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Crashing Oil Prices Threaten To Destroy Already Fragile Economy: “More Job Loss, Debt Defaults”

Michael Snyder
August 2nd, 2016
Economic Collapse Blog
Comments (34)

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This article was written by Michael Snyder and originally published at his Economic Collapse blog.

Editor’s Comment: As if there wasn’t already enough bad news, there is a clear indication that things could quickly get much worse. The first couple rounds of falling oil prices have already leveled jobs in the United States, and threatened to bring Venezuela, Saudi Arabia and other oil-dependent states to their knees.

Now, another crash in oil prices could finish the job. It is just the sort of incendiary that madmen spreading fires could use to topple everything into ashes, and pick up the pieces for control. If these prices dip as low as they did before, and stay low for as long as they did, they could wipe out another half a million American jobs, and stagnate whatever recovery might have been in the works. Keep an eye on this, and hold on to what you’ve got.

The Price Of Oil Is Crashing Again, And That Is Very, Very Bad News For The U.S. Economy

by Michael Snyder

This wasn’t supposed to happen.  The price of oil was supposed to start going back up, and this would have brought much needed relief to economically-depressed areas of North America that are heavily dependent on the energy industry.  Instead, the price of oil is crashing again, and that is really bad news for a U.S. economy that is already mired in the worst “recovery” since 1949.  On Monday, U.S. oil was down almost four percent, and for a brief time it actually fell below 40 dollars a barrel.  Overall, the price of oil has fallen a staggering 21 percent since June 8th.  In less than two months, the “oil rally” that so many were pinning their hopes on has been totally wiped out, and if the price of oil continues to stay this low it is going to have very seriously implications for our economy moving forward.

One of the big reasons why the price of oil has been declining is because the OPEC nations continue to pump oil at very high levels.  The following comes from CNBC

Production in July by the Organization of the Petroleum Exporting Countries likely rose to its highest in recent history, a Reuters survey found on Friday, as Iraq pumped more and Nigeria squeezed out additional crude exports despite militant attacks on oil installations.

Top OPEC exporter Saudi Arabia also kept output close to a record high, the survey found, as it met seasonally higher domestic demand and focused on maintaining market share instead of trimming supply to boost prices.

These countries don’t know if or when the price of oil will eventually rebound, but what they do know is that they desperately need cash in order to keep their sputtering economies going.  Many of these nations are already experiencing significant economic downturns, and substantially reducing oil revenues at this time would definitely not help things.

Here in North America, oil production costs tend to be higher, and so when the price of oil crashes we tend to see companies shut down rigs.  But when rigs get shut down, that means that good paying jobs are lost.

During the first four months of 2016, approximately 35,000 jobs were lost at Texas energy companies.  Globally, more than 290,000 energy jobs have been lost since the price of oil started falling back in 2014.

And even though there was hope that energy companies would add jobs as the price of oil started rebounding during the second quarter, it turned out that the job losses just kept on coming

Energy companies continued to cut thousands of jobs during the second quarter, even though many chief executives are now voicing optimism that the oil market crash is ending and a rebound in drilling is afoot.

Although the heads of Halliburton Co. , Schlumberger Ltd. and other major firms forecast higher crude prices and a return to U.S. shale fields when discussing earnings this week, those companies and others disclosed another 15,000 industry layoffs.

Personally, I have quite a few members of my own extended family that live in areas that are heavily dependent on the energy industry, and three of them have lost their jobs so far this year.

And these are precisely the sort of good paying middle class jobs that we cannot afford to lose.  In order to having a thriving middle class, you need lots of middle class jobs.  Unfortunately, those kinds of jobs are going away, and the middle class in the United States is systematically dying.

If the price of oil keeps going lower, that will mean even more jobs losses for the energy industry, and that will be very bad news for the U.S. economy.

In addition, many of these energy companies are getting into very serious debt problems.  Delinquency rates on corporate debt are already the highest that they have been since the last recession as firms struggle to pay their bills.  Of course some of them have already gone belly up, and this has pushed default rates on corporate debt to the highest level since the last financial crisis.

At a price of 40 dollars a barrel, most oil companies in the United States are not profitable in the long-term.  The longer the price of oil stays down in this neighborhood, the more energy companies we will see go bankrupt.  At this point it is just a waiting game.

Also, it is important to keep in mind that Wall Street is very heavily exposed to the energy industry.  Just as subprime mortgages brought down quite a few financial institutions back in 2008, so this time around it is inevitable that the oil crash will claim a fair number of victims as well.

As the global economy has slowed down, the demand for oil has decreased.  And at this point, even the U.S. economy appears to be seriously slowing down.  U.S. GDP only grew at about a one percent rate for the first half of 2016, and the rate of homeownership in this country just hit the lowest level ever recorded.

In the mainstream financial media, there is a lot of hopeful talk about a potential turnaround for the energy industry, but most of that talk appears to be just wishful thinking.

To me, about the only thing that could push the price of oil back to where U.S. oil companies need it to be in the short-term would be a major war in the Middle East.  And of course that is definitely always a possibility considering who is running things in Washington.  But absent that, it is hard to see the price of oil getting back to 70 or 80 dollars a barrel any time soon.

So that means that we are likely to see more job losses, more debt delinquencies and debt defaults, and more financial institutions getting into trouble due to their reckless exposure to the energy industry.


GetPreparedNow-MichaelSnyderBarbaraFixMichael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.

Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream

If you want to know what is coming and what you can do to prepare, read his latest book Get Prepared Now!: Why A Great Crisis Is Coming.

This article was written by Michael Snyder and originally published at his Economic Collapse blog.

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Author: Michael Snyder
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Date: August 2nd, 2016
Website: http://theeconomiccollapseblog.com/archives/the-price-of-oil-is-crashing-again-and-that-is-very-very-bad-news-for-the-u-s-economy

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34 Comments...

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  1. CaptAmerica says:

    This is all engineered. Trying to put Her Highness in the White House.

    • WhoWTFKnows... says:

      Saudi Arabia’s cost to bring OIL out of the Ground is only like $3 to $4 per barrel. They are just way too dependent on the Oil Money to live their lavish lifestyles. Sitting around smoking and watch belly dancers all day is not a sustainable Economy. $40 a Barrel for oil for Saudi is still one hellava Cash flow return. ROI.

      The Saudi’s are the ones who dumped their oil on the markets to crash it and crash America’s energy production and fracking, which is good for our environment. They too have now been borrowing Billions of money to bail out their lending institutions. Good for consumers who like to travel. Or manufactures that depend on cheap energy.

      BTW/ Mr Snyder, Oil was sitting in the $15 range back in the 1990’s during the greatest economic expansion is US History, and greatest jobs growth ever, and all in peace times. So it already has been proven, that we can have a great economy with cheap oil and with NO wars. Kind of contradicts your premise here eh Mr Snyder?

      Know your history, so the BS’ers can’t BS you.

      ~WWTI…

  2. The stores have annual sales in August. The summer threads have to go to make room for back to school fall and winter.
    ___

  3. Sgt. Dale says:

    M.S.
    Guess what oil prices are up again today.
    Sgt.

  4. charlie2dogs says:

    americans have done nothing but make themselves victims of everything and everyone with your fing vote, you voted for what you got in this country, you upheld the political system that is destroying america,turning the country over to illegals from all over the world, drug and crime gangs, terrorist suspects, and now refugees, many american women and children have been raped by these illegals coming in this country, now if you are looking for sympathy, you wont find it here, Fuku

  5. Satori says:

    Welfare Programs Can’t Account for 6.5 TRILLION Dollars

    oopps
    sorry I got that headline wrong

    Pentagon Can’t Account for $6.5 Trillion in defense funds

    ht tp://www.blacklistednews.com/Pentagon_Can%27t_Account_for_%246.5_Trillion_in_defense_funds/53171/0/38/38/Y/M.html

    yeah
    lets drastically increase defense spending
    they’re so very careful with taxpayer dollars

    can you imagine the uproar if the food stamp program had this sort of incompetent mismanagement ????????

  6. aljamo says:

    When oil was $20 a barrel the price at the pump was under 50 cents, so today it should be about a dollar. Funny math? The world would not be in this mess politically and environmentally without the oil destruction ravaging everything it touches on planet Earth. This industry is the biggest scourge on animal and mankind. These out and out thieves have so much gouged money stored away that it poisons everything in its path. Those gigantic plastic garbage islands in the oceans, thanks big oil. All products derived from oil are poisonous. Big Oil has left nothing but death and destruction in its wake. Meanwhile hemp can replace almost all of the oil products much cheaper and completely cleaner to the environment. Money talks, reality walks.

    • WhoWTFKnows... says:

      Snyder’s article here sounds like a Poor me Advertising for the Oil Companies. Dopes who borrowed heavy and leveraged out massive loans to bring oil out of the ground in the Dakotoa’s with a break even cost of $90 a barrel, are just as dumb as the bankers who gave out the loans. It was a Failed sustained business plan from the Get Go. I would like to see these dopes all out of work as they deserve. So what did you learn today Mr Big Oil man, and Mr Banker?

      ~WWTI…

      • lena says:

        some are doing good if they learned for 2008. one I follow is actually almost in better shape than 2007; we’ll see if they can make it thru the next recession that should be much worse.

    • azdollarbill says:

      The oil industry is on it’s last legs, and the sooner energy companies convert to solar/wind, and geothermal, the better for them, and for the rest of us. The writing is on the wall, and it is only the Koch Bros., and others of their ilk, who keep the filthy industry alive.
      Plenty of jobs await in the new Green economy, and I for one, can hardly wait.
      Oh yeah, $20 oil translates into $1 gas, and why would anybody in their right mind find that to be undesirable?
      Could it be because instead of lining the Koch Bros pockets, ordinary working people might actually have a couple of extra bucks to spend?
      The less fracking, the better. Oh yeah, oil is constantly being created deep within the earth, so, Peak Oil is another scam perpetrated by the oil Cos. to keep prices up.

    • Equorial says:

      It seems that most or perhaps all petroleum products are somewhat indestructable, as far as I know. Vasoline, cosmetics, gas, oils, plastic, polyethylene glycol mesh (doesn’t last in some implants in females et al; Transvaginal Mesh Erosion complications, etc). Milk jugs, plastic pails, HOT WHEELS, zillions of kid toys and zillions of zillions of tiny green soldiers (used to be made of lead that you would melt and pour into molds to make your own army, paint them, everything (before they decided we were too dumb to be playing with lead …yet all firearm products (mostly) are laden with lead because “guns & lead & powder & bullets” just go together, and will until a replacement for lead is (perhaps) discovered or invented.

      Nope. I can’t come up with much of nothing made of crude that doesn’t have a mind staggering shelf-life. (Then again, that’s why those with guns should have about five gallons of Mobil 1 30W or 20-30w Synthetic, and use IT versus gun oil. I look at it this way, if the builders of my Cadillac determined that the engine could ONLY have Mobil 1, 10-30W, Synthetic Oil to meet their lubrications needs for a $30k engine, I’m quite certain it won’t let me down in keeping my weapons equally ‘well-oiled’ with excellent viscosity and least prone to ‘crudding up’. Some add Automatic Transmission Fluid (ATF). Believe me that it does absolutely nothing beneficial and shouldn’t be used for that reason.

      • Plan twice, prep once says:

        For firearms I buy and mix “Tungsten Disulfide” with Mobile-1 (the one marked for for older engines).

        Tungsten Disulfide (WS2) is the big brother to “Molybdenum Disulfide” (MoS2). It can withstand massively higher pressures before it breaks down. At chamber pressures Molly will break down letting the freed molybdenum metal become a grinding compound, WS2 won’t break down at chamber pressures. WS2 is the most lubricious material known to science. WS2 used to be terribly expensive, but has come down in price while MoS2 has gotten more expensive. I bought couple pounds and split it with my brother, son and nephew. We all have pretty much a lifetime supply.

        As far as having a supply of synthetic oil, make sure you can handle a couple oil changes in your car and small engines like generators. During the big storm, with a ten day power outage, small engine oil vanished from the stores. My generator running 24/7 required an oil change every two days, do the math.

        Wow, I can’t believe I got to use the word lubricious!

    • Old lron says:

      Potheads Unight!!!

  7. lena says:

    Even if, by Fed magic beans; the us economy avoids recession this year; it will be in one next year.

    oil companies will continue to layoff and default this year which will leads to layoffs and defaults in all sorts of supporting business which will lead to further slowdowns in retail and defaults increasing of peoples cars and houses.
    then in 2017, this hits big because all governments are planning on the same tax revenue they had been getting and they are going to get 75% of it at best; recession 3 months after that hits at maximum. (and all govt couldn’t see this coming, idiots; this country is run by idiots.)

  8. M Smyers says:

    There is no crash in oil. This is a typical dead cat bounce.

  9. lena says:

    And more oil company layoffs announced in Houston today.

    Yeah, oil prices are heading back over 80 any day now; right; be on the lookout for flying pigs too.

  10. 2ifbyC says:

    Wake up people. The oil market is changing due to less demand. Renewable energy is the future. Think hydro, solar and wind. The prices are much cheaper than they were 20 (or 10)years ago. And all this stuff is being implemented daily. Solar for example is around $1/watt. Plus newer non-lead based storage cells are on the verge of an incredible breaktru thus maximizing our energy storage potential. Hell, fifty plus years ago I remember Lockheed Martin tried to build a nuclear aircraft but failed due to issues with the sheilding weight. After millions of dollars were spent in R&D they finally figured out that fuel(oil) was the way to go. However, just last week a solar powered airplane completed it’s trek around the world.

    http://www.livescience.com/55552-solar-plane-completes-flight-around-the-world.html

    Oil is in decline for a good reason…it’s simply not renewable. I say let those greedy, corporate oil execs rot. More and more people are implementing their own power and will continue to do so as technology advances.
    Soon enough, oil will be an 8-track in an MP3 world.

  11. BOHICA says:

    Well we are learning a valuable lesson that is going to be very painful for all. First off, the moving and outsourcing of American jobs was the first wave to get the ball rolling for our demise. This has not only become a economic kick in the balls but it has become a national security threat in that some of America’s most crucial and sensitive command and control for our military and government can even be made here in out country anymore. As a result we are now b depending on countries who aren’t really fond of America to provide some of our most crucial components for our military and civilian apparatuses. 2nd, our reliance on foreign energy sources has really screwed us. If we had concentrated our efforts into developing our own reserves and refinery capabilities we would now be in a far better position versus being bent over the executive desk right now. 3rd, our education system has been so dumbed down that the majority of our population doesn’t have half a clue how screwed we really are. Furthermore most of our population has been educated to be basically dependant on the government for their needs and dont have the need, will or necessity to work. 4th, at some point and time the majority of the population got scammed majorly by the banks. It used to be you were affluent if you had assets like money, cars, real estate or maybe even a house or business. Now the banks have people believing that one is affluent according to how much credit he has to obtain good. There is more than just that but my fingers are tired.

  12. Braveheart1776 says:

    I thought we had been in a recession since 2008.

    • Equorial says:

      The only item that has radically varied in price in the past sixteen years, for us, has been gasoline (from $2.97 – $4.57). All other consumables have stayed on an even keel …but this is ‘back-hills’ living where city water is an idea just hitting city hall. I’m not talking beer or smokes …don’t use them…

  13. who knows who cares says:

    This has already been planned out long ago, the BLS is looking at the upcomming COLA, and as long as oil is kept down its another “0”, since that’s all they actually consider in the inflation figures. So with that and the friendly FED keeping interest rates at these levels, anybody on a fixed income, its going to remain “fixed” and if your living on interest income on any savings left, forget that too.

  14. swinging richard says:

    Sorry, but the Swinging Richard economy does much better with low oil prices.

  15. Sheep Dog says:

    @Brave,
    I am thinking it was Rumsfeld disclosing a $ 3.5 trillion accounting loss the day before 9/11.
    @lena,
    We have been in a recession almost a decade. The FEDS have continually lowered the bar and have MSM support. True under/unemployment in this country is over 20%, some say 23%.

    Our problem is a spending problem, Michael may have revealed earlier this week that the US Welfare program would be the 6th largest world economy. I read somewhere else it takes the Feds $2 of income to generate $ 0.70 of benefit. The amount of govt waste is staggering.

    Always better to derive tax revenue from jobs rather than taxing the serfs. Ain’t gonna happen. If we have less regulations and less taxes, we can compete with anyone. Ain’t happening either.

  16. Asshat says:

    Wages are shit and people are staying home. They are hoping cheap gas will get you out of the house and into the department stores. If they wanna stimulate the economy they need to get prices to reality. Cheap fuel should translate to lower cost goods. I have not seen this since oil fell from all time highs. Why are we paying more than ever before for products yet fuel costs less. Sounds like oil is rigged as a form of stimulus. $ has to make it to the workers pocket or there is no economy. Hoard$ folks.

    • who knows who cares says:

      yeah strange ain’t it, I’m wonderin just how high costs for the usual shit we the people need to buy on a daily basis will go once OIL does go back to like 100 bucks a barrel if shit is going up like it is now in this so called <2% inflation enviroment.

  17. Equorial says:

    After we came into a certain level of prepping stacking and packing, we eventually decided, that except for ‘rotating’ the supplies, that the majority of monies should simply be saved, at home, so to speak, and not a bank or credit union but on my person or otherwise “quite safe and sound”.

    Works for us.

  18. LaManiac says:

    Hoard $ folks,ha ha
    $250 a wk. Med ins,$400 wk groceries,pay bills yep leaves me alot,lol.$hit pass the jug!
    Maniac –out

  19. Chris Sewell says:

    is shtf trying to convince me that cheap gas hurts the economy? cheaper oil cheaper gas. as i punctuated period. govenrment manipulated inflation is what causes………..you know what…. if you make 14 k a year and support two kids YOU DO NOT need a flat screen tv, if you make 22k a year you do not need a 60000 dollar car, if you got a masters in art and racked up 500k in college debt(you SHOULD have your ass whipped) you should not be trying to buy a 300k house while driving a 60k car while boning a 5k hooker. period. the middle class is REALLY DYING because of corporate america in the sense that if we make luxuries cheaper people will buy them.(i.e. if we make a 50 inch tv as cheap as a power bill we will sell tvs. the DUMBASSES buying them have thier power off for a week for having something they cant afford. beat the hell out of a man today for grabbing my minor son in front of me by the throat. caused me to wonder as to the stupidity of people in general nowadays.