There were no significant adventures yesterday- sorry, I was on a roll there for a couple days. I made it back up north from the farm, it was a great day for a drive, the sky blue, temperatures in the fifties and nice and sunny. The car handled well, and life was good, if uneventful. I was enveloped in the Sydney Hostage crisis, which overnight morphed into the Peshawar school massacre. The two have nothing in common except for one thing, but I won’t belabor the point. We have to be inclusive, right?
(Library of Congress image of Porto Bello, which although in the National Register of Historic Places, is totally off limits).
Since I tried to digest that, I dove down a rabbit hole on the matter of one of the great colonial houses of Virginia you will never see, Porto Bello, the hunting lodge and last local residence of John Murray, 4th Earl of Dunmore, and the last Royal Governor of Virginia. That is problematic because of where it is, and how I got to see it, and that is a matter best left alone. But in starting to talk about the great houses, I ran across the story that Martha Custis Washington, wife of the Father of Our Country had a half-sister who was born a slave; which in turn meant plunging into the legal doctrine of Partus sequitur ventrem, a legal doctrine then being in force in the Colonies.
The words mean literally “that which is brought forth follows the womb,” and were used to justify the enslavement of children of Masters and their slaves. Too weird.
Once I got there, I started to think about the whole peculiar institution thing, which was so related to walk on the grounds of Montpelier, and having come full circle round to the great houses and the politics of Revolution, I lurched down another rabbit hole. This one was about the sinking of the Bismark-Class battleship Tirpitz in a Norwegian fjord in 1944, a matter raised by an old shipmate and was inspired because an oil company just found one of the British bombers shot down in one of the several attacks the Royal Air Force mounted against the German ship. Then I discovered that you can actually buy high-quality folding knives manufactured from the battleship’s Wotan [Odin] steel armor.
That is all good, but talking about oil companies and exploration made my ears prick up when I heard the price of oil at the opening of the markets this morning. I have been gratified that the price of the hi-test that the Panzer guzzles has been coming down of late, but there are some ramifications that I had not considered. The premium grade at the pump yesterday was $3.40 a gallon, and the smart people are saying the market is apparently headed for $50 a barrel.
The collapse of the oil market is about to do all sorts of things. There are so many branches and sequels to all this that I won’t even bother to do more- but check these figures from the Deutsche Bank. They represent the break-even point for the production of crude oil. What this does to the fracking industry is the topic for another discussion. The impact on the world economy is significant: draw the line at $50 and you can see who is in big trouble:
Both Brent Crude and West Texas flavors are floating downward as of this morning in the mid-$50 dollars a barrel range. Two nations that I am interested in are not on the chart- so I looked some more. Here are the break-even prices over the last two years as reported by APICORP Research:
You will note that at these prices, some of the world’s nastiest regimes are hurting for certain. At these prices, no one is going to make a cent in the Big Oil world. Word this morning (another rabbit hole) is that Russia’s ruble is in the process of collapse, and Mr. Putin is going to be hard pressed to continue his military sabre rattling on IOUs.
Ditto for the plucky Socialists in Venezuela, not to mention Iran.
So what is going to happen? Is the U.S. oil boom curtailed? Once the oil in the commodity pipeline is depleted, prices will undoubtedly rise again, but where will prices stabilize? How many bills are going to have to be paid by those who are up against the wall as it is? The FED and interest rates? What the hell does it mean?
That is a rabbit hole that we are all going to jump down. I am interested in whether or not we will get to see the White Rabbit on the way.
Copyright 2014 Vic Socotra
www.vicsocotra.com
Twitter: @jayare303