Most people don’t realize what a huge role the oil industry plays in the US economy. From Art Berman at artberman.com:
It’s game-over for most of the U.S. oil industry.
Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next.
Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view.
Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.
Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.
Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down.
The old oil industry and the old economy are gone. The energy mix that underlies the economy will be different now. Oil production and price are unlikely to regain late 2018 levels. Renewable sources will fall behind along with efforts to mitigate climate change.
Coronavirus is like termites that attack rickety wooden scaffolding. When the scaffolding collapses, you blame the scaffolding, not the termites. From James Howard Kunstler at kunstler.com:
Had enough excitement yet? At least the stock markets are following an established script: the bubble pops, the elevator drops, for a while it stops… and then investments sink to the deepest sub-basement, where they linger for a long, long time. Hello, next great depression…. We know how that story goes, even if it hurts.
This corona virus is something else. It engulfs whole populations in a fog of confounding narratives. Is it no worse than a bad common cold, except for old folks already half-gone with chronic illness? Or does it really slam people even in the midst of life? Well, Wuhan hospital director Liu Zhiming, 51, went down two weeks ago, and gastroenterologist Xia Sisi, 29, and Dr. Peng Yinhua, also 29, and some prominent Iranian politicians, and lots of very sick healthcare workers from Korea to Italy. Whatever corona virus is, I’m not persuaded that it’s a hoax.
Posted in banking, Business, Collapse, Debt, Energy, Financial markets, Geopolitics, Governments, Politics
Tagged CoVid-19 coronavirus, Democrats, Joe Biden, Shale Oil
There is carnage in the oil patch. From Wolf Richter at wolfstreet.com:
Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.
It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out this statement: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”
Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:
Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.
The shale boom is over, but not the financial fallout. From Wolf Richter at wolfstreet.com:
Texas at the epicenter. We’re witnessing the destruction of money that loosey-goosey monetary policies encouraged.
Following the sharp re-drop in oil and natural gas prices in late 2018, bankruptcy filings in the US by already weakened exploration and production companies , oilfield services companies, and “midstream” companies (they gather, transport, process, or store oil and natural gas) jumped by 51% in 2019, to 65 filings, according to data compiled by law firm Haynes and Boone. This brought the total of the Great American Shale Oil & Gas Bust since 2015 in these three sectors to 402 bankruptcy filings.
The debt involved in these bankruptcies in 2019 doubled from 2018 to $35 billion. This pushed the total debt listed in these bankruptcy filings since 2015 to $207 billion. The chart below shows the cumulative total debt involved in these bankruptcies since 2015.
The Great American Shale Boom is turning into the great American shale bust. From Anes Alic at oilprice.com:
After a decade of unprecedented growth and seemingly endless investments, the writing is now on the wall: the Great American Shale Boom is slowing down and this could have some grave consequences both the industry and the financial markets.
A total of 32 oil and gas drillers have filed for bankruptcy through the third quarter, with the total number of bankruptcy filings since 2015 now clocking in at more than 200.
Yet, the most important underlying theme precipitating the collapse is a growing financial squeeze as banks and investors pull in the reins and demand that shale drillers prioritize profitability over production growth.
The shale industry has been built on mountains of debt and the day of reckoning is finally here.
In 2008 US production of crude oil and petroleum products was 6.8 million barrels a day. This September, it was 17.5 million barrels a day. From Wolf Richter at wolfstreet.com:
The US Becomes Net Exporter of Crude Oil & Petroleum Products for First Time.
US exports of crude oil and petroleum products – this includes gasoline, diesel, jet fuel, naphtha, and many others – exceeded imports in September by 89,000 barrels a day, the EIA reported today, and so the US became a “net exporter” of crude oil and petroleum products for the first time on a monthly basis in the EIA’s data going back to 1973:
The US has exported petroleum products – gasoline, diesel, heating oil, naphtha, propane, etc. – for a long time. This is the business some refineries are in. They buy crude oil from wherever they can get it, including other countries, and sell refined product to customers in the US and other countries.
The shale patch will not be making much of a contribution to economic expansion over the course of the next few years. From Nick Cunningham at oilprice.com:
A few high-profile shale executives say the glory days of shale drilling are over.
In a round of earnings calls, the financial results were mixed. A few companies beat earnings estimates, while others fell dramatically short.
The chief executive of Pioneer Natural Resources, Scott Sheffield, said that the Permian basin is “going to slow down significantly over the next several years,” and he noted on the company’s latest earnings call that the company is also acting with more restraint because of pressure from shareholders not to pursue unprofitable growth. “I’ve lowered my targets and my annual targets, a lot of it has to do with…to start with the free cash flow model that public independents are adopting,” Sheffield said.
More and amplified weirdness is coming. From James Howard Kunstler at kunstler.com:
The Golden Golem of Greatness shifted into mad bull overdrive for last night’s Minneapolis fan rally, cussing and bellowing at the picadors of the Left who have been sticking lances in his neck for three years. Decorum is not Mr. Trump’s strong suit, but then the bull is not sent into the ring to negotiate politely for his life. The narrative of the bullring is certain death. The bull must do what he can within his nature to dispute it.
It’s in Mr. Trump’s nature to act the part of a reality TV star, and, of course, it is the nature of reality TV shows to be unreal. That is perhaps the ruling paradox of life in the USA these days. Saturated in unreality, the spectators (also called “voters”) flounder through a relentless barrage of narratives aimed at confounding them, with the unreal expectation that they can make sense of unreal things. In a place like Minneapolis of an October evening, you can go see the Joker movie or take in the President’s rally — and come away with the same sense of hyper-unreality. We’re no longer the nation we pretend to be and we don’t know it. Jokers are wild and the joke’s on us.
Just like Silicon Valley investors are backing away from unprofitable unicorns, shale patch investors are backing away from unprofitable shale drillers. From Nick Cunningham at oilprice.com:
The growth in U.S. shale production is grinding to a halt as low prices put drillers in a financial vice.
The slowdown has been unfolding for much of 2019, but the latest slide in oil prices is another blow to cash-strapped companies. Share prices for many E&Ps are down sharply. For instance, Devon Energy’s stock is down 20 percent since mid-September; EOG Resources is off by 17 percent and Pioneer Natural Resources is down by more than 13 percent. Many other companies have seen similar declines.
If shale oil production collapses, does that mean the US has to suck up to Saudi Arabia even more than it already does? From Nick Cunningham at oilprice.com:
The financial stress sweeping over the U.S. shale sector has led to a sharp contraction in activity.
Oil and gas activity in Texas and parts of New Mexico declined in the third quarter, with the Dallas Fed’s business activity index reporting a reading of -7.4, down from -0.6 in the second quarter. A negative reading signals contraction while a positive reading indicates expansion. Falling deeper into negative territory indicates that shale drillers in the Permian further cut drilling activity over the last three months.