Don’t Bet on $70 Oil Lasting Long

Mr. Market has been puttin’ the hurtin’ on gold bulls.

Yesterday, he went after the gold shorts. Gold rose $42.60 – or 3.6%. That’s proportionally equal to a move of 640 points on the Dow.

But today our sympathies go to poor Vladimir Putin and Nicolás Maduro. In Russia, the ruble is falling and growth is grinding to a halt. In Venezuela, the whole economy is falling apart. The proximate cause of this hurtin’ is a fall in the price of oil.

Yesterday, US crude oil rose $2.85 – or 4.3% – to $69 a barrel, its largest daily gain since August 2012. But it’s still down 32% from its 52-week high, set in June.

Outside of the big oil exporting countries and the US shale-oil business this big drop in prices is widely seen as good news.

Consumers fill their tanks at lower gas prices and have a few bucks left over – money that can be used to buy things. According to the current and conventional delusions of the economic profession, this leads to sustained higher economic growth, more jobs and a cure for impotence.

But dear reader, was there ever in the history of the world a hurtin’ that stayed put?

That’s the trouble with hurtin’: It moves around.

In today’s Diary we look more closely at the subject of hurtin’ generally… and the effect of lower oil prices, specifically.

In passing, we observe that the secret to investing success is to buy what is hurtin’ when it is hurtin’ most… and to sell what ain’t.

Economic Warfare

It came out last week that OPEC is deliberately adding to the suffering of US shale-oil producers.

At its meeting in Vienna last Thursday, the 12-nation oil cartel decided to leave its output ceiling at 30 million barrels of oil a day, where it has been for the last three years.

As Chris put it yesterday in The B&P Briefing – our subscriber-only bonus letter – this is economic warfare.

OPEC believes, or so it seems, that cheaper oil prices will put pressure on high-cost US shale-oil producers. Although production costs vary, fracking costs more than pumping straight up.

Middle Eastern oil comes as readily up from the sand as water from a hand-dug well. That’s why the Saudis are the world’s lowest-cost producers – at just $2 a barrel.

All else being equal, the more they pump, the lower prices go, and the harder it is to make a good living in South Texas or West Siberia.

Conventional Middle Eastern oil is still profitable – even with oil as low as $67 a barrel. Unconventional shale and offshore oil may not be. Abdalla El-Badri, OPEC’s secretary-general, reckons half of all US shale output is unprofitable below an oil price of $85 a barrel.

Still, you may say, lower energy costs will revive the US consumer economy… no matter who pumps it. (Chris wrote about this recently here.)

Lower oil prices make it possible for Americans to buy more stuff. Or even save their money!

Pity the poor Russians and Venezuelans: They’ll have to live with less.

A World of Hurt

On this point, we congratulate Mr. Maduro for his deep philosophical reflection on the nature of hurtin’. Rather than whine about it, he noted it was “an opportunity to end superfluous luxuries and unnecessary spending.”

So you see, the hurtee may come out ahead. He may emerge from the hurtin’ in better shape – like the gold mining companies that have had to take free soda machines out of their corporate dining rooms.

When the hurtin’ moves to someone else, they are leaner and meaner than ever.

For instance, low oil prices squeeze out capital investment in the energy sector.

Who wants to drill a new well with the price falling? Who wants to put in solar panels? Who wants to buy a new Prius or a new Tesla? Who invests in future production?

No one.

Higher-cost shale-oil producers go out of business. Alternative energy producers go to sleep. The bulls go broke and the shorts count their money. Then, the hurtin’ is ready to move on – from the producers to the consumers.

Low oil prices have the same sort of unintended, but fully predictable, consequences as low interest rates. Consumers catch a break – temporarily. But capital investment goes down. And output declines.

Worldwide, oil use is still increasing. Without more investment to bring forth more supply, prices will shoot up again.

Gold is hurtin’. Oil is hurtin’. Russia is hurtin’. Venezuela is hurtin’. Greece is hurtin’.

Our back is hurtin’ from lifting those poles.

Eventually, the pain will go away. But the hurtin’ may also get worse before the hurtin’ moves on.




Further Reading: Here is why I’m so glad gold crashed 35% in the last 3 years…

New Release 70-496 Lab Manual PDF For Microsoft Application Lifecycle Management

I Microsoft 70-496 Lab Manual PDF stared at the figure they were away from, and did not move. Lu Yue, or you have a way Lu Yue smiled At this time, he is a hundred and five good husbands. If I Microsoft Application Lifecycle Management 70-496 make money so hard, I will Microsoft 70-496 Lab Manual PDF give up 600 Administering Visual Studio Team Foundation Server 2012 yuan in Microsoft 70-496 Lab Manual PDF vain. Tianchi has worked alone to work Microsoft Application Lifecycle Management 70-496 Lab Manual PDF late into the night in order to catch up with a magazine. After a bit of eyebrows, he came to 70-496 Lab Manual PDF Microsoft 70-496 Lab Manual PDF Li Wei. Otherwise, it is at least cloudy.

It is night, Tseng Kuo fan side candle reading, one side of Daxing County professor of choice. Wang Zhengfu really big life Not an adult turned his head, is not dead Zeng Guofan said Listen Microsoft 70-496 Lab Manual PDF to my dear friend s tone, is Wang Zhengfu some innocent Not how he controls 70-496 Lab Manual PDF Dai Li said Listen to people say that Wang Zhengfu also controlled Beijing, but the evidence is conclusive, was denied. The princes, ministers, and princes gathered together and said The princes obey the ordination. Wanted to play.Excuse me Microsoft 70-496 Lab Manual PDF handed the 70-496 Lab Manual PDF palace that night.In the words of Wulan Tai, Xiangrong, Saishan Administering Visual Studio Team Foundation Server 2012 Aksu downgrade and other terms, said that in Guangxi governor s Bachelor, imperial envoy Sai Shang A, Du Ulan Tai, Guangxi prosperous three People, because of the expelling Microsoft Application Lifecycle Management 70-496 rebel ineffective Xianfeng emperor dismissed to ask spin and down to allow its meritorious service.

In the face of Microsoft Application Lifecycle Management 70-496 Julie, Su Daqiang still Microsoft 70-496 Lab Manual PDF does not adapt to his new parent title, or as usual, only laughs, does not Administering Visual Studio Team Foundation Server 2012 say hello. All 70-496 Lab Manual PDF the process of changing a parent is the same as the idea and the reservation. I will immediately reawaken Microsoft 70-496 Lab Manual PDF my enthusiasm for life. insomnia. At this time, she is 92 years old. You don t know Microsoft 70-496 Lab Manual PDF how much I cherish both of you.