The Scenario Is About To Change
A report from CBS Money Watch. “Further proof that there’s no such thing as a free lunch, at least in the globalized oil and gas market — as big and small oil producers, as well as some related industries, feel the financial pinch that comes from lower crude oil prices. In Colorado, which has experienced higher oil production due to growth in hydraulic fracturing, or fracking, industry officials are sounding alarms. ‘This is a $30 billion industry in Colorado that employs 100,000 people both directly and indirectly,’ Stan Dempsey, president of the Colorado Petroleum Association, told CBS station KCNC last month. ‘If there’s a slowdown in drilling that will certainly have an impact on Colorado’s economy.’”
“And across the oil industry, managers and workers are bracing for what some see as inevitable job cuts. ‘The industry is going through Darwinian adjustment,’ Bill Herbert, an analyst at the investment banking firm Simmons & Co., told the Houston Chronicle. ‘The pressures of the marketplace will dictate that these companies adjust their businesses accordingly,. The easiest way to do that, frankly, is to reduce your head count.’”
The Midland Reporter Telegram in Texas. “Midland and Odessa are closing the books on another year of significant economic expansion. ‘If one knew nothing about oil prices or what drives the Midland-Odessa economy, if one looked only at the consumer spending numbers, the construction numbers, the employment numbers, those numbers would be spectacular. One would think, ‘This is an impressive economy and those residents are fortunate to live in such an economy,’ and they would be right,’ said Karr Ingham, the Amarillo economist who prepares the index for Security Bank and the Midland Development Corp. That outside observer might also be unaware that ‘the scenario is about to change,’ he said.”
“Realtors sold 256 homes in November, up 24.3 percent from 206 last November and sold 3,040 homes through November 2014, up 7.7 percent from 2,823 in the same time frame of the previous year. The average sales price soared 18.9 percent to $273,987 from $230,345 in November 2013. The price averaged $252,081 for the first 11 months of the year, up 11.3 percent from $225,547 in the first 11 months of 2013. Ingham said the overall economy was ’still padding its resume and adding to the numbers from which it will decline.’”
From Fox 25 in Oklahoma. “With our State’s oil industry concerned about low gas prices, confidence in the housing market could be shifting. Some economists worry that home prices could start to drop in Oklahoma City by the end of 2015. ‘My guess is that this is going to be a sustained decrease in the price of oil,’ said Oklahoma City University Professor of Economics Jonathan Willner. Willner says it all depends on how many layoffs oil companies have to make. The more people who are out of a job in the Metro, the worse our economy will become.”
“‘When you lose your job, you can’t make your mortgage payments. Therefore the houses go on the market, but because nobody’s got a job, there’s nobody to buy them. Prices are going to go down,’ said Willner.”
The Globe & Mail in Canada. “Royal Dutch Shell PLC is cutting hundreds of jobs at a massive Alberta oil sands project, stoking fears that more large-scale layoffs are in store as companies slash spending to cope with collapsing oil prices. Shell’s move comes as Alberta girds for a multibillion-dollar drop in provincial energy revenue. Ken Smith, president of Unifor Local 707A, representing workers at Suncor Energy Inc.’s mine and other employees in Fort McMurray, said he understood 200 people would be laid off at Shell. Mr. Smith said he has not heard of impending layoffs at Suncor, but Shell’s cuts have stoked fears that it could happen elsewhere.”
“‘A lot of the members are calling up and becoming concerned – are we going to be in layoffs?’ Mr. Smith said. ‘It’s been a long time since we’ve seen layoffs at the major plants, like Shell.’”
The Leader Post in Canada. “Home sales in the Regina area last year were on par with sales in 2013, despite a 20-year high in homes listed for sale and a 3.5 per cent decline in prices during the past year, according to the Association of Regina Realtors. Gord Archibald, CEO of the association, said demand for housing remains strong, but listings are at 20-year highs, making Regina a ‘buyers’ market’ for the first time in many years. ‘The market has more tilted toward buyers over the last year and a half,’ Archibald said. ‘It was a sellers’ market for quite a number of years.’”
“At the end of the year, there were 941 homes listed for sale on the MLS system in the city, up 33 per cent from 705 at the end of 2013, up 90 per cent from 494 at the end of 2012 and 151 per cent from 375 in 2011. The Home Price Index reported a composite residential price of $294,900, down 3.5 per cent from last year’s levels of $305,600 and the lowest level since 2012. The decline in price is a function of supply, not demand, Archibald said.”
The Los Angeles Times on Australia. “With China’s slowing economic growth, one of the biggest mining booms in Australian history is over, leaving behind a trail of jobless workers and struggling local businesses in places such as Karratha, which thrived in recent years but is now at risk of becoming a ghost town. It’s a problem around the world, from Brazil to Indonesia to South Africa. Australia, in particular, is feeling the pain. Australia is the world’s largest producer of iron ore. Most of it goes to China. But analysts are predicting a softer demand for iron in the years ahead as China tries to cool its housing and industrial production.”
“A similar if less dramatic scenario is playing out in Australia’s huge coal region in the east, where the boom is also over. Without a larger, stable population and better infrastructure, Karratha could wither and turn into one of dozens of ghost towns that now dot Western Australia, says researcher Jemma Green of Curtin University in Perth. ‘I love it,’ Belinda Meyer says of the Pilbara’s frontier life: camping, fishing, four-wheel driving through the red desert. But the 35-year-old, who moved here from Perth eight years ago with her partner, a miner, also hates it.”
“She complains about the summer heat, routinely over 110 degrees. There’s no bowling alley or movie theater, she says. Housing prices have come down some in the last year, but Meyer and her partner still pay $1,300 a week to rent a four-bedroom house, plus $900 a month for air conditioning in the summer. ‘You can’t afford to go out,’ she says, sitting with her two kids in a McDonald’s, where a plain cheeseburger costs more than triple the price in the United States. ‘A beer in the pub costs you a fortune.’”
Excerpt from Rigzone:
Things have changed a lot quicker than I thought they would,” says Greg Doramus, sales manager at Orion Drilling in Corpus Christi, Texas, a small firm which leases 16 drilling rigs. He talks about falling rates, last-minute order cancellations and customers breaking leases. The conventional wisdom is that hedging and long-term contracts would ensure that most energy firms would only start feeling the full force of the downdraft this year. The view from the oil fields from Texas to North Dakota is that the pain is already spreading. “We have been cut from the work,” says Adam Marriott, president of Fandango Logistics, a small oil trucking firm in Salt Lake City. He says shipments have fallen by half since June when oil was fetching more than $100 a barrel and his company had all the business it could handle.
Your point quite obviously is that demand has cr8ered.
No my point is that most fracking cannot exist at these price levels and the world cannot do without the four million barrels a day produced by fracking.
Still missing it.
Actually, we can and we will. The world cannot afford $100 oil to build empty factories and empty condo towers and empty cities with borrowed money. We learned this a few years back and now we are learning it again.
When does the trouble start showing up in the numbers like unemplyment and stock market?
Construction jobs which are already dropping will be down further along with these oil jobs. A couple more months of extending and pretending nothing is wrong?
The real shame in the loss of mania jobs is that they were ever created in the first place.
Bingo.
Bubble jobs. The losses are crushing for the degenerate gamblers, the gullible and the free $hitters.
HA is so depressed. Anyone else worried for his safety?
Pick yourself up off the floor and cheer up Lola. Falling prices are positively bullish and good for the economy.
R u still following the oil futures nowadays?
Futures Movers
Oil plunges below $46 as Goldman cuts outlook
Published: Jan 12, 2015 11:14 a.m. ET
Now sees WTI futures at $39 a barrel in 6 months
By William Watts
Reporter
Michael Kitchen
Asia editor
NEW YORK (MarketWatch) — Oil futures plunged Monday, with the U.S. benchmark trading below the $46-a-barrel threshold for the first time in nearly six years after Goldman Sachs cut its crude outlook, predicting prices will remain low for a lengthy period.
West Texas Intermediate crude oil for February delivery (CLG5, -4.01%) was down $1.94, or 4%, at $46.42 a barrel after trading as low as $45.90. The move followed a 0.9% loss during Friday‘s regular session on the New York Mercantile Exchange. WTI futures are down around 57% from a high around $107 a barrel set in June.
Meanwhile, Brent North Sea crude oil for February (LCOG5, -5.11%) the global benchmark, lost $2.62, or 5.2%, to $47.49 a barrel. Both benchmarks are trading at levels last seen nearly six years ago.
Monday’s drop follows some sharp cuts by Goldman Sachs to its oil-price projections. The bank’s energy analysts revised down their three-month forecast for WTI crude to $41 a barrel from a previous estimate of $70. They see WTI at $39 a barrel in six months and $65 a barrel in a year, versus previous price forecasts of $75 and $80, respectively.
They see Brent at $42 in three months, $43 in six months and $70 in 12 months versus previous estimates of $80, $86 and $90, respectively.
While Goldman appears to be playing catch-up, it’s the firm’s expectations for prices to remain depressed well into 2016 that cleared the way for renewed selling pressure, analysts said.
“A price target for Brent crude of $50.40 for the end of this year would suggest that Goldman’s doesn’t foresee many production cuts this year, which when you consider that prices are already below cost for so many producers as well as the debt levels of many US shale companies, is quite surprising,” said Craig Erlam, strategist at Alpari UK in London.
…
Markets won’t be seeing $100-a-barrel oil again, said Saudi billionaire businessman Prince al-Waleed bin Talal in an interview published in USA Today late Sunday.
…
Under $47/bbl with no bottom in sight. The word now is maybe $2t in investment getting roiled.
Seems like the rate of price decline is increasing again, too. Could this be a reflection of new more pessimistic outlooks for oil on Wall Street?
….. and the rate of oil production increasing.
Bulletin
Nasdaq is biggest loser among benchmarks after U.S. stocks turn negative
Oil’s slump could upend $2 trillion in investments: Goldman
Published: Jan 12, 2015 7:53 a.m. ET
Industry structure doesn’t work at current oil prices
New projects are at risk of being scrapped unless the industry makes dramatic changes
By Sara Sjolin
Markets reporter
LONDON (MarketWatch)—The global oil sector is getting increasingly squeezed by the slump in oil prices and future investments worth trillions of dollars are at risk of being scrapped unless the industry succeeds in consolidating and cutting costs, according to analysts at Goldman Sachs.
In a research note published Monday morning, the analysts lowered their long-term estimates on Brent oil (LCOG5,-5.17%) to $70 a barrel from $90 a barrel—a level so low that several oil companies will struggle to make money.
In fact, Goldman Sachs found in its Top 400 analysis of the world’s largest new oil-and-gas fields, that pre-sanctioned projects will be “uneconomic” at $70 a barrel. Such developments, are those where a final investment decision hasn’t been taken yet, represent some 20 million barrels of oil a day.
In dollar terms, this means that around $2 trillion worth of future investments are at risk, unless the industry figures out a way to adapt to oil’s new world order through mergers or by taking an ax to budgets. This also includes shale developments, where investments for $930 billion are in jeopardy, according to the report.
…
BEA-utiful!! There IS justice in the world. Greed will always git you in the end.
Now flirting with $45/bbl…how low can it go, and how fast?
‘As the price of oil falls a large sector of the U.S. economy is feeling relief, but there are those who are suffering as a result of the drop in oil prices. “The flow of people in here is about half of what it used to be,” said Max Quintanilla Jr., owner of Max’s. Since the rise in oil prices the cafe is usually busy during lunchtime, but since gas costs have fallen, its been empty.’
‘Just up the street sits the Texan Inn and Suites, a new motel that opened in November and already is feeling some pain. “A shortage of housing for oil field workers, mainly, that is the reason we built for,” said T.J. Patel owner of the motel. The hotel averages about 60 percent occupancy.’
“Everybody is cutting back, everybody is cutting back and it’s a scary time,” said Anthony Rodriguez, who has been working for Weatherford, a oil field supply company, for 16 months. “It’s been exciting but to come in at $110 oil and see it down to $47. (It) keeps you on your toes worried about your job every day.”
‘Oil may be down but optimism is still up, at least for now. “I think it will come back, take time, may take six months,” Quintanilla said. “Six months is the target, if it doesn’t come back in six months lots of people are going to be in trouble,” Patel said.’
Optimism: Holding out hope for recovery in six months while realizing prices stayed in the basement for two decades the last time they fell off the cliff, circa 1980.
Of course it is different this time.
It didn’t work much past that 6 months back during the last pil collapse. For some reason it has worked with housing for many many years past that 6 months.
You mean after massive unprecedented bailouts of housing?
BTW, Weatherford is just west of Fort Worth.
‘The ranks of million-dollar homeowners in Houston have swelled in recent years, with the number of sky-high home sales more than doubling since 2010. But the market’s swift surge is now threatened by strains in the energy industry that fueled much of the city’s high-end real estate boom.’
‘Wealthy Houstonians purchased 1,411 homes that each sold for at least $1 million last year, up from 688 five years earlier, according to the Houston Association of Realtors.’
‘And Houston had the highest number of luxury home sales among Texas’ four major cities last year, a report released Monday by the Texas Association of Realtors showed. That represents almost 2 percent of this area’s total housing transactions.’
‘Medellin said she noticed the overall market slowing around the holidays, but she’s had a couple of open houses recently where activity was brisk. She’s not yet sure how lower oil prices with affect the top end of the market.’
‘The change in the energy market - oil fell briefly below $50 a barrel on Monday - has already crept into Medellin’s business. Just last week, she received a “real lowball offer” for a property she’s listing in Lynn Park near Highland Village. The bidder cited falling oil prices.’
‘The seller, Medellin said, declined the offer.’
How about a list of top Crater states based on oil? I see Texas, but doesn’t California have a lot of oil business also? Aren’t there offshore rigs or something they are always protesting?
Oh Alaska!
Add to the list states that have banks, or steel mills.
Wyoming.
‘While record low oil prices could spell trouble for some portions of Wyoming, low gas prices could help boost spending and also tourism in the Cowboy State, said Jim Robinson, principal economist for Wyoming’s Economic Analysis Division. “Any time you can grow any economy that contributes to sales tax revenue and creates jobs makes for a healthier Wyoming,” said Diane Shober, executive director of the Wyoming Office of Tourism. “Any industry growing in a particular way is a benefit to a loss in another sector.”
‘Travel and tourism accounted for about 3.9 percent of Wyoming’s gross domestic product in 2013. About 12 percent of all Wyoming jobs depend in one way or another on the travel and tourism or leisure and hospitality sectors, she said. “So while not the driving force of what the energy industry contributed to Wyoming, the tourism economy is definitely a contributor,” she said. “And it’s one that has the potential to grow and grow sales tax and jobs.”
‘The rest of Wyoming’s economy should continue to increase modestly in 2015, Robinson said. He predicts an overall growth rate of 1.5 percent, with retail trade and construction leading the way. Personal income should also grow between 5 and 6 percent. Housing prices should appreciate 3 to 4 percent, and homes in Casper will increase 4 to 5 percent.’
‘The oil crunch should be buffered to an extent by natural gas and coal royalties. Travel and tourism could also help, he said. The Powder River Basin and southeast Wyoming will likely feel impacts from the decline in oil prices the most. Laramie County, he noted, may weather the outcome better than other areas because of its additional industries such as manufacturing, distribution centers, data centers and a strong state and federal government presence.’
“Trying to anticipate what energy prices and production will do over the next year is always a challenge,” he said. “To make reasonable predictions five years in the future is difficult at best. Whether it is estimating sales tax collections or energy prices, forecasting is similar to driving a car down the interstate at 75 mph but only using the rear view mirror to help guide you.”
but doesn’t California have a lot of oil business also ??
Not really…Bakersfield area is about it….Water is more precious than oil…
When I was a kid, I remember seeing oil pumps all over Orange County, pumping oil out of the ground. You don’t see many of those there anymore. They also seem pretty rare on the front range, though to be fair I don’t go out to Weld County much.
Nonsense.
California is number 3 in oil production. Only TX and ND pump more crude.
http://www.eia.gov/state/rankings/#/series/46
Dramatically lower and more affordable oil and fuel prices will crush CA just like any other high crude production area.
Interesting chart. Texas produces almost as much as everyone else combined. Take ND out of the picture and Texas produces more than all other states combined.
If anyone is going to feel the pain it’s Texas.
Any state producing energy is going to feel it. Colorado and CA are going to get hammered hard as both are in the top 10 energy producing states.
Ooooooof.
Lots of oil rigs in LA. They’re just hidden.
http://www.theatlantic.com/photo/2014/08/the-urban-oil-fields-of-los-angeles/100799/
http://la.curbed.com/archives/2014/07/mapping_all_3000_of_los_angeless_active_oil_wells.php
‘Water is more precious than oil’
What’s funny about that is, California houses are priced as if there is drill-able oil under each and every one of them.
last few years lots of drill rigs moving here and there right by were I live in CA. Then sometimes a pump would go in. Oil museum in Santa Paula is really cool look at early oil in the area. Ventura Co.
Plus oil trucks driving in and out the dirt roads. Elkins lease etc.
“Houston had the highest number of luxury home sales among Texas’ four major cities”
I wouldn’t move to Houston even if you gave me one of those “luxury” homes.
“The decline in price is a function of supply, not demand, Archibald said.”
People who lack a knowledge of basic economics tend to overlook the role of collapsing demand in a crash.
That’s not the sort of thing you need books to figure out.
True. Yet some folks somehow perpetually miss it. Go figure.
Houston we’ve got a problem.
Dallas, TX Sale Prices Sink 2% YoY; Plummet 13% MoM As Crude Oil Plunges
http://www.zillow.com/dallas-tx-75219/home-values/
Remember….. A Housing ‘recovery’ is falling prices to dramatically lower and more affordable levels by definition.
Encinitas, CA Sale Prices Plummet 10% YoY As Housing Recovery Gains Strength
http://www.zillow.com/encinitas-ca/home-values/
Hartford, CT Sale Prices Plunge 6% YoY As Prices Fall In New England
http://www.zillow.com/hartford-county-ct/home-values/
Potomac(DC Metro), MD Sale Prices Crater 6% As Price Declines Accelerate
http://www.zillow.com/potomac-md/home-values/
Alexandria County(DC Metro), VA Sale Prices Since 3% YoY As Prices Turn Negative YoY Statewide
http://www.zillow.com/alexandria-city-county-va/home-values/
‘Builders began construction on the lowest number of homes in Canada in 10 months amid a collapse in crude prices.’
‘The pace of housing starts declined to 180,560 units last month, the lowest since March and down 6.5 percent from November, Canada Mortgage & Housing Corp. said in a statement today. The figure refers to the housing agency’s seasonally adjusted annual rate. Economists had been expecting a rate of 192,000 units.’
‘The pace of urban construction in the Prairies, including oil-rich Alberta, dropped 10 percent to 41,528 units, while the rate in Quebec fell 18 percent to 29,760, according to CMHC. ‘
“Lower borrowing costs merely drives prices higher which crushes demand”.
BINGO
‘U.S. shale drillers may tout how much oil they have in the ground or how cheaply they can get it out. For stock investors, what matters most is debt.’
‘The worst performers among U.S. oil producers in a Bloomberg index owe about 5.7 times more than they earn, before certain deductions, compared with 1.7 times for companies that have taken less of a hit.’
‘Because shale wells deplete more quickly than conventional wells, producers need to keep drilling to maintain output. That takes debt. The companies in the index owe a combined $247.1 billion, an 85 percent increase from three years ago. Including some overseas assets, total production rose 60 percent to 13.3 million barrels a day in that time, data show.’
‘Among the worst-performing stocks are Energy XXI (EXXI) Ltd., down 88 percent since June 20, and Resolute (REN) Energy Corp., down 90 percent. Energy XXI has five times more net debt than Ebitda. Resolute has net debt of $735.8 million while posting a loss of $41.7 million before interest, taxes, depreciation and amortization in the last year.’
“We get it,” H.B. Juengling, Resolute’s vice president of investor relations, said in an interview. “It’s debt. It’s obvious.”
‘Resolute borrowed $150 million last month to help withstand the downturn, Juengling said. The Denver-based company has old oilfields that are cheaper to maintain and don’t deplete as quickly as those of shale-focused rivals, he said.’
“It’s debt. It’s obvious.”
They could only keep producing as long as they could keep borrowing. Even with oil above $100. Didn’t they get that?
I hope suppliers get hammered in this deal. They’re part of the problem it costs SO much to drill. Deflation will leave the best, most competitive drillers/suppliers left.
You thought using massive volumes of borrowed money posed no risk. You didn’t think about the price.
What do you think now?
where’s Colorado today ? You agree w this?
‘This is a $30 billion industry in Colorado that employs 100,000 people both directly and indirectly,’
Also, shouldn’t that be in the past tense?
The western slope (Grand Junction) is going to be in a world of hurt. The last time oil prices crashed I don’t recall noticing much pain on the Front Range, though I expect that this time Weld County, which has become frackerville, will feel it.
It also occurs to me that only a fraction of that 100K will lose their jobs. I also recall reading that most roughnecks are from out of state and are transient workers who don’t set roots, so I expect they’ll just move on.
yes, pundits always overstate like the gov will send them bail $$$
same here w defense jobs- we were all supposed to be dead by now in N VA
‘According to a report by Realty Trac which analyzed more than 200,000 purchases made between January 2012 and August 2014, those institutional investors who bought in 2012 could see returns of between 38% and 43% if they sold up now. The article in money.CNN.com points out that there are already some signs that investors may be pulling out of the market as figures from the National Association of Realtors showed that while institutional investors accounted for 20% of sales last January, this figure had dropped to just 15% in October.’
‘Foreign buyers have also played a part in helping the real estate market recover, but just recently the value of the dollar has begun to strengthen, making US housing more expensive. At the moment sales to Chinese buyers remain strong, but sales to buyers from Russia and Europe are beginning to slow down. Russia is particularly affected due to falling oil prices, international sanctions and their own currency has suffered a massive loss of value. One of the first areas to feel the effects of fewer foreign buyers is California, as data from the California Association of Realtors shows the number of sales to international buyers has fallen by around 25%.’
With organic housing demand at 20 year lows, just who are they going to sell to? Another pension fund?
‘Sherri McDaniel is already feeling the sting of the drop in crude oil prices from more than $115 per barrel in June to less than $50 in early January. She is president of ATEK Access Technologies, a small Minneapolis firm that owns TankScan, a wireless monitoring system that keeps track of fluid levels in oil tanks. Oil companies that use the system are starting to postpone orders, as they take a cautious approach to spending.’
“In the oil fields, they are starting to pull back pretty heavily,” McDaniel said. “They are literally taking tanks and laying them down on their sides.” As a result, she explained, “we have a number of big orders that are temporarily on hold.”
‘More than 20,000 small and midsize firms drive the “hydrocarbon revolution” in the U.S. that has helped the oil and gas industry thrive in recent years, and they produce more than 75 percent of the nation’s oil and gas output, according to the Manhattan Institute for Policy Research.’
‘A sustained decline in prices could lead to layoffs at these firms, say experts. “The energy industry has been one of the job-growth areas leading us out of the recession,” said Chad Mabry, a Houston-based analyst in the energy and natural resources research department of boutique investment bank MLV & Co. in New York City. “In 2015, that changes in this price environment,” he said. “We’re probably going to see some job losses on a fairy significant scale if this keeps up.”
‘Growth of jobs in the oil and gas industry greatly outpaced the private sector from 2007 to 2012, according to the U.S. Bureau of Labor Statistics. There was 40 percent growth in jobs in oil and gas, with 162,000 new jobs created, compared to 1 percent job growth in the private sector. By November 2014, 215,200 people worked in oil and gas extraction alone. And with job-related fields such as mining and quarrying factored in, employment in the industry hit 869,000, the BLS found.’
‘Many of the new jobs are well-paying. Average hourly earnings in oil and gas extraction were $31.62 for nonsupervisory workers in October and $40.79 for all workers.’
‘Last week a small central Texas oil producer, WBH Energy Partners, filed for Chapter 11 bankruptcy protection. The financial troubles reportedly began in September when Minnesota debt investor Castlelake declined to provide more funds under a credit facility. The 3-year-old company had more than $30 million in liabilities and more than $10 million in assets. It had about 2,600 net acres of oil and gas land in North Texas Barnett shale combo play, a region rich in shale that overlaps with oil formations. The filing demonstrates how small oil producers are feeling the squeeze on two fronts—falling oil prices and spooked investors.’
‘Many industry experts say the struggles small players are facing are a harbinger of things to come, since there are many overextended producers who have not hedged their production well enough—a task that has gotten harder since big banks have exited the physical commodities business.’
‘At ClearHedging, a 2.5-year-old firm that provides risk-management hedging advice to oil and gas producers, Chicago-based executive director Brad Carmody said that while current clients are still using its services, new business is “definitely quiet.” With prices so low, he explained, “there’s no interest in hedging at all.”
‘In San Antonio, economists expect that a plunge in oil prices from above $100 to below $50 per barrel means a slight negative impact, likely to be shrugged away by the strength of industries such as military, medical and tourism. But drive an hour south to a region where drilling rigs punctuate the sky, and there’s an anticipated swing from boom to belt tightening.’
“It’s a recipe for disaster for small businesses,” said Huy Doan, who in the past two years has opened two Donut Palace locations in Pearsall. “The reason I came here was for the oil field. I’m worried.”
‘Companies have started pulling back drilling plans. One of Doan’s regular customers said his oil field crew was trimmed from 100 to seven. Plenty of oil field workers and locals still swing by the the Donut Palace daily, but not as many as before.’
“We’ll see some pretty big changes over the next few quarters,” said George Wommack of Petro Waste Environmental, which operates oil field disposal sites across the Eagle Ford region. Wommack grew up in Midland in an oil and gas family, and doesn’t think people have realized what low oil prices mean.”
“It doesn’t matter how many booms and busts people have seen. They never think this one will be like the last one,” Wommack said. “We’re prepared for $50 to $80 oil to be the new norm for the next 12 to 18 months. It could be two years. I hope it’s not. We’ve tried to position ourselves in a way that we can survive. You can weather volatility as long as you don’t have too much debt. That’s what always gets people.”
‘Economist Karr Ingham, who works with the Texas Alliance of Energy Producers, said oil prices crashing below the $50 mark means Texas will lose significant numbers of upstream energy jobs, the part of the oil and gas business that’s focused on exploration, drilling and production.’
“People say they’ll hang onto their best employees. I’m telling you, six months into 2015, we’ll see it,” Ingham said. “There are going to be tens of thousands of jobs lost.”
‘Eagle Ford production has surged from essentially nothing — a few hundred barrels of daily production in 2008 — to more than 1.6 million daily barrels of oil and other liquid hydrocarbons anticipated this month, according to the U.S. Energy Information Administration. “As much as the Texas economy has benefited, these are not normal times,” Ingham said. “They’re times of dramatic expansion followed by a serious correction.”
‘In Karnes City, the seat of Karnes County and the spot in Texas that produces more crude oil than any other, city administrator Don Tymrak said it appears that oil and gas wells that were started in December still are going forward. But Karnes City officials are rethinking their budget, written when oil was above $100. Karnes City leased city land to Marathon Oil and so far has gotten hundreds of thousands of dollars in royalty payments. The city had expected millions, though.’
“It can’t just keep going sky high forever,” Tymrak said. “Maybe a crash is possible. Some people don’t want to call it that, but a rose is a rose is a rose.”
‘You can weather volatility as long as you don’t have too much debt. That’s what always gets people.’
Then don’t take on debt and shed whatever debt you have. You’ll be glad you did.
That’s the catch, isn’t it. Heck, most people can’t get out of college without a boatload of debt anymore. In a boom, leverage is king. Whatever you can make with a million, you can make much more if you borrow another 9. How many of these guys buying $5 million houses in Houston are paying cash? I’d bet there isn’t a single one.
Bing! Right on. The other catch is not upping your lifestyle after a fat raise. Very few have the will to do so. It takes discipline.
“It’s a recipe for disaster for small businesses,” said Huy Doan, who in the past two years has opened two Donut Palace locations in Pearsall. “The reason I came here was for the oil field. I’m worried.”
Anyone who chases a boom should know that busts are part of the package.
Think about it this way;
Take any item. Houses, oil or any other commodity. When prices are multiples of production costs as a result of either fraud, price fixing, bottlenecking or other market manipulation, the end result is tears.
You can’t explain this. It can only be taught by getting busted.
10-year Treas Bonds to Fall to 1.5% ?
“Steven Major did something weird in 2014: he got the bond market right. When most experts said sell, Major said buy. And he’s defying the consensus again this year. … Major says yields will keep falling, possibly as low as 1.5 percent, before turning up to end the year at 2.5 percent.”
Of course that implies lower mortgage rates, which throws more coal under the real estate market mini-bubble…
http://www.bloomberg.com/news/2015-01-12/this-guy-called-bonds-in-14-you-listening-this-time-.html
Another GENIUS Realturd:
“‘When you lose your job, you can’t make your mortgage payments. Therefore the houses go on the market, but because nobody’s got a job, there’s nobody to buy them. Prices are going to go down,’ said Willner.
Well Lola he’s got the “prices going down” part right.
Thanks Captain Obvious.
Anytime and always Lola.
It never hurts to point out the obvious.
Not obvious in a world replete with foreclosure moratoriums, HAMP bailouts and QE3 mortgage backed security purchases.