Tag: finance

House Minority Leader Kevin McCarthy (R-CA) fired off a Thursday letter to House Speaker Nancy Pelosi (D-CA) demanding that she halt the impeachment inquiry into President Trump until she can answer a series of questions defining her game plan for the process. 

“As you know, there have been only three prior instances in our nation’s history when the full House has moved to formally investigate whether sufficient grounds exist for the impeachment of a sitting President,” writes McCarthy. “I should hope that if such an extraordinary step were to be contemplated a fourth time it would be conducted with an eye towards fairness, objectivity and impartiality.” 

“Unfortunately, you have given no clear indication as to how your impeachment inquiry will proceed – including whether key historical precedents or basic standards of due process will be observed.”

“In addition, the swiftness and recklessness with which you have proceeded has already resulted in committee chairs attempting to limit minority participation in scheduled interviews, calling into question the integrity of such an inquiry.”” 

READ⬇️ I’ve written to Speaker Pelosi to halt the impeachment inquiry until we can receive public answers to the following questions. Given the enormity of the question at hand—impeaching a duly elected president—the American public deserves fairness and transparency. pic.twitter.com/EFKOghyf9w

— Kevin McCarthy (@GOPLeader) October 3, 2019

McCarthy’s reference to participation refers to reports that House Intelligence Committee Chairman Adam Schiff (D-CA) will limit GOP questions during Thursday’s testimony by former US Ukraine envoy, Kurt Volker. 

In his letter to Pelosi, McCarthy asks a number of questions, including whether Pelosi plans to hold a full House vote on authorizing the impeachment inquiry, whether she plans to grant subpoena powers to both the committee chairs and the ranking members, and whether she’ll allow trump’s lawyers to attend the hearings.

After concerns were first raised about an “equal playing field” during the Volker session, Fox News is told Democrats made concessions and agreed to equal representation from Democratic and Republican counsels in the room. However, even though there are representatives from the Intelligence, Oversight and Foreign Affairs Committees, only the Intelligence Committee can ask questions. –Fox News

In response to McCarthy’s letter, President Trump tweeted “Leader McCarthy, we look forward to you soon becoming Speaker of the House. The Do Nothing Dems don’t have a chance!”

Leader McCarthy, we look forward to you soon becoming Speaker of the House. The Do Nothing Dems don’t have a chance! https://t.co/uWPdGJg99F

— Donald J. Trump (@realDonaldTrump) October 3, 2019

Pelosi appears to have a poor grasp on what she’s even trying to impeach Trump over – as evidenced by her Wednesday insistance that Rep. Schiff was “using the president’s own words” when he read a fabricated account of a phone call between President Trump and Ukrainian President Volodomyr Zelensky during a hearing last week with the acting director of national intelligence. 

Okay what Twilight zone have I entered because this is 2x in one week where @GStephanopoulos called out a Democrat for lying. Here he asks Pelosi about Schiff lying about what’s said in the transcript and correcting her when she says it was Trump’s words. pic.twitter.com/8YrhRNCPJ6

— Robby Starbuck (@robbystarbuck) October 3, 2019

Authored by Sven Henrich via NorthmanTrader.com,

Before you go all “here he goes again” I’m not calling for a double top, I’m highlighting the risk that markets may have made a double top and that has implications.

Let’s explore the evidence, then let’s discuss the risk.

Firstly, a set of plain facts: $SPX made a marginal new all time high in July. 3028 was the peak print. The Fed cut rates in July and markets sold off. Blame trade tensions all you want, but then markets rallied on trade optimism into September, the Fed cut rates again and $SPX peaked at 3022, a slightly lower high, and now has sold off again:

Those are the facts ma’am.

Now is this a confirmed double top? Not necessarily. Get a trade deal and off to the races we go right? What if there’s no trade deal and all you got are regressive earnings? What if the employment cycle is turning? What if the yield curve actually means something? What if decades long trends actually mean something? I’m asking for a friend.

See here’s the thing: Double tops are very rare and when they occur at the end of a business cycle one better pay attention.

But the Fed has our backs, nothing bad happens when the Fed cuts rates right? There won’t be double tops with the Fed cutting rates. Surely.

But we hit 3000+ in July and rejected. We hit 3,000+ in September and rejected. Both rejections have come on Fed rate cuts. What happens when the Fed cuts rates in stocks sell off anyways?

Well, we already know the answer to that question, here’s the $SPX during 2007:

Looks awfully similar to the current $SPX chart doesn’t it?

Funny enough a record high in July followed by a marginal new high in October after the Fed cut rates. That was it. Lights out. Rate cuts did not bring about growth or a rising stock market. The initial instinct was the buy the rate cut, but then it didn’t matter and stocks were sold anyways. For now we see the same thing here and rate cuts are being sold.

But Wall Street is all bullish and says the Fed has our back you say. Yes that was the attitude back then too.

After all in December 2007, with the double top already in place Wall Street projected nothing but new highs for 2008, ignoring the prospect of a double top in place:

A double top was in place and everybody ignored it.

Are they ignoring it again?

Here are famous double tops in recent years:

All have one common characteristic: Negative divergences on new highs or close to new high. In 2000 and 2007 these double tops had especial meaning because they came at the end of a business cycle with unemployment having based at the lows and the yield curve inverted and yields declining.

Sound familiar?

Again, I’m not calling for a double top, I’m highlighting there is risk of one and the only way to invalidate this risk is to make new highs. No new highs and it looks the technical consequences could be dire.

Remember: Tick tock

Tick tock. pic.twitter.com/P0Ol4oJreI

— Sven Henrich (@NorthmanTrader) September 19, 2019

I posted this chart as a warning on September 19 with $SPX at 3006. Yesterday $SPX closed at 2887 confirming the risk of these 3,000 prices a few week ago.

And all this price action is occurring in context of the larger pattern structures we’ve been discussing:

I don’t know why this all being ignored again, but there it is. Megaphone, broken 2019 uptrend and now a potential double top with sell-offs following two rate cuts with a lot of open space below. But ok.

Double tops are only obvious in hindsight and this one remains unconfirmed, but it is a risk for bulls and they need to invalidate it soon. A trade deal may do it and perhaps must do the job as for now the Fed intervening is not showing signs of being able to produce sustained new highs. And yes there will be rallies, but if they fail to produce new highs watch out below.

As I outlined yesterday next week’s trade meeting is shaping up to be critical.

*  *  *

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It looks as though NHTSA is finally waking up with regard to Tesla’s claims of autonomy.

No, it wasn’t the long string of deaths and accidents related to Autopilot that caught their attention. Nor was it constant reports of Teslas spontaneously combusting around the world.

It was countless embarrassing social media posts of the car’s new “Smart Summon” feature, which is supposed to allow you to summon your car from across parking lots. Instead, as we have documented, it has turned into a total clusterf*ck of driverless Teslas causing traffic jams in parking lots, driving up on curbs and endangering the lives of other drivers.

But we digress – we’re glad the NHTSA is finally paying attention, at least. In fact, the agency said it “will not hesitate to act” if it finds evidence of a safety-related defect, according to Bloomberg.

The NHTSA has been mostly hands off when it comes to automated driving systems by opting not to issue new regulations for the technology – which Tesla has taken full advantage of by convincing sycophants who believe that Elon Musk is the second coming of Christ that its cars have super powers, when in fact most of them have trouble navigating their way out of a Burger King parking lot.

So, @elonmusk – My first test of Smart Summon didn’t go so well. @Tesla #Tesla #Model3 pic.twitter.com/yC1oBWdq1I

— Roddie Hasan – راضي (@eiddor) September 28, 2019

Bloomberg notes that “…under NHTSA safety rules, companies don’t need permission from the agency to introduce new systems on vehicles that otherwise comply with federal auto safety standards.” This also applies to systems that automate things like emergency braking. 

However, NHTSA can exercise its recall authority if it finds an “unreasonable safety risk”.

Musk, seemingly unaware of the nation-wide catastrophe he is causing in parking lots, proudly boasted that the feature has already been used more than 550,000 times. 

And not helping the cause are the geniuses over at the California DMV, who have somehow decided that Tesla’s Summon feature does not meet its definition of autonomous technology – despite the fact that the car is driving around without a driver. 

Marty Greenstein, a spokesman for the department said:

 “Tesla does not need a permit to deploy the feature in California. As with any new technology, the DMV indicated to Tesla that clear and effective communication to the driver about the technology’s capabilities and intended use is necessary.”

Because Tesla owners have done such a good job obeying the company’s rules so far…

 

 

One day after Bernie Sanders put his campaign on hold as he recovers from an artery blockage procedure, his campaign said that the Vermont senator will be participating in the next Democratic presidential debate scheduled to take place on Oct. 15 in Ohio, the senator’s campaign told CNBC on Thursday.

″[Campaign] operations are continuing as usual and he will be at the debate,” Sanders’ spokeswoman Sarah Ford wrote in an email to CNBC. She declined to comment further.

The 78-year-old senator is the oldest presidential candidate seeking to challenge President Donald Trump, 73, in 2020, although Joe Biden, aged 76, is not too far behind. During his 2016 presidential campaign against Hillary Clinton, Sanders released a doctor’s note stating the senator was in good health and did not have a history of heart disease.

Unfortunately for Bernie, while he may have staged an impressive recovery, the Democratic voters are not as impressed with his prospects, and as of today,  Sanders’ nomination odds according to PredictIt dropped to an all time low 7c, tied with Hillary Clinton.

Uber’s stock price has fallen more than 30% since its IPO, catalyzing a “tightening of the belt” at the company that has caused office perks – and employee morale – to disappear, according to the Washington Post. 

Employees have said they’ve noticed cuts across the board, even to the brand of coffee that’s offered at the office.

The company is making the changes, including laying off 800 workers over the summer, as it loses investor confidence. Uber’s valuation was once supposedly going to be as high as $120 billion. Today, the company is valued at less than half of that, trading at $54 billion.

This means that employee stock units are valued at a fraction of what employees were led to believe. At the same time, executives are trying to impose workflow changes to improve the company’s efficiency. Some workers view this is as “stifling innovation”.

Uber CEO Dara Khosrowshahi said in a recent company email: “We need to ship more quickly and operate more effectively and efficiently than we are today. We are not doing this for Wall Street. We are doing this for Uber. It’s critical we get our edge back and continually push ourselves to do better.”

Uber and its peer Lyft were the two companies that unofficially kicked off a string of ugly IPOs, including companies like Slack, which is trading at a fraction of its post-IPO highs, Peloton, which fell on the day of its IPO and WeWork, which yesterday pulled its IPO entirely. 

“The wave of 2018 and 2019 IPOs largely driven by the tech sector have been among the worst performing since the dot-com bubble in 1999,” the article notes, citing a Goldman Sachs report.

The report continued: “In terms of profitability, IPOs from the current cycle look more like Tech boom IPOs than offerings completed during the 2001-2009 period.”

As a result of the company’s plunge since its IPO, one former senior employee said that Uber was “turning [into] an operations company — not a product/tech company.”

Executives have said they are going to devote less capital to user experience and research, and more to testing of in-app features for riders and drivers.

Uber’s chief of product, Manik Gupta wrote to employees: “We will deliberately rely less on user research for tactical features and instead rely more on experimentation. We will focus on fewer projects with more direct business impact.”

This new strategy reared its head Thursday when, at a product event in San Francisco, the company announced a redesign of its app that will place the menus of food delivery and mobility together. The company will test out the re-design on some, while maintaining the classic version, to “beta test” how users will respond. 

Khosrowshahi said it’s a move to try and make Uber the “operating system for your everyday life.”

Along the way, Gupta has also acknowledged the bumps in the road that the company has faced: “From my standpoint the important thing is we’re all focused on execution. What people who are really motivated, what they really want, is a set of problems to work on which are very exciting, they are world changing. I think we have a lot of them and we just have to make sure that we continue to build incredible products.”

Meanwhile, workers have been paying close attention to the scrutiny the company has gotten since its IPO. Employees are becoming “agitated” that top-down changes have “stripped away their autonomy”. All-hands meetings have reportedly been contentious, with tensions growing between workers and management. 

Jill Hazelbaker, Uber’s senior vice president of marketing and public affairs, was asked at an all-hands meeting about a new book written about the company. “I think we need to put our heads down and execute. I’d just say we’ve got to get a bit thicker skin about this stuff,” she responded. 

Executives at the company have also reportedly become overly concerned with its reputation, which hasn’t improved much since the #DeleteUber scandal. 

Khosrowshahi was pressed on job cuts at an all-hands meeting this month. “I have asked every single [executive] team member to take a look at their particular teams and their particular structures. I do think that the worst is behind us,” she responded.

But morale has already been seriously damaged: employees are no longer allowed to ask anonymous questions at meetings, craft coffee from a specialized roaster in Portland has been replaced with the now-commoditized Starbucks and office supplies, like giant sticky notes, have gone away. The company no longer hands out “Uberversary” balloons to staff, either. 

Employees are also upset by some of the new business strategies employed by the company, like considering giving drivers loans. One former employee said, “We have morals.”

Many former employees who have racked up stock options are being told by people close to them that they should sell. One former employee hoped to buy a house with his nest egg of stock. He now says he’ll be lucky to “buy a bike or two”. 

Mike Maples Jr., founding partner of venture capital firm Floodgate Fund, an early investor in Lyft said: “The early employees want to change the rules and be aggressive and make things happen. The later employees may be attracted more to the security of the job and more the conventional trappings of having a job. That’s going to obviously slow down a company’s willingness to take risks and do new things.”

Uber declined to state whether or not more layoffs were coming. Khosrowshahi is still encouraging department managers to review ways to cut costs. 

Since Uber has gone public, it has slashed its staff of 27,000 by more than 3% and announced a restructuring in June. It also let go a third of its marketing department in July and imposed a hiring freeze on some U.S. and Canadian engineers. 

Nothing like being a “growth” company.

Authored by Scott Burns via The American Institute for Economic Research,

In a recent Vox column, Matt Yglesias offers an extensive critique of former New York Federal Reserve President William Dudley’s controversial article. Dudley has argued that the Fed should “refuse to play along” with President Trump’s trade war and conduct monetary policy to reduce the president’s odds of re-election. Yglesias rightly condemns Dudley’s proposal as venturing into “fairly outrageous territory.” But he fails to make a principled case for independent monetary policy. 

Instead, Yglesias focuses on what he views as the real threat posed by the Fed both historically and today — that it sits idly by while Republicans run up huge deficits yet stonewall Democrats when they try to enact big-ticket policies. “Historically, disciplinary monetary policy has been used by central banks to constrain the left,” Yglesias argues. Throughout its history, the Fed has let “Republicans explode the deficit” with tax cuts, then “pressured Democrats to narrow it.”

This partisan deficit hawking, he argues, is actually “the most dangerous idea in central banking.” Yglesias concludes that progressives should start preparing for a “political fight” with the Fed the next time a Democrat takes the Oval Office. “The real risk of central bank meddling is not during the Trump administration,” he argues, “but during the next administration.” 

Yglesias uses Greenspan’s tenure as an example. In 1993, he writes, Greenspan “pressured” President Clinton to cut the deficit. Greenspan’s pressure, he argues, prevented Clinton from passing any signature progressive reforms. Yet, when George W. Bush was elected, “Greenspan changed his view on deficits.” 

But Greenspan’s emphasis on deficit reduction wasn’t necessarily partisan or unwarranted. His advice came at the tail end of a decade of massive spending growth where the debt-to-GDP ratio increased from 37.17 to 64.67 percent. Yglesias conveniently ignores the fact that Greenspan pressured Presidents Reagan and George H. W. Bush to cut the deficit as well, beginning as early as 1988. This helped influence President Bush to break his famous “read my lips” promise and raise taxes in 1990. 

Nor was Greenspan’s “reversal” on the deficit-cutting issue in the early 2000s necessarily motivated by partisan politics. By Q2 2001, the debt-to-GDP ratio had fallen to 54.04 percent. It’s true that deficits exploded under George W. Bush. But, at 61 percent in 2006 when Greenspan left office, debt-to-GDP was still less than had been at the height of the Clinton years. And, contrary to Yglesias’s assertion, it was not the Bush tax cuts that fueled the deficits. It was a huge increase in spending — just as it had been under Reagan.

There are many reasons to demur Greenspan’s tenure as Fed chair. But Yglesias’s claim that he “meddled” for overtly partisan reasons is unfounded.

His overarching claim, that the long history of Fed meddling has tended to support Republicans, is also problematic. There are plenty of examples of central banks meddling in ways that help Democrats, as well. 

During World War I, at the behest of President Woodrow Wilson, the Fed helped keep interest rates low and provided preferential discount rates to banks that purchased war bonds. It is no surprise that this period saw the highest inflation rates in the Fed’s history. 

Similarly, the Fed accommodated rising deficits under President Franklin D. Roosevelt during World War II by pegging Treasury rates at a low level. The Fed maintained this policy for another six years into Harry Truman’s presidency, when the Treasury-Fed Accord in 1951 separated monetary policy from government debt management. 

President Lyndon Johnson successfully pressured then Fed Chair William McChesney Martin to keep interest rates low to help finance the Vietnam War and Great Society programs. Johnson reportedly went so far as to verbally assault Martin at his Texas ranch, yelling, “Boys are dying in Vietnam, and Bill Martin doesn’t care!” Martin obliged, setting the stage for the Great Inflation of the 1960s and ’70s.

Fed meddling is a real problem, to be sure. But, contrary to Yglesias’s claim, it has tended to accommodate deficits under both Democrats and Republicans. 

The solution to Fed meddling — be it in support of Democrats or Republicans — is to establish a strict separation of money and state. Unfortunately, that’s not what Yglesias argues. His issue with the Fed isn’t that it is partisan, but that it isn’t partisan enough. He wants the Fed to help progressives finance their preferred policies. 

The best way to avoid accusations of “partisan meddling” isn’t by demanding that progressives prepare for a “political fight” with the Fed to make it partisan in their favor. It’s to make the Fed more independent of politics. And the best way for the Fed to prove its independence would be to embrace a clear and binding rule for monetary policy that it can be held accountable no matter which party is in power. 

Progressives like Yglesias recognize the danger of money in politics. They should consider the danger of politics in money, as well. And not just when it suits their interests. 

Iran has announced that it thwarted a sophisticated plot to assassinate General Qassem Soleimani, head of the elite Quds Force of the Islamic Revolutionary Guard Corps (IRGC). 

State media, which first unveiled the news Thursday, alleged Arab and Israeli intelligence agencies were behind the nefarious plans which had been in the making for years. The IRGC’s intelligence chief, Hossein Taeb, announced the arrest of three people who had been linked to the plan, described further as seeking to blow up a memorial service Soleimani was scheduled to attend in September, also marking a Muslim holy month. 

The assassins reportedly were going to dig under the religious site the Quds force chief was to visit, where explosives would be detonated, with the further hopes of igniting a sectarian civil war, according to Iranian state media. 

IRGC sources claimed the perpetrators were preparing 500 kilograms of explosives to use in the attack, as Bloomberg reports, citing the IRGC intelligence chief’s account:

Taeb said the plot involved a “team of terrorists” trained in neighboring countries who planned to place as much as 500 kilograms (1,100 pounds) of explosives in a tunnel beneath a religious shrine built by Soleimani’s late father in Kerman in central Iran.

While naming Israel specifically, the Arab country alleged to also be behind it was not named — though the Iranians no doubt have the Saudis or Emirates, or other GCC Sunni ally of Riyadh in mind.

Regional media has lately reported closer unofficial ties between Saudi and Israeli intelligence, or the Mossad, especially in the context of seeking to ouster Syria’s Assad over the past half-decade. 

Israeli Prime Minister Benjamin Netanyahu has recently personally called out the elite Quds force leader – given it is the foreign arm of the IRGC – for expanding Iranian bases inside Syria near Israel’s borders. 

While the official allegations at first look sound far fetched, it is a reality that Israeli intelligence has over the past years stepped up an aggressive assassination campaign against elite Iranian scientists connected with the country’s nuclear program, as well as Hezbollah and Hamas operatives. 

In 2018, a widely circulated Arabic media report claimed there is an “American-Israeli agreement” to ‘greenlight’ the assassination of Gen. Soleimani if the opportunity should present itself. 

House Speaker Nancy Pelosi (D-CA) lied on Wednesday when she told ABC News‘s George Stephanopoulos that House Intelligence Committee Chairman Rep. Adam Schiff (D-CA) “was using the president’s own words” when he read a fabricated account of a phone call between President Trump and Ukrainian President Volodomyr Zelensky during a hearing last week with the acting director of national intelligence. 

Stephanopoulos pushed back, telling Pelosi “Well those weren’t the president’s words, it was an interpretation of the president’s words. They’re saying he made this up,” to which Pelosi replied “He did not make it up.” 

Okay what Twilight zone have I entered because this is 2x in one week where @GStephanopoulos called out a Democrat for lying. Here he asks Pelosi about Schiff lying about what’s said in the transcript and correcting her when she says it was Trump’s words. pic.twitter.com/8YrhRNCPJ6

— Robby Starbuck (@robbystarbuck) October 3, 2019

Schiff compared Trump’s call with Zelensky as a “classic organized crime shakedown” in his opening remarks last week. “Shorn of its rambling character and in not so many words, this is the essence of what the president communicates,” Schiff added, before launching into his fabricated ‘parody’ of the call. 

Schiff’s fabrication: 

“We’ve been very good to your country, very good,” Schiff says, doing a terrible impression of Trump. “No other country has done as much as we have, but you know what? I don’t see much reciprocity here. I hear what you want, I have a favor I want from you, though, and I’m gonna say this only seven times, so you better listen good. I want you to make up dirt on my political opponent, understand, lots of it.“

In response, President Trump called Schiff a “lowlife” who should “resign and be investigated.” 

Rep. Adam Schiff totally made up my conversation with Ukraine President and read it to Congress and Millions. He must resign and be investigated. He has been doing this for two years. He is a sick man!

— Donald J. Trump (@realDonaldTrump) September 27, 2019

Trump expanded on Schiff during Wednesday comments:

Rep. Andy Biggs (R-AZ) introduced a resolution censuring Schiff for his remarks, saying in a Twitter video that the California Democrat “read a statement that was blatantly false, had no corresponding evidence, nor relationship to the actual transcript of President Trump’s conversation,” adding “What the chairman did is he read something that was made-up, totally false, and later had to excuse it by saying it was a parody.”

GOP leader Kevin McCarthy, meanwhile, tweeted “Chairman Adam Schiff has been lying to the American people for years. Now he is so desperate to damage the president that he literally made up a false version of a phone call.”

MORE House members have joined my motion to condemn and censure Chairman Adam Schiff:@RepStefanik @RepMarkWalker
Rep. Dan Bishop@RepWebster @USRepGaryPalmer @RepCloudTX @RepDLamborn @RepFredKeller @RepBrianBabin @RepByrne @RepBillJohnson @RepLarryBucshon https://t.co/ASW4m62toJ

— Rep Andy Biggs (@RepAndyBiggsAZ) October 3, 2019

I too have signed onto the resolution to censure Chairman Adam Schiff. Presenting false versions of phone calls in a political attempt to damage @realDonaldTrump is unacceptable and beneath the office to which Schiff was elected. https://t.co/Kl6pfdqowx

— Congressman Dan Meuser (@RepMeuser) October 2, 2019

A large military parachute training exercise went horribly wrong at an Army base in Mississippi late Wednesday night, resulting in nearly two dozen soldiers suffering injuries as a major emergency response situation unfolded.

A US Army spokesman described to the Associated Press that about 89 soldiers were aboard a C-130 for a night jump at Camp Shelby, but upon exiting the airplane high winds blew the paratroopers far away from their intended drop zone and into a forested area. 

At least 22 soldiers were injured in the jump, with seven hospitalized with more serious injuries, though none were reported as life threatening. 

According to USA Today, local hospitals quickly mobilized teams to respond to the mass accident:

Approximately 180 were in the zone at the time of the incident, and 89 paratroopers made it out of the planes, said Sgt. Alex Skripnichuk, with the 4th Brigade’s public affairs office.

Each plane carries up to 60 people. Emergency responders took some of the injured to local hospitals, where teams of doctors and nurses could be seen walking quickly toward the emergency room.

It was part of a 10-day exercise involving over 900 paratroopers and heavy equipment drops with 4th Brigade Combat Team 25th Infantry Division, in one of the largest war games exercises of its kind Camp Shelby has ever hosted. 

An Army spokesman said the mass paratrooper drills will continue as scheduled despite the significant jump accident. 

Authored by Nick Cunningham via OilPrice.com,

The last three years has been the worst stretch of time in seventy years for new conventional oil discoveries…

A new report from IHS Markit finds that conventional oil discoveries plunged to a seven-decade low and “a significant rebound is not expected.” Conventional exploration – as opposed to unconventional development, including shale – had already been trending down following the 2008 global financial crisis and its aftermath, which overlapped with the rise of horizontal drilling and hydraulic fracturing in several U.S. shale basins.

But the collapse of oil prices in 2014 really knocked conventional exploration – and thus, discoveries – on its back.

After OPEC refrained from cutting production in the face of a swelling supply surplus in late 2014, prices fell sharply…and continued to fall for much of the next year and a half. WTI bottomed out in early 2016 below $30 per barrel, before a pullback in drilling and production cuts by OPEC+ led to a more durable price rebound beginning in 2017.

But the multi-year downturn hit conventional exploration in multiple ways. Not only were companies slashing spending and cancelling riskier ventures, but the oil majors and investors began to view short-cycle shale drilling as inherently less risky. That was because drilling was quick – companies were able to turn projects around in a matter of weeks or months, not the years that large-scale conventional projects took, particularly those offshore in deepwater. Capital flowed en masse from conventional to unconventional development.

Predictably, that led to a steep rise in U.S. shale output, while simultaneously leading to a sharp contraction in conventional discoveries.

“One of the main drivers here is the shift of investment by US independents from international exploration to shale opportunities in the United States—shorter cycle-time projects—with greater flexibility to respond to changing market conditions,” Keith King, senior advisor at IHS Markit and author of the report, said in a statement.

“These operators can quickly turn an unconventional project off and stop or postpone drilling next month if oil prices fall.”

Chevron and ExxonMobil are now some of the largest producers in the Permian after arriving late to the scene.

However, at the same time, this is not a story only of a shift of preferences from drillers and low oil prices. IHS also said that the average size of conventional oil discoveries has declined as the industry has shifted away from riskier “frontier” and “emerging” areas, to more mature regions. The number of wells drilled in unproven areas in deepwater dropped from 161 in 2014 to just 68 in 2018.

The oil majors left deep- and ultra-deepwater and began to increasingly focus on shallower water and onshore areas. The riskier fields in deepwater are the ones that have yet to be picked over, and thus contain much larger reserves, but mature shallow water carries less uncertainty and lead times are shorter. The shift in focus has meant that when a driller made a discovery, it was smaller on average in the last few years. 

IHS says that basins early in their life cycle tend to have reserves that are ten times as large as mature basins. An average discovery in early-life basins held roughly 210 million barrels compared to just 25 million barrels from the average discovery in a more mature area.

There are some exceptions to the general trend, with some large companies still pushing the bounds offshore, but industry-wide spending and exploration is down.

However, the problems in U.S. shale might mean that the pendulum swings back in favor of offshore drilling. With wrecked balance sheets, high debt levels, shareholder scrutiny on spending and a growing number of operational problems, the shale complex is falling out of favor with investors. “Lackluster financial returns from unconventional production onshore in North America may drive more operators back to conventional exploration in the longer-term,” Keith King of IHS said in a statement.