Tag Archives: Oil

Convergence of Quandaries, by James Howard Kunstler

The shit is hitting the fan all at once. From James Howard Kunstler at kunstler.com:

And so, America has a new manufactured crisis, ElectionGate, as if all the other troubles piling up like tropical depressions marching across the September seas were not enough. Let me remind you what else is going on. The Wuhan pandemic is still on the scene, the economy is collapsing, a domestic race-war is escalating, the whole west coast is burning, and US oil production is crashing. Oh… and slow-moving tropical storm Sally is forecast to come ashore as a hurricane on the Gulf Coast today, dumping up to two feet of rain.

America needs a constitutional crisis like a hole in the head, and that’s exactly what’s being engineered for the holiday season by the clever folks in the Democratic Party’s Lawfare auxiliary. Here’s how it works: the complicit newspapers and cable news channels publish polls showing Joe Biden leading in several swing states, even if it’s not true. Facebook and Twitter amplify expectations of a Biden victory. This sets the stage for a furor when it turns out that he loses on election night. On cue, Antifa and BLM commence to riot all around the country. Meanwhile, a mighty harvest of mail-in votes pours into election districts utterly unequipped to validate them.

Lawfare cadres agitate in the contested states’ legislatures to send rogue elector slates to the electoral college. The dispute ends up in congress, which awaits a seating of newly-elected representatives on January 4, hopefully for Lawfare, mostly Democrats. Whoops…! Turns out the Dems lost their majority there too. Fighting in the streets ramps up and overwhelms hamstrung police forces in Democratic-run cities. January 20 — Inauguration Day — rolls around and the Dems ask the military to drag Trump out of the White House “with great dispatch!” as Mr. Biden himself put it so nicely back in the summer. The US military breaks into two factions. Voilà: Civil War Two.

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To Capture and Subdue: America’s Theft of Syrian Oil Has Very Little To Do With Money, by Steven Chovanec

There have been times in Syria when American government armed and supported  groups have fought each other. One of those groups has been al Qaeda, the same group that supposedly flew planes into the World Trade Towers and the Pentagon. To date, Syria has been the US military and intelligence services’ most bizarre engagement. From Steven Chovanec at mintpressnews.com:

Years of US support to Al-Qaeda and ISIS and efforts to effect regime change in the country have culminated in the theft of Syria’s oil, but is that really America’s coup de gras in Syria?

Near the end of July, one of the most important recent developments in U.S. foreign policy was quietly disclosed during a U.S. Senate hearing. Not surprisingly, hardly anybody talked about it and most are still completely unaware that it happened.

Answering questions from Senator Lindsey Graham, Secretary of State Pompeo confirmed that the State Department had awarded an American company, Delta Crescent Energy, with a contract to begin extracting oil in northeast Syria. The area is nominally controlled by the Kurds, yet their military force, the Syrian Democratic Forces (SDF), was formed under U.S. auspices and relies on an American military presence to secure its territory. That military presence will now be charged with protecting an American firm from the government of the country that it is operating within.

Delta Crescent Energy, run by the CEO of a private mercenary firm, has inked a deal with Kurdish rebels to “steal” oil in Syria.

Pompeo confirmed that the plans for implanting the firm into the U.S.-held territory are “now in implementation” and that they could potentially be “very powerful.” This is quite a momentous event given its nature as a blatant example of neocolonial extraction, or, as Stephen Kinzer puts it writing for the Boston Globe, “This is a vivid throwback to earlier imperial eras, when conquerors felt free to loot the resources of any territory they could capture and subdue.”

Indeed, the history of how the U.S. came to be in a position to “capture and subdue” these resources is a sordid, yet informative tale that by itself arguably even rivals other such colonial adventures.

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Is Trump Kicking the Saudis to the Curb the Beginning of Something Not Terrible? by Tom Luongo

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.

First, there was the news that UAE-backed forces in Yemen broke with the Saudis-led coalition there to declare the Southern Transitional Council the new administrators over southern Yemen which includes the capital and major port at Aden.

This led to major clashes over the next week between forces which less than two weeks ago were supposedly on the same side.

In addition, Saudi mercenaries were routed in Northern Yemen. The UAE pulled its troops out of Yemen ending its fight with the Houthis after the attack on the Ab Qaiq oil processing facility last summer.

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.

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Holy WTF Moly: WTI May Contract Collapses to Negative -$37 by Wolf Richter

There was some weird things going on in the oil market today. They were paying you to take it off their hands. From Wolf Richter at wolfstreet.com:

Some hedge funds and big crude-oil traders must be blowing up.

It’s not often that we’re served up a WTF moment like this. Just about a couple of hours ago, I published my article about US crude-oil benchmark grade West Texas Intermediate (WTI) and how the May futures contract for it collapsed by 45% to $10 a barrel — US Crude Oil Gets Annihilated Under Targeted Saudi Attack — and I pointed at some of the dynamics. But WTI kept plunging.

This is the near-month May futures contract, which expires tomorrow. It should normally trade close to the spot market price, but has now divorced from it. It has continued to collapse in a breath-taking pace to $8 a barrel, then $4, then $2, then $0, then below zero, then at -$10 and then… and now settled at negative -$37.63 a barrel:

This is obviously completely nuts. Futures contracts that expire the next day should be close to the spot market cash price.

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OPEC++ Or A Dead Shale Industry? by Moon of Alabama

Vladimir Putin has the world oil industry by the balls, particularly the US shale producers, whose costs are far higher than Russia’s. From Moon of Alabama at moonofalabama.org:

Today there is a meeting by video of the OPEC states and Russia. Tomorrow the energy ministers of all G-20 states will likewise meet. Their discussions will be about the sinking global oil price caused by a lack of demand due to the novel coronavirus pandemic and record oil output from Saudi Arabia and Russia. ‘Western’ media have been optimistic that an agreement will be found:

The Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, are expected to discuss record cuts equivalent to 10% to 15% of global supplies, although demand has plunged by up to 30%.

It is unlikely that OPEC will agree on any cut unless the U.S. and other large producers join the deal. The U.S. is, for now, unlikely to do that.

Until the end of the last OPEC+ agreement this month and the onset of the pandemic demand slump, the three top producers were the U.S. with 12.7 million barrels per day, Russia with 10.9 mbpd and Saudi Arabia with 9.8 mbpd.

Since 2016 OPEC and Russia had reduced their production to keep the oil price in the $60/b range. This effectively subsidized the U.S. shale industry. U.S. production kept growing while production by Russia and Saudi Arabia was artificially limited. It allowed the U.S. to grab more global market share at profitable prices.

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Putin: Oil Glut Is Really About Saudi Desire To Crush US Shale, by Tyler Durden

Who wants to put US shale oil drillers out of business more, Russia or Saudi Arabia? From Tyler Durden at zerohedge.com:

While it appears an expected emergency virtual OPEC+ meeting planned for Monday has been postponed, pushed back to later in the week to allow more time for negotiations, it’s likely that we’ll actually see the heated blame-game for the collapse in oil prices ratchet up  and oh, in the meantime oil is set to crater come Monday as the feud is only expected to get uglier.

Indeed the aggressive war of words has started, with Putin offering a biting Russian narrative aimed at the Saudis in remarks Friday: “It was the pullout by our partners from Saudi Arabia from the OPEC+ deal, their increase in production and their announcement that they were even ready to give discounts on oil” that drove the crash alongside the double-whammy of the coronavirus-driven drop in demand, Putin said according to Bloomberg.

“This was apparently linked to efforts by our partners from Saudi Arabia to eliminate competitors who produce so-called shale oil,” Putin continued. “To do that, the price needs to be below $40 a barrel. And they succeeded in that. But we don’t need that, we never set such a goal.”

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Trump, Putin Will Discuss The End Of U.S. Shale Oil, by Moon of Alabama

Trump is probably not going to be able to negotiate much of a cease fire with Vladimir Putin in Putin’s war on US shale oil. From Moon of Alabama at moonofalabama.org:

Three weeks ago, when the Russian and Saudi war on U.S. shale oil started, we wrote:

In the first week of January crude oil reached $69/bl but it has since dropped to $45/bl as the coronavirus crisis destroyed the global demand. The Saudis tried to make a deal with Russia, the second largest exporter after Saudi Arabia, to together cut oil production to keep the price up. But Russia rejected a new OPEC cut. It wants to keep its production up and it will use the crisis to further undermine U.S. oil fracking production. As the whole fracking boom in the U.S. is build on fraud the move might well be successful.

Russia does not have a budget deficit and is well positioned to survive lower crude oil prices without much damage. Saudi Arabia is not.

Only a week later oil was already at $30/barrel and we predicted that it would go down to $20/bl.

On Monday the U.S. WTI oil price index reached that mark. Oil prices in other places are falling even further:

Canadian heavy crude has become so cheap that the cost of shipping it to refineries exceeds the value of the oil itself, a situation that may result in even more oil-sands producers shutting operations.Western Canadian Select crude in Alberta dropped to a record-low close of $5.06 a barrel on Friday, according to Bloomberg data going back to 2008 …

The corona virus crisis has led to drop in global demand by some 20%. The world production and consumption in normal times was at about 100 million barrel per day. Consumption is now below 80 million bl/d. But after the OPEC+ agreement failed Saudi and Russia both started to pump as much as they could to regain market shares. Together they are increasing their production by some 3-4 million barrels per day. All that oil has to go somewhere.

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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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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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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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