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.