Oil sector cuts 70,000 jobs, despite low prices

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I'm not missing Dodd-Frank, I'm denying that it re-regulated the commodity-based derivative trade and associated banking risks. You are mistaken in thinking Dodd-Frank restored the basic protections of Glass-Steagall, even.

The reason the oil debt isn't capable of crashing the banks is that no huge bubble of illusion-based derivative obligations and re-insurances and so forth has been built on the oil business. Not that the oil business is too small, as you suggested. And there is right now no enforced regulatory structure preventing such a bubble - in anything.

Meanwhile, we have lost what little security we had in numbers and spread - there are fewer really big banks, and they are bigger than they were both absolutely and proportionately. The base of the tower has shrunk, the other dimensions increased.

 

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Well, I suggest you prove your assertion and you are going to have a very difficult time doing it. Because as has been repeatedly pointed out to you, it did re-regulate the banking industry. The banking system has been recapitalized. That means banks are financially stronger than they were in 2008. Banks are monitored by the Federal Reserve for systemic risk, thanks to Dodd-Frank. All that didn't exist in 2008. Glass-Steagall afforded better protection because it outright forbade banks from engaging in derivative trading. But to say as you have done there is no protection and the banking system is as vulnerable to derivative trading as it was in 2008 is just flat out incorrect.

And what do you mean by "basic protections"? Both Glass-Steagal and Dodd-Frank offer protection from the same basic threats, but they approach it differently. I never even suggested Dodd-Frank restored Glass-Steagall. But Glass-Steagall isn't the only way to re-regulate the banking industry.

Well, yet again, you are contradicting yourself in the same post. First you deny the banking system was re-regulated by Dodd-Frank and then you assert the reason why the oil debt will not cause another banking crisis is because of the re-regulation you claim didn't happen. The reason there is "no huge bubble of illusion" is because the banking system has been re-regulated (i.e. Dodd-Frank).

Here is the issue. Most people know, you excluded, that the banking system has been re-regulated. Certainly the banks know that. Yet, many people have and continue to worry oil debt will cause another banking crisis even with a re-regulated banking system and based on the shear size of the debt alone. I suggested that wasn't rational because the debt in aggregate was too small to cause massive bank defaults.

Now you claim there is "no huge bubble of illusion (i.e. derivatives)", a complete reversal from your previously stated position, and that is true and that is true because of the re-regulation you now deny. It's a complete reversal from your previous position that a bubble of derivative illusion does exist or could exist and posed a 2008 like systemic risk. The fact is the amounts in aggregate are simply not large enough to cause a banking crisis and certainly not another 2008 banking crisis as you suggested in prior posts.

Not surprisingly, you have got a lot of fuzzy and disconnected thinking going on.

Oh, and where are the numbers to back that up and how is it the least bit relevant? Where have we lost security in "numbers and spread". What "really" big banks, Lehman Brothers excepted, have we lost? How exactly has the "base of the tower" shrunk?

The bottom line here is this isn't 2008 as you apparently believe it is. Oil industry debt doesn't pose a significant systemic threat to the banking system for the all the elucidated reasons.

 

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Goldman Sachs is predicting a slight recovery in oil stocks this year. I'm not sure what to believe at this point, but I think it is a reasonable forecast. The US Department of Energy expects a 500,000 reduction in US oil production but thus far US oil production has merely plateaued. New wells were brought on line, but at some point with oil prices so low, I think you have to expect US oil production will decline. How long that will take is anyone's guess. And the next question is how much oil and how fast Iran will be able to get its oil to market? Iran expects to produce and sell a million more barrels a day at some point this year. The US Department of Energy is forecasting a 500,000 barrel per day reduction in global oil production.

What is certain is life is tough and the outlook is relatively bleak for oil producers. Just today, a large oil producer announced a major layoff of employees. Here is something else to consider, in 2014 oil industry earnings accounted for 13 dollars of S&P earnings, today it accounts for 3 dollars of S&P earnings. The fall has been dramatic.

 

Don't forget that over 100,000 jobs have opened in the solar panel business so there are jobs out there for these people who lost their jobs in the oil business. Also this year the prices will go back up sometime so those lost jobs will come back on line.

 

Overall US job creation has been robust, the best it has been for a very long time.

 

Just gaining back jobs lost during the recession but these new jobs don't pay as well as before and are in different parts of the economy.

 

Well, we have more than gained back the jobs lost due to the recession. We crossed that line some time ago. And the last job report showed rising wages.

 

Yes, and what form it eventually settles out in remains to be seen. Current strategy and prices are not sustainable - several OPEC economies will collapse in just a few years if prices don't rise, which will then cause their oil output to drop. The previous OPEC balance of power/output was artificially set - if OPEC dissolves, a re-shuffling will occur and a new balance will arise organically. One way or another, prices have to go back up again, but it will be up to the OPEC countries to decide how long they want to play chicken with their economies against each other: When playing chicken, one player has to turn or both get destroyed.

So the question is whether OPEC will be gone completely or will split into smaller groups or whatever. An update on that front:

http://money.cnn.com/2016/01/12/news/economy/oil-opec-emergency-meeting/

Hmm...what "strategy" is that? At first I assumed the OPEC move was aimed at hurting the US fracking industry, but now it almost seems like at least part of it was a war against each other. Maybe this is a power play by Middle Eastern members to increase their share of the output pie?

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Good observations, it's a good question. I don't see how OPEC gets back together anytime soon with the religious tensions running a muck. There is no love lost between Iran and the Arab Gulf states. I don't know where or when this will end, but it will at some point end, an equilibrium will be found. But it may take some time.

 

Iran, Iraq, Venezuela, and Ecuador, would make about a third of the output - enough to overrule Saudi Arabia. And the stuff from Iraq is light and sweet.

The fact that the US "economy" (stock market and financial) is endangered by low oil prices is all one needs to know about the brave new banana republic world of US economics.

 

...not true.

 

Gotta pay off those fracking junk bonds... and they can't do it if oil is less than $100/ barrel.

 

Except, those countries have no interest in cutting oil production. They are all desperately poor and need the cash. Iran was so desperate, it sacrificed its nuclear program in order to sell more oil.

Two, low oil prices doesn't endanger any one but the oil producers and those who finance them. How does lower oil and gasoline prices endanger those who have to pay less for their product? It doesn't. Your assertion doesn't even make any kind of sense.

The reason why people are worried about low oil prices, is because it isn't just low oil prices. It's low commodity prices across the board, and it's the fact those who should be reporting good numbers from lower oil prices haven't. Now that may at some point change, it should change. But lower commodity prices supports the notion of recession, of deflation. And that is why lower oil prices are driving the stock market lower. Oil is just a very visible commodity.

In the case of oil, oil prices are clearly being driven down by over supply rather than low demand. US oil production is at an all time high and it's hurting oil prices. The US has begun, for the first time in more than 40 years, to export oil. The first US oil exports went to Europe.

I think we are dealing with a confluence of issues. There are problems with China. Everyone but a few, know it. The problem is transparency. No one really knows what the story is in China, and markets don't react well to uncertainty. That's what we are seeing. So as Russ pointed out, you are once again wrong.

 

Yeah they can. High yield bonds are not the problem.

 

Will oil hit $20/barrel ?

 

So it's not the lower price of oil, but the effects of the lower price of oil and the worrisome lack of benefits from the lower price of oil, that is bad for the US "economy".

How could I have been so silly, as to think the lower price of oil was endangering the stock market and financial sector (what the official reports call "the economy"), when it was really the effects of the lower price of oil and the worries over the missing benefits of the lower price of oil that were making the bad news. But I'm educated now, you bet.

http://abcnews.go.com/Business/wireStory/us-stocks-edge-higher-crude-oil-price-recovers-36265354

 

I don't think that's possible.

 

is it not odd how joe ignored your question?
i mean since he is here spewing all kinds of things, correct?

 

I don't think it will - at least, not beyond a temporary dip due to a local glut or something. Too few producers are unprofitable at $20 a barrel.