Tag Archives: Oil

Watch These Geopolitical Flashpoints Carefully, by Brandon Smith

Brandon Smith highlights the dangers ahead. From Smith at alt-market.com:

Anyone who has been involved in alternative geopolitical and economic analysis for a decent length of time understands that the establishment power structure thrives according to its ability to either exploit natural crises, or to engineer fabricated crises.

This is not that hard to comprehend, but for some reason there are a lot of people out there who simply assume that global sea-change events just happen “at random,” that the elites are stupid or oblivious, and that all outcomes are a matter of random chance rather than being directed or manipulated. I call these people “intellectual idiots,” because they believe they are applying logic to every scenario but they are sabotaged by an inherent bias which causes them to deny the potential for “conspiracy.”

To clarify, their logic folds in on itself and becomes faulty. They believe themselves objective, but they abandon objectivity when they staunchly refuse to consider the possibility of covert influence by organized special interests. When you internally dismiss the possibility of a thing, no amount of evidence will ever convince you of its reality. This is how the “smartest” people in the room can end up being the dumbest people in the room.

In the survivalist community there is a philosophy – there is no such thing as a crisis for those who are prepared. This is true for prepared individuals as much as it is true for prepared communities and prepared nations. The only way a society can fall is when it becomes willfully ignorant of potential outcomes and refuses to organize against them.

By extension, it would make sense that by being prepared for a particular crisis or outcome an individual or group could not only survive, but also profit. It is not crazy or outlandish to entertain the idea that there are groups in power (perhaps for many generations) that aggressively seek to predict or even force particular outcomes in geopolitics for their own profit. And, by profit, I do not necessarily mean material wealth. In many cases, the power of influence and psychological sway over the masses might be considered a far greater prize than money or property.

To continue reading: Watch These Geopolitical Flashpoints Carefully


She Said That? 3/6/17

Today’s Wall Street Journal has a story that for the Journal is a tale of woe. An oil industry executive, John Schiller, who was worth over $30 million when oil was $100 a barrel, borrowed a lot of money and now finds himself in dire financial straits with oil in the $50s. He has all the trappings of Texas oil wealth, including a mansion and a former Playboy playmate wife. You know how these stories usually go. When boom turns to bust, the trophy wife decamps. This story is different, though, and Kristi Schiller is standing by her man.

If John and I have to move to a Mickey Gilley double-wide trailer, by God, I will have the first one ever photographed for Architectural Digest.

“Down But Not Out, Texas Oilmen Pray For Next Boom”

You’ve got to admire that kind of grit and spunk.

Iran Just Officially Ditched the Dollar in Major Blow to US: Here’s Why It Matters, by Alice Salles

The petrodollar has been the bulwark of the US dollars status as the world’s reserve currency. Iran has just taken a step towards undermining the petrodollar. Having the reserve currency has allowed the US to pay its dollar-denominated debts with more dollars. That could come to an end. From Alice Salles at theantimedia.org:

(ANTIMEDIA) Following President Donald Trump’s ban on travelers from seven predominantly Muslim countries, the Iranian government announced it would stop using the U.S. dollar “as its currency of choice in its financial and foreign exchange reports,” the local Financial Tribune reported.

Iran governor Valiollah Seif’s central bank announced the decision in a television interview on January 29. The change will take effect on March 21, and it will impact all official financial and foreign exchange reports.

“Iran’s difficulties [in dealing] with the dollar,” Seif said, “were in place from the time of the primary sanctions and this trend is continuing,” but when it comes to other currencies, he added, “we face no limitations.”

In a piece published by Forbes, Dominic Dudley contends that this move is significant “in the light of the recent ‘Muslim ban‘” announced by Trump. Iran nationals were added to the order issued by the current U.S. administration, which prompted the Iranian government to vow to stop issuing visas to U.S. citizens.

Dudley notes that since 1975, “no Americans have been killed in terrorist attacks in the US by the citizens of the countries included in the ban,” while countries such as Saudi Arabia — “home of 15 of the 19 terrorists involved in the 9/11 attacks” — were left out of the list of prohibited countries.

Despite the country’s decision to halt the use of the U.S. dollar as its base currency for exchange with other nations, Iran’s top export is oil. In the global markets, oil is mainly purchased and sold in U.S. dollars. This fiscal year, Iran is expected to earn $41 billion from oil sales, with countries like the United Arab Emirates (UAE) and China as their top clients. It’s still uncertain how the country will manage to switch currencies without relying on the American currency. The shift, Dudley notes, “will add a degree of currency risk and volatility and is likely to complicate matters for the authorities.”

To  continue reading: Iran Just Officially Ditched the Dollar in Major Blow to US: Here’s Why It Matters


What is this ‘Crisis’ of Modernity? by Alastair Crooke

There may be plenty of oil left, but if it takes as much energy to discover, extract, refine, transport, and sell that oil as the oil itself has, we have a problem. From Alastair Crooke at Conflicts Forum via theautomaticearth.com:

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls,is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

To continue reading: What is this ‘Crisis’ of Modernity?


Worrying Signs in the Oil Markets, by the Oil and Energy Insider

The oil market may be in for a rough ride, especially for those who are long oil. from The Oil and Energy Insider at wolfstreet.com:

The Numbers Report, part of the weekly premium publication, Oil & Energy Insider, compiled a series of data points that make for a worrying outlook for the oil markets. Here are some of them:

Short positions on the rise

• For the week ending on October 11, the number of short positions on WTI rose to more than 540,000 contracts, the highest since 2007.

• Producers take short positions to sell future production, locking in prices at some point in the future in order to mitigate risk. As the EIA notes, banks can require producers take such positions as a prerequisite for securing a loan.

• Aside from mere speculation, a rising number of short positions can be an indicator that producers are confident that they can make money at the current futures prices.

•But they also are a bearish signal for oil prices, lending weight to the notion that prices will not rally very much in the near-term.

Renewables overtake fossil fuels

• For the first time ever, renewable energy added more electricity capacity across the globe than fossil fuels did. The IEA estimates that in 2015, 153 gigawatts of renewable capacity was installed, about 55 percent of the global total.

• About 500,000 solar panels were installed every single day in 2015, on average.

• The IEA expects renewables to make up 42 percent of the market by 2021.

• Much of the growth will take place in four countries: the U.S., China, India and Mexico. The EU has a lot of renewable energy, but its growth rate is a bit lower than the others.
• “We are witnessing a transformation of global power markets led by renewables and, as is the case with other fields, the center of gravity for renewable growth is moving to emerging markets,” IEA Executive Director Fatih Birol said.

• The massive stockpile of refined products sitting in storage around the world continues to weigh on refining margins.

• Margins were down 42 percent in the third quarter compared to a year earlier, averaging just $11.60 per barrel. Aside from the first quarter of this year, refining margins in the third quarter were near their lowest levels in years.

• That is a stark difference from 2015, which was an excellent year for refiners. The falling price for crude combined with strong demand saw margins spike to $20 per barrel. But as refiners ramped up output to take advantage of that opportunity, they churned out record product. And as demand softened, inventories built up.

• Low refining margins will take away one of the few sources of strong earnings for the oil majors, which are set to report third quarter numbers in the next few days and weeks.

To continue reading: Worrying Signs in the Oil Markets

The “Nuclear Options:” Oil Pinned Below $30/barrel, US Dollar Rising, by Charles Hugh Smith

There are chain-reactions of negative consequences should oil stay under $30 per barrel or the dollar stage a substantial rally against other currencies. From Charles Hugh Smith at oftwominds.com: 

These two nuclear options could strike the global economy even without any planning.

The “nuclear option” is the extreme-measures button you push when conventional approaches have failed and you’re facing certain defeat. In terms of upsetting the global economy’s precarious balance, there are two nuclear options short of actual nuclear war: pinning oil to $30/barrel or even lower for an extended period, and triggering a sustained rise in the US dollar. (USD)

Let’s glance at weekly charts of oil (WTIC) and the USD:

Oil producers and their lenders/creditors had a near-death experience when oil plunged to $27/barrel early in 2016. At $30 or less per barrel, revenues from oil sales are no longer sufficient to support enormous domestic welfare state spending and debt service.

It’s pretty simple: pin oil at $30/barrel for a year and you destabilize every nation that’s dependent on oil sales for its revenues. Oil producers in more economically diversified nations such as Canada and the US go bankrupt or drastically curtail exploration and development to survive.

A bunch of stuff is no longer affordable to oil-revenue-dependent nations once oil is pinned to $30/barrel for months on end: massive social welfare programs, servicing sovereign debt, waging war, either directly or via proxies, and propping up cratering currencies.

Cratering currencies open up another Pandora’s Box of financial and economic horrors. Which brings us to US dollar, which gained 20% in a mere six months in late 2014.

Foreign exchanges rates are zero-sum: all currencies can’t go up together or drop together; something goes up when something else drops, and vice versa.

Should the USD finish its basing and soar another 20% in a few months, other currencies will lose purchasing power–some more than others, some less, but some currencies will take major hits to their global purchasing power if the USD repeats its “build a base for two years and then gain 20%” pattern.

When currencies rapidly lose value, bad things tend to happen. Rather than lose purchasing power by holding the currency, investors flee, selling the currency and moving their capital into other currencies or assets, i.e. capital flight.

Nations hit with depreciating currencies are often tempted to defend their currencies, and this defense often drains their foreign reserves while doing little to stem the capital flight.

While a devalued currency makes a nation’s exports cheaper to buyers with stronger currencies, it also increases the costs of imports such as food and energy.

What happens to demand for oil in a deep global recession? It tends to plummet, and unless production falls by the same amount, then price tends to plummet as well, as supply stays stubbornly higher than cratering demand.

These two nuclear options could strike the global economy even without any planning. Once the global economy tips into recession, oil may fall under its own weight and the dollar may gain ground as other currencies fall.


This is What’s Wrong with US Oil, by Wolf Richter

The oil glut keeps growing, notwithstanding a widespread expectation that it will start to shrink. From Wolf Richter at wolfstreet.com:

It usually comes in small-sounding and unlarming increments. But add up enough of these increments, and pretty soon you have some real numbers.

Today was another one of those, and it hit a huge milestone. The Energy Information Administration released its new set of weekly petroleum data, including inventories. During the week ending August 19, US crude oil inventories rose by 2.5 million barrels to 523.6 million barrels.

Oil bulls weren’t tickled: West Texas Intermediate fell 2.8%, settling at $45.77.

This rise was, once again, “unexpected,” as the media put it. Analysts had expected a drop of 0.5 million barrels. This is after all the time of the year – driving season – when oil stocks are supposed to drop. The data “revived worries about the supply glut,” according to the media.

Alas, the supply glut has been getting relentlessly worse and worse and worse for two years. It has just shifted around some, with refiners trying to wind their way through it the best they can.

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever….

In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates).

It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. This chart from the EIA shows the magnitude of the gasoline glut:

Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels.

So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels.

This chart shows what a truly relentless glut looks like:

Note how, right after the Financial Crisis, petroleum products stocks began to rise and remained elevated over the years even as demand in the US was still languishing, hampered in part by the $100 price tag per barrel of oil. It was the perfect setup for the oil bust, when prices began to collapse in the summer of 2014.

It’s not often that a glut forms a line in a chart where inventories shoot skyward for two years straight. Normally, something happens along the way: prices crash, companies get in trouble, the money dries up, and production plunges. At the same time, demand, stimulated by the crashed prices, picks up. And gradually the glut unwinds.

To continue reading: This is What’s Wrong with US Oil