Reveille Letter - Pre-market morning financial commentary with an international circulation

Blog Detail

Reveille Reconnaissance Blog

This blog is for the benefit of both subscribers and non-subscribers and is public to assist...
To subscribe to the Reveille Letter,
click here

In The News – Monday, December 1st, 2014 Edition
Posted Dec 01 2014 7:00AM
  •  OPEC’s decision not to cut production shouldn’t have been a big surprise as Saudi Arabia had been sending messages to that effect. Nevertheless, the reaction was violent. At Friday’s closing price of $66, Eagle Ford is still in the black, but Bakken and Permian Basin are in the red. It’s worth noting that this may not be a fact. The IEA indicates that the Bakken remains profitable at or below $42/bbl. Interesting! OPEC is feeling the squeeze along with non-OPEC members like Russia. American consumers are benefitting from an average price of $2.79/gallon. And guess what? This boom has taken place pretty much despite the government as Glenn Reynolds points out. Interestingly, Jeremy Grantham is not a true believer. He is more of a Malthusian in the he believes the fracking boom has been a large red herring. I don’t buy his argument, partly because it is predicated on his embrace of global warming climate change. “The overall thrust of Grantham's letter is that the world will soon be devoid of the resources it is going to need to sustain our current economic model, which over the last 150 or so years has been predicated on cheap energy, namely oil.” This is classic Malthusian theory which had been debunked time and again. He’s worth reading, nevertheless, for his contrary point of view. 

  • Don’t ignore the possibility that the Saudis have miscalculated. The IEA points out that the break-even price in McKenzie County, the most productive county in North Dakota, is only $28/bbl. The price floor is falling due to technology and drillers switching to lower-cost spots. According to Citigroup, “The price floor is falling and may not be nearly as firm as the Saudi view assumes.” The other consideration is that the Saudis may have put other Middle-Eastern producers in a bind, not to mention folks like Russia and Venezuela. As the old saying goes, Saudi Arabia could be hoist by their own petard.

  • Larry Kudlow has some comments on the situation. He considers lower oil prices “unambiguously positive.”   It is in effect a $125 billion tax cut. He suggests we be a bit more optimistic about the current situation.

  • Apparently everyone wasn’t duking it out over big screen TV’s on Black Friday. The FBI processed about one background check every 3 seconds as gun buyers took advantage of deals. Somewhere over 144,000 background checks were processed. Slap leather!

  • Interesting poll. Apparently President Obama is polling just below the embodiment of universal evil, Emperor Palpatine. Darth Vader would defeat Hillary if the election were tomorrow. “Hello, I’m Darth Vader and I approve using the Death Star to vaporize I.S.I.S.”