PUSH MEETS SHOVE IN OIL PATCH

 
Remember when oil was over $100 a barrel and fracking, particularly in the U.S., was all the rage for most except the climate change gang?

Then the bottom started falling out of prices and over-production and supply became a MSM major theme. Soon the drop in oil prices started to take a turn with serious ramifications for the economy. And banks. Loss of thousands of high-paying jobs, hardly the phony lower strata ones government officials paraded in the news as a sign their pathetic monetary policy was the much needed elixir of the day, to name just one.

This is what we call push-shove or push-pull. In economics it's called supply and demand. In basic Judo you push and we pull. In a recent interview we read on the Interner JP Morgan Head Honcho Jamie Dimon claimed markets are amoral, banks moral. Beside his comment being a good candidate for being among our silly quotes of the month column, it tells you a lot about the banking world and it's perspective.

Webster's defines amoral as "not to be judged by criteria of morality; neither moral or immoral; without moral sense of principles; incapable of distinguishing between right and wrong." Like a lot of definitions that covers a lot of ground.

Neither moral nor immoral suggests an old Yen saying, neither bad nor good, just is. Markets if left free enough from politicians, bureaucrats and misguided regulators solve things much the way nature does. The old, infirm, weak, over bloated and corrupt disappear first. Dimon would have us believe that the banking industry despite its long history of greed and usury is moral so long as it doesn't damage it's customers in making its profits.

Dimon is a globalist who claims he disdains the term universal bank. In his mind apparently it's too specific. He's a lot like the climate-change gang. Global warming proved too specific a threat to their agenda. Thus roll out a name change. In the universal pharmaceutical industry it's the same game--change the parameters to increase your market share.

Hire some scientists to produce some studies. You're going to need validation. Flex your marketing muscles, massage the data and another 20 or 30 million need a statin to control their lipids. It's great gig, but one with Warren Buffet's favorite criterion for owning a company--a huge moat around it. It's the golf country club of the 1950s. Rich whites only need apply. The rest of you duffers check your local municipal course if there's one near you.

Well, those fracking companies, according to a WSJ piece today, are finally starting to cut production. And is there anyone out there who thinks Exxon Mobile's huge $12 billion dollar bond offering Monday could be a prelude to later drilling for oil on the Street?

Some of America’s biggest shale producers are beginning to ratchet back oil and gas production for the first time in years, bending to the reality that a global glut will keep prices depressed.
The production cuts, announced as shale companies reported dismal earnings in recent days, stand in stark contrast to the past year, when many U.S. drillers kept the taps turned on even as oil prices plunged from nearly $100 a barrel to about $30. American oil satisfies 10% of the world’s daily needs, putting U.S. production on par with output from Russia and Saudi Arabia.

One way companies are trying to put a lid on production this year is by waiting to pump wells they have already drilled. That trend is creating a large inventory of oil and gas wells that will be ready to turn on when crude prices finally do rebound. 

Today another attempt to curtail production was announced, though hardly new:

NEW YORK—Oil markets rose to a two-month high Tuesday as traders focused on the possibility of an output agreement among large producers.

Russia’s energy minister said Tuesday that a “critical mass” of oil-producing countries had agreed to freeze oil production, and that a final decision on such a measure would be taken this month, state news agency TASS reported.

Also on Tuesday, the United Arab Emirates’ energy minister said “everyone should move toward freezing production whether they like it or not,” due to current low oil prices.


Though there is one caveat in the fracking world the Journal notes, if cutbacks cause prices to move up some companies might go back to the wells too soon and reopen the spigots, a turn that could again push prices lower. But anyone who has been around commodities for a while will tell you the cure for high prices is high prices and the cure for low prices is low prices.

They might also, to be safe, insert a qualifier in there, like eventually. But most eventualities only become eventually because of the presence of regulators, bureaucrats and politicians.