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Old 12-11-2015, 01:30 PM   #581
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But again, why isn't very low oil prices and eventual lower costs considered a good thing?

Because the fact no one is buying it forecasts the future business environment will suck because business don't see enough work to use it, and because the US now is more of an oil based economy than ever, meaning we are losing jobs and profits throughout the country, and thus less shoppers for things. And those oil companies are a sizable portion of US commercial paper, meaning there is a reaping coming.

Thats why


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Old 12-11-2015, 01:39 PM   #582
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But again, why isn't very low oil prices and eventual lower costs considered a good thing?
It is for consumer spending and the chemical industry. Airline stocks are at an all time high, SUV's are selling fast, chemical plants are making plastics more cheaply, etc.
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Old 12-11-2015, 01:45 PM   #583
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Because the fact no one is buying it forecasts the future business environment will suck because business don't see enough work to use it, and because the US now is more of an oil based economy than ever, meaning we are losing jobs and profits throughout the country, and thus less shoppers for things. And those oil companies are a sizable portion of US commercial paper, meaning there is a reaping coming.

Thats why


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My view on that is not that 'no one is buying it'; rather I see an oversupply based on NEW sources.

IMHO, The price isn't going down because of lack of demand it is going down based on new sources creating an oversupply. Again, a positive for most businesses. But I could be wrong.
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Old 12-11-2015, 02:11 PM   #584
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My view on that is not that 'no one is buying it'; rather I see an oversupply based on NEW sources.



IMHO, The price isn't going down because of lack of demand it is going down based on new sources creating an oversupply. Again, a positive for most businesses. But I could be wrong.

You are right, over supply is high and the main driver of a price drip, yet that demand isn't increasing faster as prices drop precipitously is a potential harbinger for the global economic outlook.


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Old 12-12-2015, 10:04 AM   #585
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Some may disagree with me but a large oil oversupply and low oil prices are directly influenced by Saudis. They use their vast oil reserves as a heavy financial weapon. In 1980s low oil prices generated by Saudis oil market oversupply helped to bring down USSR. Today they are doing same thing in order to push out Russia from the ME and destroy their main competitors including US oil industry. Saudis oil extraction cost is the lowest in the world. The question is if Putin's Russia is going to accept similar economic fate as USSR and if not then what they could do?
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Old 12-12-2015, 01:15 PM   #586
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Not just the Russians but also the Iranians. Also the Saudis need to maintain cash flow to support largesse to their population and royals.
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Old 12-12-2015, 01:38 PM   #587
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Well they signed a big climate deal today in Paris, including Saudi Arabia and Russia.
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Old 12-12-2015, 01:53 PM   #588
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Well they signed a big climate deal today in Paris, including Saudi Arabia and Russia.
If you think that Climate Control is most important vs Global Economy on World economic agenda and Saudis and Russia are on board then why they continue to pump excessively and drop the price even more? After all a simple economic law is: the higher price= less use. While higher price should be less affordable in order to reduce the emission.
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Old 12-12-2015, 02:07 PM   #589
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Chesapeake Energy (CHK) would have been a good short, but it may be too late now. They are facing bond payment default and could easily be bankrupt in a year or so. With natural gas prices near $2/mcf, they (and other gas producers) are in deep trouble.
OMG!! So glad I got out of LLPFX a while back.
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Old 12-12-2015, 02:11 PM   #590
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Saudis and Russia are on board then why they continue to pump excessively and drop the price even more?
Signing and complying are five different things.
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Old 12-12-2015, 03:56 PM   #591
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Not just the Russians but also the Iranians. Also the Saudis need to maintain cash flow to support largesse to their population and royals.

Suad's can just cut services. People will bitch but power will remain centralized, no big thing geopolitically. All the talk of Saudi running a negative surplus is a non-event.


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Old 12-12-2015, 04:06 PM   #592
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In an interesting turn of events, i just took a customer which is one of the world leading oil firms, and they are paying me big bucks to help them out despite massive internal layoffs as oil is dripping. While i was there last week going through my proposals they just kept getting paler as oil plummeted.

So in an odd way, i'm now profiting on big oil, daily.



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Old 12-13-2015, 02:14 PM   #593
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I bought small quantities of both CVX and MMP this year. Both have great dividend yields and I'm in the green overall YTD.

Was going to buy KMI at one point and REALLY glad I didn't.

Tempted to add some more MMP if it dips back into the $50 - $54 range or lower.
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Old 12-14-2015, 06:10 AM   #594
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Could anyone explain why the markets crater when the price of oil drops?

I'd think that the markets would go UP when oil is down, as energy costs drop, increasing corporate profits.

What the heck am I missing?
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Old 12-14-2015, 07:04 AM   #595
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Could anyone explain why the markets crater when the price of oil drops?

I'd think that the markets would go UP when oil is down, as energy costs drop, increasing corporate profits.

What the heck am I missing?
Post #581 offers one possible explanation.
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Old 12-14-2015, 08:09 AM   #596
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Could anyone explain why the markets crater when the price of oil drops?

I'd think that the markets would go UP when oil is down, as energy costs drop, increasing corporate profits.

What the heck am I missing?
Some economists point out that many US NG /Oil companies have huge Debts while their break even one barrel cost is about $50 what might trigger similar to 2008 financial crises.
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Old 12-14-2015, 09:32 AM   #597
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Some may disagree with me but a large oil oversupply and low oil prices are directly influenced by Saudis. They use their vast oil reserves as a heavy financial weapon. In 1980s low oil prices generated by Saudis oil market oversupply helped to bring down USSR. Today they are doing same thing in order to push out Russia from the ME and destroy their main competitors including US oil industry. Saudis oil extraction cost is the lowest in the world. The question is if Putin's Russia is going to accept similar economic fate as USSR and if not then what they could do?
I used to have a similar view until I looked back at the record. OPEC, led by Saudi Arabia, cut production through the early 1980s in an effort to prop up the price of oil. Russia, meanwhile, had geared up its oil exports, feeding a surplus into the struggling world economy(that also got new production from Alaska and the North Sea). Not until the middle of the decade did the Saudis (and cooperating OPEC members) give up on trying to limit supply and return to normal production levels. That's when the price of oil really cratered.

Here are some excerpts from Wikipedia:

"From 1980 to 1986, OPEC decreased oil production several times and nearly in half to maintain oil's high prices. However, it failed to hold on to its preeminent position, and by 1981, its production was surpassed by Non-OPEC countries[clarification needed]. OPEC had seen its share of the world market drop to less than a third in 1985, from nearly half during the 1970s.[14] In February 1982, the Boston Globe reported that OPEC's production, which had previously peaked in 1977, was at its lowest level since 1969. Non-OPEC nations were at that time supplying most of the West's imports.[15]

"OPEC's membership began to have divided opinions over what actions to take. In September 1985, Saudi Arabia became fed up with de facto propping up prices by lowering its own production in the face of high output from elsewhere in OPEC.[16] In 1985, daily output was around 3.5 million bpd down from around 10 million in 1981.[16] During this period, OPEC members were supposed to meet production quotas in order to maintain price stability, however, many countries inflated their reserves to achieve higher quotas, cheated, or outright refused to accord with the quotas.[16] In 1985, the Saudis were fed up with this behavior and decided to punish the undisciplined OPEC countries.[16] They abandoned their role as swing producer and began producing at full capacity, which created a "huge surplus that angered many of their colleagues in OPEC".[17] High-cost oil production facilities became less or even not profitable. Oil prices as a result fell to as low as $7 per barrel.[16]

"During the 1980s, non-OPEC production increased worldwide.[10] By 1980 the Soviet Union was the world's largest producer of oil.[11]"
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Old 12-14-2015, 11:11 AM   #598
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Could anyone explain why the markets crater when the price of oil drops?

I'd think that the markets would go UP when oil is down, as energy costs drop, increasing corporate profits.

What the heck am I missing?

Low oil price was good for a while, but it stopped being beneficial once the layoffs started in the US. The oil sector has been one of the very few areas of real growth since 2008. Those were high paying jobs. When they go away it has a ripple affect. Those employees had a big impact because they actually spent the money instead of hoarding it, as many companies have been doing.

My guess is the US will join much of the rest of the world in recession after the elections are over. The entire world is turning Japanese (they are back in recession again... abenomics failed... ZIRP might keep a depression away but in its place you get stuck in permanent recession).

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Old 12-14-2015, 02:38 PM   #599
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Could anyone explain why the markets crater when the price of oil drops?

I'd think that the markets would go UP when oil is down, as energy costs drop, increasing corporate profits.

What the heck am I missing?
I think the market drop is the initial reaction because people are focusing on the businesses that are hurt by dropping oil prices - not just the energy sector, but perhaps some financials as well.

Later, there is a delayed reaction - when statistics come back with improved consumer situation, improved corporate profitability, some strength in the economy, lower inflation, etc., there are broader market rallies, but not as dramatic.

IMO it's not a zero sum game. I think far more people and companies are helped than hurt by any commodity price drops, but that's an opinion. The US isn't a hard resource/extraction based economy, for example. Consumers make up 70% of the US economy, and there are many industries that are helped by lower commodity prices.

The problem is the markets tend to focus on the immediate and dramatic results and don't look ahead to more subtle, long-term results.
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Old 12-15-2015, 06:11 AM   #600
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Could anyone explain why the markets crater when the price of oil drops?
My stab at the question after 38 years in the oil business...

According to a recent study a typical well contributes to the livelihoods of 115 people. There has now been over 200,000 worldwide jobs lost due to this downturn. That has a huge ripple effect throughout the economy. The industry supports 13 million U.S. jobs and 10% of the U.S. economy, delivers $95m a day in revenue to our gov., and just since 2000, has invested OVER $2.5 trillion in just U.S. capital projects to advance all forms of energy, including alternatives.

Heavy Equipment -
(CAT for ex.) You should see the amount of heavy machinery at a well site - before AND after the well is drilled. Heavy earth movers and other industrial vehicles to the oil industry.

Steel -
with the thousands of horizontal wells using over 3 miles of pipe each. The demand for steel has gone down.

Pipelines -
No new activity - no trenching, pipes etc.

Automobiles -
Talk with any Truck dealer from TX to N.Dakota - business has fallen off huge!

Manufacturing sector -
Pipe fittings, gauges, steel, cement, and other fields that supply the oil industry.

FINALLY - IMHO
I think that this as steep as this drop off is - it will be almost as steep a rise!
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