(Newswire.net — December 7, 2014) — There has only been one other time in history when the price of oil has fallen by more than 40 dollars in less than 6 months, analyzed Michael Snyder at The Economic Collapse website. He recalled that the last time this happened, for the first time ever, it was during the second half of 2008. Later that year, we experienced a great financial collapse that lasted for several months, and some economies never fully recovered from it.
Now it is happening again, however, this time the stakes are even higher, Snyder estimates. “When the price of oil falls dramatically, that is a sign that economic activity is slowing down. It can also have a tremendously destabilizing affect on financial markets,” Snyder wrote.
Pointing out that energy companies now account for approximately 20 percent of the junk bond market, Snyder said “a junk bond implosion is usually a signal that a major stock market crash is on the way.”
By overtaking the oil reserves from Iraq, the US becomes the largest oil producer in the world, actually producing more oil than either Saudi Arabia or Russia.
This “revolution” has resulted in the creation of millions of jobs since the last recession, and it has been one of the key factors that have kept the percentage of Americans that are employed stable, Synder explained.
It is fair to say that the best solution for the US, as the biggest shell oil producer, is to control the price.
The OPEC, however, doesn’t like the idea that one country dictates oil prices to the rest of the world, so it has essentially declared a price war on US shale oil producers by lowering the prices.
“For all intents and purposes, OPEC is now engaged in a ‘price war’ with the United States. Which means that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share,” Snyder quoted the recent VOX article.
Therefore, if the price of oil stays at this level or continues falling, we will see a significant number of US shale oil companies go out of business and large numbers of jobs will be lost.”The Saudis know how to play hardball, and they are absolutely ruthless,” said Synder. “In fact, we have seen this kind of scenario
So, as energy companies now nearing 20 percent of the entire junk bond market start to fail and those bonds start to go bad, that is going to hit US major banks really hard. It happened before, it will happen again, however, this time it would be harder since many banks didn’t fully recovered from 2008 market collapse.
“It would be hard to overstate the seriousness of what the markets could potentially be facing. Trouble is brewing, and nobody is quite sure exactly what comes next,” Snyder concluded.
Michael T. Snyder is novelist and author of The Economic Collapse website. His new book titled ‘The Beginning of the End’ is about the future of America “that is going to shake a lot of people up”, as he stated on his webpage.