Energy Bloodbath Continues: Five Reasons Why Crude is Plunging

Mish

The price of Crude fell another 7% today. It's down 28% since October 3. What's going on?

Five Reasons Why Crude is Plunging

  1. Increasing oil production in the US. The US is on a path to oil independence. This is a good thing.
  2. Oil production in Russia is up.
  3. Trump granted significant waivers on Iran sanctions.
  4. Saudi Arabia, OPEC in general, and Russia all stepped up production based on Trump sanctions that did not fully happen. Europe is working out additional procedures to avoid US sanctions.
  5. The global economy is slowing. A global recession looms. Barring disruptions, the price of oil will fall.

I will be on Coast to Coast AM tonight (Tuesday November 13) to discuss the energy bloodbath. I am on about four times a month just after Midnight Central for economic updates.

Click on the above link for a local station if you want to tune in. This will be a short call.

In December, I will be on for an extended segment for an hour or more, taking live calls on the economy. The theme will be what's ahead for the economy in 2019. I do not have a date yet.

I disagree with Trump on sanctions and tariffs. Inevitably, both sanctions and tariffs are a tax on consumers or businesses in one way or another.

Tariff Scorecard

For every steel or aluminum US employee, there are dozens of US manufacturer employers that use steel and aluminum.

Herr's a Tariff Scorecard: 57 Companies Bitch About Trump's Tariffs, 7 Give Positive View

Trump has not brought back a single US job with his tactics.

GM and Ford both complain. For discussion, please see Auto Truce is Over: Trump Again Threatens the EU, Japan with a 25% Tariff.

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Mike "Mish" Shedlock

Comments (22)
No. 1-10
stillCJ
stillCJ

Editor

Mish, the way you write about Trump's tariffs, it is as if you expect them to be permanent. I would have expected you of all people to understand the strategy of negotiations. Also, what else can Trump do to get China to stop stealing our technology? Or should he, like all the previous presidents, just ignore that? BTW, I'm loving the lower oil prices, even though the IDIOT majority here in CA just voted to sustain the highest fuel taxes in the nation. The last increase passed by the dummycrat supermajority, which was "barely legal", should have been repealed but they put a misleading title on the Proposition 6 which fooled the ignorant voters.

Kinuachdrach
Kinuachdrach

"Inevitably, both sanctions and tariffs are a tax on consumers or businesses in one way or another."

True -- but incomplete. The lack of reciprocal tariffs has been shown in the real world to be a heavy burden on formerly-employed workers and on the taxpayers who are now supporting them.

And at some point, the unilateral free trade crowd have to address the elephant in the corner -- non-tariff barriers, such as China's "Make it in China 2025" policy.

Ted R
Ted R

Mish: As someone who has been in the energy business for thirty years as a coal producer and global coal broker and also as a natural gas producer I agree with your five points. Spot on. I'll be listening to you tonight on Coast to Coast.

MattH
MattH

What about a sixth reason - a credit contraction and speculative risk off that is deflating “all” asset bubbles. Gold has also been feeling the pinch of late.

C. P. Roberts
C. P. Roberts

I would like to know why oil is going way down and natural gas is going way up.

channelstuffing
channelstuffing

only reason oil quadrupled in price in 3 years is central banks printing trillions and buyin oil futures through shady front companies,you can pretend it's shale or iran like you can pretend the stock market quadrupled in 10 year by "earnings" growth (lol)!

Kinuachdrach
Kinuachdrach

Another possible explanation is the role of speculation -- increasing the natural price swings due to temporary imbalances in supply & demand. Those damn algorithms again!

Over the last 10 years, the price of oil has varied between $27/Bbl & $128/Bbl -- a factor of almost 5 times. Neither demand nor supply has varied by anything like a factor of 5.

For comparison, over the same period, the price of gold has varied between $750/oz & $1,850/oz -- a factor of about 2.5 times.

Recent price drop in oil is well within historical experience - no surprises there. Interesting feature with the rise of shale oil is that supply may be much more sensitive to oil price now, compared to the past era of oil mega-projects where supply today was relatively inflexible and depended on decisions taken 5 - 10 years earlier. It will be interesting to make real world observations about this hypothesis.

Ted R
Ted R

I hope, I really hope, that this is not the start of a major deflationary trend. If it is the world is in big trouble. Deflation and debt don't mix very well. God help the banks and bondholders.

pgp
pgp

Correction: The USA is perceived (by the markets) to be on the path to oil independence. In reality fracking is a "flash in the pan" for oil production. It will destroy the ground and ground water for a few years of oil supply before production falls off a cliff. There's only so much blood you can wring from a stone. Ignorance when practiced in economics and politics is ultimately very costly.