Make no mistake about it – the price of oil is collapsing because global consumer demand is collapsing, especially and specifically in the United States.
I’m sitting here watching Bloomberg news on “mute” of course and I realize they’re discussing oil – Betty Liu and Alix Steele. What I heard stunned me. Betty Liu makes the assertion that, “oil sliding…under $50…despite these prices U.S. oil production is resilient at a 40 yr. high.” And then they slide into a discussion about Saudi Arabia flooding the market with oil. It makes no sense. As we have seen, it’s the U.S. shale producers who are pumping out oil like there’s no tomorrow in an attempt to generate cash flow and avoid default on their insanely high levels of debt.
Then Alix Steele blames lower demand on refinery purchases? Huh? Refiners adjust their demand based on the demand from the market. If the market is buying less gasoline and other refined products which go into all the consumer products you see as you look around your house filled with junk from Best Buy, Target, Walmart and Macy’s, then the price of oil drops. It’s really that simple.
Then Steele goes into a Wall St. spoon-fed propaganda rant about how the oil shale industry “responds quickly to prices,” “has more pricing power with service companies,” and has “lower cash costs.”
We know every one of those assertions is complete absurdity. The slogans are coming directly from Wall St. slide shows that were used on road show presentations to dump billions in shale company debt into big investor portfolios – the portfolios that YOUR retirement is invested in. I know this because I sat through many dozens of roadshow presentations when I was a junk bond trader. The marketing slogans dropped into those slideshows makes Geico ads look amateur.
As we have learned, regardless of so-called “cash costs,” which is a very nebulous marketing term used by resource companies, we know shale companies require oil to be over $100 to breakeven. Every single assertion presented on Bloomberg was an utter lie.
Saudi Arabia is not dictating the marginal price of oil – DEMAND is dictating the price of oil. As we saw with Walmart’s report on sales guidance (they blame the strong dollar, but that’s as bad as blaming cold weather). Consumer’s in the United States – the biggest consumer-driven economy in the world – are going broke. We have been living a debt-fueled lie for the last 43 years. Every since the U.S. closed the gold window, the amount debt and the money supply in this country has gone up at a near parabolic rate.
The lie is coming to an end. The freight train with no brakes is headed toward the cliff. This is why they are desperately trying to keep a lid on the price of metals…ultimately it will fail.