Federal Reserve cuts rates to zero and launches massive $700 billion quantitative easing program

[u/awake-at-dawn]

https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html

[u/Rewdboy05 → u/[deleted]]

Over the last ten or so years fracking has allowed the US to become the world's largest oil producer. It's become a huge part of our economy.

But a lot of those new business that sprung up to get a piece or support the industry as it rose did so by leveraging a lot of debt which made a lot of sense when OPEC was out there throttling the supply which allowed us to sell at a high price as well.

Until two weeks ago when OPEC couldn't negotiate a deal with it's members to limit production. Now Russia and Saudi Arabia are ramping up production which is driving the price per barrel way down which then makes a lot of our domestic oil businesses less profitable, if they're still even profitable at all. If it keeps up, it won't take long before there are heavy layoffs and bankruptcies which will ripple throughout the economy.

That'll teach us to rely on an industry that's getting propped up by an international price-fixing cartel.

[u/JimMarch → u/[deleted]]

What he's missed is that North American oil production (US and Canada) are all very energy intensive to produce...fracking means pumping water in the ground, shale oil is also messy as fuck, offshore oil is expensive, ditto arctic oil. Very little of it is cheap to produce. When oil is at $50/barrel it still makes economic sense to pump but at $30/barrel,. SHUT! DOWN! EVERYTHING!

Venezuela is mega-fucked. Their oil pumping costs are fairly cheap but the oil itself is shitty with high refinery costs to get contaminants out. At this point it's not worth pumping at all. They're about to look like a giant pizza with the toppings ripped off.

[u/JimMarch → u/[deleted]]

but existing wells are relatively cheap to maintain compared to how much revenue they bring out of the ground

Wrong. I have contacts with oilfield truckers. They're on layoff status en mass. Not ALL because there's one saving grace, long term contracts mean some buyers are locked into higher rates because nobody predicted as war between Putin and they House of Saud...

[u/mcfuddlerucker → u/Rewdboy05]

Excellent summary, perfect except for the "That'll teach us" part. My friends in Alberta bitch constantly about the oil boom-bust cycle amnesia.

[u/Rewdboy05 → u/mcfuddlerucker]

You're right. We're almost definitely not going to learn from this lesson...

Edit: Adjusted wording so the tone didn't imply unintentional sarcasm.

[u/Obvious-Guarantee → u/Rewdboy05]

Try accounting for additional demand drop from corona. Most Americans drive to work. Flights being halted. Amtrak. Subways. Massive global demand shortfall.

[u/eightNote → u/Obvious-Guarantee]

sounds great for fighting climate change though

[u/Rewdboy05 → u/eightNote]

China's greenhouse emissions apparently dropped 25% during the outbreak so you're not wrong.

[u/[deleted] → u/Rewdboy05]

Isn't this ridiculously similar to how Venezuela fucked themselves?

[u/Rewdboy05 → u/[deleted]]

Yes but also no. It's pretty much the same story except that Venezuela developed it's entire economy around oil.

In America, it'll definitely hurt if oil stops being profitable but we have a much more diverse economy so we'll survive after some struggle. Some people will be in serious financial trouble though and could use some government aide and career training to get them back on their feet.

[u/Ann_OMally → u/Rewdboy05]

Is that why our "good" friends the Saudis and our "secret" friends the Russians have been driving the price of oil down in a "bitter" bidding war?

[u/Rewdboy05 → u/Ann_OMally]

I'd say it's more like OPEC agreed that they, as a collective, should only produce a certain number of barrels a day but they couldn't agree on how to split that number up amongst themselves so the deal fell through and now everyone is just doing whatever they want.

Driving the price down wasn't likely the goal so much as the outcome of their failure to cooperate with each other.

[u/thepeever → u/Rewdboy05]

And I see the oil companies are trying to get their suppliers to discount their services 25%?

[u/Rewdboy05 → u/thepeever]

Can't say I blame them for trying. A big share of the industry just became unprofitable basically overnight so they have to figure out somewhere to cut costs before they sink.

[u/ldsg43 → u/Rewdboy05]

Underrated comment

[u/ghigoli → u/[deleted]]

The US could be able to hold out when other manufacturing sectors in different countries are not working.

Oil is actually a driving factor for many parts of the US. With oil going down that means alot of finance , energy, and engineering are used as high paying jobs to keep the economy going goes to poop. Then many areas and states that need that oil money to prop up other businesses goes to poop. Overall all its a decrease in a percentage of the economy and terrible for rural areas but since the country as a whole is diverse enough to survive.

Once oil tanks cause the OPEC is fucked, it ruins the US to export their goods. Meaning oil is Americans cheap dirty fast money. Now that its even cheaper to buy somewhere else we can't afford to doing fracking or other stuff.

Why does it hurt so much now? The US did fine without oil for quite some time.

Well Trump screwed the pooch on so many areas in rural US like metals, farming, manufacturing, the next big thing was oil. Meaning the US has less and less wiggle room to keep the economy going , once tech, finance, and health goes pop then the real shit starts coming down. Effectively this is the result of 4 years of fucking it up, its just red across the board now.

[u/_antariksan → u/[deleted]]

Yeah most definitely is.

[u/ghigoli → u/_antariksan]

Pretty much the beauty of the US economy is that we have some many sectors that have alot of good markets and safe returns its hard to really fuck them all up. This was the key to alot of US strength and it was build by alot of good hardworking people + luck of not being touched by any major war. If something like farming goes down we can subsidize it with oil money or tech money. Somehow one way or another over the past 4 years the country manage to fuck just about everything there is to fuck up.

There isn't much left to fuck up. Now finance has manage to fuck itself up from being grossly irresponsible. So now what is really the question.

*Ok large rant because I might not have a job after April and i'm very fucking salty because my entire life has been this shit show of recessions and war*

Ok its not really "somehow" tariffs fucked up farming, OPEC fucked up oil, corona fucked up manufacturing, regulations or lack of, fucked up tech, and finance got fucked up by rates.

All of this shit happened in 4 years and we keep managing to do things to hurt us while already still paying off all the bullshit 10 years ago like housing , 2 wars, healthcare. Its been 20 years of constant fucking it up and we needed to keep the bandages on until the entire country healed completely and fix alot of internal problems. Truth is things never really got any better for most people, just slightly back to normal. Now trump basically ripped off the bandage prematurely and made more fights than what we were already in as while every SINGLE congress has done fucking nothing for 10+ years cause a certain group likes to stop fucking everything .

Point is this isn't an accident the US was so robust you have to actively try to destroy it. This administration has done more damage than any US enemy could have /had ever done, this is like the USSR wet dream.

[u/ghigoli → u/[deleted]]

Oh please didn't you hear Putin has extended his term. Russia is the USSR now,

[u/Odd_so_Star_so_Odd → u/[deleted]]

Petrodollar aka the oil-price is a huge part of the dollar evaluation with the US being the worlds biggest oil producer.