Crude Collapses Since Start of Year: A Credit Implosion Up Next

Mish

Crude extended it plunge today. For the year, it's down 32.5%.

Crude Last Six Months

Image placeholder title

Credit Implosion Coming Up

A lot of leveraged drillers and crude suppliers dependent on prices above $50 will see a credit implosion.

That's just a start.

A Supply Shock and a Demand Shock are Coming Up.

Deflationary Outcome

As noted previously, a Very Deflationary Outcome Has Begun.

Blame the Fed.

Deflation is not really about prices. It's about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.

See the previous link for discussion.

Mike "Mish" Shedlock

Comments (57)
No. 1-19
Ted R
Ted R

Possibly. A better answer is far to much global oil production coupled with weak and contracting global economic growth in many countries. Economic growth is slowing almost everywhere. High volatile metallurgical coal that my company mines and exports all over the globe(mostly to China and India) was selling for around $175 a ton in March 2019 and today is selling for $78 a ton. Talk about deflation. Talk about seeing your cash flow decline. Tough times for most energy commodities.

jivefive99
jivefive99

This is still short term noise. Peak oil for conventional production peaked in 2005, if you take out the US production (frakked and non-frakked). Zero interest rates and frakking extended our good times for a few years. But sometime, someway, most oil production will be unaffordable. Price will determine who gets the oil, and who stays in the middle class. CoVid-19 will eventually moderate. Then what? The long term comes back on the stage ...

SMF
SMF

Too much debt and debt servicing removes the ability of companies and people to adjust to new realities. Most of the companies that have gone under recently have had the underlying issue of too much debt, specially after low-interest rates acquisitions.

abend237-04
abend237-04

I feel for the oil patch folks. I hold our friendly Fed responsible for their plight also. The effect of Zirp infinitum was to suck $500 Billion into the oil patch, making oil out of rock. Now, it's flowing back out in earnest.
It's not just money. Tens of thousands of real people are going to be devastated personally by our herky-jerky Fed, this time in the oil patch.

klausmkl
klausmkl

XLE is in a h&S topping pattern and broke below the neckline a few weeks ago, I have a mm to about 12

Tony Bennett
Tony Bennett

"That's just a start."

...

Somewhere down the line we'll see civil unrest in OPEC countries if trend continues.

They got oil ... and, uh, more oil ...

stillCJ
stillCJ

Editor

Low crude prices might be bad for the oil patch, but shouldn't cheaper fuel be good for the rest of the economy? I know I like paying less for gas.

AWC
AWC

A bit down the road, it will be seen that the cure for low oil prices is, low oil prices. Let’s see what production figures look like at, say, $24. Not saying it will go that low, but if it does, I’ll be backing up the truck. Until then, I might do a little dollar cost averaging.

psalm876
psalm876

Require 700,000,000 Chinese to park their vehicles may cause demand to soften, eh?

ksdude69
ksdude69

That first chart is super bearish they would really need to pull one out of the hat to save that. Of course it's a pretty deep hat that never seems to surprise.

Casual_Observer
Casual_Observer

Someone clearly stepped in to stop another huge down day in the last hour of trading. I wonder who it could be. cough Fed cough

Six000mileyear
Six000mileyear

I have a downside target in the $10 / bbl area.

Mish
Mish

Editor

PPT - Nope This story more credible.

A big Market Maker in Chicago Literally Went Bust
Have not confirmed

TumblingDice
TumblingDice

I bought some ExxonMobil XOM today at $47.73. Buy low right?

TCW
TCW

I love cars with big block V8 engines, it's time to quit worrying about gas mileage and enjoy driving again. These small high flung turbo motors are too expensive and don't sound near as good!

Herkie
Herkie

Have a look at the US dollar index https://www.cnbc.com/quotes/?symbol=@DX.1

I can't wait to see what happens in the markets tomorrow. Will Wall Street see this as a massive stimulus and rally? Or will short covering and gold longs fly to safety? If it were not for CV19 I would say the market would reverse and rally, but given the news cycle as it is I think we could see circuit breakers tripped to the downside tomorrow.


Global Economics

FEATURED
COMMUNITY