What’s Next for Oil: Whiplash

roller coaster

This is the closest we could come to a chart showing what is next for ojl and gas prices, and how it’s going to feel. (Photo by Patrick McGarvey)

A savvy investor once told me that if you read something in the news, it is no longer true, if it ever was. I keep this in mind as I read over and over that the world is awash in 3 billion barrels of surplus oil. This glut — always and everywhere specified as 3 billion barrels — is present, the conventional wisdom (oxymoron alert) goes, because the crafty Saudis refused to cut production when the price of oil tanked (metaphor alert). They did this, it is said, to run the pesky American oil frackers out of business before they took over the world. This reminds me of the engraved plaque found in many Irish bars: “The Lord invented whiskey to keep the Irish from ruling the world.” An endearing sentiment, but probably not true. Continue reading

Billions of Barrels of US Oil Set to Disappear. Poof.

oil fire

An oil refinery in Puerto Rico burns in 2009. That’s one way to make a bunch of oil disappear, but accountants can do it faster. And they’re going to. (Wikipedia Photo)

In a few weeks, several billion barrels of American oil will vanish in an instant. (I am not making this stuff up: the headline is right there on Bloomberg Business, hardly a chicken-little medium.) This is — shortly to be was — the oil that just a few months ago (Remember? When we were young, and happy?) was to return us to energy independence, to make us the number one oil producer in the world, to bring the happy days here again for good.

Okay, there were weasel words salted into those assurances all along, words that we didn’t realize were there until too late. The new American oil revolution was going to put us on the road back in the general direction of North American energy independence (as long as you counted Mexican and Canadian oil, too); and we would be the number one oil producer if you included in your definition of “oil” such things as biofuels, refinery gains from heat expansion, spillage and, if necessary, drippings from leaky transmissions in shopping mall parking lots. Continue reading

Death Watch in the Oil Patch

Pumpjack

Oil pumpjacks starting to suck oil instead of money. (You and I know, of course, that grasshopper pumps are not used in fracking, but have become a universal symbol for the oil bidness in the Mainstream Media, so there you go. And here you are.).

In the same sense that brave individuals are said to “fight” stage four cancer, the American oil industry has spent a harrowing year fighting reality. Since oil prices tanked last summer, the industry has drawn down its strategic reserves of whitewash, pig lipstick, shinola and embalming fluid to keep things looking good even as they were decomposing. They did a pretty good job, but then they’ve had a lot of practice.Their theory, apparently; when you’re kicking the can down the road, a myth is as good as a mile. Consider a brief compendium of the lies, damned lies and statistics the oil guys have sold the country in the past few years. Continue reading

Forbes: “Shale Oil Boom Goes Bust”

This happy fracker -- a Halliburton employee at a site in North Dakota’s Bakken play -- obviously hasn’t got the memo yet. It’s over. (Wikipedia photo)

This happy fracker — a Halliburton employee at a site in North Dakota’s Bakken play — obviously hasn’t got the memo yet. It’s over. (Wikipedia photo)

Yes, Forbes, the magazine of the Masters of the Universe has uncharacteristically published some discouraging words about the only good news the American economy has had to celebrate in many decades.

Oil output from the most productive U.S. shale fields is expected to drop off next month by 57 million [sic — they mean thousand] barrels of crude daily from April to May, the U.S. Energy Information Administration said Monday. That would represent the first monthly decline in more than four years, according to Reuters.

And then there’s Bloomberg Business, a more objective reporter of what’s going on in American industry, with the headline: “Shale Oil Boom could End in May After Price Collapse.”

Output from the prolific tight-rock formations such as North Dakota’s Bakken shale will decline 57,000 barrels a day in May, the Energy Information Administration said Monday. It’s the first time the agency has forecast a drop in output since it began issuing a monthly drilling productivity report in 2013.

Yet even after admitting that it’s over in the shale patch, the Pollyannas insist that it’s only for a while, until reduced supply brings prices back up and everybody starts doing exactly what they were doing before. How shall we put this? Continue reading

The Crash of 2015: Reckoning Day

You have a perfect plan. Then things begin to go south and before you know it, a day of reckoning. (Photo by motorkid.com/google images)

You have a perfect plan. Then things begin to go south and before you know it, a day of reckoning. (Photo by motorkid.com/google images)

 

The next phase of the Crash of 2015 begins today. The first quarter of the year is now complete, and that means two things for the debt-logged companies trying to stay alive in the U.S. oil fracking patch: it’s time to report the value of their assets to the issuers of their lines of credit; and it’s time to repay or roll over a bunch of the debt with which they are logged.

That first one is the killer. These companies, virtually every one of which has had negative cash flow from the beginning of the so-called “oil revolution, have sustained themselves first with stock issues, then with junk-bond issues, then with subprime loans. As slack as the underwriting of those loans has been, they do actually require the existence of assets whose value at least approaches the amount of the loan. Continue reading

The Glad News Bears

The Glad News Bears are cute and entertaining, but should not be mistaken for financial advisers or life coaches. (Painting by Frederick Stuart Church [Public domain], via Wikimedia Commons)

The Glad News Bears are cute and entertaining, but should not be mistaken for financial advisers or life coaches. (Painting by Frederick Stuart Church [Public domain], via Wikimedia Commons)

This week, the U.S. Energy Information Agency forecast that oil production in the country’s two largest fracking patches — Bakken in North Dakota and Eagle Ford in Texas — will actually decline this month. To those who have been watching the agony of the oil patch with clear eyes, this had all the shock value of a soaked weather forecaster, standing in a downpour, predicting rain. But it had no effect at all on the Glad News Bears, the relentless chanters of “Don’t Worry, Be Happy,” and “Ain’t Gonna Rain No More, No More.” Continue reading

Holding Accountants Accountable

If I had known that was the name of my accountant's firm, I don't think I would have turned over my life's savings....  (Photo by Indi Samarajia/Flickr)

If I had known that was the name of my accountant’s firm, I don’t think I would have turned over my life’s savings…. (Photo by Indi Samarajia/Flickr)

It’s on account of accountants that we can’t count anymore, and someone should hold them accountable. We call them bean counters not to disparage them — honestly, I mean no disrespect — but to remind us and them of their purpose: to tell us how many beans are in the jar. When instead they tell us how many beans were in the jar last year; or how many beans would be in the jar if we had only put more in; or exactly how many beans are in a jar we don’t have and can’t get, they are not just failing to do their job, they are doing a great deal of harm to the people and companies and system they serve. Continue reading

The Crash of 2015: Day 29 [UPDATE Day 30]

You have this perfectly good structure, and then you kick out a few of the supporting pillars, and the next thin you know the SEC is on the phone.

Maybe we could still live in the top floor? If we could just slow it down a little?

A couple of things to keep firmly in mind as we watch the Crash of 2015 unfold, pretty much on the schedule I’ve been writing about here for six months. First, the drop in oil prices is not the cause of this disaster, merely an accelerant. The fracking industry is succumbing to its inherent high expense, toxicity, rapid depletion rates and over-reliance on junk financing. Similarly, the stock market crash we expect to follow the fracking collapse would have come anyway because of its inherent instability, and indeed may yet occur before the chain reaction in the fracking fields has run its course. And finally, what is happening to fracking is also happening to the legacy oil business, only slower. Continue reading

The Crash of 2015: Day 21 [Update: Day 22]

Hold on a second, we’ve changed our minds. Can you just hold it right there, please? We’ve decided we like it the way it is…..

The economy of the United States and the world is on fire, and with the flames and smoke visible in any direction one cared to look, the President of the United States declared last night that the worst is over, “the shadow of crisis has passed,” and happy days are here again. In reality (a state that presidents and candidates for president never seem to visit) 2015 is shaping up to be one of the worst any of us have ever seen.

It’s a potent mix of flammable situations, from an unhinged stock market to a drought-ravaged West to the fiscal convulsions of China, Russia and Europe. But for us in America, the collapse of the bogus New American Oil Revolution is the fire that’s burning hottest and spreading fastest. This is how it’s likely to go: Continue reading

The Crash of 2015: Day 9

You have this perfectly good structure, and then you kick out a few of the supporting pillars, and the next thin you know the SEC is on the phone.

You have this perfectly good structure, and then you kick out a few of the supporting pillars, and the next thing you know the SEC is on the phone.

With oil prices at about half what they were six months ago, the most vulnerable players in the oil business, the frackers who brought about the new American Oil Revolution, are imploding. If you think that’s just their end of the boat sinking, no worries here, think again. They are, or were, the last best hope of continuing the oil bonanza, and they’re done. As soon as that fact is so obvious that even Faux News has to admit it (this may take a few months), it will dawn on us all that the very same thing is happening to the deep water drillers, the Arctic drillers and the tar sands wringers.

It would have happened at any oil price. The slump has merely brought it on sooner, and will force us to face — this year! — the reality that we will never again have quite enough cheap oil. That’s the meaning of the Crash of 2015. Now, about the schedule: Here’s what’s happened, what’s happening and what’s about to happen. Continue reading