EC HH Guess What Happened The Last Time The Price Of Oil Crashed Like This

If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost.  The Saudis know how to play hardball, and they are absolutely ruthless.  In fact, we have seen this kind of scenario happen before

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

But the energy sector has been one of the only bright spots for the U.S. economy in recent years. If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook. For example, just consider the following numbers from a recent Business Insider article

Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs.

“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.

Even more troubling is what this could mean for the financial markets.

As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market. As those companies start to fail and those bonds start to go bad, that is going to hit our major banks really hard

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T-Can 5 years ago Member's comment

So the U.S. wins no matter what happens to the supply of oil. If prices continue to stay low, the shale oil & gas is still in the ground for future use. When the Saudis and Kuwaitis oil supply dry-up, the shale product will be there.

Joel Santiago 5 years ago Member's comment

Sounds good to me!

Basil Dave 5 years ago Member's comment

The price of oil collapsing during 2008 was the result of the financial collapse, not the cause of it... The financial collapse was triggered by (but also not caused by) rising interest rates which poked a giant hole in the mortgage industry, causing the defaults that quickly deflated the mortgage derivatives industry. Loses caused by that drove institutional investors to sell equities in order to make up for the loss, which drove down stock prices resulting in the market tanking overall.. In actuality, the drastically rising price of oil in 2007 caused a steep rise in the CPI during 2007-2008 which help spur the fed into raising rates because of inflation concerns from rising fuel prices.

Karan Kadam 5 years ago Member's comment

Please we need lower oil price less then 20$ to survive, please i pray god our country need s low oil price

Dan Jackson 5 years ago Member's comment

Very thought provoking thanks. I enjoyed reading through the extensive comment thread as well.

Ravi Kamath 5 years ago Member's comment

Guess What Happened The Last Time The Price Of Oil Crashed Like This :-

Such Theories, are man made with vested interest. and Speculators favoring. In reality should try to see the "ARCHIMIDIES", theory or. Any object/Subject goes high in the Air, must come down to earth. In an healthy Economical needs, the Speculators should be kept out of the Market. else they will always try to new ways of Gaining their wealth Illegitimately. The Gold price if one looks back to 2 Decades. applies, above referred theory. No one says, who really control the GOLD l always, stabile and never goes down. only speculators. they should be vanished. for a Healthy Economical Market.

Bruno Klynsmith 5 years ago Member's comment

What's happening? This article trying to turn the culprit (America) into the victim for this current glut of oil available on the world markets? Pathetic!!!!!!

John Michael 5 years ago Member's comment

Saudi Arabia is behind this. But America likely colluded with them.

Randall Macfarland 5 years ago Member's comment

What makes you think America is the culprit? I think it's the Saudis - they are worried about ISIS and Iran and are driving the price of oil down to keep them in check.

Misho Iliev 5 years ago Member's comment

Fear mongering that has little to do with the reality. Pure and simple.

Anastasija Janevska 5 years ago Member's comment

Nicely put.

Stock Fan 5 years ago Member's comment

And what is the reality?

Misho Iliev 5 years ago Member's comment

Thanks. No, I have never written in TalkMarkets. To be honest I write rarely but I should indeed do it more often, especially because I like writing.

Stock Fan 5 years ago Member's comment

Thanks for the thoughtful response. You are a good writer. Do you publish here as well? You should write more frequently, I'd follow your blog.

Misho Iliev 5 years ago Member's comment

Mixing up cause and effect. The article suggest that the fall in oil price caused the 2008 crisis. And look, now the same will happen because oil is dropping again.

This time oil price dropped mainly because the OPEC cartel became dysfunctional and the US increased its production immensely in just the last five years.

As for the financial crisis, it started in the housing market but it caused such disturbance because it resulted into a run on the shadow banks: mihaililiev.wordpress.com/.../how-shadowy-is-the-shadow-of-the-shadow-banks/

Kariuki Kiragu 5 years ago Member's comment

All the more reason why Africa should rely on he r own resources to develop. One billion people is no small resource # AU

Craig Newman 5 years ago Member's comment

True.

Ravi Kamath 5 years ago Member's comment

All share maket Speculations should be brought under strict vigilance of Banking Authorities Equally Bonds that are floated for the purpose, The author of BONDS should keep 5% total value collected under Reserve bank as Security & obtain Insurance over the Bonds money collected, to secure Investor safety. In the event of any explosion or Zunamie in Bank transactions.

Ravi Kamath 5 years ago Member's comment

All share maket Speculations should be brought under strict vigilance of Banking Authorities Equally Bonds that are floated for the purpose, The author of BONDS should keep 5% total value collected under Reserve bank as Security & obtain Insurance over the Bonds money collected, to secure Investor safety. In the event of any explosion or Zunamie in Bank transactions. The Bond floater shall obtain an INSURANCE against any misdeed, Collapse or such incidents which may jeopardies the investor of BONDS. The insurance shall reimburse directly to BOND owners/Investors the lost money.

Dragan 5 years ago Member's comment

Interesting suggestions.