It's a moving target but the currency was down over 20% earlier today and 56% YTD. The collapse in oil prices coupled with tighter sanctions has led to a currency crisis that seems now to be self-fulfilling.
Last night the RCB raised rates from 10% to 17% but obviously that didn't help.
Putin certainly doesn't seem like the all powerful dictator people were making him out to be only a few months ago.
Is there anything the country can do at this point to prevent a total collapse of their economy and currency?
Kicker, I can't talk much about this, but I wouldn't take too much joy in Russia's misfortunes not out of any love for Moscow, but a regime collapse would be real ugly. It won't be 1991 again. There is no good guy with the white hat waiting in the wings
Some of my really good friends are Russian. I fully agree, though. I see very little (as I mentioned in the demographics post) that looks good for Russia in the near term and long term.
I also fear that Siberia becomes a flashpoint, as I'm not convinced Russia has the resources to use or protect it.
Russia was broke in the early nineties, bartering oil for food. They have many more assets now to leverage, and will do what they have to. Western countries will want control of leadership, and thats a non-starter. Putin believes that relinquishing any power will ultimately lead to his arrest and imprisonment. Not because he believes he is guilty of anything, but he assumes the next in power will still be a tyrant and thats what tyrants do to each other.
So look for them to try to increase their dollar-denominated trade with China. China receptivity may depend on their relations with us.
However the Buffet bottled up Bakkens and the more inefficient and poorly located Marcellus based investments will suffer. Texas Oklahoma is based on liquid condensate and proximity to the the worlds largest, most efficient and low cost downstream petro chem chain of facilities will be able to perform well below $45 per barrel.
Lots of those articles are planted so the transaction activity speeds up...they are scenarios not facts...and incomplete and ignorant of many factors as well.
She believed that this combined with no incentive at all to work because their jobs were secure no matter what to created almost a crooked lifestyle in that one had to learn to be crooked to do more than merely survive. She believed that these factors combined with no history at all of personal freedom and democratic rule would doom the Russian people for many years.
Putin is merely a throwback to the old autocratic regimes and may, oddly to us, be comfortable to the Russian people. I can't believe the massive alcoholism is any better and there is still no real incentive to do better at work in any great measure in Russia. Combine this with being a one trick economy and you have an accident waiting to happen.
Putin has already parroted the old Imperial/Communist stuff in his adventures in Ukraine. One should hope he doesn't try to solve his problems with nationalist nonsense about foreign bogey men to keep the people in line and find somewhere else to invade. There has to be some democratic dissent in Russia somewhere and we have to hope that it comes out somehow and has an effect. This could get ugly.
I am Lorde, la la la
And a world where not all currencies are based on gold can dramatically impact this ability.
no, but a corrupt unchecked central bank that prints currency at will is King Dollar?
Also, while the big boys would indeed swallow some over-leveraged newish players, I worry that SA (unbeholden to voters and interest groups like America, who will start to hear it from producers if they haven't already) can keep at this to a unique degree that could spell trouble. Beyond just energy Co profits...widespread bankruptcies could engender panic beyond the sector, meaning more economic pain elsewhere. Not 08's sequel, to be sure, but in a fragile economy to begin with...
"King Dollar" is a useless trope, thrown out without realizing that reserve currencies can, do, and should end.
Not that it has been called such, but the world is in the middle of a world war, with the Middle East as its primary theater and most Western nations not as principals, for a change. Saudi/Wahhabis/Sunis vs. blood enemies Shia.
HomerJones - generally agree; if we have another 1998 (LTCM and Russia devaluation, e.g.), the effects will not be localized and will further reduce change of economic recovery/health in ROW, which in turn will impat US. The NA Shale Revolution is what US economic strength, relatively speaking, has been bottomed on the past five years, and with WTI cratering, that stool is teetering, which leads to
Bill2 (hey! how are you?), whose take is accurate, I believe, except that there will be a lot of collateral damage as new horizontal drilling shrinks, cash flows reduce, and covenants are violated--can be a negative feedback loop. You're right about the Marcellus, which is why the pipeline companies, e.g., Kinder Morgan, SE, etc. are very keen on obtaining approvals to build pipelines into New England/NY/NJ as new, cheaper, closer sources than tradtional Gulf Coast.
Precarious period right now.
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outside of the shale states has lost 32,000 jobs since January of '08.
I win! (BTW, you left out Oklahoma which is having an oil/gas boom as well)
And Nebraska and California.
Also, while the big boys would indeed swallow some over-leveraged newish players, I worry that SA (unbeholden to voters and interest groups like America, who will start to hear it from producers if they haven't already) can keep at this to a unique degree that could spell trouble. Beyond just energy Co profits...widespread bankruptcies could engender panic beyond the sector, meaning more economic pain elsewhere. Not 08's sequel, to be sure, but in a fragile economy to begin with...
I'm not sure where Bill got his numbers by the breakeven price is probably much lower than what most of the "experts" are saying. The companies will quickly turn off the marginal rigs and they'll have a laser focus on cost production. The capex is already spent so they just need to focus on getting the oil out of the ground as cheap as possible.
Nobody really knows how low they can go but they'll definitely go lower than what is current consensus.
and now....a broke laborer....but I can still dream.
This guy said it best:
Oil prices are going to be low for a while
armstead98 : 9:34 am : link : reply
The US shale boom has fundamentally shifted the supply-demand dynamic. Most of the capex has been spent so now the US companies will work on lowering prices.
Meanwhile everyone else is going full speed ahead at their own pumps.
The US also learned that lesson by proxy. Also not sure we could do it and get away with it. And it appears to be more in the interest of our allies than us.
Second, hello to several old friends who posted earlier and a shout out to a rare sighting from ColHow.
Insights that the Russian easily available reserves (without massive capital infusions and a whole new level of care and sophistication in operational proficiency )would run out by 2017 was discussed on here in 2006.
The fate of the Russian oil economy was sealed when the Putins put oligarchs who did not kick up the Vig in prison and changed the taxation rules post Royal Dutch Shell investments and contracts. Once rule of law on contracts was violated...Fiji could get more Western Investment capital for the oil and oil equipment industry than Russia would. And their production practices and equipment and personnel are circa 1950.
Next, no one of the producers can be the swing player any of them were in the past for very long for all the ME players need to buy off all their possible sources of overthrow at levels close to what they take in ...and that ever present social duex ex machina only goes in one direction..."what have you 5000 family members done for me lately?"
next..small point...OPEC in the 1970s was controlled by the four violent prone leaders of their short term extraction minded wolf heap regimes led by the ever prone to chaos proximate located Saddam. Re read for fun the OPEC Vienna headquarters raid of Carlos and how the three factions were herded into different clumps to intimidate the Saudis...as one reminder of the how the 5000 are/were easily frightened.
Next...as prices go down each operators reasons for pumping becomes very different. So Nigeria no longer makes profits...it needs cash so they pump. Not so Western for profits. The quasi state owned Nationals like Total and Eni are half way between.
So in the US/Canada: The "true" way to look at the market is divided into ten ways:
A) Upstream Production
B) Midstream Transport
C) Downstream Refineries
D) Petro chemical progressive feedstock chain players
E) Equipment and Service providors
F) Fracking Truck Companies
G) Natural Gas Producers, Midstream, Downstream and Chemical Feedstock converters
H) Ditto Liquid Condenstate
I) Ditto Offshore Producers and Service Players
The interconnection, scale, efficiency, technological edges of the North American Energy and Chemical ( Chemicals are in 98% of everything) Industry is acres ahead of any other players and expanding the gap.
Four things make mockery of any prior "cost per barrel" calculations and drive this revolution:
1)liquid condenstate which is more pure and needs less refining before heading up the feedstock chain ....
2) short precise interconnected midstream to the petro Chem companies located on the Houston Ship Channel and Freeport/Coastal areas all the way to the Golden Triangle area of Port Arthur/Beaumont/Lake Charles.
Some glimpses into this aspect of NA Industry dominance:
The Houston Ship Channel is the most strategically valuable piece of civilian geography in the USA (yes more important than NYC or Washington...98% of everything humans make has Chemicals in it). It is a fifty mile long ship channel with 2-4 miles of refineries and chemical facilities packed tightly on each side of it. Miles and miles of precisely measured pipelines are underneath it all interconnecting the entire "Petro Park" Given the source of great crude and condenstate and gas only 200-700 miles away by pipe this dense interconnected robot of a complex is currently adding $250B in approved new capital projects in the next three years.
Go to Houston...take the 610 bridge and feast your eyes to the horizon lines at night and see one of the man made wonders of the world.
This area is getting so good that brand new this decade multi billion dollar plants built in Saudi and Asia are in mothballs already...victims of the new global low cost facilities of the Greater Ship Channel/Gulf Coast/Golden Triangle. We lead the world in chemical exports...and will for a century.
3) The contracts of TX'Ok plays are first secured and foundation tied to long term to this complex. Then we consumers come into play
4) In Texas and Oklahoma Production operating costs have been coming down for the last few years so a average cost per barrel estimate of even 3 years ago is no longer accurate.
The cost basis of the integrated Upstream/Downstream/Midstream/PetroChem players are so well able to pick off the much smaller riskier leveraged upstream production players its just part of the Texas small play upstream expansion/consolidation cycle.
Pls never take anything written in a financial "news" outlet as about anything but an already underway effort to make some insiders somewhere money speculating on when and how much the herd.
wanna..trade..ok read that stuff. Want to invest? ignore it
The only thing stopping the phenomenon is availability of water ( This century is a war for resources and water).
Now...is it enough for our total population...no..not close...we are not energy self sufficient. Closer than since 1940? yes.
Now what of the Saudi position? As long as we keep the Family as the Kingdom...they can be second in capability but they are so so far and away sitting on reserves its not funny.
There is no Iranian or Iraqi or Venezualean energy industry. Iran has to ship its own oil to refineries elsewhere and then buy it back to use it. Venezualean crude is so heavy the only refineries with the capabilities to process it are in the USA. Hugo can squawk until the cows come home...we have Venezuaela by the shorthairs or we would have invaded ages ago.
Iraq cannot get a dime from any good oil companies. Ditto Iran. Ditto Russia. Don't get access to the lastest...its just a matter of time.
The last Gulf BP oil spill was smaller than the amount that gets reported as a spill in Russia. And as the anecdote would lead one to conclude: They have a lot of waste. A lot.
If oil was ever found in a convenient place you could easily see by ones own eyes that there are is a part of America that never left the boom times of a modern gold rush. Ten minutes out of the Midland airport to Odessa will find you being passed by BMWs, Mercs, Lamborginis, Maseratis and all the toys which come to workers whose small homes on 2 acres of desert are supplemented by front yard parking spaces for the temp workers with electric outlets and time slots for the shower stall newly set up in the garage. The Super8 is $205 on many nights. Old concrete warehouses converted to "hotels" go for $189.00. the private golf club has 7 rigs on it. the public golf course has 22...more rigs than holes. The current best places for dancers and other professionals is the Williston Basin...not Vegas or LA. The new Opera House next to the rebar yard cost $185M and opening night was Rod Stewart!
As Rob noted there are two different economies in the USA.
And I cant prove it by I agree with GFL...Russia outside of Moscow suffered greatly when the moral education religion provided for many was eliminated. The violent deaths numbers and absentism due to drugs and alcohol are stunning compared to any but Third World lands.
just some scattered glimpses and thoughts to color what has been said already and better by others
sounds like a heck of a place...sortokinda.
Maybe not the whole reason but I'm sure it's part of the calculation for Saudi Arabia
Maybe not the whole reason but I'm sure it's part of the calculation for Saudi Arabia
Or it could be the Saudis trying to undermine US oil field development. It is hard to tell.
Who owns the HSC?
Tillerson and Putin seemed to be quite chummy just as recently as last year. From what Bill said, I'd be a bit weary of XOM allowing Russia to leverage (and steal?) much of our best technology, effectively bidding away a strategic competitive advantage.
The winners are going to be the sober people who come in after the lottery winners have burned through their windfalls. Google didn't wire the Internet; they figured out how to use everyone's sunk costs to their advantage.
Global price shifts are not aimed at Newfield Energy.
And as a stray comment...as far as ruble speculation...the Saudis are not remotely the most self interested in the ruble. Nor are we. China is.
The Russians are about to find out that the Chinese aren't really allies.
The second big question is how quickly the junk bond market money is used up in the oil patch. We know the majors are starting to cut back. We also know that Halliburton/Baker Hughes is a form of consolidation. I have no idea.
West Texas is still the sweet spot but if the price of oil weakens further, even West Texas will feel some strain...
The Port of Houston is a 25-mile-long complex of diversified public and private facilities. It is the busiest port in the United States in terms of foreign tonnage, second-busiest in the United States in terms of overall tonnage,[2] The port has expanded to such a degree that today it has facilities in multiple communities in the surrounding area and more than 150 private companies situated along Buffalo Bayou and Galveston Bay.[3] Many petroleum corporations have built refineries along the channel where they are partially protected from the threat of major storms in the Gulf of Mexico. The petrochemical complex associated with the Port of Houston is the largest in the world.
My mistake...I am used to the local custom of calling everything in Brazos, Houston, Galveston, Texas City and Freeport as "Ship Channel". The actual ship channel is just the 25 mile cut into Houston.
The ship channel is the epi center for the Corpus Christi to Patachgoula section of the Gulf Coast which dominates the world refining and chemical industry.
The new levels of interconnection between the shale plays and this complex and region is recent and powerful and lasting. Don't care what company names are on the signs...it is an American asset and it is not going away.
I am not sure many of us have been inside the gates of a modern chemical facility ( they are safety and Homeland regulated...you cant just wander on the properties or take pictures). They are really giant sq mile robots now given the decision process control systems that run them 24/7. Inside is a jet runway sounding series of hisses, boils, clanking and just over all roar that to me manifests an enormous confluence of technology and applied engineering in support of a huge economy and lately the world.
They aren't going away because of a temporary dip in oil prices. to me the question is whose oil prices ( and it wont be the Gulf Regions) and which unstable spigots get turned off first whereupon balance in supply and demand returns.
its is some kind of rule that Oil is found in either unattractive or unstable places. Look at the names of the exporting nations. Tell me that that motley collection can each stay stable for 12 months?
My point is that China wont collapse if Russia will first...it will merely buy up resources and send more people north faster.
Id bet $100 that the map of the world in 2100 shows Siberia is China all the way to the Urals and Russia is back to its European origins
The petrochemical industry won't be adversely impacted by the price of oil - actually it's the opposite because their input costs are falling. They'll be adversely impacted by demand - both from emerging markets and from Europe.
Agree completely on Siberia as well as your formerly offered views on pipelines north to Turkey.
West Texas is not just about light and sweet oil...its liquid condenstate is so useful for some chains of feed that it barely needs refining. That's essentially my point...small and mid drillers who over leverage did so on more than a long term price projection and may come and go...but the $45-50 oil price per barrel argument does not apply.
I think those guys were going to sell this year at any price...for they are operationally a mess. yes some additional ones may be affected by a sustained price reduction...but a chunk you had on a list last year are still the ones at the top of the list for change. all drilling expansions end in overleveraged sell offs. The overall integrated industry of that particular geography will do fine under any moderate tome and rate declines.
As you know...I don't care about "the market" or transactions. I was focused on an terrific aspect of our long term economy some may not be fully aware of.
My point is that Saudi actions would have to be so long and sustained to suppress American Industry that they and others would fail long before...restoring balance. I doubt the American Industry can or will be stopped. Other nations...Iran (as we negotiate deeper the screws tighten ?) or Russia as winter approaches? or Iraq as their instability and willingness to unite rather than finish never ending short term internal "business"?
Most NA drillers I know can slow down their supply chain of new well builders in a week and reverse just as fast. Most have cut back plans to grow...but plan to grow. instead of 2000 new wells its 1000...but NA upstream is till investing...that's my point. NA Midstream and Downstream and petro chem is building without stopping to breathe
For me, the 900 pound gorilla in the market is China and as long as they were growing their economy, demand for oil keeps rising. But we're now getting mixed signals from China and that's a big problem.
If you want to understand oil, look at other commodities like copper and iron that have dropped considerably due to relative weakness in China.
If China allows their economy to weaken, we're looking at a slowdown akin to or worse than 2008 and that will create some problems and opportunities for oil.
Link - ( New Window )
Since his father mothballed Shoreham, this was foregone, but he sure picked the ideal time to do it.
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For the Saudis to hurt both Russia and Iran economically. Russia for propping up Syria and the never ending war between them and Iran.
Maybe not the whole reason but I'm sure it's part of the calculation for Saudi Arabia
Or it could be the Saudis trying to undermine US oil field development. It is hard to tell.
I think that's also a reason. As I said not the whole reason. To me it's theornmain goal. The US shale industry is an economic competitor. IrN wants the Saudis dead.