OPEC is effectively dissolved, per BoA analysts

[Balog]

http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.html

"The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a "multi-year” glut and a mucher cheaper source of gas for Europe.

Francisco Blanch, the bank’s commodity chief, said Opec is "effectively dissolved” after it failed to stabilize prices at its last meeting. "The consequences are profound and long-lasting," he said."

[Ben]

Wow. Interesting report. Also of interest will be seeing what happens with fracking and other high tech, but somewhat expensive extraction methods. I'm not sure many of them will be viable at $50/bbl. I expect a lot of smaller operations to fold up or be absorbed by bigger guys.

[Perd Hapley]

I like the idea of "mucher cheaper" gas very mucher!

[Unisaw]

Wow. Interesting report. Also of interest will be seeing what happens with fracking and other high tech, but somewhat expensive extraction methods. I'm not sure many of them will be viable at $50/bbl. I expect a lot of smaller operations to fold up or be absorbed by bigger guys.

During the last 3 months, energy-related junk bonds have underperformed Treasury bonds by 12%!

[MicroBalrog]

It's a trick, get an ax.

[TommyGunn]

Other reports I hear indicate OPEC has dropped its price on oil significantly, trying to undercut America's increasing independance from OPEC oil and the trend toward fracking.   This is what analysts are saying has caused the recent dramatic drop in the Dow Jones Index from near 18,000 to mid 17,000 levels.

[wmenorr67]

As China's need for oil continues to wane and OPEC continues to produce at the same level, there will be a glut that will drive the price to a point that some wells will be shut down because it won't be profitable to operate them.  The market will correct itself and eventually there will be point that supply and demand will level to a point that prices will stabilize around $60-$65 a barrel.

[makattak]

Whatever the intention of the countries producing to drop the price of oil, I am all for it.

The oil production industry in the country will suffer.

You know who will benefit? Any industry that uses energy, and those who use oil will benefit even more. I think that's, oh right, every other industry.

A significant portion of the (officially denied) inflation lately has been because of energy and oil costs. I've seen the results already in prices of goods. (For example, who else has noticed what's been happening to the price of milk?)

[Balog]

Almost all goods and raw materials used to make those goods in this country are transported significant distances. Lower fuel costs helps in literally every facet of the economy. Just need to build some more refineries.

[KD5NRH]

It's a trick, get an ax.

Most likely; after all, if you control the price, and another guy is trying to take a piece with new tech, then dropping the price down cheaper than he's willing to sell at means he has to let his equipment sit. Once it rusts a bit, you can start bumping the prices back up, keeping them just low enough that it's never quite economically feasible for him to refurb his gear and start undercutting you again.

[grampster]

An article I read today speculates that OPEC, specifically Saudi Arabia are engaged in a price war with American oil producers (fracking and tar sands).  Saudi can afford to sell oil below the break even price for American producers and they seek to drive 'em out.  Junk bonds are loaded with 20-25% oil.  The big banks are on the hook for the junk bonds.  If Saudi's accomplish what they are suspected of doing, junk bonds will bust.  When junk bonds bust the large banks will be in trouble.  This article says the dominoes are in place for a repeat of 2008.  They say watch the junk bonds.  When they start to go, the market in general will crash.
Making things worse is that the Russian budget and economy is dependent upon oil being in the $100 bbl range.  With the embargo and that factoid, Russia is in a shitload of trouble and may cause them to do something really, really stupid in Eastern Europe.  Already America is rattling sabers by threatening to put nukes back into place and accuse the Russians of breaking a treaty regarding nukes.

For me, I'd like to round up the leaders of the major powers and OPEC and put them in a semi trailer and take it out to sea and sink it.

[makattak]

An article I read today speculates that OPEC, specifically Saudi Arabia are engaged in a price war with American oil producers (fracking and tar sands).  Saudi can afford to sell oil below the break even price for American producers and they seek to drive 'em out.  Junk bonds are loaded with 20-25% oil.  The big banks are on the hook for the junk bonds.  If Saudi's accomplish what they are suspected of doing, junk bonds will bust.  When junk bonds bust the large banks will be in trouble.  This article says the dominoes are in place for a repeat of 2008.  They say watch the junk bonds.  When they start to go, the market in general will crash.
Making things worse is that the Russian budget and economy is dependent upon oil being in the $100 bbl range.  With the embargo and that factoid, Russia is in a shitload of trouble and may cause them to do something really, really stupid in Eastern Europe.  Already America is rattling sabers by threatening to put nukes back into place and accuse the Russians of breaking a treaty regarding nukes.

For me, I'd like to round up the leaders of the major powers and OPEC and put them in a semi trailer and take it out to sea and sink it.

First, oil is a commodity. Do you mean many junk bonds are to oil companies?

Secondly, banks (at least when I was teaching this) are prohibited from holding junk bonds. (They have very tight restrictions on their risk pool.)

Big banks do not back junk bonds, else they would not be junk. I'm not sure what the article was claiming.

NOW, it may be smart (and arguably legitimate under National Defense) for the government to subsidize oil producers  (specifically the shale oil) to keep their pumps operational if the Saudis artificially lower the price. (Just enough to break even.)

It would be costly, but likely cheaper than allowing the Saudis to drive our domestic competition out of business.

But, fortunately in all of this, I've recently read the frakkers should be able to compete not quite down to $50 a barrel given new breakthroughs.

Russia cannot. Venezuela cannot. They're screwed long before we are.

[brimic]

NOW, it may be smart (and arguably legitimate under National Defense) for the government to subsidize oil producers  (specifically the shale oil) to keep their pumps operational if the Saudis artificially lower the price. (Just enough to break even.)

It would be costly, but likely cheaper than allowing the Saudis to drive our domestic competition out of business.

But, fortunately in all of this, I've recently read the frakkers should be able to compete not quite down to $50 a barrel given new breakthroughs.

Russia cannot. Venezuela cannot. They're screwed long before we are.

We could send the communists and the islamofascists into irrelevancy in one fell swoop. 
It would be too good to be true.

[Ron]

Drill baby drill! Frack em all!

[grampster]

Well, I did read that article on the internet.   So it must be accurate and true, eh?

Actually, I don't know doodly squat about junk bonds, the market etc.  I usually don't read that stuff, but I had been feeling good and had my Christmas spirit, so I needed to read something that would put me back in my usual negative and gloomy state of mind.

[Balog]

Well, I did read that article on the internet.   So it must be accurate and true, eh?

Actually, I don't know doodly squat about junk bonds, the market etc.  I usually don't read that stuff, but I had been feeling good and had my Christmas spirit, so I needed to read something that would put me back in my usual negative and gloomy state of mind.

http://www.zerohedge.com/
Motto: On a long enough timeline the survival rate for everyone drops to zero.

[MicroBalrog]

http://www.zerohedge.com/
Motto: On a long enough timeline the survival rate for everyone drops to zero.

Why do you think I donate to SENS?

[Perd Hapley]

Other reports I hear indicate OPEC has dropped its price on oil significantly, trying to undercut America's increasing independance from OPEC oil and the trend toward fracking. 

I attend the Independance every fourth of July.

[Scout26]

Sadly, it doesn't say how long Saudi Arabia can last on that $750 billion it has socked away:

http://qz.com/311179/the-real-reason-why-saudi-arabia-can-afford-a-price-war-against-us-shale/

[just Warren]

Once that's depleted the Saudis are going to have to cut the pork to either their elite or the masses.

Wonder who they'll choose.

Is it wrong to imagine that it might be a net positive if all these oil states collapse?

[MillCreek]

^^^I would be afraid that we would somehow get sucked into the swamp if the oil states collapse.

[just Warren]

I don't know, given the decision making of the last few administrations... [checks results] oh crap...we're doomed.

[lupinus]

But of course. We'll have to prop up the folks who prop up folks who want to kill us, so that folks who want to kill us don't kill the first folks and take over.

[Viking]

Sadly, it doesn't say how long Saudi Arabia can last on that $750 billion it has socked away:

http://qz.com/311179/the-real-reason-why-saudi-arabia-can-afford-a-price-war-against-us-shale/

They might've wised up a bit lately: http://www.huffingtonpost.com/2011/02/28/wikileaks-saudi-royal-wel_n_829097.html

[Boomhauer]

But of course. We'll have to prop up the folks who prop up folks who want to kill us, so that folks who want to kill us don't kill the first folks and take over.

Why don't we just step back, let them kill each other off, then mop up the survivors?