Tag Archives: Oil

The Iran-China Axis Is A Fast Growing Force In Oil Markets, by David Messler

The Chinese and Iranian governments are sealing their alliance with oil and a shared antipathy towards the US. From David Messler at oilprice.com:

One of the things that doesn’t get a lot of discussion in the press is the under-the-table relationship Iran and China have had when it comes to oil. At first glance, they wouldn’t seem to have a lot in common. One is a theocracy with a radical view of non-believers and the other is probably the only example of a successful communist dictatorship since this form of government was created. But, if you look a little deeper they have a couple of things that align their mutual interests strongly. The first is they are both absolute dictatorships, meaning the institutions of government and national policies can be changed at the whim of those at the top. The second thing they have in common, and this is the main takeaway, both countries have serious geopolitical issues with the United States.

Iran suffers from years of sanctions imposed primarily by the U.S. to compel them to comply with U.N. resolutions regarding their atomic program. China views this century as the one in which they displace America as the world’s dominant Super Power. The place where these two authoritarian government’s worldviews align is in their opposition to the U.S.

It’s worth noting China’s apparent success has been funded by western economies over the last 75-years, thanks to our desire to buy everything as cheaply as possible. In that time, China has become the manufacturing center for the world and amassed immense wealth in doing so. The pandemic has caused a rethinking of the wisdom of outsourcing strategic commodities to despotic regimes, but for now, if you buy something other than food odds are it was made in China.

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One Little Problem with the “All-Electric” Auto Fleet: What Do We Do with all the “Waste” Gasoline? by Charles Hugh Smith

Charles Hugh Smith with an insight I haven’t seen anywhere else. From Smith at oftwominds.com:

Regardless of what happens with vaccines and Covid-19, debt and energy–inextricably bound as debt funds consumption– will destabilize the global economy in a self-reinforcing feedback.

Back in the early days of the oil industry (1880s and 1890s), the product that the industry could sell at a profit was kerosene for lighting and heating. Since there was no automobile industry yet, gasoline was a waste product that was dumped into streams.

Why couldn’t the refiners produce only kerosene? Why did they end up with “worthless” gasoline?

The answer is a barrel of oil produces a variety of products. While there is some “wiggle room” to produce more diesel and less gasoline, etc., it isn’t possible to turn a barrel of oil into only one product.

John D. Rockefeller became very wealthy by cornering much of the oil market in the 19th century. But he didn’t become fabulously wealthy until the 20th century, when the rise of automobiles created a market for all the “waste” gasoline.

Rockefeller became super-wealthy when all the products of each barrel of oil could be sold at a premium rather than just a portion of the products.

This reality has been forgotten: the price that can be fetched for a barrel of oil depends on the demand for all the products, not just a few of the products.

Those demanding an all-electric auto-truck fleet as a “green” alternative will re-create the dilemma of what to do with the “waste” gasoline. The world will still want fuel for all those container ships bringing all the goodies of a consumerist society, all those cruise ships visiting ports of call, jet fuel for all those exotic vacations enabled by 550 mile-per-hour aircraft, and oil-based lubricants, plastics and petro-chemicals, and so oil will still be pumped and refined, and almost half of it will be gasoline.

We can either use it or throw it away but we can’t magically turn a barrel of oil into only one product.

This is a topic worthy of your understanding, so grab a vat of your favorite beverage and turn off all distractions.

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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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