking safe places to put their wealth. Fears of inflation will drive people to US stocks... And, as bonds crater, stocks will be the choice again. It is all a game of financial vehicles because the world banks play money value games.

[Ponce]

As I see it.....Before oil there was no Roman Empire, no USA, nothing nothing at all, then oil was found and the world was born, Amen.

How stupid have we become? if anything is going down are only the "BANKSTERS" and nothing else.....money should ride on the shoulder of men and not men riding on the shoulder of money......what makes man great is his mind and not his pocket

V.

[Glass]

Wise words there Ponce.

I'm not happy ATM. I changed to a diesel vehicle and was enjoying 25% better economy for fuel that was maybe $0.05C - $0.10C per liter dearer than gasoline. SO I was in front. Now I'm paying a nearly 30% more per litres so I am behind the game. Diesel has come down but not by as much. Still got the old car in the garage but it's got major cooling issues so I can't bring it back on the road.

I like the idea of 3 - 4 weeks between trips to the bowser. That part is good. I still think I might stock pile a bit of fuel while the prices are lower. Can't store a lot but maybe 100 litres/25 gals.

[mick silver]

Copper plunged to a 5 1/2-year low, leading declines in industrial metals, as slowing global growth dims the outlook for commodities. U.S. equity-index futures slid, while the yen headed for its longest streak of gains since ...

[Serpo]

Wise words there Ponce.

I'm not happy ATM. I changed to a diesel vehicle and was enjoying 25% better economy for fuel that was maybe $0.05C - $0.10C per liter dearer than gasoline. SO I was in front. Now I'm paying a nearly 30% more per litres so I am behind the game. Diesel has come down but not by as much. Still got the old car in the garage but it's got major cooling issues so I can't bring it back on the road.

I like the idea of 3 - 4 weeks between trips to the bowser. That part is good. I still think I might stock pile a bit of fuel while the prices are lower. Can't store a lot but maybe 100 litres/25 gals.

Diesel is good.........

[Serpo]

Copper plunged to a 5 1/2-year low, leading declines in industrial metals, as slowing global growth dims the outlook for commodities. U.S. equity-index futures slid, while the yen headed for its longest streak of gains since ...

Commodities can decline and pms can rise...........

[EE_]

Is it possible the Paris FF has to do with the oil price crash?
Wall Street is talking about oil dropping to $33. Anyone that can't see this will create huge problems isn't watching.
Could the Paris FF have been done to drum up a larger scale war in the Middle East with the plans to destroy Middle East oil interests and drive the price back up and stop the global deflation we are seeing?
I have to think we are on the cusp of a huge derivative impolsion?

[Spectrism]

Is it possible the Paris FF has to do with the oil price crash?
Wall Street is talking about oil dropping to $33. Anyone that can't see this will create huge problems isn't watching.
Could the Paris FF have been done to drum up a larger scale war in the Middle East with the plans to destroy Middle East oil interests and drive the price back up and stop the global deflation we are seeing?
I have to think we are on the cusp of a huge derivative impolsion?

The plans of the controlling goons seem to include fomenting wars in various places by pitting groups against each other. In the ME, the ultimate war will be Israel against surrounding muslim hoards.

They don't care about the deflation/ inflation or pricing woes. They will shortly be pushing for a world currency to control and tax all transactions. To that end they will need to destroy existing money systems.

They also want to see many millions... no, billions of people dead quickly. Upsets in the food production, delivery, and quality of foods for the masses is not a concern.

Soon ETs will be published in main news media as "partners" to our world peace and helping us to manage our disasters. These are evil human-haters. They love to see humans suffer and die.

[sorryjoker]

I agree with your title.. (y)

[BarnkleBob]

Me thinks we must separate what we know & what we dont know.... At this apex we dont know much, except the POO collapse IS NOT related to supply & demand pricing fundamentals.... as demand increased 600k bbls per day in late 2014. If I was speculating on this collapse, I would begin with the theory that a margin call was placed upon the dollar denominated credit that supported $100 bbl oil.

Why & who would this serve is another ? in itself.... Excepting to say the operation could be designed to prick the oil bubble..... for instance a carry trader or oil spec would not want to get caught in a rising interest rate scenario..... The collapse in POO began around the time that the PM markets began their decline.... the POO collapse has been ongoing for at least a year and is now gaining momentum as the last traders are forced out of levered positions.....

But simply, its all speculation on our part if or until verifications begin to arise.

[Neuro]

Wise words there Ponce.

I'm not happy ATM. I changed to a diesel vehicle and was enjoying 25% better economy for fuel that was maybe $0.05C - $0.10C per liter dearer than gasoline. SO I was in front. Now I'm paying a nearly 30% more per litres so I am behind the game. Diesel has come down but not by as much. Still got the old car in the garage but it's got major cooling issues so I can't bring it back on the road.

I like the idea of 3 - 4 weeks between trips to the bowser. That part is good. I still think I might stock pile a bit of fuel while the prices are lower. Can't store a lot but maybe 100 litres/25 gals.
So they tax diesel much more down under? In Sweden I pay a couple of percentage points more for Diesel, but in Turkey it is about 10-15% below the price of gasoline. Still Diesel is good, in that you can store it for much longer than gasoline, chemically it is much more stable...

[Neuro]

Me thinks we must separate what we know & what we dont know.... At this apex we dont know much, except the POO collapse IS NOT related to supply & demand pricing fundamentals.... as demand increased 600k bbls per day in late 2014. If I was speculating on this collapse, I would begin with the theory that a margin call was placed upon the dollar denominated credit that supported $100 bbl oil.

Why & who would this serve is another ? in itself.... Excepting to say the operation could be designed to prick the oil bubble..... for instance a carry trader or oil spec would not want to get caught in a rising interest rate scenario..... The collapse in POO began around the time that the PM markets began their decline.... the POO collapse has been ongoing for at least a year and is now gaining momentum as the last traders are forced out of levered positions.....

But simply, its all speculation on our part if or until verifications begin to arise.
Saudi oil decided to commit financial suicide by extending their production capacity to max? New business model, let's work very hard to extract more than markets can bear, so that we lose a LOT of money...

[Cebu_4_2]

www.gasbuddy.com

[mick silver]

who knows what they crazy ficks will do , there one thing I do know they have a plan for the plan and think 20 are 30 years out