The Age of Cheap Oil and Natural Gas Is Just Beginning
. . . although we will need to wait out the desperate oil bulls who keep fluffing the price every time something happens near an oil field. More below the fold.
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Without oil, the House of Saud is little more than sand, hot air, and a butt load of evil . . .4/24/2016 Saudi Arabia: Nothing But A Lot Of Sand & Hot Air
. . . terrorist funding despots. Exactly why do we think of these human rights hating, fear mongering, terrorist funding, sociopaths as allies? Without oil they have no economy, and while they are now saying they will spend trillions to create an economy, no Saudi wants to actually work. It is time to roll out the big guns, open up federal lands to oil and gas development, and drive the House of Saud into retirement . . . or back to camel riding, whichever they can hold on to. This is the face of evil. Opec’s days as economic force are ‘over’ - FT.com
. . . but the Yergin seems to misunderstand why. UPDATE AT END "Opec’s economic power is broken, says the unofficial historian of the oil industry, who has argued that the association of oil exporting countries has become irretrievably divided and is unable to reverse the current slump in crude prices. Daniel Yergin, whose Pulitzer-prize winning book The Prize provides a comprehensive history of oil and power, said he believes the association’s economic prowess has been undone by its inability to agree on how to stop the oil crisis. In an interview with the Financial Times, Mr Yergin, who is also vice-chairman of data provider IHS, said the recent disagreements among Opec members have revealed how weak the organization now is. Mr Yergin said: “The era of Opec as a decisive force in the world economy is over. It is clearly a very divided organization.” Mr Bergen’s book, first published in 1990, dedicates several chapters to the rise and domination of Opec, the 13-member organisation that has caused sharp swings in the oil price by restricting or raising supplies since it was set up in 1960. But the 69-year-old argues the current oil slump has exposed the organization’s inability to act in a unified way." Ok, correct as far as it goes, but it does not go anywhere near far enough. The reason for the lack of unity is the existential war between the Shia, represented by Iran, and the Sunni, represented by the House of Saud. "Mohammed bin Salman, Saudi Arabia’s powerful deputy crown prince, said earlier this month a deal would only happen if Iran also signed up. But Iran wants to increase its output after sanctions were lifted in January as part of a nuclear deal with world powers. Mr Yergin said he did not think a freeze was possible until Iran clarified how much it could export. As for Saudi Arabia, Mr Yergin said it was thinking differently about oil. “I remember when the operating code was: save the oil for our grandchildren. Now the grandchildren are in charge and they are looking at it in a very different way,” he said. “They are not looking at it as precious resource . . . but rather asking how do you monetize it?'" Right Saudi wants to tie up Iran so it has no money to fight this existential war. Iran will have none of it, and so will pump oil, in order to build its more integrated economy back from the recent sanctions, and seek to fight proxy wars in the meantime. Saudi has very little economy outside of oil, and what it has, is nearly completely reliant on oil money transfers from the House of Saud. It is not that the House of Saud is thinking differently about oil, it is thinking about an existential war, and it needs as much oil money as possible to ward off economic unrest from its people, and fight expensive proxy wars. Remember in this fight the House of Saud is the banker to the Sunni proxy wars, while the Iranians are not, they train, and provide some arms assistance but do not do the majority of the bankrolling. The reason the House of Saud recently left Yemen, is to cut the costs of the proxy war there. The House of Saud is deeply concerned, and panic is just setting in. OPEC's days as oil hegemon are over. Not because "Kids these days!" But because Iran wishes to reduce the kingdom. Optimistically, this will be the warfare at the beginning of the Islamic Reformation, which will lead to an Islamic Enlightenment. But lets not get ahead of ourselves. Al-Saud is our enemy. The Shia, represented by Iran are the only real hope today for an Islamic Reformation. We need to make this work. We need to trade with Iran, and promote the full reintegration of Iran with the world economy. This will allow Iran to pressure the House of Saud, and allow Iranian businesses, and the people of Iran to build relations with America, and the West. Only this will result in the diminishment of the Iranian hardliners, and the ultimate democratization, and free marketization of Iran. Something the world needs dearly. UPDATE Oil Guru Says OPEC’s Era Is Over "What use is OPEC? For decades, the oil cartel has leveraged the large percentage of the world’s oil supply its members produce to try and keep prices up, and during previous price slides would (led by Saudi Arabia) lower its collective output to help induce a rebound. But five months after oil prices started their tumble from a June 2014 high of more than $110 per barrel, OPEC members meeting in Vienna decided to not to do anything. Riyadh pushed this strategy of inaction, preferring to fight for a share of a market that had quickly become crowded, thanks to the rapid rise of U.S. shale. Now, nearly two years after prices began their tumble, OPEC members are preparing to meet delegates from other petrostates in Doha next week to moot a deal to freeze production at current levels. But while prices have been edging upwards in the lead-up to that meeting, that strategy isn’t likely to produce the kind of rebound OPEC would like to see, which again brings us back to the question: what good is OPEC?" This price rise is due solely to the oil bulls feverish delusions of $150 per bbl oil prices. They remember the heady day of making oodles of money, and can't quite understand what happened. Reality happened you sorry sods. "Thanks to hydraulic fracturing and horizontal well drilling, we’ve blown well past the days of peak oil prognostications, into an era characterized by problems of overabundance rather than scarcity. Crudely speaking (excuse the pun, please) this has been good for consumers and bad for producers, but while U.S. shale firms have been able to innovate their way into staying profitable in the bearish market, petrostates have been forced to start cutting national budgest and tapping sovereign wealth funds. Both sets of producers are being squeezed by $40 oil, but the former is actively working towards a solution as it refines techniques and boosts efficiencies, while the latter is merely treading water while talking loudly about setting an upper limit on production—cuts are out of the question. There are many reasons to be skeptical of this new freeze plan, but as we edge closer to that date prices are ticking upwards—Brent neared $43 in trading today for the first time in more than four months. But if that’s all OPEC can manage, Yergin might be proven right: OPEC’s era really could be over." Peak Oil!!! Hahahahahahahahahahahaha . . . The OPEC's days are over. The sooner the oil bulls understand this and move on the better it will be. Opec’s days as economic force are ‘over’ - FT.com
. . . but the Yergin seems to misunderstand why. "Opec’s economic power is broken, says the unofficial historian of the oil industry, who has argued that the association of oil exporting countries has become irretrievably divided and is unable to reverse the current slump in crude prices. Daniel Yergin, whose Pulitzer-prize winning book The Prize provides a comprehensive history of oil and power, said he believes the association’s economic prowess has been undone by its inability to agree on how to stop the oil crisis. In an interview with the Financial Times, Mr Yergin, who is also vice-chairman of data provider IHS, said the recent disagreements among Opec members have revealed how weak the organization now is. Mr Yergin said: “The era of Opec as a decisive force in the world economy is over. It is clearly a very divided organization.” Mr Bergen’s book, first published in 1990, dedicates several chapters to the rise and domination of Opec, the 13-member organisation that has caused sharp swings in the oil price by restricting or raising supplies since it was set up in 1960. But the 69-year-old argues the current oil slump has exposed the organization’s inability to act in a unified way." Ok, correct as far as it goes, but it does not go anywhere near far enough. The reason for the lack of unity is the existential war between the Shia, represented by Iran, and the Sunni, represented by the House of Saud. "Mohammed bin Salman, Saudi Arabia’s powerful deputy crown prince, said earlier this month a deal would only happen if Iran also signed up. But Iran wants to increase its output after sanctions were lifted in January as part of a nuclear deal with world powers. Mr Yergin said he did not think a freeze was possible until Iran clarified how much it could export. As for Saudi Arabia, Mr Yergin said it was thinking differently about oil. “I remember when the operating code was: save the oil for our grandchildren. Now the grandchildren are in charge and they are looking at it in a very different way,” he said. “They are not looking at it as precious resource . . . but rather asking how do you monetize it?'" Right Saudi wants to tie up Iran so it has no money to fight this existential war. Iran will have none of it, and so will pump oil, in order to build its more integrated economy back from the recent sanctions, and seek to fight proxy wars in the meantime. Saudi has very little economy outside of oil, and what it has, is nearly completely reliant on oil money transfers from the House of Saud. It is not that the House of Saud is thinking differently about oil, it is thinking about an existential war, and it needs as much oil money as possible to ward off economic unrest from its people, and fight expensive proxy wars. Remember in this fight the House of Saud is the banker to the Sunni proxy wars, while the Iranians are not, they train, and provide some arms assistance but do not do the majority of the bankrolling. The reason the House of Saud recently left Yemen, is to cut the costs of the proxy war there. The House of Saud is deeply concerned, and panic is just setting in. OPEC's days as oil hegemon are over. Not because "Kids these days!" But because Iran wishes to reduce the kingdom. Optimistically, this will be the warfare at the beginning of the Islamic Reformation, which will lead to an Islamic Enlightenment. But lets not get ahead of ourselves. Al-Saud is our enemy. The Shia, represented by Iran are the only real hope today for an Islamic Reformation. We need to make this work. We need to trade with Iran, and promote the full reintegration of Iran with the world economy. This will allow Iran to pressure the House of Saud, and allow Iranian businesses, and the people of Iran to build relations with America, and the West. Only this will result in the diminishment of the Iranian hardliners, and the ultimate democratization, and free marketization of Iran. Something the world needs dearly. Let's do it! Yellen Gets Lovey-Dovey in Speech Citing “Other Tools” and More QE | MishTalk
. . . in a very weak speech to the Economic Club of New York. Mish ends, "'In essence the way in which it worked was by signaling that real assets were inferior to financial assets. The Fed, by going into an untested program of QE effectively ended up making things worse off,” said Hunt. At best, the Fed temporarily shifted some demand forward by inflating financial assets. In the process, the Fed created asset bubbles in equities and junk bonds, stimulated oil production via cheap financing to the point of a bust, and exacerbated problems of income inequality. QE wasn’t worth the problems it created. But the Fed is prepared for more of it." This is not quite true, the collapse of oil prices has had a positive economic outcome on the myriad oil despots the world round. However, this could have been accomplished without all the added pain, and problems which arose from the asset bubbles, and other problems. Oil’s Decline Takes Toll on Saudi Conglomerate
. . . the son of a son of a contractor, or something. Best line in the piece, "'It’s too big to fail,” said a creditor at a Persian Gulf bank company who is close to SBG. “It’s an integral part of the Saudi system so they will find a solution,” the person said." Dude, it's not too late to pick up a large jug of Vasoline. You are gonna need it. Unless the price of oil take a sudden, sustained hike, large companies in Saudi will unquestionably fail, as the entire nation is an economic bankruptcy case without oil above $80-100 per bbl. The Saudi's can likely cut enough "welfare" to make ends meet at around $100, but at $50? Nope! I stand by my estimates that oil will end in the $30 range or perhaps a bit less. But even at $50, Saudi is in serious trouble, and will not be able to pay the bills. There is a reason why the House of Saud is leaving the Yemeni's on their own to fight the Iranian supported Shia factions. No money. Couldn't happen to a nicer House! A Presidential Rebuke to the Saudis . . . he bows to the House of Saud on his first trip, and now pillories the House of Saud as repressive, extremist, free riders. Unbelievable, American Presidents do not bow to tyrants, dictators, or hooligans. How he now got this correct is a bit beyond my ken.
"Mr. Obama, who has blamed Saudi Arabia and other Sunni Arab governments for encouraging anti-American militancy, also told Mr. Goldberg that the Saudis should try harder to “share the neighborhood” by achieving “some sort of cold peace” with their enemies in Iran. The Saudis promptly fired back. Writing in the Arab News, Prince Turki al-Faisal, a former Saudi intelligence chief, argued that Mr. Obama does not appreciate all his government has done, including sharing intelligence in the fight against terrorism. But the fact is, this decades-long partnership, born of antipathy to the Soviet Union and an American reliance on Saudi oil, is growing increasingly brittle." Obama's tactic here is appropriate, but long over due. With the USSR long gone, oil prices responding to more rational economic information, we have little interest in standing beside the House of Saud in its quest to dominate the Middle East, and recreate its neighbors as Wahhabi's. Even a cursory understanding of the history of the Middle East, and North Africa shows an ever changing cascade of Sultanates, Empires, Caliphates, and Kingdoms. This will only end once Islam is reformed. The first step in the Islamic Reformation is the reduction of the House of Saud, and the Wahhabi/Salafi. If Obama keeps this up, I might just start believing he knows what he is doing. More likely he has a good advisor who has his ear on a few issues. Regardless, we could use more of this, and less of the Syrian, Libyan, Iraq, Afghanistan fiasco's. Millions more Russians living in poverty as economic crisis bites
. . . skyrocketing poverty, and shocking economic decline driven by the sudden decline in oil prices. "An average of 19.2 million Russians – or 13.4% of the population – were living last year on less than 9,452 roubles ($139) a month, the minimum subsistence level determined by the Russian government in the fourth quarter. This figure represents a 20% increase year-on-year, with an average 16.1 million people living below the poverty threshold in 2014." Ouch, this is terrible. Millions of people slowly falling into desperate poverty. "Russia’s energy-reliant economy shrank by 3.7% in 2015 and is set to continue suffering this year. In September, the World Bank warned against a “troubling” increase in poverty in Russia resulting from a sharp drop in the income of the most vulnerable social groups including pensioners. Prime Minister Dmitry Medvedev conceded in January that increasing poverty was “one of the most painful” consequences of the economic crisis. Real wages in the country shrank 6.9% last month in comparison to the same period last year. Retail sales were down 5.9% last month year-on-year. Russia’s newly-founded rating agency said Monday it did not expect economic growth until 2018." The only reason it expects economic growth in 2018 is because that date is so far off there will be plenty of time to down grade later. Russia has a commodity economy. What we forget is that at the end of the Soviet period, the reason for the collapse was that the people in power in the USSR realized that the nation was taking valuable resources, and commodities, adding labor, and creating something with less value than the resource, and commodity inputs. Let that sink in. They were taking valuable things and making them less valuable through manufacturing. This was a shocking conclusion, but undeniable. That left two courses of action, one was to improve manufacturing, which would have taken decades, and billions in hard currency, which Russia did not have, or stop manufacturing, and switch the economy to a resource, and commodity economy. They chose the latter. Many Russians were impoverished, but the economy turned, and the poverty rate slowly fell, and Putin emerged, and became essentially a dictator, running a Mafia like state. Now faced with the existential threat of low oil prices, Russia is without recourse. It cannot cut out manufacturing. It does not have manufacturing to build upon, and the economy is tanking. This is the outcome of failing to embrace the free market economy, with republican governance, and reformed religions. Here at the End of History, we know what works, and we know what does not. Good luck Russia, you will need it. US oil producers lock in high prices - FT.com
. . . one step back. Crude oil slides back below $40 a barrel - FT.com "But many analysts believe that the advance has gone too far too fast and are tipping the price to fall back, with supply still expected to outstrip demand for most of 2016. On Monday, Brent fell as much as 3.5 per cent to $38.82 a barrel, while West Texas Intermediate, the US oil benchmark, was down 4.5 per cent to $36.69 a barrel." Reality is a bitch. The US is approaching 100% full storage, and the use of train cars as "rolling storage." We are knee deep in oil, and yet the oil bulls still rampage at the merest flicker of hope of a rally. "Saudi Arabia, Opec’s biggest producer, and Russia agreed last month to freeze oil output at January levels, but only if other large producers such as Iran and Iraq agreed to do the same. Speaking on Sunday, Iran’s oil minister Bijan Zanganeh said that the country would only join discussions after its own output, which has been hit hard by western sanctions, reached 4m b/d. “They should leave us alone as long as Iran’s crude oil has not reached 4m. We will accompany them afterwards,” Mr Zanganeh was quoted as saying in local media. Iran pumped 3.22m barrels a day in February, in the first full month freed of nuclear sanctions, according to the International Energy Agency. Exports rose to 1.4m b/d but are still well below the 2.5m b/d Iran was selling before 2011." In this environment, a rally is beyond comprehension. I suspect the bulls are being shorn with each of these absurdist attempt to re-blow the oil bubble. "The International Energy Agency said last week that prices might have “bottomed” and there could finally be light at the end of tunnel, following a 20-month downturn. However, other commentators believe the recent rally could contain the seeds of its own destruction. Higher prices have thrown a lifeline to cash-strapped US shale producers which are taking advantage of the recent rally to lock in prices." The fear and loathing in the oil markets is palpable. The US shale producers will likely continue to find ways to decrease costs, and increase output. Many will find these low prices fatal, yet either through bankruptcy or liquidation and repurchase of assets, they will phoenix like rise ready for the next rally. The oil tyranny's, however, will find this market existential. Add, proxy wars within OPEC, and this should be a show stopper! Grab some corn, and beer, this might take a while. Putin orders Russian forces to start pulling out of Syria - FT.com
. . . oh, right, "withdrawal." This is the "we don't retreat, we runaway," theory of withdrawal. Putin has overextended Russia, with active fronts in Ukraine, and Syria, and he still is occupied with problems in Georgia, and Chechnya. On top of those military, and police problems, he is faced with a collapsing Ruble, and a nearly dead economy. Yeah, sure, it's not collapsing, it's just running away. Whatever, Vlad. So, what's the plan? "Yet there was little sign of any souring of attitudes toward President Vladimir Putin, with people instead blaming global economic trends or a Western plot. Magomed, a businessman walking along the upmarket Stoleshnikov Lane in central Moscow, said Western countries were deliberately driving the rouble lower. 'But we will defeat them. Russia is too large.'" The plan is the tried and true dictators friend, "blame the US," or the West, or both for some wackadoo conspiracy to destroy the tin pot dictators currency. This should rally the troops for a while. It really does work well, just look at Cuba, and Venezuela. But it will not help correct the collapse of the Ruble, or the Russian economic collapse. Russia can chart its course following the path of Hugo Chavez in Venezuela. And with oil positioned to stay low for years Putin has nothing left but "blame the US." Oil prices will move around but the trend is lower, and this will continue. The oil bulls all believe there will be some Saudi/Russian agreement to lower production. But US shale, even after the closing of a large number of wells is still creating a serious surplus of supply over demand. Add to the problem that Iran wants in and will pump whatever they can, and supply will remain high for a very long time. Other players will soon be adding to supply, like Venezuela. Today Venezuela is handicapped by its government, and it control of its oil industry. It is mid collapse. Once that is completed, and a new government takes full control, there will be a new accord with US and other western oil companies, which will quickly return and help Venezuela pump more oil. Even though oil prices are low, Venezuela needs the foreign hard currency to help purchase necessities like food and toilet paper. Brazil is also in a state of near collapse with massive inflation, and myriad political scandal ripping the country apart. And like Venezuela it needs hard currency more than it needs oil, even if it must produce oil at a loss. Asset sales, and privatization will likely occur. Brazil is in dire straits, and the money is necessary to keep things functioning, if only barely. Expect US, and western oil companies to be allowed to develop oil new fields, and to create new efficiencies in new, and old oil fields. Likewise, Mexico has undergone much change in how it considers its oil output. It used to be the piggy bank of the Mexican federal government, until that resulted is shockingly reduced oil revenues. Changes in Mexican law have occurred and will likely continue to occur to allow US, and western oil companies to enter this market, pump oil, and help the Mexican oil industry create new efficiencies. Crumbling infrastructure, low oil prices, poor management, and worse government make this difficult, and necessary. MEO Australia goes out on front foot in Cuba oil exploration I would take this seriously, since Cuba is grindingly poor. Once again, the need for hard currency trumps costs to a great extent. Right now, most oil producing nations need the revenues from oil to meet their budgets. Without these revenues, they are facing serious problems. This means that most of these countries will need to continue to pump oil at the levels they are pumping today, or at greater levels, to help maintain government revenues. Plus, any time oil prices rise, all producers will rush to capitalize on this "boon." Oil supply will remain high for the foreseeable future. Even India is hot to develop oil. On the other side of the equation is demand. China continues to decline. The mouse that roared . . . India is now facing increasing headwinds from its banking sector. India has been considered a light spot in the international economy, but this banking crisis will dampen that, as will the generally moribund world economy. Europe is in a deeply weakened state with little potential going forwards, and the rest of the world is looking quite weak. Forecasts of world recession are in the air, and, really, it is difficult to argue the contrary position, athough the Peterson Institute for International Economics does so. We also are facing a new paradigm with increasing AI and automation of everything, even things we never though would be automated, like driving. George Jetson drove his flying car much of the time, although it seemed capable of driving itself. We forget how much less oil we will likely need if parents no longer need to drive children to and from every event, or elderly parents to and from appointments. The parent driving the child means the parent frequently drives to the event, and then back, then back to the event to pickup the child, and then home. This means four independent trips of equal length. However, with a self driving car, there would only be two trips. Further, it should be easier to carpool children with ride share self drive cars than with human driven cars. After all scheduling is often a problem for the human/parent driver. Add the Uber on demand self drive car, and scheduling conflicts evaporate, as do total miles driven. The elderly parent also offers efficiencies. Now, the adult child may need to drive many miles to pickup the parent at her home for an appointment. With an Uber like share ride self drive car this long drive to pickup the parent would be unnecessary. While Uber can perform this task today, the cost of the human driver makes this somewhat less likely. We are likely to see many other cost saving measures. Heavy trucking is likely to build trucks/engine combinations which will be optimized for carrying specific sized freight, I suspect this will be the standard international shipping container. They will be able to travel primarily at night and travel at the optimized fuel per mile speed. Smaller, more efficient engines will become the norm, since shippers will not need to maximize load size to help amortize the operator costs. Trucks traveling mainly at night should allow the trucks to drive at a stead state speed with fewer stops and starts, which would also reduce daytime driving congestion, reducing fuel use. Ride sharing, always difficult now, should be much easier, and, if desired by the public, we should see cars specifically designed for ride sharing, perhaps longer vehicles with more doors, and private seats. The self drive technology also promises fewer collisions so the vehicles can be made lighter, improving fuel economy. Engines would not need to be so large or powerful. If I am not driving, I care more about costs than power. Myriad other improvements should continue to lead to reduced fuel use, or at least a slowing of the demand curve. It appears oil will be low priced for a very long time. At least until something unbalances the system to favor demand and lower supply. Putin is correct to get out of Syria, he is likely too late, and the people of Russia need to brace for the coming Russian economic collapse. Oil dependent economies will be hard hit by this economy for a very long time. Good luck Russia, you are going to need it. |
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