Are They Joking? The Price Of Oil Drops 39 Cents And It's Blamed On A Chinese Manufacturing Index

On February 9, 2014, I wrote, regarding the price of oil:

The major factors affecting the price of oil:

• Mideast politics and hostilities (Syria, Iran, Israel); sabre-rattling
• strength of the dollar
• US economy six months out
• Chinese manufacturing index
• global economy six months out

Of the five, I think the US economy six months out as telegraphed by the Fed's actions is the most important. On a day-to-day basis, all things being equal (e.g., no report of a war breaking out in the Mideast, it is the strength of the dollar).

So, today it was "rewarding" to see this headline over at Yahoo!Finance: oil below $103 as Chinese factory activity drops. Are they joking? Oil has been quietly and slowly melting up from the low 90's to solidly over $100. It was close to $104 yesterday and today closed slightly below $103. But to say this was due to the Chinese manufacturing report seem ludicrous. Here's the lede:

The price of oil slipped below $103 a barrel Thursday after a report indicated that manufacturing in China, the world's second-biggest economy, shrank again in February.

U.S. crude for March delivery fell 39 cents to close at $102.92 a barrel in New York on the last day of trading for the contract. Crude for April delivery fell 9 cents to close at $102.75.

Oil prices fell after a monthly survey by HSBC found that China's manufacturing, a driver of the global economy, contracted for a second straight month.

The HSBC purchasing managers' index also declined to the lowest since July, a sign of the extended slowdown in China as leaders in Beijing try to clamp down on an investment boom and refocus the economy on domestic consumption.

"Results from this private sector survey have deteriorated for four months now, which indicates an unambiguous trend of domestic growth deceleration," Societe Generale economist Wei Yao said in a report.

May be the 39-cent drop on a $103-bbl or oil is due to the Chinese manufacturing report, but I doubt it's much more than just the background noise of trading. If the Chinese manufacturing report was really that significant, we should have seen a healthier pull back in the price of oil. My hunch is the reporter spoke to "his" inside source, asked the question, and the oil export simply said it had to do with the China manufacturing index. It sounded good, and the reporter went with it. 

"We Don't Drill Dry Holes Here" -- Pioneer Natural Resources

I don't know who coined the term "Saudi America" but I know Carpe Diem was among the first to use it. In the most recent issue (February 15, 2014) of The Economist there is a long article with the headline/title: "Saudi America."

I remember when I first start blogging about the Bakken, I said there were "no" dry holes in the Bakken. An occasional individual wrote in to disagree with me. But I stuck with it: there are "no" dry holes in the Bakken. I don't recall anyone else picking up on that line until today when I happened across that Economist article:

Dennis Lithgow is an oil man, but sees himself as a manufacturer. His factory is a vast expanse of brushland in west Texas. His assembly line is hundreds of brightly painted oil pumps spaced out like a city grid, interspersed with identical clusters of tanks for storage and separation. Through the windscreen of his truck he points out two massive drilling rigs on the horizon and a third about to be erected. Less than 90 days after they punch through the earth, oil will start to flow.

What if they’re dry? “We don’t drill dry holes here,” says Mr Lithgow, an executive for Pioneer Natural Resources, a Texan oil firm. In the conventional oil business, the riskiest thing is finding the stuff. The “tight oil” business, by contrast, is about deposits people have known about for decades but previously could not extract economically.

Pioneer’s ranch sits at the centre of the Permian Basin, a prehistoric sea that, along with Eagle Ford in south Texas and North Dakota’s Bakken, are the biggest sources of tight oil, a broad category for the dense rocks, such as shale, that usually sit beneath the reservoirs that contain conventional oil. Since 2008 tight-oil production in America has soared from 600,000 to 3.5m barrels per day.

Thanks to tight oil and natural gas from shale, fossil fuels are contributing ever more to economic growth: 0.3 points last year alone, according to J.P. Morgan, and 0.1 to 0.2 a year to the end of 2020, according to the Peterson Institute, a think-tank. Upscale furniture stores and luxury-car dealerships have sprung up in Midland since the boom began. Mr Lithgow has truck drivers who earn $80,000 a year. Local oil-service firms have been known to hire fast-food workers on the spot. In all, the unconventional-energy boom will create up to 1.7m new jobs by 2020, predicts McKinsey, a consultancy.

Four (4) New Permits -- The Williston Basin, North Dakota, USA; MRO Reports A Nice Murphy Creek Well

Active rigs:

	2/20/2014	02/20/2013	02/20/2012	02/20/2011	02/20/2010
Active Rigs	183	184	200	171	94

Four (4) new permits -- 

• Operators: Oasis (2), Corinthian, Balantyne
• Fields: Missouri Ridge (Williams), Robinson Lake (Mountrail), North Souris (Bottineau)
• Comments: Ballantyne getting active in the Spearfish formation

Wells coming off the confidential list were posted earlier; see sidebar at the right.

Wow, these are some old permits being renewed:

• 18036, conf, Texakota, H. Borstad 3-6, West Tioga, Williams County
• 18037, conf, Texakota, Hemsing 3, West Tioga, Williams County
• 22437, conf, Slawson, Drone 2-34-27H, Saxon, Dunn County
• 22449, loc, OXY USA, Eddy Dvorak 1-14-23H-142-95, Murphy Creek, Dunn County

One (1) producing well completed:

• 24785, 1,057, Hess, LK-Bice 14709701201H-2, t1/14; cum --

Wells coming off confidential list Friday:

• 25107, 1,824, MRO, Darcy Dirkach 44-12H, Murphy Creek, t12/13; cum 20K 12/13;
• 25313, 998, Hess, EN-Weyrauch A 154-93-1720H-7, Robinson Lake, t1/14; cum --
• 25545, drl, MRO, Rudolph USA 41-15TFH, Reunion Bay, no production data,

Off The Net For Awhile -- Biking -- Maybe Later This Afternoon

For investors only. Market surging.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or anything you think you may have read here.

Trading at new highs: ARII, ERF, PSXP, XLNX, HP (Helmerich & Payne, the oil rig manufacturing company).

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A Note to the Granddaughters

When I was growing up, every summer, or every other summer, my mother alone or my father and mother together would take us (four children, until a fifth came along) to her parents' home in Storm Lake, Iowa. That was a long trip, and an expensive trip for my dad. It was always a sore point for my mom that she couldn't visit her parents more than once a year. Now that I am a grandparent, I understand so much more what it means to "show off" one's wonderful children. If there is any sadness in my heart with regard to growing up, that might be the "only thing": my mom not getting to visit her folks more often and my mom not getting to show off her wonderful children (at least in her mind) to her folks. My mom was the best and she deserved the opportunity to do that; but circumstances were such....

I say all that to say that I have wonderful memories of visiting both sets of grandparents, the paternal ones in rural Newell, South Dakota; and the maternal ones in small-town Storm Lake, Iowa. I have so many great memories. Perhaps that is why I do not take our own grandchildren for granted. Some readers probably think I am insanely obsessed with the Bakken; my obsession with my grandchildren exceeds the Bakken obsession greatly.

My maternal grandfather was a stern, stoic, German. Outwardly, it appeared his worse nightmare came to life when he was visited by four rug-rats from Williston, North Dakota. He was extremely germanically frugal. His only vice was those little orange-slice-granulated-sugar-coated candies. I remember the one (and only) time I tried to take one of those candies without asking. (It didn't do much good to ask; the answer was always the same: "no" in English, not German, so there was no chance of a misunderstanding).

[It is best that my daughter, if she has read this far, not to read any farther.]

I suppose that explains my attitude with the granddaughters.

I have one vice (to which I will admit). I keep Kit Kat candy bars in the refrigerator. I enjoy them on certain occasions.

Two days ago, the granddaughters independently and almost simultaneously discovered the Kit Kats. It was so nice when very quietly, and very tentatively the younger one asked if she could have one. I think she was surprised that I was so happy that she would even ask. Yes, she could have one. Some minutes later, the older one came over, and even more quietly, and perhaps even more tentatively, asked if she, too, could have a Kit Kat. And again, I suppose she was surprised that I reacted in a way to suggest that I was very happy she asked.

Later on, driving the older one to swimming, I told her that she could always have a Kit Kat, but probably best, just one per day (they are the small size bars). I also told her, that although I would always say "yes," it was probably best if she asked me first, if only for the sake of appearances.

I knew there was no point in suggesting the same to the younger granddaughter. She is quite sensible, for lack of a better word, and asking would only delay the inevitable outcome, getting her Kit Kat.

I thought of all that because of a note my wife just sent me. There is a story in Yahoo!News today, apparently, suggesting that "the Kit Kat is the most influential candy bar of all." Whatever that means.

Ah, here the story is, about Kit Kat. Another phenomenal story. It's easy to find, all over the net now.

The most influential candy bar of all time isn’t a Hershey bar, a Snickers, or a Baby Ruth. According to Time magazine, it’s the Kit Kat, which may have you scratching your head. Sure, a Kit Kat is a delight, chocolatey and crunchy and shareable with friends (on the rare occasions you’re feeling generous). But what sets it apart from its also-very-tasty competition?

The Kit Kat, it turns out, was made for sharing. How wonderful. 

Early Morning Trading -- Slow News Day -- For Investors Only

Investing talk. 

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.

Jobs report status quo. My hunch is the weekly initial unemployment claims will now remain in a narrow range. The monthly unemployment number will continue to improve, though it won't mean much. Things are in a holding pattern right now. "Everyone" has baked ObamaCare into the stock market ... and guess what: the President, by executive order, has put the whole program on hold. Technically and legally NOT the WHOLE program but the word on the street is that the program is on hold. Do you remember the movie, Waiting For Guffman? Life follows art; now it's "waiting for Obamacare." This is what we will get:

• insurers will get a huge bailout
• 2015 premiums will skyrocket; government will step in; cap premiums
• folks will finally understand what "deductibles" mean
• urgent care clinics will flourish; hospitals will struggle
• insurers will be pass-through entities for Obamacare; regulated; same as federal crop insurance
• federally-mandated 30-hour work week will be the biggest single cultural change 
• massive civil disobedience as folks don't sign up for ObamaCare (it's the law of the land)
• employers have been given the green light to cost-shift health care expenses to employees
• cost-shifting will be the headline story when unions, NLRB gets involved
• all the current talk about the minimum wage is a spin-off from Obamacare reality

For investors, Obamacare will be a godsend. I think folks forget how this all started. It was demagoguery that got it passed; it was passed on the premise that 30 million Americans are uninsured for health care.

The dirty little secret was this: employers -- BIG BUSINESS -- knew they were going to go broke because of health care expenses. I saw it in the military: the general officers were the first to see it but they couldn't stop it. TRICARE was a bigger operation than flying in the US Air Force by the time I retired. Conscientious municipal financial officers saw it coming, but mayors and governors didn't want to "touch it." Hillary was pragmatic; she knew it. She had business experience (cattle futures, if nothing else) and she listened to BIG BUSINESS that was supporting her financially. BIG BUSINESS needed to do something. Health care costs had two liabilities:  a) increasing exponentially; and, b) increasing capriciously. It was bad enough that Blue Cross Blue Shield premiums increased 20% every October for the next year's coverage, but not being able to plan was the most difficult.

BIG BUSINESS can handle 20% increases in any expense year after year if the playing field is even (everybody incurs the 20% increase) and if it is predictable: they simply bake it into their numbers and pass the increased cost unto their customers.

It was unpredictably that was the killer. Hillary listened. She was the first to succeed at making this her entire campaign. And she almost won. Until a better orator came along.

The genie cannot be put back in the bottle. Obamacare is a win-win for everyone. The consumers got two things: no pre-existing conditions clauses (smoke all you want, gain all the weight you want, you won't be penalized); and, no annual cap on medical expenses. BIG BUSINESS got two things: predictably and the green-light to cost shift their employees.

Everything else is marginal. Everything else will be sorted out in the US Congress and in state legislatures. But with consumers getting no pre-existing-condition clauses and no annual/lifetime caps; and BIG BUSINESS getting out of the health insurance business, Obamacare, by another name, is not going to go away.

And now that it's on hold, the market can only go one way. Companies will start reporting falling health expenses this year. My hunch is there will be no headlines reporting that. It will be hard to find. In fact, the health care expense line in financial reports will simply and silently disappear, except for the $200/month/employee subsidy that employers will provide their employees to find their own health insurance. And employers will be very resistant to raising that amount, just as they are very, very (ostensibly) resistant to raising the minimum wage. (I say ostensibly because I don't think BIG BUSINESS is all that resistant to increasing the minimum wage -- maybe a separate blog on that in the future, why BIG BUSINESS probably favors an increase in the minimum wage. Spoiler alert: think Darwinian).

Yesterday, I wrote Don, that TESLA surging in after-hours was a huge plus for the market. It has nothing to do with TESLA, per se. But a lot of retail investors are sitting on the side line watching the market recover from the January slump and missing out. Even conservative investors have missed out on MDU -- hitting new highs almost every day for the past couple of weeks.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.

Oil is flat today. Taking a breather. Not much news, I suppose, but that doesn't mean the oil and gas companies are flat. TPLM up a bit, but AMZG is up almost 4%. WMB is up over 3%.

WMB: beats by a whole penny and the shares go wild, up 3%. Gotta love it. Earnings were actually down this year compared to last year. By a pretty healthy amount.

That's the problem with the market for some folks. It doesn't make sense. All things being equal, it comes down to perception, sentiment, fear, greed, I suppose.

Must be the start of summer here in the DFW area. I see the mowers alongside the interstate and state highways. Drives my allergies wild.