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California breaks ground on first US bullet train project

California’s high-speed rail project reached a milestone Tuesday as officials marked the start of work on the nation’s first bullet train, which will whisk travelers at 200 mph between Los Angeles and San Francisco in less than three hours. The ceremony in Fresno comes amid challenges. Central Valley farmers in the train’s path had sued to block it and are now contesting that those behind the project have fallen short of responsibilities under a 2013 legal settlement, according to The Fresno Bee . Meanwhile Republican members of U.S. Congress have vowed to cut funding for the $68 billion projecton the grounds of its perceived expense. Opponents also say the state can’t deliver the sleek project as it was first promised. Dan Richard, chairman of the California High-Speed Rail Authority, acknowledges the authority has been slow to buy up most of the land needed for laying track. But he is […]

Posted On : Published By : Tom Whipple
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Plummeting oil price casts shadow over fracking’s future

There’s no doubt that US-based fracking – the process through which oil and gas deposits are blasted from shale deposits deep underground – has caused a revolution in worldwide energy supplies. Yet now the alarm bells are ringing about the financial health of the fracking industry, with talk of a mighty monetary bubble bursting − leading to turmoil on the international markets similar to that in 2008. In many ways, it’s a straightforward case of supply and demand. Due to the US fracking boom, world oil supply has increased. But with global economic growth now slowing – the drop in growth in China is particularly significant – there’s a lack of demand and a glut in supplies, leading to a fall in price of nearly 50% over the last six months. Fracking has become a victim of its own success. The industry in the US has grown very fast. […]

Posted On : Published By : Tom Whipple
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Euro zone prices fall more than expected in December, likely to trigger ECB action

BRUSSELS (Reuters) – Euro zone consumer prices fell by more than expected in December because of much cheaper energy, a first estimate by the European statistic office showed in data that is likely to trigger the European Central Bank’s government bond buying program. Eurostat said inflation in the 18 countries using the euro in December was -0.2 percent year-on-year, down from 0.3 percent year-on-year in November. The last time euro zone inflation was negative was in October 2009, when it was -0.1 percent. Economists polled by Reuters had expected a -0.1 percent year-on-year fall in prices. The ECB wants to keep inflation below but close to 2 percent over the medium term. Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7 percent year-on-year in December — the same level as in November and October. But energy prices plunged 6.3 percent […]

Posted On : Published By : Tom Whipple
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How $50 Oil Changes Almost Everything

The plummeting price of oil means no more trout ice cream. Coromoto, a parlor in Merida, Venezuela, famous for its 900 flavors, closed during its busiest season in November because of a milk shortage caused by the country’s 64 percent inflation rate, the world’s fastest. That’s the plight of an oil-producing nation. At the same time, consuming countries like the U.S. are taking advantage. Trucks, which burn more gasoline, outsold cars in December by the most since 2005, according to data from Ward’s Automotive Group. The biggest collapse in energy prices since the 2008 global recession is shifting wealth and power from autocratic petro-states to industrialized consumers, which could make the world safer, according to a Berenberg Bank AG report. Surging U.S. shale supply, weakening Asian and European demand and a stronger dollar are pushing oil past threshold after threshold to a five-and-half-year low, with a dip below $40 […]

Posted On : Published By : Tom Whipple
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Deep Debt Keeps Oil Firms Pumping

American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion. Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June. But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment. Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” said Daniel Katzenberg, an analyst at Robert W. Baird & Co. […]

Posted On : Published By : Tom Whipple
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How increased inefficiency explains falling oil prices

Since about 2001, several sectors of the economy have become increasingly inefficient, in the sense that it takes more resources to produce a given output, such as 1000 barrels of oil. I believe that this growing inefficiency explains both slowing world economic growth and the sharp recent drop in prices of many commodities, including oil. The mechanism at work is what I would call the crowding out effect . As more resources are required for the increasingly inefficient sectors of the economy, fewer resources are available to the rest of the economy. As a result, wages stagnate or decline. Central banks find it necessary lower interest rates, to keep the economy going. Unfortunately, with stagnant or lower wages, consumers find that goods from the increasingly inefficiently sectors are increasingly unaffordable, especially if prices rise to cover the resource requirements of these inefficient sectors. For most periods in the past, commodities […]

Posted On : Published By : Tom Whipple
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Cheap oil is killing my job

Marcus Benson moved 1,500 miles from his home in Philadelphia to North Dakota for the shale boom. He made the lengthy drive — with no job and nowhere to live — in April 2012 after hearing on the news that the state had the lowest unemployment rate in the country. “I felt like it was a good opportunity. I wasn’t doing much,” Benson, who had been working odd jobs after dropping out of college, told CNNMoney. He immediately landed good-paying work loading rail cars with sand used for fracking. “I went from doing odd jobs for $8 an hour to $25 an hour. I thought that was crazy,” Benson said. It wasn’t long before he was earning $30 an hour. Plunging oil prices recently cost Marcus Benson, pictured above, his good-paying oil job in North Dakota. Jeff Sharpe, pictured with his colleagues, also recently lost his job as a […]

Posted On : Published By : Tom Whipple
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U.S. services industry, factory data point to slower growth

WASHINGTON (Reuters) – Growth in the U.S. services sector braked in December and new orders for manufactured goods fell for a fourth straight month in November, signs the economy lost some momentum in the fourth quarter. But with domestic demand picking up, against the backdrop of lower gasoline prices and firming wage growth, any slowdown in economic growth is likely to be temporary. "The economy hardly ended the year with a bang, but only because the recent pace was not sustainable. It is easing only modestly," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.  The Institute for Supply Management said on Tuesday its services index fell to 56.2 last month, the lowest reading since June, from 59.3 in November, which had left it just shy of revisiting its post-recession highs. It was held back as growth across all categories moderated, with some respondents saying a […]

Posted On : Published By : Tom Whipple
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High Noon on the Gulf Coast: Canada, Saudi oil set for showdown

NEW YORK (Reuters) – As a test of wills between OPEC nations and U.S. shale drillers fuels a global oil market slump, a brewing battle between Canadian and Saudi Arabia heavy crudes for America’s Gulf Coast refinery market threatens to drive prices even lower. While the stand-off between the oil cartel and U.S. producers of light, sweet shale oil has captured the limelight in recent months, the clash over heavier grades – playing out in the shadowy, opaque physical market – may put even more pressure on global prices that have halved since mid-2014. Two factors will come into play over the next few weeks: From the North, new oil pipelines will pump record volumes of Canadian crude to the southern refineries, many better equipped to process heavy crudes than lighter shale oil. From the Middle East, top exporter Saudi Arabia is offering crude at discounted prices in an […]

Posted On : Published By : Tom Whipple
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Gazpromneft Leads Russian ADR Drop as Crude Rout Deepens

OAO Gazpromneft fell to a three-week low, leading declines in U.S.-traded Russian energy companies as crude prices tumbled for a fourth day. The state-controlled oil company dropped 6.4 percent to $11.36 in New York. The stock contributed the most to a 1.2 percent retreat in the Bloomberg Russia-US Equity Index. OAO Lukoil (LUKOY) , the nation’s biggest non-government oil producer and OAO Surgutneftegas (SGTPY) each declined more than 3 percent. Oil, the country’s biggest export, continued its slide after the worst annual drop since 2008 on speculation expanding U.S. inventories will worsen a global supply glut. Brent crude , the grade traders use to price Russia’s main export blend, sank 3.8 percent to $51.10, the lowest since April 2009. Energy Ministry data released last week showed Russian producers boosted output to a post-Soviet record of 10.667 million barrels a day in December. “For the economy, investors and business in […]

Posted On : Published By : Tom Whipple