Category Archives: Energy

The Inevitable Outcome Of The Oil Price War, by Simon Watkins

MBS is playing tiddlywinks; Vladimir Putin is playing nine-dimensional chess. From Simon Watkins at oilprice.com:

Putin MBS

One might reasonably posit that when Crown Prince Mohammed bin Salman (MbS) signalled that Saudi Arabia was once again going to produce oil to the maximum to crash oil prices in a full-scale oil price war, Russian President Vladimir Putin probably fell off the horse he was riding bare-chested somewhere in Siberia because he was laughing so much. There is a phrase in Russian intelligence circles for clueless people that are ruthlessly used without their knowledge in covert operations, which is ‘a useful idiot’, and it is hard to think of anyone more ‘useful’ in this context to the Russians than whoever came up with Saudi’s latest ‘plan’. Whichever way the oil price war pans out, Russia wins.

In purely basic oil economics terms, Russia has a budget breakeven price of US$40 per barrel of Brent this year: Saudi’s is US$84. Russia can produce over 11 million barrels per day (mbpd) of oil without figuratively breaking sweat; Saudi’s average from 1973 to right now is just over 8 mbpd. Russia’s major oil producer, Rosneft, has been begging President Putin to allow it to produce and sell more oil since the OPEC+ arrangement was first agreed in December 2016; Saudi’s major oil producer, Aramco, only suffers value-destruction in such a scenario. This includes for those people who were sufficiently trusting of MbS to buy shares in Aramco’s recent IPO. Russia can cope with oil prices as low as US$25 per barrel from a budget and foreign asset reserves perspective for up to 10 years; Saudi can manage 2 years at most.

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Saudi Arabia: The Crown Prince in His Labyrinth, by Daniel Lazare

People have been predicting the end of Saudi Arabia as we know it for quite some time. Clown prince Muhammad bin Salman may be the man to make that happen.From Daniel Lazare at antiwar.com:

As Crown Prince Muhammad bin Salman arrests his nearest relatives on treason charges, Saudi Arabia is bracing itself for a new reign of terror. But rest assured, it’s only temporary. At the end of the line lies something even worse: full-scale collapse.

Yeah, yeah, we’ve heard it all before from Chicken Littles who have long predicted a fiery Saudi denouement. But just because it hasn’t happened doesn’t mean they’re wrong. All it means, rather, is that while they’re on the right track, they’re taking longer than expected to reach their final destination. But they’ll get there soon enough.

Any one of the problems Saudi Arabia faces would be crippling in itself, but in combination they’re nothing short of devastating. One is a grim and oppressive religious establishment that is down for the moment but far from out. Another is over-reliance on a commodity whose price was trending downward even before the coronavirus sent it crashing through the floor. The third is a political structure that gives new meaning to the term “dysfunctional.”

Muhammad bin Salman’s remedy for the first has been simple: repression. Any mullah who dares speak up against royal liberalization in the form of Hollywood movies or US-style sporting events is fully aware that MBS, as he’s widely known, will swat him down quicker than he can say “Mullah Muhammad ibn Abd al-Wahhab,” the name of the eighteenth-century founder of the ultra-intolerant form of Sunni Islam that is the official Saudi faith.

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Things Have Changed, by James Howard Kunstler

The coronavirus, and more pertinently governments’ response to it and the financial collateral damage, may change things permanently. Eventually something good might come of it, but things are going to be rocky for awhile. From James Howard Kunstler at kunstler.com:

At least in wartime, the bars stay open. That’s how you know this is a different thing altogether from whatever else you’ve seen in your lifetime. Even those of us who signed up for this trip — that is, who expected a long emergency — may be a little bit in cosmic awe at just how much shit is flying into the ol’ fan. I know I am. The gods must have glugged down a mighty draft of Dulcolax.

Did you get the feeling, as I did, watching the Sanders-Biden debate last night — the inadequate versus the irrelevant — that the world they were blathering about possibly doesn’t exist anymore? The world of institutions that actually function? Like, the ones that conjure up whatever sum of money you demand to keep all the wheels spinning? Remember that Hemingway line about the guy who went broke? Slowly, then all at once. That’s us. Medicare for all now? Really? More like, a year from now every physician in America may be the equivalent of the old country doc toting a black bag around to home visits. Unfortunately, there aren’t enough horses left in America, and the few buggies we’ve got are all in the museum.

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Putin Unleashes Strategic Hell on the U.S., by Tom Luongo

Maybe demonizing Vladimir Putin, groundlessly blaming him for conspiracies to interfere in US politics, moving huge NATO forces to Eastern Europe’s border with Russia, abrogating long-standing arms control treaties, and trying to throw monkey wrenches into the Nord Stream 2 pipeline weren’t such good ideas after all. From Tom Luongo at tomluongo.me:

I am an avid board game player. I’m not much for the classics like chess or go, preferring the more modern ones. But, regardless, as a person who appreciates the delicate balance between strategy and tactics, I have to say I am impressed with Russian President Vladimir Putin’s sense of timing.

Because if there was ever a moment where Putin and Russia could inflict maximum pain on the United States via its Achilles’ heel, the financial markets and its unquenchable thirst for debt, it was this month just as the coronavirus was reaching its shores.

Like I said, I’m a huge game player and I especially love games where there is a delicate balance between player power that has to be maintained while it’s not one’s turn. Attacks have to be thwarted just enough to stop the person from advancing but not so much that they can’t help you defend on the next player’s turn.

All of that in the service of keeping the game alive until you find the perfect moment to punch through and achieve victory. Having watched Putin play this game for the past eight years, I firmly believe there is no one in a position of power today who has a firmer grasp of this than him.

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The Putin Stimulus: $30 Oil Will Be Great for the Global Economy, by Marko Marjanović

Cheap gas will make life easier for those of us who drive. It might put a dent in electric car sales, though. From

The world should be mailing thank-you letters to Moscow right about now

$30 dollar oil will be great for the global economy (and in turn, a good global economy is good for oil). At a time when the global economy is visibly losing steam, when we’re overdue for another business cycle recession, and when nobody seems to have an answer, Moscow delivered what nobody else could — a massive economic boost for the whole world.

Sure there will be losers, chief among them US shale and the Saudis who need far higher prices to make their budgets work.

But then as a whole, the US shale has always been a loss-making enterprise for America. The scaling-down of shale is not bearish for the US at all. It’s bullish. If Putin can make Americans stop throwing more good money down the shale pit that’s not a bad thing, that’s a giant favor to the US and the health of its economy right there.

To say nothing of the effect of cheap energy itself. Personally I don’t think even $30 oil will be enough to avert a crash but if anything could, it would be that.

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Black Swans, Dead Cats, Live Bats, and Goodbye to All That, by James Howard Kunstler

Coronavirus is like termites that attack rickety wooden scaffolding. When the scaffolding collapses, you blame the scaffolding, not the termites. From James Howard Kunstler at kunstler.com:

Had enough excitement yet? At least the stock markets are following an established script: the bubble pops, the elevator drops, for a while it stops… and then investments sink to the deepest sub-basement, where they linger for a long, long time. Hello, next great depression…. We know how that story goes, even if it hurts.

This corona virus is something else. It engulfs whole populations in a fog of confounding narratives. Is it no worse than a bad common cold, except for old folks already half-gone with chronic illness? Or does it really slam people even in the midst of life? Well, Wuhan hospital director Liu Zhiming, 51, went down two weeks ago, and gastroenterologist Xia Sisi, 29, and Dr. Peng Yinhua, also 29, and some prominent Iranian politicians, and lots of very sick healthcare workers from Korea to Italy. Whatever corona virus is, I’m not persuaded that it’s a hoax.

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How Black Swans Are Shaping Planet Panic, by Pepe Escobar

One interesting possibility raised in this article is that Russia’s decision not to support OPEC and let the price of oil fall was directed at US shale oil producers and was payback for the Trump administration’s opposition to Nord Stream 2. From Pepe Escobar at consortiumnews.com:

Is the planet under the spell of a range of Black Swans – a Wall Street meltdown caused by an alleged oil war between Russia and the House of Saud, plus the uncontrolled spread of Covid-19 – leading to an all-out “cross-asset pandemonium,” as billed by Nomura, the Japanese holding company?

Or, as German analyst Peter Spengler suggests, whatever “the averted climax in the Strait of Hormuz had not brought about so far, might now come through ‘market forces’”?

Let’s start with what really happened after five hours of relatively polite discussions last Friday in Vienna. What turned into a de facto OPEC+ meltdown was quite the game-changing, plot twist.

OPEC+ includes Russia, Kazakhstan and Azerbaijan. Essentially, after enduring years of OPEC price-fixing – the result of relentless U.S. pressure over Saudi Arabia – while patiently rebuilding its foreign exchange reserves, Moscow saw the perfect window of opportunity to strike, targeting the U.S. shale industry.

Shares of some of these U.S. producers plunged as much as 50 percent on “Black Monday.” They simply cannot survive with a barrel of oil in the $30s – and that’s where this is going. After all, these companies are drowning in debt.

A $30 barrel of oil has to be seen as a precious gift/stimulus package for a global economy in turmoil – especially from the point of view of oil importers and consumers. This is what Russia made possible.

And the stimulus may last for a while. Russia’s National Wealth Fund has made it clear it has enough reserves (over $150 billion) to cover a budget deficit from six to 10 years – even with oil at $25 a barrel. Goldman Sachs has already gamed a possible Brent crude at $20 a barrel.

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