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US Shale Sector Was Created for Foreign Policy Reasons, Now They're Going to Let it Die (FTN Audio + Transcript)

From the FTN Website:

Almost no industry has been so severely impacted as the American oil industry. Negative prices. Forced shutdowns. Millions of jobs gone that will never come back because the enormously over-leveraged companies that employed them are gone forever.

In this clip Jazz and James discuss the leveling of the American oil industry, why it's intentional, and why it matters.

Transcript follows below.

(Backup audio in case YouTube deletes this video)

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That's we're going to lay out and make the case here, this is decisiveness is is going to lead to has the potential to lead to mass implosion of a very critical American infrastructure, very critical American industry, and the destruction of the way of life and livelihood for millions, literally millions of hardworking Americans. These are good paying American jobs that that are right now just sort of teetering in the balance. And with this culture of indecision guiding the administration response, things could look pretty bleak for a couple of different industries, which is what we're going to lay out for you here in the second hour.

I would even argue that it at this point, and I'm not saying this, to like go to the lowest common denominator of of of takes. But I would even say at this point that it's probably not even in decision. Right. Because if we use the same template that we use to analyze the executive order, you could interpret that as indecision or in decisiveness or just befuddlement of the administration. But as we have borne out in our analysis of the EEB five program and everybody involved in this, it's actually very purposeful. It's actually very meticulous in the way that it was done. And it gives the appearance of chaos. And so that conservatives are like, Trump needs help. And the left.

The funny thing I forgot to mention this in the first half, I actually went out looking for the usual parade of articles condemning the executive order. Remember, we used to get those in 2016. You'd get tons of are a whole slew of articles, pages of news on Google of how racist and evil this order is and how it's beyond the pale. And you'd get it from conse token conservatives too.

I found one article from USA Today opposing the EO and it was the typical like usual. This is racist and it has to be stopped. How can we put up with this? But there's no opposition to it at all. And and it shows you a lot about what they actually plan here. And I think and as we'll find out with with oil and possibly even the meat, the meat industry is that this is not by accident. This is not this is done. This is being done on purpose. I think it's actually very purposeful in the way that they're doing it. There's no other. There's no other. I was I was actually like the explanation that it was. Now, I'm not saying it's one or the other, but it's probably purposeful. But I would I would be OK with the explanation that it was a confusion or befuddlement, because then at least that would be like, all right. Get this out of the way. Get somebody in there that can do can can actually manage this correctly. But I think the purpose of managing this in this way is to crush it because the energy independence in the United States. Remember, we were sold. Energy independence. If we, you know, get our own oil out of the ground, if we take our own, you know, do shale and like everything else, it would transactionally give us something. It would give us some benefit, some tangible benefit in the Middle East, some bit of leverage to do deal with the problems in the Middle East in a very simplistic way. And that hasn't. Nothing has really changed. Nothing has worked out. And it came at a cost to which was going to be an enriching American workers, enriching American industry. And in reality, it like it hasn't turned out that way. It hasn't worked out in the way that they want. And so they I think my theory is that they are divesting from America as a net energy exporter because it's too good for American workers. It's too good for American people. And it doesn't benefit them in any meaningful way in the Middle East.

Yeah, that's absolutely right. And people start asking questions when when they have accepted the tradeoff of, all right, we will have more more wells digging into us. We will accept the fracking. We will now. It's really manoir what have you or do more offshore drilling, which has its concerns, has some some legitimate environmental environmental concerns.

Again, it's not a light switch type of situation, but then they see. Wait. We still need to be involved in Afghanistan. We still need to be involved in Iraq. What's the point of this? Right. And the other consideration as you.

Because because it was never totally about the oil. I mean, the idea that it was that it's like. No, but they thought that they were gonna get leverage over the with the Saudis as a proxy. They thought that they were going to get a lot of benefits out of this. And they they it hasn't borne out. It hasn't borne fruit. The juice was not worth the squeeze. And especially when you're employing, I don't know, three hundred four hundred thousand American workers and in good, good paying jobs. Remember? Remember they the people that I forget these stories, but like Wal-Mart and different retail operations up in the Bochan in the Dakotas, how they were paying people to work at those stores, just egregious amounts of money because. Nobody wanted to work at those stores. They all wanted to be in the oilfield, right. So that's all come to an end. Now, I think.

Yeah. And and there are some analysts now projecting that this could be it. Maybe this is this is a hyperbolic way to phrase this. But the core the fundamentals here are are very troubling. Some analysts are now looking at this as possibly being the death of American oil.

And, you know, that's something that that five years ago during the explosion in the shale industry would have been would have been unforecast. You could not have predicted this. But what we're seeing now are these massive disruptions and this inability, inability or unwillingness or what have you at the federal level to take. The action is necessary to protect American industry here, to protect American workers that. Yeah. Could very well lead to two massive disruptions and massive job loss in the oil industry. And as we know, prices have collapsed. Storage is nearly full. The strategic petroleum reserves that that trumpet talked about opening up to buying more oil three weeks ago. Those are full. And the only option producers are being left with now, many producers, is to just turn the wells off to stop extracting oil, which means nothing to sell to the refineries, which means no income. And an underappreciated fact about the oil industry is that many of these producers, many of these companies being small companies, being, you know, up against the Halliburton's and the, you know, these industry giants, they've a lot of debt. And so just like any other small business, when you have no income and you have debts that are knocking your door. Bankruptcy is is becoming an inevitable option for many of them. And U.S. oil consumption now at its lowest level since 1971. And that's at a time when production was only 78 percent of what it was in twenty nineteen. So. Yeah, I mean, there's there's like oil that needs to be dug out of the ground. But but nowhere for it to be sold to. Right.

And I would actually quibble maybe with the notion that their their claim that the that the oil industry is is going to die. I think the oil industry, we're certainly going to see a lot of oil companies go out of business and never come back. That's true for sure. And until the demand returns, you you will likely not see much activity going on. But I agree more with the statement that it's more likely going to be a significant disruption. Right. The only question is, how long will that go on? And of course, whether or not it is able to be resuscitated is entirely dependent on the price of the oil itself. And so I think it because I saw the zero hedge in the panic and all this stuff. We actually have until June until we have totally run out of places to stash the oil. That's the reality. But, you know, with oil contracts and things bit out to the future, this is going to become problematic. And in addressing it now, we're almost what we're like one month away from June. Hard to believe. A little over more than 30 days.

But, yeah, it's it's gonna be it's gonna be difficult for a long time and then to resuscitate it.

Why would they want to resuscitate an economy that they're very happy with it going straight to bed. Right.

So, yeah, that's the thing is, is that this is a very expensive venture. And and the cost to extract oil in the U.S. in terms of wages is higher than it is nearly anywhere else in the world. Right. In terms of major oil producers, because Americans, America, this is a theme we see in any industry, whether it's manufacturing or farming. Americans demand a decent wage. They demand a living wage. And which is absolutely their right and what you should be doing. But this makes it very expensive for some that that own these oil companies to keep production in the U.S..

And I agree. There's this editorial on oil price dot com that is titled The Death of American Oil. Absolutely hyperbolic, right? We're not going to see every well dry up tomorrow as a result of this this this shutdown. But I think the more accurate a phrase, that would be the death of American oil as we know it, the death of American oil as a field that people can look to, especially people, oh, white people in rural places can look to getting a job on a rig or getting a job in that industry and a supporting industry as as a way to escape poverty, as a way to to escape.

You know, this this sort of transient existence where there's nothing else for you or at the oil fields in the Dakotas. That was a lifeline for thousands and thousands of people to leave. Maybe these people lived in areas where they used to be factories or they used to be farms or their family. Farm was one of the thousands that have been lost in the last last few decades. And this was an opportunity, a ticket to economic opportunity for them. That's going to be changing as a result of this. And the problem is only being exacerbated by the disastrous administration response, actually seeing the level of debt.

And this is something that I think we had in the press. At one point, it never actually got to flesh out in great detail. But the amount of debt in this industry is is similar to what you would see in a lot of other industries in there around the country, whether it's commercial real estate or housing or just generally speaking, corporate debt is is enormous. But what you see with the the debt to income and a lot of the the amount of money, the overall leverage, the amount of over leveraging that has gone on with the oil industry, it shows you that their purpose was not to build something that was intended to last. This was clearly an experiment. As I pointed out in the beginning, this was something where this was a strategy that they were trying. And it was entirely about foreign policy. It was entirely about doing the bidding and of the interest of people who are not you. Who are not me. They're not James. They're not any of us. They're not benefiting the workers. This is all about Israeli military adventurism. And it didn't work out. And it was going to crash at some point. And it wasn't like I said, it wasn't benefiting them as well. But the amount of debt that was leveraged on this also shows you that they weren't interested in building anything long term. This was merely a an experiment. And what type? I would go back, what, 10 years ago, 15 years ago, and we'd be back, maybe even not that far, maybe not even that far, maybe even into the Obama administration when we were still just dreaming. People were drear. The GOP was dreaming about being a net oil exporter and where we were sold a bill of goods about what that would get us. And it got a lot of jobs. But not much else. And look how quickly that all gets wiped away. And as we're about to find out. No real interest in trying to save it or the workers making them whole. Any sort of thing whatsoever.

Right. That's that's exactly right. They're leaving this industry, leaving these workers totally high and dry. And the dream of energy independence as this this oil analyst points out, was actually going to be very difficult to attain. And you could argue impossible. With regard to oil, because there are very few grades of U.S. oil produced by fracking, which tends to be a thinner product that can produce diesel fuel without blending them with imported oil. So we would we would always have a need for some OPEC or OPEC plus oil, which tends to be a a richer mixture. Right. And so so this was going to be a problem no matter what we did here.

And and what we're looking at ahead of looking out into the future as demand for gasoline stays low and actually continues to fall in many places. You're looking at the inability of these refineries to produce diesel. And this is going to lead to a to an increase in the price of diesel, which is then going to increase the price of shipping goods. And, you know, we know how that plays out downstream. Right. Especially and that's especially relevant as we talk about the ag industry and and the demand for shipping. You know, animals being impacted. So, yeah, this is this is not good. And this, again, there's so many things, whether it's shipping from China, whether it's oil and gas industry, where the effects seem bad at the moment and the effects are bad right now on wages and jobs. But to really see the full picture of how how bad things can be and the downstream effects, you have to look several months or years into the future. And, you know, one of the possible outcomes of this is these don't see mom and pop, but small businesses that have had a hand in extracting oil and shipping businesses. These can all be traced very quickly. And there's nothing that this government is interested in doing to help them. Right. So this is another thing, like you mentioned, whether this is this is an intentional bit of of of incompetence or whether it's whether it's accidental. Either way, this certain group is going to win out pretty. You have to live here. Right. The big businesses and executives that can come in and purchase up these small companies, they say just that.

It's not just that. I actually have even more reason why I think this is intentional, because they have not been able to successfully prosecute a war against Iran or a dust up of any sort. Right.

Like, they it's not popular with anybody because they realize that energy independence led to people being more comfortable. Right. A stable gas price. People weren't that focused on what's going on in the Middle East and became disconnected from it. And so these attempts to start wars over there were actually met with somewhat of a malaise. People weren't interested. And what actually causes instability over there, aside from gay ops, is another gay up that they can do is not keep the price per barrel where it needs to be.

Right. So eighty dollars per barrel is what the Saudis really need to be taking in Russia is, what, fifty dollars a barrel or something? I forget what Putin has said in the past, but there's there you know, there's a baseline dollar per barrel amount that they have to take in or they unlike the United States, where money Prenter go BIRX, they have to balance their budgets. They have to keep the balance, the budget budgets balance in some way. And so if you start to have prolonged periods of nobody is purchasing fuel and you have this battle between the United States and the Saudis and the Russians where they nobody wants. It's like a Mexican standoff over oil where nobody wants to decrease their production. What ends up happening in the long run is you lead to instability in the Middle East because people aren't. What is their other source of income, right. You look at Dubai, you look at these different play. Now, Dubai is trying to stand up its own financial industry, like whatever.

You know, Jews are behind that as well. But when you have the instability going on in the Middle East and things start to get a little bit dicey over there, you have a health crisis in Egypt, Jordan and Bahrain, which the Saudis would usually kick cash to to sort of deal with. But they don't have the money to kick cash in this place. And so what happens, James, when you have instability in the Middle East things and you have a lot of people dying in Iran as a result of coronavirus and actually what you have is is evidence that, you know, what neocons are saying is that despite coronavirus, you're not seeing a reduction.

Operations in Iraq, Syria or Yemen? And so what does instability do? Well, if you can't start a war with gay shops and mines on the sides of ships and missile strikes and everything else, if that doesn't provoke it. Well, just do massive economic sanctions in the form of artificial suppression of the price of oil. And you start having these people go a little bit apeshit and then all of a sudden the United States has to get involved and start fucking around. And it's a win win for them because they can crush American business, too. And it's like, oh, look, now we have to deal with all these problems in the Middle East. We can't possibly deal with these oil workers. Like who gives a shit about them? So, yeah, I'm I'm you know, it's then we can say that this maybe happened by accident, but the circumstances that are benefiting the right people. Yes. The Chewey Bono, you look what the outcome is. I'm leaning more and more as everything that happens from this moment on is all very much intentional.

Exactly. And and what we're looking at, too, is on the other side of this, when you do have these American companies that have been driven out of business or have been idled for so long that it takes them a long time to increase, you know, get back up to production.

What you then have sort of ironically, because oil is a finite good, is you have the potential for a supply crunch, not enough oil, and then prices skyrocket. And if you remember jazz back in twenty sixteen, what was what did Trump talk about as far as Middle East, the Middle East and oil? What was his big critique of of Bush and Iraq? It said we dumb wars or that, but we didn't take the oil. We should have taken out oil. This idea of American standing Tibet, like being able to fill up your beer. Big old truck is being contingent on U.S. involvement in the Middle East.

This has been sold to Americans for at least 30 years. This idea that we can we can lower our oil price if we go over there and take the oil, which funny enough, never seems to happen. So, yeah, this is it's a scenario where it's a it's a kosher sliding price scale where oil, oil is low. They can benefit. Oil is high. They can they can stand to benefit. And but, of course, Americans aren't benefiting. Well, Americans are hurt by high oil, but Americans are hurt by low oil prices, too. And you have a lot of American workers being hurt by this right now. So, yeah, you look in the future, how many people how many workers are going to be hurt by this? I mean, the energy sector is six point four million Americans directly employed of those oil, natural gas and coal account for one point one million direct jobs. And that's not even counting the communities. That's not even counting the jobs that are created at the at the Wal-Mart, at the gas station and the supporting industries engineering, transport. The list goes on and on all of the people who are dependent on this energy sector for their way of life. This is not the CEOs. This is not the wealthy executives. I mean, yeah, they're benefiting, too. But these are a lot of middle class and working class jobs that stand to just be essentially shredded by this price collapse. And the answer is, I mean, the answer is pretty clear. All it is, is some form of nationalization needs to take place here, because you're right, there is a Mexican standoff that exists between the Saudis and the Russians in the U.S. But the Saudis and the Russians are playing a fundamentally different game than the US. And as we saw earlier this month, they've agreed to cut production and they have largely kept to that agreement, U.S. because of, you know, the rip roaring free market principles.

Not at the table for that. And the U.S. and the Trump administration hasn't even considered becoming, you know, issuing a directive where companies have to cut production to a percentage of their total production. And yet, without cutting production, nothing can change, right? Without cutting production. It's a prisoner's dilemma.

I've got to tell you, the nationalization of the oil industry just makes me feel a little bit uneasy, a little bit queasy. James, it's feeling like this is a lot like socialism. And I've been told my entire life that socialism is bad, especially when it's in the national interest and it would benefit people in the country. We can't socialize things. We'd be just like Norway. We don't want to do that.

Do we know there'll be horrible? Horrible. This is why Steven Manoogian, you know, the again, the free market to your capitalist and Randian libertarian, making the founding fathers proud comes in and say, I'll make making Alexander Hamilton proud. That I'm sure. Absolutely. Yeah. Filling Alexander Hamilton's footsteps, offering the oil companies a generous loan. Don't twenty four point nine nine percent EPR Manoogian saying that one of the components we're looking at is providing a lending facility for the industry, he told Bloomberg News. We're looking at a lot of different options and have not made any conclusion. But, yeah, loans like, again, that's not going to do anything, you need a production cut.

Well, what I would say, though, and this is the insidious piece of this, is that these lending facilities that they're standing up for, these various industries, are, in effect, nationalizing the U.S. oil industry or whatever industry, the lending. Because if if the Fed if the money printer is going br and they set up a lending facility to prop up an industry, it'll be just like, remember, under TARP.

What what percentage of GM did the government own? It's like, well, it didn't really turn out to be all that insidious or all that bad. I mean, GM still here. We spent a lot of money. And in GM, I think I don't remember Ford paid the money back. I don't remember how much GM paid the money back. But this is a different time. This is a different this is these aren't you know, these are gick nets. These aren't Obama era Jews. And so I get very no Eavis when I see lending facilities being discussed to stand up and prop up an industry not because of conservative or libertarian Prior's, but because I support nationalization of industries, but not by Jews, not by Stephen Manoogian, Nabil Jared Kushner, not by Donald Trump. And so the idea that, yes, this is a good thing, this is this will be fantastic. I think it's a great move. It's just like the idea of having a national bank, but not one that is Steve Minchin's national bank or Alexander Hamilton's national bank. Right. I want one that is for us. And this isn't for us. This won't benefit us. And the nationalization of the oil industry. This isn't going to bring the jobs back. This just puts it in a holding pattern where they can say rhetorically that we saved it. We stood up and we saved the industry from utter collapse. But the jobs will never come back to the extent that they did. No, no, they won't.

And the jobs will be eviscerated and these companies will be rewarded for again. You look at the provisions of the bailouts that have been issued so far of these peepee loans, of the direct bailouts of EDL grants, et cetera. These are not going to be pro worker provisions. These are not going to be pro worker bailouts or equity stakes being taken in these companies. And the other thing, as we've seen these massive companies take take advantage of these programs that were designed for small businesses. Similar phenomenon will take place here as well, where these smaller companies, these companies that maybe don't have as high profit margins, but they take better care of their workers. Right. They're not, you know, not the Baker Hughes and Halliburton's of the world. These are companies that oh, you know, we're sorry. Stephen Minnich is really sorry, but your application was lost in the mail and Halliburton got all your money. Right. So the picking winners and losers thing here, this will absolutely take place to reward the larger companies that that drive down wages in the industry. Now, Trump had Trump sort of stumbled his way into tweeted his way into a solution where he told Steve Manoogian that we need to buy oil at a great price into the future. And he told Stephen that's something he would like him to think about. Now, the problem, though, I mean, like surface level. OK, this sounds good, right? We're gonna buy futures contracts and and give the companies this money now and then and then, like, they'll deliver the oil in three months. So, again, the problem you run into is with the various types and crates of oil, various sizes of businesses. This will again go to reward those companies that pay their employees very little. The industry giants, small businesses screwed. And again, this is all contingent on recovery to rival contingent on June reopening.

Speaking of big companies benefiting from this, though, it isn't just these these these little penny ante oil companies really aren't.

As always, you have to look a little bit higher and most people don't know to look a little bit higher because they assume they see Procter and Gamble, they see General Electric, they see whoever. And they think those are strong and independent American businesses who bootstrap themselves up and bribe millions of American jobs and economic development. And it's like no guy. BlackRock owns a controlling stake in almost all of the major oil companies, companies, Noble Energy, ConocoPhillips, Marathon Oil, EOG Resources, Cabot Oil and Gas, Williams companies, Contro Resources. They own those, are they? And I can go down the whole list, but do I really need to? They own they own 10 percent of each of those companies. They own the controlling stake in all of these companies. And so the lending facility that Manoogian wants to stand up.

This is just a bailout for Larry Fink. BlackRock, BlackRock. Yes, it's black, right? Yes, it's BlackRock loaning to BlackRock. It's. Yeah.

Yeah, yeah.


But that's how people have to look at this stuff when they hear, you know, and they get news notification on smart smar foam about oil industry and Trump doing this on oil industry and bank doing that, manoogian doing this. You just have to look at the Chewey Bono and see who's benefiting from this. And they are divesting from the American oil industry. And what they're really doing is they're making sure the American oil industry can become more fully automated, require fewer workers. Maybe they don't need to be energy independent. Maybe they want to be energy dependent so they have more leverage in the Middle East. And, you know, they don't care about the American workers. But Larry Fink and BlackRock have to be made whole. And that's what all of this is about.

Exactly. Yeah. And that's the other thing is, is with the energy dependence, there is then an argument that can be that can be made that well, you know, jazz in order to defend these American oil. He's very American Red-Blooded, oil interests we have in the Middle East. We need to have troops on the ground in order to defend these places. And we need 7000, 10000, 20000 troops on the ground in Saudi Arabia and everywhere else. And, you know, these wells are running dry. So the Syrian oil. This is something that though, you know, we might need to take under our wing. So, yeah, further further opening further doors for further operations in the Middle East and not you. That they're concerned with.

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