The reason that crude oil price crashed

[smooth]

until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

I'm not sure the game of shutting down fracking really make sense. As I understand it (not being an oil industry insider nor expert), fracked wells are pretty small, which makes production rather elastic. If prices drop, fewer wells are drilled and production does stop, but the industry doesn't really go away. Equipment gets mothballed, supply production is cut, less experienced workers are laid off. But once prices go up back up the fracking starts right up again.

LNG involved massive facilities, huge political barriers, and time scales of a decade or longer, so stopping that with temporary low prices might be more plausible. If those projects get abandoned, to a large extent the clock is reset on them ever happening.

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[dmeter]

Well finding the bottom is what the speculators are up to at the moment
40 dollar a barrel perhaps even a dip to 30 then questions of duration are we here for a long haul or only for the short run, lot of questions still in the oil market, kind of thinking it will be long term Saudis will keep production up Russia will keep production up until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

Momentaly i don't see American Fracking operations to start shutting down. i see American Fracking operations to start new well 100000 barell every month.
Only must start shutting Canada oil sands,Australia off shore(some well)Kazahstan some well,Russia some well near arctic circle and well which have no direct connection with the pipeline.

proof
financial statement  oil company
sample
Marathon oil
Exspense crude oil production
North America E&P $11.59
International Africa $5.13 the benefits of non-existence of laws on environmental protection
Oil Sands Mining (Canada) $45.95

[freedomno1]

until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

I'm not sure the game of shutting down fracking really make sense. As I understand it (not being an oil industry insider nor expert), fracked wells are pretty small, which makes production rather elastic. If prices drop, fewer wells are drilled and production does stop, but the industry doesn't really go away. Equipment gets mothballed, supply production is cut, less experienced workers are laid off. But once prices go up back up the fracking starts right up again.

LNG involved massive facilities, huge political barriers, and time scales of a decade or longer, so stopping that with temporary low prices might be more plausible. If those projects get abandoned, to a large extent the clock is reset on them ever happening.

(American LNG may not be able to make much atm with the price window decreasing between here and Asia they also need to compete with oil which has more energy per barrel so its pretty grim presently)

In regards to fracking

It depends on the region and shale but based on the industry average price to get a barrel it costs 60 to 100 dollars so simply put it is uneconomical to produce if these prices remain for a long duration (less the minimum amount they need to produce to retain control of a wellhead and not give up the right, it means that the smaller companies will likely fold as they can't cover the operational costs and we may see some centralization in the new fracking zones)

http://www.businessweek.com/articles/2014-12-01/can-the-us-fracking-boom-survive-with-oil-65-per-barrel
Hamm boasted that Continental could operate at $50 a barrel. Now the world will probably get to find out if that’s true.
Well we are below 50 so the economics simply may not be there at this price.

Formations that have money spent already and are near completion and operation will be pushed through even at this economic level as it is already a sunk cost, but new shale or fracking operations will be stopped or post-phoned.

http://en.wikipedia.org/wiki/Oil_shale_economics
The production cost of a barrel of shale oil ranges from as high as US$95 per barrel to as low US$25 per barrel, although there is no recent confirmation of the latter figure.

http://www.theguardian.com/environment/2015/jan/06/oil-price-casts-shadow-over-frackings-future
The price of oil has dropped to around $55 per barrel, but fracking companies need prices of $60-100 to break even, reports Climate News Network

Fracking is an expensive business. Depending on site structure, companies need prices of between $60 (£40) and $100 per barrel of oil to break even. As prices drop to around $55 per barrel, investments in the sector look ever more vulnerable.

Analysts say that while bigger fracking companies might be able to sustain losses in the short term, the outlook appears bleak for the thousands of smaller, less well-financed companies who rushed into the industry, tempted by big returns.

There are now fears that many fracking operations may default on an estimated $200bn of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.

In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.


So economically oil price drops might do some damage here in the Bond market and cause some financial backlash.

Well finding the bottom is what the speculators are up to at the moment
40 dollar a barrel perhaps even a dip to 30 then questions of duration are we here for a long haul or only for the short run, lot of questions still in the oil market, kind of thinking it will be long term Saudis will keep production up Russia will keep production up until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

Momentaly i don't see American Fracking operations to start shutting down. i see American Fracking operations to start new well 100000 barell every month.
Only must start shutting Canada oil sands,Australia off shore(some well)Kazahstan some well,Russia some well near arctic circle and well which have no direct connection with the pipeline.

proof
financial statement  oil company
sample
Marathon oil
Exspense crude oil production
North America E&P $11.59
International Africa $5.13 the benefits of non-existence of laws on environmental protection
Oil Sands Mining (Canada) $45.95

Most of the big shale operations can weather this storm they have Hedges and Future contracts so they aren't feeling this yet, Alberta also has some money set up for this in the Heritage Savings Fund, after the lesson in the 1980s where Alberta took on debt this time around they are going to be doing some cuts to keep a balance.

Also the royalty structure can be adjusted in the short run due to economic circumstances so there is some leeway for the companies.

They can handle an even greater price squeeze Alberta has hedges and it uses WTI not Brent for its price so they already take discounts.
In the short run they do not need the Keystone line now, but Alberta does need it in the future to get rid of that price gap, that said the benefit for them now is that they will not need to use as many trains or current pipeline capacity to send oil and they can just cut back as needed, however paradoxically they are actually increasing production, as investments made before are starting to near completion.

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/alberta-companies-vow-to-increase-pumping-despite-collapse-in-prices/article22323031/

Alberta oil producers are poised to pump more crude into a North American market already brimming with U.S. shale supplies and booming oil sands output, deepening a glut that has sent prices into a tailspin and hammered energy shares across the board.

The rapid slide in benchmark oil prices – U.S. crude this week crashed below $50 (U.S.) a barrel, down from more than $100 in June – has prompted deep cuts to capital spending and forced several companies to slash payouts to investors.

But many are pledging to boost output anyway, even as lower prices erode profits and threaten corporate cash flows.

Crescent Point Energy Corp. on Tuesday became the latest player to cut its 2015 budget while promising increased production. It axed planned spending 28 per cent from last year, to $1.45-billion (Canadian), while at the same time signalling it expects overall output of oil, gas and liquids to jump by 9 per cent.

Such moves by Alberta companies will dump more crude onto a continent grappling with severe oversupply, as producers opt to reduce investments in new projects rather than pull back the flow of oil today.

Another 300,000 barrels a day (b/d) is poised to come from the oil sands alone this year, according to ARC Financial Corp.

“No one wants to disappoint their shareholders and say we’re cutting production. That’s death,” said Judith Dwarkin, director of research at ITG Investment Research in Calgary. “So it’s a bit of doing what they can to stay afloat during a difficult period and hoping somebody else shuts in.”

Crescent Point joins a slew of energy companies predicting higher production despite spending cuts. Cenovus Energy Inc., which pared its 2015 budget by 15 per cent and said it may cut further, said it plans to increase oil sands production by about 9 per cent this year, for example.

Similarly, neither Husky Energy Inc. nor smaller independent MEG Energy Corp. forecast cuts to production, despite MEG lowering its planned expenditures this year by 75 per cent and Husky chopping its budget by a third.

Analysts say the mismatch reflects several factors: financial hedges that guarantee higher prices; shale drillers such as Crescent Point shifting capital to more economic zones; and the pending start-up of several big-ticket oil sands projects that began construction long before prices began their precipitous slide.

Those developments “can’t just turn on a dime,” Ms. Dwarkin said. “They’re not going to stop, even though prices are low.”

On Tuesday, benchmark West Texas Intermediate skidded again, dropping 4.2 per cent to $47.93 (U.S.) a barrel. Western Canada Select oil sands crude fetched about $14.50 less than that, Calgary broker Net Energy Inc. said, or roughly $33.43 a barrel – roughly half expectations of some of the sector’s largest companies

[smooth]

There are now fears that many fracking operations may default on an estimated $200bn of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.

In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.

I doubt it. $200 bn isn't that much (compared to trillion+ questionable mortgages in 2008) and most of that debt was always considered high yield (i.e. risky), unlike mortgage bundles that were sold as AAA so leveraged sky high.

But you never know. Conditions may be worse today in some other ways.

Anyway, I wasn't suggesting that fracking wouldn't shut down, only that a deliberate strategy from OPEC to shut down fracking doesn't make sense. Predatory pricing can make sense when you can shut down a competitor which then has huge startup costs to return to the business once you stop dumping and prices recover. I don't see that at all. Fracking may consolidate but those larger surviving operators will be right back at it as soon as prices go up.

[freedomno1]

There are now fears that many fracking operations may default on an estimated $200bn of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.

In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.

I doubt it. $200 bn isn't that much (compared to trillion+ questionable mortgages in 2008) and most of that debt was always considered high yield (i.e. risky), unlike mortgage bundles that were sold as AAA so leveraged sky high.

But you never know. Conditions may be worse today in some other ways.

Anyway, I wasn't suggesting that fracking wouldn't shut down, only that a deliberate strategy from OPEC to shut down fracking doesn't make sense. Predatory pricing can make sense when you can shut down a competitor which then has huge startup costs to return to the business once you stop dumping and prices recover. I don't see that at all. Fracking may consolidate but those larger surviving operators will be right back at it as soon as prices go up.

True enough its a dent in the bucket compared to the mortgage crisis but it could compound with other problems.
Just felt it was an interesting part they put in the article contagion risk and all, it might be offset by other industries picking up though with low fuel prices etc.

For the Saudis I still think some price pushing is to their benefit but then again some OPEC producing countries are more reliant on oil prices than others Saudis have their Sovereign Wealth fund etc.

It's more like they need to pin the blame on some country because other countries don't want to change their production values in the end economics will rule all with the ones that survive the squeeze being around and stronger.

Either way world demand is more less down with China slowing down and the West in general showing modest growth rates so to say the least we may see this for a while yet.

http://www.telegraph.co.uk/finance/newsbysector/energy/11331520/Oil-recovers-as-Bank-of-America-says-Saudi-Arabia-may-blink-on-cuts.html

Saudi Arabia’s influential oil minister Ali Naimi has asserted that the kingdom – the world’s largest exporter of crude – intends to persist with its current strategy of keeping its spigots open to win back market share regardless of how much oil prices fall.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant,” Mr Naimi said in an interview with Middle East Economic Survey late last month.

Mr Naimi is expected to come under increasing pressure from other members of the Organisation of the Petroleum Exporting Countries (Opec) to row back on its current strategy and agree to holding an emergency meeting of the cartel ahead of its next scheduled gathering in the summer.
Opinions differ among the 12 members of Opec over whether the decision to keep the group’s quota of 30m barrels per day (bpd) of crude unchanged in November was the correct course of action given the risks this now poses to their economies.

[2dogs]

Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives

Could rapidly falling oil prices trigger a nightmare scenario for the commodity derivatives market?

 The big Wall Street banks did not expect plunging home prices to cause a mortgage-backed securities implosion back in 2008, and their models did not anticipate a decline in the price of oil by more than 40 dollars in less than six months this time either.

 We are heading for a derivatives crisis unlike anything that we have ever seen.
  It is going to make the financial meltdown of 2008 look like a walk in the park.


Our politicians promised that they would do something about the “too big to fail” banks and the out of control gambling on Wall Street, but they didn’t.
Now a day of reckoning is rapidly approaching, and it is going to horrify the entire planet.
http://www.silverdoctors.com/plummeting-oil-prices-could-destroy-the-banks-that-are-holding-trillions-in-commodity-derivatives/

[freedomno1]

Well I was thinking of another factor that could cause another oil crisis and economic crisis but forgot to mention it

Russia

All the sanctions with the Ukraine might lead towards an EU zone crisis which could then escalate quickly to a world level one well according to Soros
http://www.nybooks.com/articles/archives/2015/feb/05/new-policy-rescue-ukraine/

http://abcnews.go.com/International/wireStory/france-europe-hurting-russia-sanctions-act-28050002

http://wolfstreet.com/2015/01/06/russia-sanctions-stir-up-top-level-mini-revolt-in-europe/

In Europe, fears continue to grow over the potential consequences of the EU’s decision to double down on sanctions against Russia. Concerns have been brewing for some time, but it has finally dawned on some European leaders that completely alienating the EU’s largest neighbor and vital trading partner may not be in Europe’s long term interest. And these private fears are now being voiced in public.

During the run up to Christmas the Chancellor of Austria, Werner Faymann, cautioned against pushing the Russian economy towards collapse. “I cannot approve of the euphoria of many in the EU over the success of sanctions against Russia. I see absolutely no cause for celebration. I do not know why we should be pleased if the Russian economy collapses,” Faymann told the Oesterreich newspaper. “We would be sawing off the branch we are sitting on if we erected a new wall to Russia’s economy.”

With Austrian banks by far the most exposed among European financial institutions to Russian risk, Faymann has good reason to worry. But he is not alone. Faymann’s sentiments were echoed by the German Vice-Chancellor of Economic Affairs and Energy Minister, Sigmar Gabriel who warned that those who seek to destabilise Russia risk provoking “an even more dangerous situation for all of us in Europe.”

In an interview published on Sunday, he stated that the goal of sanctions against Russia was to return Moscow to the negotiating table to find ways for a peaceful resolution to the crisis in Ukraine. Additional sanctions may exclude Moscow from partnership in the resolution of conflicts which “would have very dangerous consequences for the entire world.“

[picolo]

until they can force American Fracking operations to start shutting down.

New production is frozen though as is LNG at this price.

I'm not sure the game of shutting down fracking really make sense. As I understand it (not being an oil industry insider nor expert), fracked wells are pretty small, which makes production rather elastic. If prices drop, fewer wells are drilled and production does stop, but the industry doesn't really go away. Equipment gets mothballed, supply production is cut, less experienced workers are laid off. But once prices go up back up the fracking starts right up again.

LNG involved massive facilities, huge political barriers, and time scales of a decade or longer, so stopping that with temporary low prices might be more plausible. If those projects get abandoned, to a large extent the clock is reset on them ever happening.

If fracking stops the production will be lower so the price will be higher and the fracking should come back. If the price is low, the oil producers make less money out of their production.

[NewLiberty]

Saudi Arabia’s influential oil minister Ali Naimi has asserted that the kingdom – the world’s largest exporter of crude – intends to persist with its current strategy of keeping its spigots open to win back market share regardless of how much oil prices fall.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant,” Mr Naimi said in an interview with Middle East Economic Survey late last month.

Mr Naimi is expected to come under increasing pressure from other members of the Organisation of the Petroleum Exporting Countries (Opec) to row back on its current strategy and agree to holding an emergency meeting of the cartel ahead of its next scheduled gathering in the summer.
Opinions differ among the 12 members of Opec over whether the decision to keep the group’s quota of 30m barrels per day (bpd) of crude unchanged in November was the correct course of action given the risks this now poses to their economies.

Those pressuring Naimi...  What are they expecting?  That the Saudis should influence pricing so that US fracking is profitable?

People are going to see conspiracies everywhere no matter what.  If they "do nothing" they are conspiring to "hurt the Russians", if they "manipulate prices up" they are supporting the US.  So no matter what happens, it is certainly going to be the fault of the USA.

[Jammalan the Prophet]

Saudi Arabia’s influential oil minister Ali Naimi has asserted that the kingdom – the world’s largest exporter of crude – intends to persist with its current strategy of keeping its spigots open to win back market share regardless of how much oil prices fall.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant,” Mr Naimi said in an interview with Middle East Economic Survey late last month.

Mr Naimi is expected to come under increasing pressure from other members of the Organisation of the Petroleum Exporting Countries (Opec) to row back on its current strategy and agree to holding an emergency meeting of the cartel ahead of its next scheduled gathering in the summer.
Opinions differ among the 12 members of Opec over whether the decision to keep the group’s quota of 30m barrels per day (bpd) of crude unchanged in November was the correct course of action given the risks this now poses to their economies.

Those pressuring Naimi...  What are they expecting?  That the Saudis should influence pricing so that US fracking is profitable?

People are going to see conspiracies everywhere no matter what.  If they "do nothing" they are conspiring to "hurt the Russians", if they "manipulate prices up" they are supporting the US.  So no matter what happens, it is certainly going to be the fault of the USA.

But of course...
The Saudis are NOT CUTTING production as ordered by their US masters to hurt Russia which just set a new oil production RECORD .

Oh the constipaty.....

[freedomno1]

Saudi Arabia’s influential oil minister Ali Naimi has asserted that the kingdom – the world’s largest exporter of crude – intends to persist with its current strategy of keeping its spigots open to win back market share regardless of how much oil prices fall.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant,” Mr Naimi said in an interview with Middle East Economic Survey late last month.

Mr Naimi is expected to come under increasing pressure from other members of the Organisation of the Petroleum Exporting Countries (Opec) to row back on its current strategy and agree to holding an emergency meeting of the cartel ahead of its next scheduled gathering in the summer.
Opinions differ among the 12 members of Opec over whether the decision to keep the group’s quota of 30m barrels per day (bpd) of crude unchanged in November was the correct course of action given the risks this now poses to their economies.

Those pressuring Naimi...  What are they expecting?  That the Saudis should influence pricing so that US fracking is profitable?

People are going to see conspiracies everywhere no matter what.  If they "do nothing" they are conspiring to "hurt the Russians", if they "manipulate prices up" they are supporting the US.  So no matter what happens, it is certainly going to be the fault of the USA.

Bingo,

The US gets blamed either way which seems to suit everyone, I lean towards the Russian Conspiracy side myself, with Obama using his magical wand to stop the Russian aggressors (US view) in the Ukraine by pushing oil prices down, so that they can occupy it later (lol we know its still pipeline politics in the end), of course Putin is smarter than 1998 and built up a hedge to play the long game and see if the Europeans will yield before he does. (Spain and the weaker links taking the big hits here and even Germany has East German influences that may moderate after a while)

Indirectly the US are playing the Saudi's who don't give a damn about the oil price and at the same time the Americans do not care much about the US Shale industry since they have enough oil and natural gas stockpiles and will develop other projects instead with lower fuel and wait it out, then when the dust settles they can just restart production so its not a big deal for them.

(Going at this rate we will have Netanyahu and Israel in here soon enough )
http://qz.com/304742/the-worlds-first-pipeline-war-has-officially-come-to-an-end/
But at least Russia had a Plan B (Turkey and the Balkans) wasn't a complete waste of money like the Americans project
http://www.bloomberg.com/news/2014-12-01/putin-halts-south-stream-gas-pipeline-after-pressure-from-eu.html

[smooth]

Indirectly the US are playing the Saudi's who don't give a damn about the oil price

The Saudis do care about sticking it to Iran and by extension Russia. I doubt they need a whole lot of US encouragement.

[freedomno1]

Indirectly the US are playing the Saudi's who don't give a damn about the oil price

The Saudis do care about sticking it to Iran and by extension Russia. I doubt they need a whole lot of US encouragement.

True enough I discount the Saudis too much, they have a large fund they can rely on so its not a big deal to them economically they can just stick it to their geopolitical interests to the benefit of other countries.

[picolo]

Indirectly the US are playing the Saudi's who don't give a damn about the oil price

The Saudis do care about sticking it to Iran and by extension Russia. I doubt they need a whole lot of US encouragement.

True enough I discount the Saudis too much, they have a large fund they can rely on so its not a big deal to them economically they can just stick it to their geopolitical interests to the benefit of other countries.

They get less money out of oil and they now have a deficit every year which means they spend more than they make from oil productions and other direct revenues. It is not good for their long term political and diplomatical weight.

[NewLiberty]

Indirectly the US are playing the Saudi's who don't give a damn about the oil price

The Saudis do care about sticking it to Iran and by extension Russia. I doubt they need a whole lot of US encouragement.

True enough I discount the Saudis too much, they have a large fund they can rely on so its not a big deal to them economically they can just stick it to their geopolitical interests to the benefit of other countries.

They get less money out of oil and they now have a deficit every year which means they spend more than they make from oil productions and other direct revenues. It is not good for their long term political and diplomatical weight.

We bought their oil, they bought our lie: "deficit spending works"

(is diplomatical a word?  I'd have stopped at the "c")

[arbitrage001]

Real reason is weak demand.

[Erdogan]

Real reason is weak demand.

In short: Yes.

[pumpitloud]

Because of Russia. Will be interesting to see what happens over the coming weeks.

[dmeter]

Fracking is an expensive business. Depending on site structure, companies need prices of between $60 (£40) and $100 per barrel of oil to break even. As prices drop to around $55 per barrel, investments in the sector look ever more vulnerable.

Analysts say that while bigger fracking companies might be able to sustain losses in the short term, the outlook appears bleak for the thousands of smaller,

fracking operations may default on an estimated $200bn of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.

In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.

first fracking operations  $200bn of borrowings  is simple one small peanuts in usa economy.FED delivery in couple year to ECB bank $3300bn also ECB delivery to FED 2500bn euro only for emergency use.and borrowings is not $200 bn ,about 120-130 bn.but bank credit is about $40 bn long term interest very low.
Second USA in any time can introduce import duties for crude oil 20-180% excluding Mexico and Canada.

[picolo]

Real reason is weak demand.

In short: Yes.

Weak demand and healthy production.