December 10, 2014 at 10:03 pm #17384Raúl Ilargi MeijerKeymaster
Christopher Helin Fisk Service garage, San Francisco 1934 Interesting – if not outrageous – remarks today from Steen Jakobsen at Saxo Bank in Denmark,
[See the full post at: Can The US Bail Out Its Oil Industry?]December 10, 2014 at 11:35 pm #17385rapierParticipant
I had thought that the oil market could be managed somewhat via the paper market, ie. derivatives, as gold and stocks are to a large extent. Not saying it won’t be at some point but it seems the paper market is being left behind as a price setting mechanism with all the discounts now being offered. The Saudis and Iran and probably others are said to be offering oil at a 4 handle.
While to you and me a managed market isn’t a market at all for those with power any other kind of market portends death of their power. Why and how the Saudis went down this path may become one of the major stories of the period.
Admittedly it is very easy to get caught up in immediate short term things believing the portend huge trend changes when in fact looking back they are just squiggles. The overarching fact is that there are trillions of dollars, in bank deposit form anyway, that can put a bid under any asset, anyplace, anytime and many more trillions could be created by central banks.December 10, 2014 at 11:39 pm #17386Golden OxenParticipant
There is an old saying that “The Stock Market Cannot Stand Uncertainty.”
If that is true, “Look Out Below”
The goings on in the Tower of Babel made more sense than the financial babble and rantings of the current scene.
No one can even agree if oil going down is good or bad yet?????December 11, 2014 at 1:58 am #17388TulsatimeParticipant
There could be a problem if the Oil crash starts to threaten systemic problems in bankland. It looks like prices could really crater, and stay there for an extended period. And with so much of the fed QE proceeds plowed into energy since ’08, things could turn into shit for TBTF very quickly. With the government in such a polarized disposition these days, I don’t see how they could do the same bailout, short of contriving a national security situation out of it. There are a lot of very bad possibilities out there that seem really close, but then again there always are. I will fall back on my favorite quote from the romans, ‘the more things change, the more they stay the same’.December 11, 2014 at 2:17 am #17389unit472Participant
A variable oil import fee might be tolerable particularly if the proceeds were applied to the highway trust fund or some other application. As the US still imports several million barrels a day of foreign oil setting a $10 per barrel import fee would quickly mop up any surplus in the US ( assuming the oil can actually be moved which might be a problem for WTI) and put a floor under US oil prices that would still be low just not bargain basement.
What we don’t want is the Tverberg situation where production is lost for good during a price slump only to see prices soar as global demand exceeds supply. As prices recover the oil tax import tax is reduced.December 11, 2014 at 3:12 am #17390John DayParticipant
David Stockman presents the “shale bubble”, supported by the Fed “in plain sight” (and having a heart attack while choking on steak and Jack Daniels).December 11, 2014 at 3:06 pm #17400Variable81Participant
Is another US bank bailout in the wind?
Possibly, according to Martin Armstrong.
-GBVDecember 12, 2014 at 4:55 am #17403steve from virginiaParticipant
The idea that the US (government? Central bank? Musicians’ union?) can ‘bail out the US energy sector’ is absurd.
It is like grabbing your shoes and pulling up. You cannot pull yourself off the ground no matter how hard you try.
The establishment can shift funds from customers to drillers … or annihilate purchasing power altogether by making costly errors. It can add (or subtract) claims but the establishment cannot create some new form of fuel with which to bail. After all, the US energy sector’s product was just that: a new form of fuel, ‘unconventional’ crude.
Keep in mind, central banks have been shifting funds from customers to drillers (and bankers) since 2009 and the result can be seen in the lower prices! Customers are broke! They can’t (won’t) get credit. This plunge has fingerprints of Bank of Japan all over it: the Japanese are 35% broker than they were before Abenomics due to the collapse in the price of the yen! Some bailout …
The current oil price decline is structural in nature rather than a market defect. Market defects are price distortions. Customer insolvency has been caused by proportionately high energy prices since 2000: our consumption infrastructure is non-productive, fuel use is non-remunerative. High real prices are the outcome of increased scarcity: to make use of fuel we borrow as we cannot earn. Driving the car does not pay for it, what pays is debt. Exponential growth of loans has rendered insolvent those responsible for rolling these loans over — the customers.
Look at it this way: what is being priced lower is not extraction efficiency but the worth of the consumption regime. This regime is non-productive, it always has been, it has always required a massive debt subsidy. Exeunt the subsidy and the expected price of crude in such a regime is zero (or negative). It is not hard to calculate how little oil will be extracted under the circumstances because all the easy-to-extract forms have already been pillaged.
That the crisis has taken the form of lower crude prices has caught analysts by surprise but that is a defect on the part of the analysts not of the markets. There is nothing to ‘bail out’, only reality to deny.
BTW: some government action is inevitable but it will likely take the form of either another invasion of another country (Venezuela?) or gasoline rationing. Neither one will work.
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