Saturday, January 17, 2015

Inflation Takes a Nosedive

Is the Federal Reserve concerned that the CPI has dropped below 1%?


I wonder how much of this is due to falling oil prices. I suspect most of it. While it seems obvious that the drop in oil prices will put downward pressure on industrial prices (i.e. tubular steel, industrial/gray water, sand, synthetic oils, bentonite, diesel engines, etc), it doesn't seem obvious that it will affect consumer prices.

Perhaps the drop in the price of plastics, rubbers and other chemicals in consumer goods can account for this. However, demand should start to build as the CPI drops and as consumers save an extra $80 or so per month in gas money.

Monday, January 12, 2015

First Victim of the Oil Drop?

Maybe. WBH Energy was targeting the Barnett combo play which has NGLs - the Barnett is largely a tight gas formation. From Reuters:
Jan 7 (Reuters) - WBH Energy, one of many tiny shale oil and gas producers in Texas, has filed for bankruptcy protection, becoming what may be the first U.S. oil company to do so since crude prices started tumbling six months ago. 
It listed assets and liabilities of $10 million to $50 million in its filing in U.S. Bankruptcy Court for the Western District of Texas on Sunday. 
The company could not be reached for comment. 
The privately held company, based in Austin, has leases in the Barnett Combo Play of the Fort Worth Basin, which mainly produces gas and is not a significant field in the current U.S. oil boom that has lifted output to the highest level in decades.
Two years ago, GMX Resources filed for bankruptcy protection. They later rebranded as Thunderbird Resources. This was somewhat of a shock to because GMX was a Williston Basin operator which is considered one of the stalwarts of the oil boom.

Tuesday, January 6, 2015

A Tale of Two Oil Gluts

Consider this:

The 1980's drop in oil price was due to a supply glut created by the lowest cost producer.
The 2010's drop in oil price was due to a supply glut created by the highest cost producer.

I don't know if this is exactly true or not, but the general idea that Saudi and US production costs are at opposite ends is rather appealing and perhaps very true.

Sunday, December 21, 2014

Is Oil a Financial Thing?

In The Prize, Daniel Yergin laid out the argument that volatility (not high prices) of oil in the early 1980s was caused by financial speculation.  The primary means of speculation was through derivatives.  The NYMEX had then recently introduced future contracts and, according to Yergin, the story goes that guys like T. Boone Pickens made a small fortune off playing the volatility.

T. Boone had dabbled in cattle and cattle feed and so was well versed in futures trading.  Flash forward 30-something years and we see a parabolic drop in oil prices.  It is a straight line, so to speak, and reads more like a panic riddled sell-off (drop in demand) than a supply driven increase.

Commentary from Charles Hugh Smith's blog:
Crowded trades (trades where almost everyone is on one side of the boat) unwind in precisely this sort of freefall. Once the trade has been unwound, however, the selling cascade exhausts itself and insiders who know better start buying. Buying begets buying, shorts start covering, and voila, a retrace that fills open gaps and kisses the 50-day moving average surprises everyone who was confident oil was heading straight down to $40/barrel. 
As I said before, the monetary base stops expanding and the Fed ends QE, all as oil prices begin their plunge.  Still think the Fed will raise interest rates this coming summer?  Does the Fed take the punch bowl away when the party is just getting started?

More Pipeline Politics

In case you didn't have a FT subscription (don't ask why I have one):




Russia produces about as much natural gas as the US, which is about 6 times the amount Saudi Arabia produces. I recall, as a sophomore in college, reading The Prize and setting the book down to give thought to the fact that the majority of the world's oil and gas resources had been discovered before my father was born (1953). So, just how political is energy?

Tuesday, December 16, 2014

The Chart I Never Saw Coming

Need more time to figure this one out, but it does look very, very interesting.