The Great American Shale-Oil Bust Turns into Massacre

Shares of shale oil drillers collapsed by 25%-50% today. Their bonds got massacred. Saudi-Russia price-war strategy appears successful in wiping out investors in the US shale-oil sector.

By Wolf Richter for WOLF STREET.

It was so chaotic and brutal in the crude oil market today that the EIA, which is part of the US Department of Energy, emailed out a statement that it would have to delay its monthly Energy Outlook to figure in all the chaos: “We have delayed the release of the Short-Term Energy Outlook to allow time to incorporate recent global oil market events. The outlook will now be released Wednesday, March 11, at 9:00 a.m.”

Shares of Occidental Petroleum, which is heavily involved in US shale oil and gas, collapsed by 53% today to $12.51. They’re down 85% since October 2018, when phase two of the Great American Oil Bust set in, with phase one having commenced in July 2014:

Oxy’s bonds – those that even traded – collapsed today. For example, this $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%, closed on Friday at 92.5 cents on the dollar. Like many bonds, they don’t trade much, but are stuck in bond funds or held by institutional investors, and it’s hard to sell them because there are not many buyers.

Today, there are only two trades listed on FINRA-Morningstar, but they were big trades, with institutional investors unloading them for whatever they could get. So the price today collapsed by 34% from the close on Friday, and by 39% over the past three trading days, to 61 cents on the dollar:

Shares of Chesapeake Energy, a former shale oil-and-gas giant, particularly focused on natural gas, plunged 28% today, from nearly nothing to almost nothing, closing at $0.16. The company has been dilly-dallying around near the bankruptcy-filing counter for years, without having filed yet, as investors continued to feed it fresh cash and agreed to haircuts and restructure its debts. But that fresh-cash option appears to be off the table.

Its bonds, depending how they’re secured, reflect that reality, with many bondholders expecting to get next to nothing in bankruptcy court.

For example, the $1.25 billion senior unsecured 5.5% notes, offered in 2017 as part of Chesapeake’s prior debt restructuring, have done nothing but go downhill. Moody’s rates them Caa3, which is deep junk but not deep enough (my cheat sheet for corporate bond credit ratings by ratings agency). They didn’t trade at all today. On Friday, the last trade was at 16 cents on the dollar. Today, no buyers emerged with a bid that sellers would have accepted:

Shares of Whiting Petroleum – once the shining star in the shale-oil sector that even in mid-2018, according to Wall Street analysts, was still walking on water – collapsed by 40% today to $0.80 a share. They’re down from $150 a share in 2015 and from $50 a share in mid-2018. But in a two-year chart, today’s plunge just disappears into zero:

As is so often the case, even as Whiting’s shares started their long march to zero, its bonds were holding up, until they weren’t. For example, these $749 million of eight-year 6.25% senior unsecured notes, due in April 2023, were trading over 100% of face value until June 2019.

Then they fell. But after the spike at the end of 2019, they were still trading at 91 cents on the dollar. Then they plunged. By Friday, they closed at 36 cents on the dollar. And today, they plunged by over half to 16 cents on the dollar:

What’s the trigger for all this wailing and gnashing of teeth?

Futures for WTI plunged 32% overnight to a low of $27.34, then surged 27% by mid-day to $34.88, then plunged 11% to $30.95 at the moment. Whiplash inducing chaos. The two-year chart shows the collapse of WTI futures over the past two days:

In my article on Sunday night – Good Morning America, All Heck Broke Loose in the Markets Overnight – I sorted through what has led to the collapse of the price of crude oil: The Saudi-Russian price war that is targeting US shale oil investors. And today, investors in the stocks and bonds of US shale oil-and-gas companies got eviscerated.

This is the goal of the price war: Brutalize investors in the sector and send some big shale-oil exploration and production companies, and some big oil field services companies into bankruptcy, where shares would be zeroed out, and bondholders would be subject to special treatments, ranging from high-and-tight haircuts to total wipe out.

And the hope among the two oil-price warriors is that banks will also pull back from lending to the sector, as their energy loan portfolios get bloodied.

The collateral for those loans consists of oil reserves, and the value of those reserves depends on the price of oil, and so the value of that collateral just plunged 30% in one day. And if it costs more to extract the oil than its cash value at the wellhead, the collateral is theoretically worthless.

This elaborate financial system that has been funding these cash-burning operations needs a high price of oil and gas, which is precisely what it hasn’t had in years. And even when WTI was still over $100 a barrel, shale oil producers were still burning cash in this relentlessly tough business.

Now our two price-warriors hope that the damage from the price war – the massacre of existing investors in the US shale oil space – will keep future investors away from the sector so that it will run out of funds to fuel its cash-burning operations, and that enough companies collapse, and that new investors realize that they don’t want to get massacred, and that they therefore refuse to fund cash-burning shale oil operations, and that the US shale oil sector will finally be forced to cut production and take pressure off the oversupplied market, and quit eating away at Saudi and Russian market share.

Having seen how this strategy failed during the 2015-2016 oil bust – when investors only fled for a relatively short time before private equity firms, hedge funds, and others plowed back into it – I nurture doubts that it will be wildly successful this time in slashing US shale oil production over the long term.

But it has already totally crushed investors – even sophisticated shale-oil billionaires – that plowed money back into the market after phase one of the Great American Oil Bust, and a good part of what’s left may be crushed in bankruptcy courts.

“False optimism can easily lead you astray and prevent you from making contingency plans or taking bold action.” Read..What Sequoia Capital’s “Black Swan” Memo Means for Unicorn-Hotspots Like San Francisco, Silicon Valley & Others

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  175 comments for “The Great American Shale-Oil Bust Turns into Massacre

  1. Beans says:

    What damage does the price war due to the Amarco and the Russian oil businesses?

    • 2banana says:

      Anyone notice Warren Buffet has been on a roll…

      With really bad investments?

      Kraft and Occidental Petroleum?

      I know he has a ton of cash…but sheeesh…

      • David Dawei says:

        If you and I were so lucky. He can’t lose.
        He has been and will again, be bailed out 100 cents on the dollar

      • mike says:

        It is not just the oil business that is in gigantic trouble. They are merely the first ones to feel the effects of the tsunami approaching. There will have to be shutdowns in many cities, or else, there will be tens of thousands of dead in many states and many countries all over the world.

        Without massive bailouts, not just to the banksters but to main street and many other companies, there will be growing numbers of bankrupt companies. Most current, publicly- traded companies were over-leveraged, so they were barely riding the economic waves as they came. The tsunami of business closures and creditor demands for payment (absent some debt jubilee or other government action to prevent bankruptcies) will ripple destructively through the economy.

        One well run, but highly leveraged company may fail because dozens of its customers failed and cannot pay it the sums owed. Another may not be able to meet payroll because its customers are afraid to come out, so its revenue will stop, and it will see its trained employees have to seek other jobs to pay for their food and living expenses during this crisis, for which the government makes no allowance.

        Many ETFs will fail as the assets that they hold drop in value dramatically and investors withdraw their funds in desperation. It is impossible for me to predict all of the circles of collapse that are coming. I think that it will be like a chain reaction among plutonium atoms with each disaster setting off another.

        Maybe the damage can be undone or will not be too severe before the warm weather may slow down the spread of coronavirus. However, the virus will probably come back with the colder temperatures of fall.

        Certainly, in the US, the failure of the government to conduct significant testing (and foolish decision to make such testing difficult to get and too expensive for huge numbers of Americans) means that many parts of the country will be virus reservoirs until the fall. What will happen when the massive number of infections resurge in the fall? Nothing good but probably, ultimately, a new government will be elected in November.

        The “Fed” bankster cartel has one tool, e.g., a hammer. However, can it prevent the plane from crashing with its little hammer? I doubt it.

        Let us get rid of this parasitic entity, called the “Federal” Reserve, that has transferred so much of American’s wealth to its little banksters over a century. We can be as prosperous again as other nations that do not have a bunch of parasitic banksters getting special, ultra- low-interest rate loans from the “Fed”, QE commissions, dividends to banks, secret loans, inside information, and many other benefits, for many decades.

        • stan6565 says:

          Don’t be so negative. Our friends at ZH have reported the President said that;

          “It will go away, just stay calm,” Trump said after the hour-long meeting to discuss an economic relief package. “Everybody has to be vigilant, be calm, everything is working out.”

          “The consumer has never been in a better position than they are right now,” he added.

          The consumer is good. And taken care of. All is good.

        • Thomas Manning says:

          I have a suspicion that any potential Corona Virus vaccine will be tested with volunteers ASAP!!!

      • peter hunt says:

        bix weir says there are something like $1.2 quadrillion in derivatives mainly betting on a rise in oil then sudden drop. this will freeze everything but may take another2-3 weeks to do so

        • Wonder how that is structured. My own take is that the companies will go bankrupt while the price of the commodity will rise. Once you bankrupt the drilling sector that could take years to rebuild. Recovery would depend on robust corporate high yield debt. Oil prices rise, inflation reasserts itself and interest rates rise. Too late for Chesapeake and Whiting? Probably, the majors will pick up the pieces. To counter the inflation shock Fed will need to raise interest rates, never confuse what the Fed does with sound economics. Their new overshoot and double down in the short term, target policy will probably catch them leaning too far in one direction, or using the wrong metric. The Saudi prince is reportedly dealing with a coup. Putin has unfinished business. A sudden drop in prices is followed by shortages. That is how the game is played

      • wkevinw says:

        Since 1998 he has had his ups and downs.

        Much (most?) of BRK gains can be associated with special deals, including the fact that he was indirectly bailed out in 2008-2009. He had the third highest holdings of bailed out financial firms of any investment company.

        Buffet would have gone to ~$0 if he hadn’t been bailed out.

        • Steve says:

          But he’s the Oracle of Omaha. NOT. Just another rent seeker waiting for the little people to bail his sorry but out again.

    • robt says:

      A big part of the business is hedging and contracted sales with risk offset by takers, so they’ll be OK for a while. But futures prices are a function of spot, so later the effect will be seen.
      Another good question is how solvent the specs are; a contract is only as good as the solvency of the counterparty. There were about 600,000 spec longs in oil as of last week. Remembering back to the big NatGas bubble a few years ago, some big players got wiped out in the crash; especially one who went all in long and got cleaned out in a day or two.
      The Commitment of Traders report should be interesting this Friday; last Tuesday’s numbers had already been shrinking as specs had been liquidating – but that was before the big bust.

  2. Bobber says:

    I’m sure Trump will be applying some pressure on Russia and Saudi Arabia. Tariffs on oil imports? Selling below cost isn’t considered fair trade.

    • nick kelly says:

      SA’s cost is a ‘lift’ price from the well. About a buck or two.

    • 2banana says:

      Obama put pressure on Saudi Arabia to lower oil prices in 2015 to punish Russia for backing the Ukraine rebels and their support for Assad.

      So the irony is pretty thick.

      • Wolf Richter says:


        In July 2014, the US oil price began to collapse due to overproduction and lack of demand. This was the beginning of the oil bust. It was terrible for the economy as the oil bust expanded. GDP growth in 2016 was just 1.6% largely due to the drop off in all the industries that support the oil industry, including manufacturing and construction, and the various tech industries. It’s always surprising to me how you figure out how to blame Obama for everything.

        • MCH says:


          I think you hit the nail on the head. There has been too much supply already, it just hasn’t really surfaced until now when suddenly people realized that a big chunk of demand has been taken away.

          I’m just waiting when they start relaxing the slot rules for airliners in Europe… I think as of today, they are still debating it. That should take another small chunk of demand out. Of course, the bigger chunk might be when you drive down 101 around rush hour and the traffic is actually moving.

          As far as fair is concerned, this is war, in war, fair means I win, you lose. The Russians and the Saudis want and need to burn out shales producers, that way, when they eventually raise prices, it will be sustainable, and they’ll lack competition. I think one smart thing they might want to do is to buy up the oil patches in the US. I’m not sure if laws would allow this. But if I were them, I’d find a way to bankrupt all of the shale producers, and then buy the land and the rights from them, and then just squat on it.

        • 2banana says:

          There are plethora of respectable articles on this topic and it really wasn’t that long ago.

          And I wasn’t blaming Obama. I was pointing out that not even five years ago America was using lower oil prices to punish Russia and now Russia is using even lower oil prices to punish American.

          If that ain’t irony, I don’t know what is.

          “As has been noted, Saudi Arabia’s manipulation of the oil price has twice targeted Russia. This time, the effects of a low price have hit Moscow especially hard due to sanctions already in place combined with the low ruble. Last week, in an effort to defend its currency, the Bank of Russia raised interest rates to 17 percent. The measure failed, with the ruble dropping another 20 percent, leading to speculation the country could impose capital controls. Meanwhile, Putin took the opportunity in his annual televised address to announce that while the economy is likely to suffer for the next two years and that Russians should brace for a recession, “Our economy will get diversified and oil prices will go back up.”

          From oil prices dot com on Dec 23, 2014.

        • Brown Mouse says:

          ‘Overproduction’ Wolf? I struggle with the meaning of this term in anything other than a central planning context. There is demand, there is production, there is price. Don’t fall for the political canard parroted by the media about an oil ‘glut’. OPEC is a cartel. They fix the price of oil. . . to the detriment of the consumer. Central banks are a cartel, They fix the price of borrowed money. . . to the detriment of the consumer. Here, the negative externality of oil price fixing meets the negative externality of borrowed money price fixing. Entrepreneurial extraction innovation, fueled by artificially cheap borrowed fiatbux, is disrupting/disintermediating the price-fixing ability of the OPEC cartel. NEVER bet against the entrepreneurial spirit. Last time the shale patch was under stress, the guys found a way to reduce their extraction costs by >$20 a bbl.

        • Wolf Richter says:

          I agree with you from “Central banks are a cartel” onward. Just to clarify the question in your first part: “Overproduction” of a commodity means that production exceeds supply by enough, for long enough to where it implodes the price. There are no morals or politics attached to the term. It’s just what happens with commodities from time to time. Normally, as the price collapses, production gets curtailed as producers may go bankrupt, and then the price comes back up.

          The difference in the oil and gas business over the last few years has been that new money kept flowing into the US oil-and-gas sector, even as the price remained below the cost of production, and production, though it dipped briefly in 2016, was never allowed to drop enough and stay down long enough for prices to recover to profitable levels. As you pointed out, central bank monetary policies had a lot to do with this.

        • paul says:

          trump did lead the german attack on pearl harbor.
          so there is that.

    • Thomas Roberts says:


      Russia and America have very little trade in general, so tariffs cannot work.

      Tariffs on Saudi Arabia would have huge geopolitical implications as well as one more thing threatening the us dollar.

      A major theory online, which I do believe, is that to bail out shale producers; Trump started all the trouble with Iran and Venezuela.

      • Truckguy says:

        “A major theory online, which I do believe, is that to bail out shale producers; Trump started all the trouble with Iran and Venezuela.”

        The theory is Trump vowed to unwind the Iran deal and agree with the entire world that the Venezuelan election was illegitimate in order to bail out the fracking industry? Personally I’ll pass on that theory.

        • SteveK9 says:

          Why? If fracking weren’t producing so much oil, there would have been some hesitation about ending Iran’s oil exports. I think the oversupply and the need to protect the frackers, made it much easier to go after Iran and Venezuela. They are linked. Fracking may be done for a long while, if not forever. Obviously with Iran and Venezuela largely out of the picture, and new huge discoveries in Iran, etc., it’s pretty clear there is a lot of cheap oil out there, so how does expensive oil make sense. The only thing that will bring back fracking is if the US joins OPEC, along with Russia.

  3. Scott says:

    At what point do lenders jack up the interest rates of new bonds to match the risk?

    • WES says:

      Scott:. I think the market’s answer today was to lower interest rates to zero!

      • Beardawg says:

        Rookie on understanding bonds. There have been many articles recently on bonds. Why does the price of a UST bond go UP when the yield goes down? What I am reading in this article is that Corp unsecured bond Yields are going down AND the price of the bond itself is also going down…NOT like UST bonds. I am sure the answer is simple, but I have never understood it.

        • Finster says:

          Those bond yields go up when the price goes down as a matter of mathematics. Simplified, yield is annual coupon payments divided by price. But if the coupon payments themselves go down – e.g. to zero as in default – then the yield must also go down too.

        • Wolf Richter says:


          Yes, as Finster pointed out.

          Let me just give you an example. A bond issued by company X with a maturity of 10 years and a face value of $1,000 (typical for bonds) pays an annual “coupon” interest payment of 5%. So the bondholders receives $50 in interest every year. Now the company gets in trouble, and the value of the bond in the market plunged to 50 cents on the dollar, meaning it now trades for $500. But a buyer still gets the $50 coupon a year (unless the company defaults). So in a very simplified way, the yield is the $50 income divided by the purchase price of the bond at that moment: $50/$500 =10%.

          The yield automatically goes up as the price goes down.

          In reality, it’s more complicated. There are different types of bond yields, and they are complex to calculate, particularly “yield to maturity.” But now you don’t have to learn how to do this with your HP 12c calculator. You can go to any of the bond yield calculators on the internet and just plug in some numbers and dates and click. And voila.

        • Chris Coles says:

          Try reading Beginners Please, published many decades ago by Investors Chronicle.

        • Wes says:

          Beardawg, UST Bonds are sold at auction which is considered par. A UST Bond after auction can sell at a premium over par or at a discount under par. When a UST bond sells at a premium the principal actually increases even though the UST bond originally sold at a discount which was the initial interest rate. The manual math is a little bit cumbersome, however business calculators can minimize the math. Currently all UST bonds are selling at a premium or above par.

        • Beardawg says:

          Thank you Finster, Wolf, Chris and Wes. I understand the basics of bonds now, but Wes’ statement that UST binds sell over Par when yields are under 1% ?? Really? How does that make any sense????

  4. Leser says:

    Can our central banking heroes print us out of the danger zone yet again? Looking at those charts, it might take a lot.. And one of Wolf’s charts is already scaled all the way to zero indeed.
    Russia struck close to the heart of the beast. Has she smelled blood?

  5. MCH says:

    Wolf, you know, this doesn’t feel like anything other than the opening shot in a war. Yesterday, it was American manufacturers, today, it’s oil companies, I wonder who or what is next on the hit list. Granted, in the former, US companies were complicit in the decimation of US manufacturing.

    But this oil thing is quite blatantly targeted on the US oil industry. The fact is, at least half the country won’t be interested in supporting this industry, and so no government bailout will be likely.

    Makes you wonder how the Green Deal folks will react… perhaps they’ll want to manufacture solar panels in the US….. HAHAHAHAHA

    • Zantetsu says:

      I’m not interested in supporting the shale oil industry.

      We can’t manufacture everything here. If some other country can produce the components for clean energy independence more cheaply, then great, let’s buy it from them.

      You might think that you have some smug position of superiority over those who value the health of the planet more than shareholder returns, but I assure you, you do not.

      • MCH says:

        No, I’m all for having manufacturing in China. It is more efficient and much less contentious than the US. I like buying cheap stuff from Walmart and Amazon, the greatest annoyance right now is the fact that prices are going up. And I’d rather all that pollution involved in green products stay over in Asia, rather than come to the US.

        In case you didn’t realize, the supply chain for solar panels actually gets pretty dirty, it’s just that the end product looks like it is carbon neutral. I love how the people who continues to voice support for “green” things are so utterly clueless about how dirty their favorite products actually are.

        And believe it or not, I don’t like the shale industry either, that it exists means that gas prices are high. So, I love it when the Saudis and their Russian pals are busy dropping oil prices. If the price for that is a few hundred thousands Americans working in the oil industry not having work… well, that’s ok, they can get retrained in low paying service jobs. (how is that for smug, and arrogant… sound familiar???)

        • Zantetsu says:

          Thank you for your reply. I must have misread the tone of your original comment because that was not the position I thought you were espousing.

        • stan6565 says:

          Those dropped or made to be dropped from oil industry can always retrain and get into coding.

      • Arctic Chickens says:

        Most of the cost reduction in solar panel manufacturing in China comes from skipping the waste remediation steps that western countries demand. Great, until it’s not. That all runs back to the ocean. But, NIMBY and all that.

    • WES says:

      MCH:. War it is!

      The Fed will print money to keep the oil flowing in the US.

      The Russians are in it for the long haul.

      Is Mbs the weak link?

      • Hank says:

        The Saudi’s are supposedly are friends. With friends like this, who needs….

    • jc says:

      what’s so funny?

    • 2banana says:

      It’s a game of pain between:

      Kingdom of Saudi Arabia
      Shale producers

      Both Russia and KSA need oil to basically pay for the welfare state and their larger militaries.

      The KSA monarchy only stays in power due to the massive welfare state. Plus fighting a nasty little war.

      Russia, if it has any plans to modernize it’s military (it does), “invading” the Ukraine and eastern Europe (it doesn’t), other military adventures (Syria) and has to keep the rest of its moribund economy going…

      • char says:

        Iran, the left and right-wing ruled South American oil states, the waring sides in Libya are also in this game and i could name some more. Getting more or less oil on the market is the game and i don’t think the end result for the US will be good.

        • wkevinw says:

          Yes. A LOT of cards got played this week. It is always more complicated than it looks.

          Russia and Saudi are frenemies. Iran and Saudi are not friends.

          Russia and SA would like to kill US frackers. The various kinds of incentives are very entangled.

          SA doesn’t want to make too much trouble with other countries because it wants foreign investment also.

          It goes on.

      • MCH says:

        Russia thinks they can sustain $20 to $30 oil for 5 to 10 years.

        The guys in the Middle East might not have as much cushion. As for the shale players, they are like cockroaches, you kill a bunch, look away, and when oil prices go up, they come out of the woodworks again.

        It isn’t obvious if this price drop is sustainable for anyone. Heh, one of the accidental casualty of this situation might end up being Iran.

        • Cas127 says:

          “It isn’t obvious if this price drop is sustainable for anyone. ”

          Actual production costs for both Saudi and Russia is in the single digits per barrel…just as it has been during $100 oil and for decades before.

          So sub $30 oil is very, very sustainable…just not as insanely profitable.

        • Bobber says:

          I’m surprised at how quickly these small shale players pop up. It doesn’t seem like an easy or simple business with all the issues surrounding environment and regulation, reserves, drilling technology, drilling contracts, workforce requirements, capital cost, etc. And they do this all for the right to be a fly on a cow’s arse. It makes no sense to me, and I wonder if the whole industry was created as a financial boondoggle to capture and spend money from dumb investors. I’m sure the executives and directors of these small concerns do quite well.

        • Steve says:

          What is the cost per barrel for Extraction, refining and distribution? I would be very surprised if all three was still in the single digits. Not an oil and gas guy so I’m curious.

        • MCH says:


          I wonder how much oil production is sustaining the government spending of the Kremlin and Riyadh. I believe that you’re right, the actual production cost for Russia and the Saudis can be quite low, and they’ll be profitable still at $20 to $30 oil. But how much of that profit goes to social and arms spending, how sustainable is that?

          I guess it really comes down to a question of marginal dollars vs marginal percentages. Do the Russians and the Saudis get more profit overall as the shale folks leave? Or do they simply hope to force the shale guys out and then cut production and put pricing back to $50 to $60 levels. The latter case might not work out so well.

        • Anthony A. says:

          There are almost 9,000 drilled, but not completed wells in the U.S. It would take 30 days to bring one well on production. Once the price of crude is high enough, those wells can come on line (case, cement, frac, etc).

          You can bankrupt the current producers, but the wells will live on through new owners when the time is right.

      • Mattej says:

        Whereas the US just creates Dollars from thin air, what is greener than that?

      • Tinky says:

        Lumping Russia and KSA in the same “welfare state” boat is ludicrous. The same could also be said of the military. Russia manufactures and sells enormously valuable, cutting edge military equipment to countries around the world, while KSA must pay for all of theirs.

        Both comparisons are ridiculous, and Russia would be able to survive with low oil prices FAR longer than KSA.

    • Iamafan says:

      Yeah. Who cares if the oil fracking industry dies? Don’t they poison our water? We should thank the Saudis and Russians.

      • You must have read ‘Blowout’. The conclusion drawn there is that Putin’s Russia has been asset stripping their oil industry, and cannot meet future production quotas without US technology. If they reach their own peak oil moment while global oil stocks are shrinking, that might seal the deal.

      • Wes says:

        I don’t think we would want to be oil dependent like we were in the 1970’s or in 2008. The high cost US shale producers will get shaken out. You are witnessing it right now.

    • California Bob says:

      re: “But this oil thing is quite blatantly targeted on the US oil industry. The fact is, at least half the country won’t be interested in supporting this industry, and so no government bailout will be likely.”

      But, the shale industry is in the heart of Trump’s support; Orange Foolius will ALWAYS support his clan. A bailout of the shale industry is almost a certainty, the only question is what form it will take.

  6. WES says:

    In the early 2000s I was heavily invested in Canadian oil and gas Income Trusts.

    Then on Halloween night, in 2006, the Canadian government killed all of my oil and gas income trusts.

    I never sold any of them simply because selling them cost more than they were worth!

    Most were simply delisted.

    Any residual value I had left from 2006, died today.

    As Wolfe said they went “from nearly nothing to about nothing”!

    • Finster says:

      I remember that. I’d owned hefty positions in some of those trusts too, and really liked them until that one dark Halloween massacre. Eventually I sold them. Then after a few more years I bought some MLP funds. They got banged up pretty bad in 2015. Today they were massacred. If I hadn’t kept my positions small I would have been too.

  7. petedivine says:

    As bad as the Shale sector was whipped. Who were the investors taking the whipping? Anyone we know? I understand that the pension and insurance sectors invested greatly in the shale story. There will probably be greater implications to this decline in asset values. I suspect this decline isn’t over nor have the dominos finished falling.

    • Anthony A. says:

      Many oil company employees own stock in their companies. As do a lot of investors who follow the energy industry. It’s not just the big guys.

    • MC01 says:

      Harold Hamm, the Oklahoma billionaire, lost about $9 billion, or half how much he was worth before the 2014 bust. EnerVest, an upstart energy fund that got in the fracking game late but with excellent PR, lost over $2 billion in 2014 and latter collapsed: losses were mostly incurred by non-US pension funds who held EnerVest junior and/or unsecured debt. These are the first two that popped into my mind.

      The media don’t like this kind of stories: their job is to corral “dumb money” (retail investors, family funds etc) into the minefield and push them ahead, not to report about the casualties.

  8. Jeremy says:

    I wish you would use the word “hell” instead of “heck.” Case in point: “Go to hell!” vs “Go to heck!” “Hell” is not foul language!

    • Well, I think ‘heck’ is perfectly apropos. It’s the more boring, corporate version of hell. Instead of investors boiling in fire and brimstone, the wailing and gnashing of teeth is generated by showing them scary charts.

      • FluffyGato says:

        Corporate Hell is days full of useless meetings and conference calls.

        Far worse than fire and brimstone.

    • There Will Be Blood says:

      I agree. Heck sounds like something the church lady would say.

    • Pilgrim says:

      ‘heck’ is just replacement “filler” word for ‘hell’. Just like ‘darn’ is for ‘damn’, ‘shoot’ for ‘sh*t’, etc. The former sounds silly and doesn’t really cleanse the phrase, the latter is just crude. How about not using either?

  9. Anmol says:

    @WES what exactly did the govt do?

    • WES says:

      Anmol:. The Canadian government suddenly changed the rules without any warning and outlawed income trusts for oil and gas, destroying about $35 billion in equity overnight!

      The man who did it was rewarded by being appointed Governor of the Bank of Canada and later Governor of the Bank of England, Mark Carney!

      • IdahoPotato says:

        The trusts were not outlawed. The tax laws pertaining to income from trusts were revised to make them on par with corporations.

        • WES says:


          The result was still the same! $35 billion in equity was vaporized the next morning!

          I remember that day all too well! Half of my life’s savings disappeared that day! Something from which I have never recovered from! Shortly afterwards 2008 came!

          P.S. I used to work as a service engineer for a mining equipment company in Milwaukee, that bought the old naval buildings in Pocatello, Idaho in the mid 1970s. (They may now be owned by Caterpillar.)

          They produced electric mining shovels and blast hole drills there.

          From time to time, I would spend a few weeks at this plant. Besides meeting some very nice Mormans, this gave me the opportunity to travel around the famous potato state!

          I know my brother got to take a ride in a WW2 P51 Mustang owned by a Idaho potato farmer about 10 years ago! This Mustang was formerly owned by a very famous US war pilot, who name I can’t remember.

        • IdahoPotato says:

          The Mustang P51 was most probably John Bagley’s. (Rexburg, Idaho).

          Bagley founded the Legacy Flight Museum in Rexburg.

      • polecat says:

        Moral of story : Never trust a Barker !

  10. David Hall says:

    Global natural gas consumption has doubled since 1990.

    Saudi Arabia discovered a huge natural gas shale resource. It would like to use NG for electric power generation.

    Some inefficient oil and gas companies will get weeded out. The world may need more natural gas as coal is a dirty word.

    • There Will Be Blood says:

      Where would all the water come from for the fracking operations?

      Imagine the cost if they were to use desalinated water!!!

      • cas127 says:

        Saudi does not need to frack.

      • SwissBrit says:

        De-saliniated water doesn’t actually cost much in SA; on my last visit, I was in Al Khobar, just across the causeway from Bahrain, where there’s at least one fairly large de-salination plant (that I actually remember seeing, although there are undoubtedly more dotted around from the coast) that was visible from miles around by it’s huge plume of thick black smoke that was constantly pouring out of it’s chimney stack.
        Apparently they simply pump low grade or unrefined oil into the furnaces to provide the power and aren’t in the slightest bit fussed about pollution in any way (which was also noticeable by all of the pieces of glass, plastic and metal in the form of drinks cans, ring pulls etc. embedded in the sandy beaches, that anywhere else could be pristine tourist attractions).

  11. Wes says:

    Well said Mr. Richter. The unsecured bonds are virtually worthless. Oak Tree Capital and the likes of Howard Marks have been just waiting for collateral backed bonds to collapse. Waiting to pick up first lien collateralized secured bonds at fire sale prices and using them in bankruptcy court for controlling the remaining assets.

    It’s my understanding that Saudi Arabia’s oil cost at the well head is around $9-$10. The best shale producers are around $20-$25.

    • FROMKS says:

      Cost at the wellhead is different than the revenue needed to balance generous social programs. Expect unrest if this continues.

      • Cas127 says:

        Maybe 2 or 3 yrs down the road, after Saudi financial reserves are drawn down.

        But Saudi didn’t collapse in 85 during a similarly engineered fall in prices…which lasted from 85 to 2004 when Chinese demand altered the demand curve.

        • Gandalf says:


          My profound congratulations to you for being about the only person to actually GET THIS HISTORY RIGHT, so far. Just way too much BS posted so far about the oil industry

          Even Wolf’s post doesn’t really get this whole thing right.

          This is as much a power play by the Saudis against Putin’s Russia as it is about the US oil frackers.

          I grew up in Texas and ALL of my immediate family were at one time or another employed by the US oil industry.

          In 1985, the Saudis turned the oil spigots on, partly at the behest of Ronnie Reagan, driving WTI prices to well under $20.

          This not only crashed the US oil industry, it also helped destabilize the Soviet Union. Combined with Reagan re-arming the US military, this is what caused Gorbachev to go down the fatal path of glasnost and loosening restrictions, ending up with the dissolution of the Soviet Union.

          My father got early retired at age 63, my brother in-law got laid off and was unemployed for over a year.

          Houston, heavily dependent on the oil industry, was devastated. The city was filled with “see throughs”, beautiful new office buildings with large glass windows that were completely unoccupied. Yeah, I was in Houston during that time, and I really could see all the way through some of these empty glass shells.

          Jim Baker was Treasury Secretary and then Secretary of State during much of this time. George HW Bush was President for part of this time. These two guys with deep, deep, and I mean REALLY DEEP ties to the US oil industry did not do anything to help out or pander to the suffering US oil industry, unlike the current administration’s pandering to US farmers with extra taxpayer dollars and deficit spending to alleviate the trade war losses.

          And you know why? The oil industry people didn’t ask for help. People in the business just took it on the chin because they knew the rest of the country was doing well because of the lower oil prices. The huge US inflation rate, which was kick started by the Oil Crises of the 1970s, started going down.

          And eventually prices went up again, and the frenzy of investment money for fracking just poured in like a monsoon by the mid 2000s when oil went over $100, because you can make a LOT of money at that price.

          The US oil industry has consolidated, and despite the recent high oil production levels, no major really large unexplored reserves are on the horizon around the world.

          We are still a world dependent on oil and gas. Perhaps in 20-50 years we will have developed enough alternative energy resources to be completely free of the need for oil and gas.

          But that ain’t happening in the next decade for sure, and the people in the US oil industry are a resilient breed. Having seen how everybody survived an even bigger, longer meltdown than the current one, the comparison to the resilience of cockroaches is an honor.

          Oil prices will go UP again

        • Wolf Richter says:

          “Even Wolf’s post doesn’t really get this whole thing right.”

          Hahahahaha… didn’t mention history at all, the 1980s, the 1990s, nada, didn’t say a word. That’s your job here, from what I can tell. And so you gave us your version of the history. I discussed what’s going on now.

        • Gandalf says:

          Wolf, the part I objected to was your sole focus on the Saudis targeting US oil frackers.

          The CURRENT timeline shows that the Saudis first tried to get Russia to play along with OPEC’s proposed production cuts to RAISE the price of oil, and when Putin refused to join in, MBS suddenly went on this binge to increase Saudi output and LOWER prices.

          The ONLY logical conclusion is that this sequence of events was Saudi retaliation against Russia’s obstinance. Cas127’s reference to the History behind this with the 1985 Saudi decision to crank UP oil production finally triggered this blast of a history lesson that I’d been wanting to weigh in on for a while on this thread.

          History informs a lot of what people do. You refer to your past experiences with the stock market as to why you were reluctant to short the stock market again.

          History informs everything Putin does – he considers the dissolution of the Soviet Union as the worst thing ever to have happened. The 1985 Saudi decision to raise production which crashed oil prices contributed to that dissolution of the Soviet Union. MBS is well aware of that. Lots of other reports I’ve read have framed this Saudi action as being directed at Russia primarily, and it totally makes sense to me.

          The History shows that the Cockroach US oil industry survived the nuclear blast of the 1985 Saudi oil production increase to drive oil prices down, mutating into shale frackers. The Soviet Union did not survive.

  12. A. says:

    Does this mean the fracking, which releases so much methane (currently 25% of greenhouse gases) [] as well as causing earthquake risks and poisoning water (just google it, I’m not going to cite that part), will FINALLY be put to rest? Or do we have to keep fracking to keep up with the joneses?

    I’m not saying that Russia and the Saudis are doing a great, environmental job with their gas extraction, they probably aren’t, but fracking seems like the most self-destructive way to get gas when it does so much harm on so many levels, and hasn’t been paying for itself for a long time.


    • Cas127 says:

      It will slowly stop until prices get back to the necessary breakeven of $40 to $45.

      But I don’t know if fracking is really that much worse for greenhouse gases than traditional production…it is the overall consumption levels that really matter.

      • tehodler says:

        Fracking is a complex endeavor that consumes vast resources so EROEI is definitely a concern. Most of easy oil is gone in the U.S. otherwise we wouldn’t have drilled through 5000′ of water, killed 11 men, and almost ruined the GOM in 2010. No one would do that if they could just poke a hole in the ground and get Pennsylvania light sweet crude.

        Fracking and horizontal drilling are complex and expensive and could not compete in price with Saudi or Russian oil except for the debt that is now owned by banks who purchased oil company junk bonds.

        The shale play music is just about to stop. Who will be left without a chair?

        • Cas127 says:

          Nobody is arguing that fracked, tight oil isn’t more expensive to produce than traditional vertical well oil…that is why the breakevens are notably higher (say $45 vs. $6 to $8 for Saudi and Russian fields).

          But…the claim was made regarding greenhouse gasses, and there the incremental increase attributable to fracking compared to traditional methods is likely a tiny fraction of that attributable to the overall WW use of oil, period.

  13. SteveK9 says:

    Russian Finance Minister stated today that Russia can tolerate oil at $25 / barrel for 6-10 years, with current wealth fund reserves. I’m not sure this is going to be 2015/6 again, and wonder if there will be a long-term decline in US oil production.

    • nick kelly says:

      That is a call/ bluff replying to Saudi’s raise.
      My thinking is that Russia holds the weaker hand.
      There aren’t even pretend elections in Saudi.
      Putin’s popularity over the last 15 yrs overlays the oil price (The majority of Russia’s income.) Lately as oil falls pensions are cut and there are protests.)

      Right or wrong, I think the House of Saud is stronger (with US protection!) than the House of Putin. Saudi Arabia has a ‘glue’ called Sunni Islam.
      Every author I’ve read thinks there is no such ‘glue’ in Russia apart from the Putin personality cult.
      Putin’s newfound Orthodox piety, wearing crosses etc. while ordering hits on dissidents etc. is comical. The same could be said of MBS but the House of Saud has ties to Sunni Islam beyond him that will survive him. Former KGB Putin had to forswear religion to join at all.

      I’m complimenting Russia here. I think the country is too modern to put up with Putinism and severe austerity.

      • Tinky says:

        I am astounded by your analysis. Russia weaker than KSA?! More “glue” in the latter society?!

        Russia has a sophisticated military industry which may be the world leader in electronic warfare, air defense systems, silent submarines and armored vehicles, and manufactures and sells some of the best related hardware and software. KSA is a U.S. protectorate, for whatever that is worth today, and spends a fortune for the privilege.

        Russia is a major (and growing) food producer (likely self-sufficient today). Its food export capacity is growing, and it has for several years been the leading grain exporter.

        Putin’s remarkable success over the past 20 years has far less to do with oil revenues than it does many other fundamental changes and improvements in the structure of the society.


        Russia is so much stronger and more stable and secure than KSA that the comparison isn’t worth parsing out to any great degree.

        • unit472 says:

          The Saudi Royal family has held power since Ibn Saud became king in 1926. Not many dictatorships in history can match that. Not Kim Il Sung’s Korea or the USSR.

          Neither Putin nor MBS can long survive oil under $50 and neither can US frackers. The difference in the three producers is that the US can slap a tariff on imported oil and allow US producers to supply the US market. SA and Russia must export to sell their oil.

        • nick kelly says:

          Russian population is 140 million with an economy (GDP) the size of Canada’s. But although this makes the AVERAGE Russian one quarter as wealthy as the average Canadian (pop about 35 mil) it is Russia that has 4 times as many billionaires ( the oligarchs)
          Russia has 16 times the inequality of Canada.
          Life expectancy has dropped.
          Alcoholism, bad in Soviet times, is epidemic.

          Corruption is so bad the gov’s own figures put the corruption market at 300 billion per year. Even delivery trucks in Moscow have to pay off traffic cops. Fire inspectors shake down shops, etc, etc.

          But not all is small time.
          Some years ago a successful US- owned business in Russia paid its taxes. But the clerk was bribed and the money stolen. The American hired a Russian lawyer, Sergei Magnitsky, who proved the theft and traced the proceeds (the clerk’s brother bought a dacha) but implicated ‘connected’ people. Magnitsky was beaten to death in a Russian jail.

          No business can advance beyond a certain level of success without what Russians call a ‘roof’, political cover that must be compensated. One of Putin’s jobs as capo is arbitrating conflicting claims on business as sub-oligarchs clash.

          Suggested reading: ‘Russians’ Geoffrey Feifer. Publisher ‘Twelve.’ 2014.

      • Cas127 says:

        It is also difficult to see Putinism…post Putin.

        90’s style fragmentation seems more likely as Putin’s lieut. grab fiefdoms post Putin.

        • nick kelly says:

          Agree. In the short term however the most likely scenario is that Russia wakes up and decides to play ball with OPEC after all. No doubt there are back channel talks as Putin mulls how to fold without losing face. Poker analogy: don’t try to bluff the deep stack. We keep hearing that Saudi needs 80 $ oil while Russia is cool with 40. Maybe but Saudi has way more cash on hand and can wait.

        • Cas127 says:


          “decides to play ball with OPEC after all. ”

          Agreed, after all the strange bedfellows (one an ostensible ally, under our military protection) have been playing footsie for a few years now in order to prop up prices.

          This is a tacticians’ spat – it is in the interests of both SA and Russia to get back together…but Russia likely needed to keep production up for fiscal reasons (although Saudi is more dependent on oil, Russia has a much larger population).

          So, as in 1985, Saudi decided to show “overproducers” what happens when you mess with the 250 billion barrel reserve bull.

          There may also be some US inspired f*ckey pokery going on behind the scenes (also likely in 1985), since it was just last September that Iran showed Saudi just how necessary US military support might become.

          But it is all very opaque…Saudi alternates flipping the US off (stagnant production during the price spikes of 2003 to 2013) with opening the taps in favor of US geopolitical interests.

        • Mark_2 says:

          “post Putin”
          FWIW he’s working on extending his term…

          ‘President for Life’: Putin Opens Door to Extending Rule until 2036
          The Russian leader said Tuesday that he is open to a proposal that would allow him to run for president in 2024 and 2030.
          By Evan Gershkovich
          Updated: 11 hours ago

      • VintageVNvet says:

        Don’t count out the oligarchs of Russia just yet. While I acknowledge it may be partly fiction though not presented that way, there was a book recently that detailed the Russian noble families, continuing from the last 600 years, that are alleged to run Russia today and almost always over that time period, except for short terms during the reign of Stalin, but including the years of the last czars.
        Looking closely at other similar ”old world” countries, the situation seems the same or similar, and similarly continuing, though much longer some areas.
        As to the TX fracking area situation, who wants that area except for the oil folks. I have driven through the Permian basin several times in the last 10 years, and seldom see more that a very very few homes or biz, except at a very very few areas servicing the interstates.
        The west TX hill country on the other hand is beautiful, especially around LBJ’s ranch, and so is most of the rest of the state.

  14. Paulo says:

    Today, I read several articles on Canadian Oil Sands health as pertains to the KSA price war. It is actually in much better shape than US Shale as finance/production costs are mostly fixed, financing is long term, and for older producers (like Suncor) the profit numbers require a lower selling price.

    I look for US Shale to collapse before this is over. Meanwhile, pipelines for future BC LNG and the Trans Mountain (which will pull 900,000 bbl/day away from the US captive market and thus capture world prices) will ensure that when this is over US consumers will see much higher energy costs. Net energy export status for US lasted what? 3 months?


    • Bobber says:

      Paulo, did you see Teck Resources from your area is down to $8 now. Looks like a bargain.

    • WES says:

      Paulo:. I hope you are aware that Canadian oil produced from the tar sands consistently receives a discount to WTI of between $10 and $40 a barrel!

      And with Trudeau in power, I would not hold my breath that a new western pipeline to BC’s coast will ever be built!

      Alberta’s massive crude oil discount will continue for the foreseeable future!

      A few weeks ago the last tar sands project died, thanks to Trudeau’s efforts.

      Just this week a new $9 billion gas pipeline into Quebec died, again thanks to Trudeau affer Warren Buffett pulled out!

      See a pattern?

      Oil and gas is not welcome in Trudeau’s new vision of Canada, just as he promised during the last election!

      • Social Nationalist says:

        Ok, except politicians that liquidated the trusts have been big pipeline lenders. Maybe, just maybe a 9 billion dollar line isn’t going to work in this environment. Deal bro, deal.

      • Paulo says:

        Hi Wes and Bobber,

        The discount to WTI is exactly why TMX is under construction. Yes, I follow the industry closely. And Bobber, Teck is mostly a mining company. I actually stay away from mining in all forms, especially companies from Vancouver. I used to fly a lot of drilling contractors, drillers, and promoters in the north. They bought me a lot of suppers, but never let me in on the inside moves that made them rich. A wealthy drilling contractor gave me some good advice that I have always stuck by, “Unless you know the promoter, and know him well, stay away from mining stocks. It’s all about who is doing the promoting. It isn’t the ground.”. At the time I was going to buy silver miner stocks. Teck is a Vancouver based mining company and that particular industry runs on inside information, and I am definitely not an insider.

        While the Teck Oil Sands plan has been backed away from, other expansion projects by established Sands companies will be going ahead. My son works for a very large maint company out of Ft Mac. Their people are all spoken for, at least for the next several years. They may put on a hiring freeze but will most likely not be doing any layoffs. It’s not a rosy scenario, but it isn’t Shale.


        • WES says:

          Paulo:. O.K. I am glad that you are fully appraised of the situation.

          Trying to make money investing in Canadian mines and oil and gas is pretty near impossible!

          I come from an eastern Canadian mining (mostly) and oil and gas family!

          My Father probably met and knew some of the same Vancouver mining promoters that you did!

          Small world!

        • WES says:


          Back in 1984, I almost took a job as a electric shovel maintenance supervisor for a new tar sands company in Alberta.

          At the time I was working as a service engineer for Bucyrus-Erie in Milwaukee.

          I was building a new shovel for a coal mine in West Virginia, when a head Hunter cold called me at my motel one evening!

          Of course he described the new position in glowing terms! I said I needed to sleep on it! He said he would call back the next night!

          After finishing the call, I phoned my Father in Toronto. We talked about this new but rather shakey project. Naturally my Father knew all the details about this project because his company was a potential partner in this project!

          My Father said this project would fall flat on it’s face (his recommendation was to reject getting involved in this project because the numbers didn’t work!)

          The next night the head Hunter called back and I explained to him why this wasn’t such as great job for me to take!

          Needless to say he was totally dumbfounded that I knew more about the project than he did! He said I must have really good contacts!

          Shortly thereafter, I got laid off from BE, returning to Toronto and switching out of mining into plastic injection molding. My brother got out of mining too, switching to cars in Detroit! My Father retired from mining after about 45 years in 1995 or so.

          Mining has been in a depression in Canada since about 1980 or so and has never really recovered since.

  15. There Will Be Blood says:

    Are they targeting shale or are they just fighting to stay alive – and shale is collateral damage?

    LEt’s say I have a lemonade stand on one side of the street. You have one on the other side of the street.

    And further down the street is Herb with his lemonade stand, the one that is always losing money.

    The stands are our only source of income. Our families don’t get fed if we don’t sell lemonade

    Herb’s wife is from money so she takes care of the losses because she is over Herb and has this thing with the gardener that only works if Herb is out of her way during the day.

    Suddenly one day, the price of lemons collapses, because people on our street are drinking much less lemonade.

    We get together and try to push the price up by squeezing less lemonade.

    But one of the two of us says, can’t do that. Even if the price is higher I can’t feed my family because the volume is too low.

    Screw you, I’m going to squeeze more lemonade and cut my margins to the thickness of a razor.

    The other says, oh ya – well I am going to pump out gallons of lemonade and I’ll sell it at a loss and crush you!

    Herb says, hey guys, I already lose money – my wife might not agree to subsidize such big losses (yes she will Herb, but Herb is unaware of the gardener’s role in all of this …)

    Both of us ignore Herb because we are too busy shoving lemons through our machines.

  16. John says:

    Hey wolf,
    Etf’s knocking down the big companies. Thanks for letting us know about the EIA report Wedsday.

  17. gorbachev says:

    If the goal of Saudies is to hurt America they at FKED.

    We will match their cost of production soon.They are also

    under our protection.Kind of like having Mr.Gambino as your

    personal bodyguard.I think this a power play to show Opec,

    Russia and all Princes this is their playground.When Trump

    makes the call they will back up.

  18. JM says:

    It’s finally time for reality, supporting a long-term debt industry implies a brutal awakening sooner or later, all activities included.
    The free market is starting to work again, which is the best solution for the economy by saving billions from consumers who will revive the world economy. The drop in the cost of oil is the longest best news.
    If Saudi Arabia now wants to sell us cheap oil because wants to save itself from the economic disaster it is always welcome.

  19. paulgilpin says:

    after reading this article, and comments, i have a better understanding of the profit/loss ratios and market capitalization of tesla.

  20. DR DOOM says:

    I wonder how big a bomb large pension funds such as Calpers are sitting on right now and don’t know it. Hungry for yield funds have lapped up insurance derivative products from the shale patch for years. How about them swaps?

  21. makruger says:

    The Russian ruble looks to be taking a real beating right now as well. In a short period of time, the exchange rate shifted from about 65 to now about 75 rubles to the dollar. The “flight to safety” to the USD and the coronavirus are probably contributing to the crash of the ruble as well.

    • Ketamine says:

      Why are you celebrating? A little inflation is always good for economy, especially in today’s economy. What matters is what you can buy with a rubble, if it does not lose purchasing power in domestic market then it does not matter. However it will give more leverage to export companies as their products will be cheaper in international markets.

  22. LouisDeLaSmart says:


    • Wolf Richter says:


      Yeah, maybe worse with their oil sands, in addition to fracking. Calgary had been hit really hard for several years now.

      • Russell says:


        I once had a boss from Canada. I told him that I always wondered what a “Second World Country” was since you only heard of third world ones, then realized it was the definition of his homeland.

        • Zantetsu says:

          Have you ever been to Canada? It’s quite nice. I can’t even imagine why you have made the statement that you have made here.

          Honestly if I had to designate one country as first world and one as second, I would put Canada as first. The US would get bumped down a notch.

        • boomka says:

          The reason US doesn’t talk about 2nd world is simple. If you took all countries that are not 3rd world and attempted to sort them, US would end up somewhere near the bottom. Certainly below Canada. US doesn’t talk about 2nd world countries because they are one.

        • Ripp says:

          1st, 2nd, 3rd world has nothing to do with wealth, health, or technology. It’s old Cold War terminology.
          1st world – Capitalists of USA, Western Europe and allies.
          2nd world – Communist bloc of Russia, China, Cuba and allies
          3rd world – everyone else. Which was pretty much poor developing nations at the time.

  23. roddy6667 says:

    A house of cards collapsed, and people are surprised?

    • Frederick says:

      You wouldn’t be surprised if you had listened to people like David Stockman, Jim Grant or Peter Schiff instead of Cramer

      • S says:

        Oh, but you might all be surprised by the amount that these stocks are going to bounce up in price very soon during the continuing downtrend.

  24. sicker says:

    Sick post – why is it up?

  25. intosh says:

    There are more zombies in the shale oil industry than in a Michael Jackson video.

    Will they finally stop getting back up?

  26. Rcohn says:

    The big integrateds like CVX and XOM have been and are determined to expand into Permian shale. They and others will not be reticent in buying up any prime properties that are for sale( without assuming any associated debts)
    Now more marginal properties may not reopen at near current prices , so production will stop expanding and may actually go down

    • Bobber says:

      XOM could be the next GE, looking at its stock price chart and propensity to take on too much debt.

      • Greg Hamilton says:

        You could be right! We shall see. Remember the old saying as GM goes, so goes the country. GM bankrupt first, maybe GE next, who knows what will follow?

  27. raxadian says:

    AT LAST!

    The Shale-scam is over.

    Tesla… I hope you are next.

    • S says:

      If there is a shale scam, and the oil majors (e.g. XOM CVX) invested billions in it while unable to see it as a scam, then pretty much the entire oil industry should be avoided as an investment. If executives at the oil majors can’t see it as a scam then there is no need to invest in the companies they run. I mention this as an observation and not as a defense to the industry.

    • Greg Hamilton says:

      With the oil price collapsing the intelligent thing to do would be to relax the EPA mpg standards and remove EV subsidies. That won’t happen unfortunately.

      • Zantetsu says:

        That would be very unintelligent.

        But most people are indeed very unintelligent and will buy gas guzzling SUVs when they see gas prices come down, and then cry and whine when prices go back up and they have to eat the cost of powering the behemoth vanity turd they’ve bought for themselves to drive around in.

        Then our spineless politicians will follow the advice you are espousing here, at least to a degree, to try to prevent dullards from feeling the pain they deserve.

        Because there are alot of dullards in this country, and they all get to vote.

        EPA mpg standards are already being relaxed because they are no where near where they should be.

  28. panatomic says:

    lowering prices to bankrupt your competition is a tried and true strategy that’s been successfully used by everyone from john d Rockefeller to jeff bezos.

  29. Unamused says:


    In some quarters it is believed that the goals of investors in the US shale oil industry are geopolitical, and not economic. Russia and SA have long been two of the biggest holdouts from domination by the bank cartels, and breaking their oil industries would be the way to bring them into the fold. That would tend to explain why the US shale oil industry has been allowed to lose so much money, as it has never really been financially viable, although that would change if their adversaries collapse.

    OTOH, Russia and SA have a good friend in the WH, and it’s certainly possible he’s been selling out US investor interests to them. He’s had shaky deals going in both countries. Would you put it past him? Then again, he’s also been a friend to US fossil fuel interests, but maybe he’s just playing each against the other. One never knows. Does one?

    I doubt the US shale oil industry will be giving up, not when they’ve come close to victory. Russia and SA can’t afford to give up. All sides are taking heavy losses, but hey, that’s economic warfare, and war is such a messy thing.

    Who will win? It might not be the renewable energy industry. It’s been steaming ahead in recent years, so to speak, but it’s going to have a hard time competing against oil that’s gotten so cheap.

    Serious need to put some thought into this and keep an eye out for future developments, but that makes for one lousy hobby. Maybe I should delegate it.

  30. Tim says:

    I’ve been looking at central-case projections from three of the best-regarded authorities, and they agree that the world will need 10-12% more oil in 2040 than it consumes now. (Sorry, Greta, but that’s where the numbers point). I would add that well over 90% of all transport is still powered by petroleum.

    As was pointed out in a recent official report from Finland, we couldn’t remotely finance the required replacement of oil sources even at the prices prevailing before this recent slump. In US shales, meanwhile, figures show that a complete cessation of drilling would cause output to fall by about 50% within twelve months.

    Before anyone suggests that oil ‘doesn’t matter’, IRENA has costed global RE transition at between $95tn and $110tn (think Apollo x 720). Additionally, we can’t supply the kit needed to make RE generating capacity or infrastructure without using FF energy to deliver the materials.

    Either oil prices rise (which I’m not suggesting will happen), or we have and use less oil, and probably less energy. Since the EEB is surely right to describe any plan to “de-couple” the economy from energy as a “haystack without a needle”, do we just ship less, and travel less?

    • Unamused says:

      the world will need 10-12% more oil in 2040 than it consumes now.

      Boy, that’s hopeful. The way things are going, the world will be a vastly different place in 20 years. That sort of increase would certainly accelerate the climate crisis, and that’s already in runaway mode.

      Oil is bound to become more expensive, although a lot of the costs are going to be handled in the back rooms of the world to keep retail prices low. The world is an oil addict, and as such can be expected to go to extremes to feed its habit, and that’s very likely to turn out badly even without the climate crisis.

      • Tim says:

        I agree, and I can’t imagine where this extra is supposed to come from.

        But that’s where the central case numbers are, based on current policies in place, and on generally-prevailing assumptions for economic growth.

        • Unamused says:

          There’s plenty of oil in the world, Tim. It’s just going to get increasingly expensive to extract. That’s going to make everything else more expensive, so the true costs will have to be hidden. The global fossil fuel industry is already subsidised to the tune of $6 trillion or so per year, directly and indirectly, including externalised costs, just to keep prices within reach of lesser economic participants.

        • Tim says:

          Indeed, there’s no shortage of oil in total. But we’re getting short of cheap-to-produce oil.

          Our economy depends on low-cost oil, and has very limited abilities to absorb increases in cost.

        • MCH says:

          It would be nice if our energy sources were more balanced. Between the fossil fuel and renewables, there should be a modicum of common sense when it comes to increasing the latter and decreasing the former.

          If there is one thing that everyone can agree on is that fossil fuel is a limited resource. So, it makes sense from a purely economic point of view to reduce the use of these types of energy.

          What boggles my mind is why people keep pushing back against nuclear.

        • Unamused says:

          What boggles my mind is why people keep pushing back against nuclear.

          That’s because they don’t want leukemia. It’s common among personnel at nuclear plants and vessels. Not that officialdom will admit it, but epidemiologists aren’t stupid.

  31. Unamused says:

    The Great American Shale-Oil Bust Turns into Massacre

    Mr. Market doesn’t seem to mind all that much. Dow futures are up a thousand. He’s either manic-depressive, is warming up to offical assurances, or is indulging in wishful thinking.

    He could be getting help from the banking cartel. So far the meltdown hasn’t gotten to them, but it’s possible that they’re mostly immune because of their protected and heavily-subsidised status. That might help prevent a recession or a depression. Those usually originate in the financial sector, although the present meltdown may turn out to be an exception.

    Still, so much economic activity has been shut down that it seems likely a GDP contraction could be inevitable and the crisis could reach the big banks. And that, as they say, would be that. The lack of accurate information and clarity on the pandemic issue alone makes for an uncertain financial environment, much less the opacity of the Financial Industrial Complex. The risks increase the longer the crisis continues, and it looks like it’s going to continue for the foreseeable future.

    • Tim says:

      Indeed. But there are two very tenuous links involved, in my opinion.

      First, the connection between the economy and market sentiment. Indeed, ‘bad’ economic news is often welcomed, on the grounds that it will send/keep rates lower, for longer.

      Second, GDP has become an increasingly poor guide to how the economy is really performing. Every year the numbers get more juiced by the injection of yet more credit.

      What, for instance, would happen to US GDP growth, if net borrowing stopped (and I don’t mean reducing all govt and private debt, just freezing it where it is)? Answer, I think, is that growth would be very low.

      So, maybe the market doesn’t care very much about GDP, and would be referencing a credit-manipulated number even if it did?

      • Unamused says:

        Second, GDP has become an increasingly poor guide to how the economy is really performing. Every year the numbers get more juiced by the injection of yet more credit.

        All too true. Debt was already increasing faster than GDP before cov-19, and that trend was likely to worsen anyway. Coping with the cov-19 crisis just piles on the costs while reducing the ability to meet those costs, so the increase in debt is certain to accelerate wildly. The system only holds together because most people reliably get up in the morning to go to work so they can pay their bills, and that order of things has been taking some major hits lately.

        Worse still, political and environmental crises are poised to overtake the pandemic and financial crises. One can only hope, and yet, hope can be such a cruel, cruel thing.

        • roddy6667 says:

          You are correct. Much of the financial sector in America just moves money from one pocket into another, and takes a slice of the cash for a commission. This is all added into the GDP, even though it produces nothing of value to the country. There are many times more funds in which to “invest” money than there are companies to choose from. It’s all one huge Charlie Foxtrot, but it raises the GDP as much as producing valuable goods or services.

        • Lisa_Hooker says:

          Pandora released the torments into the world. The last remaining torment was Hope, the most terrible torment of all as it feeds upon itself.

        • Greg Hamilton says:

          I agree with much of what you say, but your environmental crisis predictions and climate change hysteria seems straight out of “The Report from Iron Mountain.”

        • Unamused says:

          I won’t argue about it, Greg.

    • Xabier says:

      Fudging the pandemic issue -even to the point of pretending that it isn’t one (WHO, Trump et al) – only serves to foster a cynicism and mistrust already too evident.

      That most of the ‘myths’ about it have emanated from senior politicians and health ministers, not internet crackpots, makes it even worse.

  32. Michael Engel says:

    1) Canadian CVE had a minus 52.5% day. SU had a minus 19.5%. TSX will rise.
    2) NATGAS had a selling Climax, reaching 2016(L) @ 1.61. It will bounce
    backup, spend the next few weeks/ months in a V shape, or trading range.
    3) SPX will do the same. There will be a battle on Jan 2018(H) resistance line, that became support. SPX weekly is inside the cloud. Chikou, above.
    4) HUG:TLT reached a new all time low.
    5) US & Iran might change handkerchiefs with covid-19.

  33. RD Blakeslee says:

    West Virginia has seen big plays in Marcellus shale and is currently in the Supreme Court (amicus curiae brief in support of pipelines) fighting the greenies.

    It remains to be seen whether these pipelines, as delayed, remain economically viable.

  34. Michael Engel says:

    1) March 2020 monthly might become a long leg doji, on high vol,
    in red color. Its good for sparrow trading.
    2) But $SPX is under a LT resistance line coming from :
    Oct 1989(H) @ 360.44 to Mar 93(H) @ 456.76 and to Jan 1994(H)
    at 482.85.
    3) Those highs and a parallel line coming from Oct 1990(L) @ 294.51
    is a Lazer tilting up, SPX strong backbone.
    4) This backbone might be brittle, because of SPX lifelong feasting.

  35. What about corporate credit?

    • Iamafan says:

      BKLN has broke below the Dec 2018 low. HYG and JNK have not yet. About 3% more and it’s there. I think junk bond issuance has gone to the hills.

    • Wolf Richter says:

      Energy bonds account for something like 32% of all corporate junk bonds. So we got that part covered :-]

      I’ll cover corporate credit more broadly in a little while. It’s at record levels by any measure. It could cause a financial crisis without breaking a sweat. But it’s the weak parts that will cause problems to the financial system, not Apple or Microsoft bonds.

      • Cas127 says:


        Any chance you can break down junk bondage/BBBdsm percentages for the other 10 or so subsectors of the SP 500 in that future post?

        I am pretty sure I have occasionally seen such breakdowns in SP/Moody’s/etc annual reviews but my guess is that the ultra high tech Wolf’s Lair Worldwide Headquarters (and Giant Laser Cannon Emporium) is much more plugged in to data sources than me and my 56k AOL account.

  36. unit472 says:

    Looking ahead, a lot of new oil field development in Iraq, Angola etc was contracted out to Chinese oil companies. I wonder how many of these deals will go through after what the Chinese have, apparently, unleashed on Iran and Italy?

    Can these these oil fields even sustain existing production if the Chinese are kicked out?

  37. Dudu says:

    Trump will not let US energy sector go down, and should not at any cost. We need to stay energy independent.
    I would rather pay more for gas, than buy Saudi or Russian oil.
    It will hurt the exports for sure.

    • Cas127 says:

      US oil and technology are not going anywhere…if Saudi and Russia want to sell us oil at 30 pct of 2010 to 2013 prices…let them.

      When they inevitably reconspire to restrict supplies and Jack up prices…*then* we should use our higher cost oil.

  38. c1ue says:

    I wonder just how able Saudi Arabia is, to conduct a price war.
    Based on the data point of Saudi $50B budget deficit with oil at $63 and 9.8mbd – I created this simple model with oil price and Saudi production/shipping volume increases as the variables:
    Oil price__Budget situation

    The point being that even a 50% Saudi increase in volume will not reverse their budget deficit situation if oil falls to just $40.

    Throw in the extra data points:
    1) Saudi attempted to reduce its dependence on oil with McKinsey’s help – I don’t think that’s gone well at all
    2) Saudi Arabia took out their first sovereign bond several years ago
    3) Aramco IPO clearly a fail: $2 trillion target raise, I doubt even $500B was raised from external money.
    4) Saudi Arabia went from under 6M population in 1970 to almost 35M today

    Saudi Arabia’s ability to sustain losses may be a lot lower than thought…

    • Cas127 says:

      Some valid points…but Saudi did not cease to exist from 1985 to 2004 when oil almost never went above $30…they had to cut gvt expenditures heavily in 1985…and they can do so again if absolutely necessary…the actual production cost for Saudi is in the single digits and that is the hard breakeven point.

      There is still a ton of Saudi graft, corruption, and waste (built up during the 2004-2014 fat years) that can wrung out of the Saudi system. Government budgets are not laws of physics (despite what Keynesian statists would have us believe), they can be altered without the universe collapsing in on itself.

      Saudi GDP might go down…but the distribution might be a helluva lot less crooked too (looking at you too, US)

      • Buckaroo Banzai says:

        Betting on a thin layer of wealthy and corrupt 120 IQ princes who oversee tens of millions of 80 IQ generationally-inbred welfare cases is about as dumb a move as it gets.

        Whether you like Putin or not, the man is a genius and the most effective world leader in the last 70 years. Russia has spent the last decade diversifying its economy and virtually eliminating its economic and financial dependence on the outside world. Putin has obviously decided it’s time to push all his chips into the center of the table in order to crush the Saudi princes and the US shale patch in order to become the dominant oil and gas player on the planet.

        At least the shale wells can be capped and will live to produce another day for someone else. The Saudi princes are dead men walking.

  39. Mike says:

    Is it possible to see the holders of particular bonds? i.e. Who owns Oxy’s $750 million 30-year senior unsecured bond, with a coupon interest of 4.1%. What bond fund is it in? All of them?

    This feels eerily similar to the 2008/9 MBS’s and CDS. I would suspect there are a lot of bad corporate debt bonds in bond fund products. These products are probably continuing to be peddled to consumers or less sophisticated buyers as safe investment vehicles while there is so much volatility in the stock market.

    If there are corporate defaults in the coming months and Powell’s inflation starts really kicking in I see this as the largest bubble in the economy.

  40. Michael Engel says:

    1) In 2008, when WTI was 149, Russia reserves reached an all time high.
    2) In Feb 2020 Russian reserved reached a lower high at $0.5T,
    ex-much higher gold reserves.
    3) USDRUB devaluation cont. Its up from 6 in 1998 to 71 today. In the early 1990’s USSR GDP evaporated. Russian GDP is back @ 1.7T with an enviable ratio of debt/ GDP.
    4) Capex to develop pipelines to Germany, the rest of Europe
    and to China from the Sakhalin Is. A low NATGAS is bad ROA.
    5) MBS is fake. At age 34 he cannot get it up.
    6) MBS grad from Faisal law school.
    7) In 1973 when Nixon kitchen cabinet cooked a secret war to escape Watergate and kick USSR out of the ME and Port Said, – Faisal, stabbed Nixon in the back.
    8) ARAMCO was confiscated and SA imposed an oil embargo.
    9) MBS following Faisal foot prints in the current oil sandstorm will be exposed.

  41. Tom says:

    The shale patch is certainly financially unsustainable, but that doesn’t mean it won’t be sustained anyway. I was a drilling engineer from the mid-’70’s to 1986. My company started production on a field in the North Sea in June, 1986, and in July the oil price declined to $9. In August I was laid off and have never worked in the Oil Patch since. The company had excessively high bank debt and filed bankruptcy. All of our wells were sold at an auction. This story was repeated many times in 1986 and 1987. Nothing has changed since, and it won’t change in the future. There seems to be an endless supply of suckers on Wall Street that never learn. So I think the shale patch is here to stay.

  42. DanS86 says:

    Bring down the cost structure. Deflation is the cure. Pain first though! Who’s gonna buy into oil market soon?

  43. NARmageddon says:

    For this article, a list of stock symbols (and links to bond graphs) would have been handy.

    • Wolf Richter says:


      You can search for these and all other US corporate bonds on the FINRA website, by company name or ticker. It also lists the details of each bond transaction per bond, which is very interesting to look at. You can look at the bond by yield or by price, which is also a great feature. This is FINRA’s effort to bring some sunlight to bond trading, which used to be totally opaque. I encourage everyone to check out the site. I link the home in all my bond articles, hoping people will check it out. I linked the FINRA website in this article too. But here is again:

      The tickers of the three companies are OXY, CHK, and WLL

      • cas127 says:

        Wolf and all Wolf Cubs,

        If anybody knows of a free source that publishes monthly *aggregate* corporate debt maturities (FINRA is great but I think you can only do individual corp lookups there), that would be great info to share.

        My rationale is that aggregate monthly debt maturities (ie, debt rollover demand) varies significantly – and if this info can be matched against the debt maturity calendars of individual highly indebted corps, then it may be possible to forecast when those corps may get locked out of the market (because better risks will also be clamoring for funding at the same time).

        Granted, I’m sure that the CFOs of these highly leveraged entities are continuously trolling lenders like a two dollar trollop, but maturity months are when the walls actually get hit.

        Maturity calendars matter more than college economics might lead us to believe – look at how useful mortgage reset calendars were per 2009.

  44. Dawood says:

    Reports coming through that trump wants to bale out shale companies in the proposed relief package.

  45. Michael Engel says:

    1) DOW, glue the last x2 candles together :
    It opened yesterday @ 24,992.36. It closed today after completing a round trip to 25,018.16.
    2) The DOW have a hammer.
    3) WTI opened yesterday @ 32.87 and closed today @ 34.36, leaving
    behind a long buying tail.
    4) WTI today was a green Mandelbrot day @ +10.38%. A high quality candle, with a full body and a close at the top. Yesterday bar was twice as long, but the body was much smaller. Yesterday WTI hesitated.
    5) Both candles top was stopped at the open gap above. Its a resistance.
    6) WTI might be in a trading range between yesterday low @ 27.34
    and today high @ 35.02, building a cause.
    7) The DOW face a similar resistance at the gap.
    8) If SPX move above Feb 28(C) and Mar 2(O) it will be a very good sign.
    9) This space was split by a 30 years support line, coming from
    the 90’s, SPX backbone.
    10) SPX might osc above/ below SPX backbone.
    11) It can last for many months/ years, while moving higher, building a new branch..
    12) SPX might test the Lazer bottom, or breach it as well.

  46. Michael Engel says:

    1) Mike Pence and his crew induce calm and confidence.
    2) Self quarantine chief Meadow must put a muzzle on the media. The white house isn’t the Apprentice boardroom.
    3) Trump, Mike Pence and his team, plus Meadow is a strong team. The president should use covid-19 to keep distance and stay solitaire, aloof, beyond reach.

  47. Putter says:

    Doesn’t the route in energy stocks fit perfectly with a ‘blood in the streets scenario”.?

    Shouldn’t we be buying COP, PSX (refiner) or even OXY.?
    It seems the price war in oil won’t last forever.

    • Wolf Richter says:

      Stocks can go to zero. Shale oil stocks have a history of going to zero. CHK will go to zero. OXY might not. But that’s the decision you have to make in our bet. The problems with shale-oil companies are not temporary. They’re part of the business model.

      But I can see the logic of betting on a short-term bounce.

      Oil majors like COP won’t go to zero anytime soon. And at some point, they might become an interesting long-term play. But I don’t think COP is there yet.

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