The carnage in the oil and gas patch has been gruesome. From Wolf Richter at wolfstreet.com:
The bankruptcy epicenter is in Texas.
The Great American Oil Bust started in mid-2014, when the price of crude-oil benchmark WTI began its long decline from over $100 a barrel to, briefly, minus -$37 a barrel in April 2020. Bankruptcies of US companies in the oil and gas sector started piling up in 2015. In 2016, the total amount of debt listed in these filings hit $82 billion. Bankruptcy filings continued, with smaller dollar amounts of debt involved. In 2019, the shakeout got rougher.
And this year promises to be a banner year, as larger oil-and-gas companies with billions of dollars in debt collapsed, after having wobbled through the prior years of the oil bust.
The 44 bankruptcy filings in the first half of 2020 among US exploration and production companies (E&P), oilfield services companies (OFS), and “midstream” companies (gather, transport, process, and store oil and natural gas) involved $55 billion in debts, according to data compiled by law firm Haynes and Boone. This first-half total beat all prior full-year totals of the Great American Oil Bust except the full-year total of 2016:
This means that the Russian Urals crude is trading at a premium to the European benchmark Brent. The premium is $1.55 per barrel in North-Western Europe and $2.55 – in the Mediterranean.
Argus names competition as the reason of Urals reaching such a high price. After the United States imposed sanctions against Venezuelan oil, American refineries began to willingly buy Russian heavy oil, very similar to the one exported by the Venezuelan PDVSA. In addition, demand for Russian oil in Asia is growing.
Traditionally, Urals trades at a discount to Brent because of a lack of a unified benchmark price for it. The July Shanghai Crude Oil futures contract closed at ¥299 (or $42.30) per barrel this week, putting it at a ~$1.70 premium to Brent Crude.
The auto fuel ethanol mandate is about rewarding crony agribusinesses, and actually reduces the miles per gallons about which everyone professes to worry. From Eric Peters and ericpetersautos.com:
Gas mileage has been a kind of fetish object for the government lo these past 40-something years. But is it really about gas mileage? Or is gas mileage just the excuse for something else – something even more sinister than a handful of people (this is what “the government” is) contravening what buyers want, as expressed by their willingness to buy?
Let’s consider a couple of things that could have easily and inexpensively increased fuel economy; or rather and perhaps better put, made it feasible to go much farther on a gallon of fuel without adding complexity and cost:
Gasoline, for instance.
Not ten percent gasoline. . . and 10 percent ethanol. Which reduces miles-per-gallon because 90 percent gas and ten percent ethanol contains less energy per gallon. An easy way to increase gas mileage without changing anything about the car would be to put gas – not adulterated gas – in the tank. The increase would be on average about 2-3 MPG, which is a larger increase than is achieved by engineering artifices such as replacing relatively simple fuel delivery systems like port fuel injection with high-pressure direct injection, which also adds to the price of the car – negating the smaller mileage benefit achieved.
The US government has done its best to stymie pipelines it didn’t like from Russia to Europe, but the Russians and Europeans have managed to sidestep the obstacles the US has thrown in their way. From Pepe Escobar at asiatimes.com:
Ukraine was supposed to prevent Russia from deepening energy ties with Germany; it didn’t work out that way
In sharp contrast, whenever China entered the picture, successful completion prevailed. Beijing financed a gas pipeline from Turkmenistan to Xinjiang, finished in 2009, and will profit from two spectacular Power of Siberia deals with Russia.
And then there’s Ukraine. Maidan was a project of the Barack Obama administration, featuring a sterling cast led by POTUS, Hillary Clinton, Joe Biden, John McCain and last but not least, prime Kiev cookie distributor Victoria “F**k the EU” Nuland.
Ukraine was also supposed to prevent Russia from deepening energy ties with Germany, as well as other European destinations.
Well, it did not exactly play like that. Nord Stream was already operational. South Stream was Gazprom’s project to southeast Europe. Relentless pressure by the Obama administration derailed it. Yet that only worked to enable a resurrection: the already completed TurkStream, with gas starting to flow in January 2020.
The Saudi Arabia government is as bad as or worse than the Iranian regimes we’ve been trying to change since 1979. From Tom Luongo at tomluongo.me:
More than anything else in Saudi Arabia, that thing you smell is fear. Everything is coming unglued for the royal family there all at once. If we all weren’t so distracted by the Coronapocalypse these things would all be front page news.
In the past week there have been three major stories concerning Saudi Arabia, none of the bullish.
Finally, the Saudis accepted a UN-brokered ceasefire with the Houthis. This is a two-week provisional ceasefire, but considering how badly their mercs and pet head-chopping animals have been faring this should be considered a mercy gesture by the Houthis.
If they can make you wear masks and stay inside your home, they can certainly tell you what car you have to drive. That’s the downside to obeying the government—the government gets used to ordering you around. From Eric Peters at ericpetersautos.com:
It’s going to take a whole lot of ether in the carburetor to restart the car business once the economy “reopens” (neat term, that; it conveys the horrid truth that government has successfully asserted – because people have accepted it – full Decider power to tell us whether and when we may live our economic lives – at its arbitrary whim.)
There is already talk of Cash for Clunkers II – though it probably won’t be cash, as part of the Plandemic’s goals, in addition to Advanced Servility Training, is to eliminate cash in the name of hygiene.
But actually for the sake of eliminating anonymity – and enforcing control.
Every transaction you make – every cup of coffee you buy – will be known immediately to them. Data about your buying habits will be compiled, sold . . . and used to make sure you neither pay for nor are paid for any work that is not fully taxed.
Also that everything you do is approved.
Anything you do that isn’t will be dealt with by throttling your ability to buy and sell. It’ll be like a credit card except one with a real-time-adjustable credit line – adjusted at the pleasure of the government, whenever you incur its displeasure.
Another coming nudge – which will be more like a shove this time – will be in the direction of electric cars, the non-electrics to be characterized as the “clunkers” of 2020 and anathematized in the same manner as walking around in public without a Fear Mask.
How behind-the-scenes global power politics works. From Tyler Durden at zerohedge.com:
The full story of President Trump’s intervening in the Russia-Saudi price war which sent oil prices plunging to historic lows has been revealed in a new explosive report. Trump’s pressure resulted in the surprise April 12 unprecedented OPEC+ production cut by 9.7 million barrels per day (bpd), which saw the Saudis and Russians begrudgingly agree to cut 2.5 bpd each.
Ourselves and others strongly suggested at the time that no doubt there were strong quid pro quo type ultimatums being delivered behind the scenes — consistent with Trump’s prior eyebrow raising boasts about Riyadh ponying up $1 billion in ‘protection money’ in return for defense against Iran — but new Reuters confirmation is out Thursday morning, and the details are more delicious than could have been expected, complete with the report actually describing of Saudi leaders that they genuinely panicked and fast began “bending the knee” when confronted by Trump’s slash output or else threat.
It began with an April 2nd phone call, Reuters details, wherein Trump pressed Saudi Crown Prince Mohammed bin Salman with the following ultimatum: OPEC must immediately begin cutting production or see all American troops withdrawn from the kingdom.
Most people don’t realize what a huge role the oil industry plays in the US economy. From Art Berman at artberman.com:
It’s game-over for most of the U.S. oil industry.
Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next.
Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view.
Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.
Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.
Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down.
The old oil industry and the old economy are gone. The energy mix that underlies the economy will be different now. Oil production and price are unlikely to regain late 2018 levels. Renewable sources will fall behind along with efforts to mitigate climate change.
Trump’s Energy Dominance policy has not led to energy dominance for the US and is in part responsible for the impending destruction of the US shale oil industry. From Tom Luongo at strategic-culture.org:
From the very beginning I’ve been a staunch critic of President Trump’s “Energy Dominance” policy. And I was so for a myriad of reasons, but mostly because it was stupid.
Not just stupid, monumentally stupid. Breathtakingly stupid.
And I don’t say this as someone who hates Trump without reservation. In fact, I continue to hope he will wake up one day and stop being the Donald Trump I know and be the Donald Trump he needs to be.
I don’t have Trump Derangement Syndrome of any sort. Neither MAGApede nor Q-Tard, an Orange Man Bad cultist or NPC Soy Boy, I see Trump for what he is – a well-intentioned, if miseducated man with severe personal deficiencies which manifest themselves in occasionally brilliant but mostly disastrous behavior.
Energy Dominance was always a misguided and Quixotic endeavor. Why? Because Trump could never turn financial engineering a shale boom into a sustainable advantage over lower-cost producers like Russia and the OPEC nations.
The policy of blasting open the U.S. oil spigots to produce a production boom built on an endless supply of near-zero cost credit was always going to run into a wall of oversupply and not enough demand.
The dramatic collapse of U.S. oil prices in the futures markets which saw the May contract close on April 20th at $-40.57 per barrel is the Shale Miracle hitting the fan of low demand and leaving the producers and consumers in a state which can only happen thanks to biblical levels of government intervention.
China is waging war on the US on multiple fronts. From Gregory R. Copley at oilprice.com:
Beijing made it clear in 1999 that when it went to war with the US it would be a new kind of war.
People’s Republic of China (PRC) Pres. Xi Jinping then announced in October 2018 that he had begun a “new 30 Years War” with the US.
But there seemed to be no “Pearl Harbor” moment, so the rest of the world disregarded the declaration of war. That was a mistake.
It became clear that the 2020 COVID-19-inspired “global fear pandemic” laid out the battlefield terrain and saw the opening shots emerge from the PRC in a variety of strategic formats. To be sure, COVID-19 was not itself the “Pearl Harbor moment”; it was the subsequent fear pandemic which drove down the global economy.
Beijing could not wait any longer to begin strategic operations — the new form of “total war” — if it was to survive as a global power and to assume primacy within its symbolic 30 year timeframe.
Shakespeare once noted:
“There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”
From Beijing’s standpoint, given that the PRC economy was already in massive decline, it was critical that the economies of its strategic rivals should also be forced into decline. That may or may not have been a planned aspect of the PRC’s COVID-19 response strategy, but it certainly was quickly adopted by Beijing.
In other words, if the PRC could not reverse its economic decline, its strategic competitiveness moving forward was critically dependent upon seeing its rivals decline commensurately, or even become crippled. It was not a race to the top; it was a race to avoid being first to the bottom.
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