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In The News – Friday, December 19th, 2014 Edition
Posted Dec 19 2014 7:00AM
  • Need more proof that these heathens need to be eradicated? How about this? Again, these half-wits aren’t religious by any shape form or fashion. They are psychopathic killers who should be shown no mercy.

  • Vlad isn’t a happy guy.  He gave one of those Bill Clinton speeches that just goes on forever. The gist was that it’s all our fault. Vlad isn’t famous for his fluency with economic reality. He offered no fix for the current malady facing his countrymen who are cleaning out the local stores buying anything they can that is useful because it is likely to cost more tomorrow. This mess is likely to test his survivability as a politician. Capital has been leaving Russia for some time and has, as you might expect, accelerated.

  • Death, where is thy sting? IRS warns of possible shutdown.  Oh! Please! Not that!

  • Stocks rallied big despite Crude giving up its early gains. The Saudis indicate that they need help if production is to be cut. Opinion is all over the place as to where Crude will stabilize. Here’s an interesting outlook from the “CEO of a very successful private exploration company as posted on Powerlineblog.

    Our Rate of Return (ROR) drops to 10% on our wells at $55 oil.  However, this assumption assumes no drop in costs to drill wells and no contraction in the large differential ($10 to $12 per barrel) between Bakken and WTI oil.  In reality our ROR would actually be above 10% at $55 WTI oil price as our costs to drill would also come down.  There are plenty of drilling locations that would have above 10% ROR at $40 oil.  Even more drilling locations would require $70, $80, or $90 oil prices for that ROR.  Of course, drilling will slow down long before you get down to a 10% ROR.  Most will want at least a 20% ROR.  Of course the quality of the operator matters in addition to the drilling location. . .

    Bottom line is that the Saudis want to chill investment in new oil supply to help protect OPEC’s future.  In round numbers we have had about 5 MBOPD increase in world oil demand over the last 5 or 6 years.  Over the same time period US oil production has grown from nearly 4 MBOPD (from 5 to 9 MBOPD) — 80% of the increase in WORLD demand!  This is NOT good for OPEC.  I suspect that we will have ugly oil prices ($60 – $75) for around a year as that is long enough to stop many current oil supply investments and, more importantly, serve to chill the appetite for future large investments in oil supply growth (deep water, arctic, marginal shale, marginal tar sands, etc) which is the Saudi goal in my opinion.  I do not believe that the current price ($65) is a sustainable price going forward.  It would not encourage enough new supply to balance world demand which itself would be goosed upwards with the lower prices.  I suspect that after this ugly price period ends, we likely see oil bouncing around the $75 to $95 range or something like that.

    Of course all of this depends on the state of world economy which has many significant challenges such as at the required unwind, or more likely significant revamping, of the unsustainable entitlement states over the next two decades.  I personally believe that the Euro currency was a very bad idea from the start and is damaging for Europe and unsustainable as an institution.  The unwind of the Euro within the next 5 or 10 years could also cause significant economic headwinds for the world economy.