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Bloomberg Business
... ... ...
Goldman cut its crude forecasts this month, saying the global surplus of oil is bigger than it previously thought and that failure to reduce production fast enough may require prices to fall near $20 a barrel to clear the glut. Prices may touch that level when stockpiles are filled to capacity, forcing producers in some areas to cut output, Currie said Wednesday.
"The last time we saw a period that was similar to today was 1986, 29 years ago," he said. "We waited 15 years" for oil to start rising again.
Lower iron ore, copper and steel prices as well as weaker currencies in commodity-producing countries have reduced costs for oil companies, according to Currie. The world is shifting from an "investment phase" of a 30-year commodity cycle to an "exploitation phase," with shale fields as an important source of output, he said. While Goldman's official forecasts extend to 2020, there is a "very high probability" prices will stay depressed until the end of next decade, he said.
U.S. benchmark West Texas Intermediate crude futures fell 25 cents to settle at $46.90 on the New York Mercantile Exchange. Prices are down 12 percent this year and 50 percent over the past 12 months.
Should oil fall to $20, it would be "one touch," he said. Inventories would top out in parts of the world, some producers would shut production and the market would come into balance.
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Aug 30, 2015 | peakoilbarrel.com
The Saudi miscalculation has several sources. One is the negative feedback loop between oil production, GDP, and national budgets that plagues many non-Western oil producers. Their GDP and national budgets depend significantly on the revenues from their oil exports. As a result, the revenue shortfalls incentivize them to produce as much oil as possible to mitigate the shortfall.According to the IEA , daily output in June 2015 increased 3.1 million barrels over 2014, with 60 percent (1.8 million barrels) coming from OPEC. At 31.7 million barrels per day, OPEC output reached a three-year high.
This increase in output occurs with the context of a narrow global demand opportunity. Growth in demand in 2015, which the IEA forecasts to average around 1.4 million barrels per day, comes primarily from Asia and North America. In other major export markets, demand is stagnant. That has oil exporting countries, including OPEC members, Russia and others, focusing their sales on Asia, particularly China. North American demand is growing now that oil prices are low, but due to high levels of domestic production, the U.S. is no longer a growth market for oil exporters.
Each producer, therefore, is incentivized to undercut other producers directly (price per barrel) or indirectly (absorbing shipping cost or delivery risk) to win sales in Asia (or displace incumbent suppliers in other major markets). National oil producers can and are shifting the cost of the lowered prices to other sectors of the economy. The U.A.E., for example, has ended fuel subsidies, thereby essentially, increasing its budget revenues, while Saudi Arabia recently floated a $4 billion domestic bond offering to help finance its budget.
Asian customers are taking advantage of the competition. They are reducing the share of long-term contracts in favor of spot purchases. For example, as the Wall Street Journal reported , some Japanese refiners are cutting the proportion of oil purchased through long-term contracts to around 70 percent from more than 90 percent, while some South Korean refiners are reducing the proportion from 75 to 50 percent. Furthermore, several national oil companies, Venezuela's among them, are building refineries with local partners in Asia, which will use their crude.
Given this environment, it is not surprising that the revenue elasticity of production is highly sensitive, and negative. Saudi Arabia increased production by 6.8 percent in the first quarter of 2015 but saw export revenues shrink by 42 percent.
Any Saudi Victory Will Be Pyrrhic
Saudi confidence in their financial wherewithal is proving misplaced.
Their need for revenue is intensifying rather than moderating. They are fighting a multi-front war with Iran directly (in Yemen) and indirectly (in Syria, Lebanon, and Iraq). ISIS, Al Qaeda, and disaffected Shias present a significant domestic security threat. Countering external and internal threats demands increased spending (including, perhaps, a very expensive future nuclear weapons program), as does placating the fast growing male and female youth demographic, which requires substantial spending on education, training, employment, and support. Hence, the budget deficit equal to 20 percent of GDP, noted above.
Increased production does not offer a solution. Saudi Arabia doesn't have the capacity to increase production sufficiently to reduce the shortfall significantly in any meaningful timeframe. They currently do not have the spare capacity-to make up for the $291 million in export revenue lost in Q1 , 5.4 million more barrels a day would have been necessary at $53.92 a barrel. Of course, such a drastic increase in output would have driven prices even lower. It is doubtful they can increase capacity substantially even in the medium- to long term. They won't be able to spend significantly more than other major national oil companies. First, low prices reduce Aramco's cash flow and therefore its ability to fund investment. Second, the Saudi government likely will increase its draw from this cash flow to fund higher priority national security and domestic security needs.
Third, Saudi refusal to act as price guarantor undercuts the confidence foreigners need to invest in, or loan to, oil projects. What might be attractive at $75 per barrel oil isn't at $50 oil, and even less attractive if the price of oil is thoroughly unpredictable.
Fourth, in terms of political risk, Saudi Arabia with its Gulf allies, Iran, and Iraq, and the Middle East in general, is at the epicenter of global tension, turmoil, and tumult.
Fifth, its influence within OPEC, and therefore its ability to manage OPEC output and prices, is diminished . Their underestimate of the impact of their policy change on prices, their indifference vis-à-vis the financial damage to other OPEC members, and their willingness to take market share at the expense of other OPEC members undercut their credibility within OPEC (particularly since it derived from Saudi willingness to protect the interests of all members (and sometimes to endure disproportionately).While Saudi financial reserves are substantial ( circa $672 billion in May ), drawing on them is little more than a stop-gap measure. If its major competitors (Russia, Iraq, Iran, and North America) maintain or even increase output (and they have the incentive to do so), prices could stay lower far longer than the Saudis anticipated.
Saudi reserves have decreased some $65 billion since prices started to fall (in November), so ~$100 billion to ~$130 billion at an annual rate. The longer prices stay low, the faster their reserves fall, and, as reserves plummet, the greater the pressure to prioritize spending, to the disadvantage of some Saudis.
Saudi Arabia Caused The Problem, Can It Engineer A Solution?
Saudi officials apparently viewed $90 or even $80 per barrel oil for "one or two years" with equanimity. Can they maintain the composure they have displayed thus far as they incur in a single year the revenue losses they expected to take four years (at $90 oil) or two years (at $80 oil)?
And if they can't-and surely, though they are loath to admit it, they can't - can they engineer a durable increase in prices - i.e., a durable decrease in output? At first glance, it seems impossible. Daily output from Saudi Arabia (10.5 million), and its allies, UAE (2.87), Kuwait (2.8), and Qatar (.67), is roughly equal to the daily output from countries with which it is in conflict, directly or indirectly, Russia (11.2), Iran (2.88), and Iraq (3.75), and therefore have an incentive to take advantage of any unilateral Saudi output concessions.
Yet, in effect, these countries are engaged in the oil equivalent of mutually assured destruction. The sharp drop in oil revenue damages each of these countries economically and financially, while the wars they wage directly and indirectly against each other drain resources from vital domestic projects.
Moreover, given the sensitivity of prices to changes in volume, it is possible, if not likely, that holding output steady or matching a Saudi
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Aug 30, 2015 | peakoilbarrel.com
The Saudi miscalculation has several sources. One is the negative feedback loop between oil production, GDP, and national budgets that plagues many non-Western oil producers. Their GDP and national budgets depend significantly on the revenues from their oil exports. As a result, the revenue shortfalls incentivize them to produce as much oil as possible to mitigate the shortfall.According to the IEA , daily output in June 2015 increased 3.1 million barrels over 2014, with 60 percent (1.8 million barrels) coming from OPEC. At 31.7 million barrels per day, OPEC output reached a three-year high.
This increase in output occurs with the context of a narrow global demand opportunity. Growth in demand in 2015, which the IEA forecasts to average around 1.4 million barrels per day, comes primarily from Asia and North America. In other major export markets, demand is stagnant. That has oil exporting countries, including OPEC members, Russia and others, focusing their sales on Asia, particularly China. North American demand is growing now that oil prices are low, but due to high levels of domestic production, the U.S. is no longer a growth market for oil exporters.
Each producer, therefore, is incentivized to undercut other producers directly (price per barrel) or indirectly (absorbing shipping cost or delivery risk) to win sales in Asia (or displace incumbent suppliers in other major markets). National oil producers can and are shifting the cost of the lowered prices to other sectors of the economy. The U.A.E., for example, has ended fuel subsidies, thereby essentially, increasing its budget revenues, while Saudi Arabia recently floated a $4 billion domestic bond offering to help finance its budget.
Asian customers are taking advantage of the competition. They are reducing the share of long-term contracts in favor of spot purchases. For example, as the Wall Street Journal reported , some Japanese refiners are cutting the proportion of oil purchased through long-term contracts to around 70 percent from more than 90 percent, while some South Korean refiners are reducing the proportion from 75 to 50 percent. Furthermore, several national oil companies, Venezuela's among them, are building refineries with local partners in Asia, which will use their crude.
Given this environment, it is not surprising that the revenue elasticity of production is highly sensitive, and negative. Saudi Arabia increased production by 6.8 percent in the first quarter of 2015 but saw export revenues shrink by 42 percent.
Any Saudi Victory Will Be Pyrrhic
Saudi confidence in their financial wherewithal is proving misplaced.
Their need for revenue is intensifying rather than moderating. They are fighting a multi-front war with Iran directly (in Yemen) and indirectly (in Syria, Lebanon, and Iraq). ISIS, Al Qaeda, and disaffected Shias present a significant domestic security threat. Countering external and internal threats demands increased spending (including, perhaps, a very expensive future nuclear weapons program), as does placating the fast growing male and female youth demographic, which requires substantial spending on education, training, employment, and support. Hence, the budget deficit equal to 20 percent of GDP, noted above.
Increased production does not offer a solution. Saudi Arabia doesn't have the capacity to increase production sufficiently to reduce the shortfall significantly in any meaningful timeframe. They currently do not have the spare capacity-to make up for the $291 million in export revenue lost in Q1 , 5.4 million more barrels a day would have been necessary at $53.92 a barrel. Of course, such a drastic increase in output would have driven prices even lower. It is doubtful they can increase capacity substantially even in the medium- to long term. They won't be able to spend significantly more than other major national oil companies. First, low prices reduce Aramco's cash flow and therefore its ability to fund investment. Second, the Saudi government likely will increase its draw from this cash flow to fund higher priority national security and domestic security needs.
Third, Saudi refusal to act as price guarantor undercuts the confidence foreigners need to invest in, or loan to, oil projects. What might be attractive at $75 per barrel oil isn't at $50 oil, and even less attractive if the price of oil is thoroughly unpredictable.
Fourth, in terms of political risk, Saudi Arabia with its Gulf allies, Iran, and Iraq, and the Middle East in general, is at the epicenter of global tension, turmoil, and tumult.
Fifth, its influence within OPEC, and therefore its ability to manage OPEC output and prices, is diminished . Their underestimate of the impact of their policy change on prices, their indifference vis-à-vis the financial damage to other OPEC members, and their willingness to take market share at the expense of other OPEC members undercut their credibility within OPEC (particularly since it derived from Saudi willingness to protect the interests of all members (and sometimes to endure disproportionately).While Saudi financial reserves are substantial ( circa $672 billion in May ), drawing on them is little more than a stop-gap measure. If its major competitors (Russia, Iraq, Iran, and North America) maintain or even increase output (and they have the incentive to do so), prices could stay lower far longer than the Saudis anticipated.
Saudi reserves have decreased some $65 billion since prices started to fall (in November), so ~$100 billion to ~$130 billion at an annual rate. The longer prices stay low, the faster their reserves fall, and, as reserves plummet, the greater the pressure to prioritize spending, to the disadvantage of some Saudis.
Saudi Arabia Caused The Problem, Can It Engineer A Solution?
Saudi officials apparently viewed $90 or even $80 per barrel oil for "one or two years" with equanimity. Can they maintain the composure they have displayed thus far as they incur in a single year the revenue losses they expected to take four years (at $90 oil) or two years (at $80 oil)?
And if they can't-and surely, though they are loath to admit it, they can't - can they engineer a durable increase in prices - i.e., a durable decrease in output? At first glance, it seems impossible. Daily output from Saudi Arabia (10.5 million), and its allies, UAE (2.87), Kuwait (2.8), and Qatar (.67), is roughly equal to the daily output from countries with which it is in conflict, directly or indirectly, Russia (11.2), Iran (2.88), and Iraq (3.75), and therefore have an incentive to take advantage of any unilateral Saudi output concessions.
Yet, in effect, these countries are engaged in the oil equivalent of mutually assured destruction. The sharp drop in oil revenue damages each of these countries economically and financially, while the wars they wage directly and indirectly against each other drain resources from vital domestic projects.
Moreover, given the sensitivity of prices to changes in volume, it is possible, if not likely, that holding output steady or matching a Saudi
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The National Interest
The rise of technologies such as 3-D printing and advanced robotics means that the next few decades for Asia's economies will not be as easy or promising as the previous five.
OWEN HARRIES, the first editor, together with Robert Tucker, of The National Interest, once reminded me that experts-economists, strategists, business leaders and academics alike-tend to be relentless followers of intellectual fashion, and the learned, as Harold Rosenberg famously put it, a "herd of independent minds." Nowhere is this observation more apparent than in the prediction that we are already into the second decade of what will inevitably be an "Asian Century"-a widely held but rarely examined view that Asia's continued economic rise will decisively shift global power from the Atlantic to the western Pacific Ocean.
No doubt the numbers appear quite compelling. In 1960, East Asia accounted for a mere 14 percent of global GDP; today that figure is about 27 percent. If linear trends continue, the region could account for about 36 percent of global GDP by 2030 and over half of all output by the middle of the century. As if symbolic of a handover of economic preeminence, China, which only accounted for about 5 percent of global GDP in 1960, will likely surpass the United States as the largest economy in the world over the next decade. If past record is an indicator of future performance, then the "Asian Century" prediction is close to a sure thing.
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marknesop.wordpress.com
Northern Star, December 30, 2015 at 3:11 pmhttp://www.ndtv.com/world-news/moscow-demands-arrest-of-rebel-for-murder-of-russian-warplane-pilot-1260805yalensis , December 30, 2015 at 5:53 pm"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death"
Absolutely Mr. Celik Absolutely! ..
Ooo, this explains a mystery to me. I noticed on my own blog today there was an unusual spike of views for an older story, from November 29, which happened to be about this particular guy, Alparslan Çelik.
People must have googled his name, and maybe my story came up in the search results.
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marknesop.wordpress.com
Northern Star, December 30, 2015 at 3:11 pmhttp://www.ndtv.com/world-news/moscow-demands-arrest-of-rebel-for-murder-of-russian-warplane-pilot-1260805yalensis , December 30, 2015 at 5:53 pm"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death"
Absolutely Mr. Celik Absolutely! ..
Ooo, this explains a mystery to me. I noticed on my own blog today there was an unusual spike of views for an older story, from November 29, which happened to be about this particular guy, Alparslan Çelik.
People must have googled his name, and maybe my story came up in the search results.
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marknesop.wordpress.com
Northern Star, December 30, 2015 at 3:11 pmhttp://www.ndtv.com/world-news/moscow-demands-arrest-of-rebel-for-murder-of-russian-warplane-pilot-1260805yalensis , December 30, 2015 at 5:53 pm"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death"
Absolutely Mr. Celik Absolutely! ..
Ooo, this explains a mystery to me. I noticed on my own blog today there was an unusual spike of views for an older story, from November 29, which happened to be about this particular guy, Alparslan Çelik.
People must have googled his name, and maybe my story came up in the search results.
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marknesop.wordpress.com
Northern Star, December 30, 2015 at 3:11 pmhttp://www.ndtv.com/world-news/moscow-demands-arrest-of-rebel-for-murder-of-russian-warplane-pilot-1260805yalensis , December 30, 2015 at 5:53 pm"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death"
Absolutely Mr. Celik Absolutely! ..
Ooo, this explains a mystery to me. I noticed on my own blog today there was an unusual spike of views for an older story, from November 29, which happened to be about this particular guy, Alparslan Çelik.
People must have googled his name, and maybe my story came up in the search results.
|
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marknesop.wordpress.com
Northern Star, December 30, 2015 at 3:11 pmhttp://www.ndtv.com/world-news/moscow-demands-arrest-of-rebel-for-murder-of-russian-warplane-pilot-1260805yalensis , December 30, 2015 at 5:53 pm"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death"
Absolutely Mr. Celik…Absolutely!……..
Ooo, this explains a mystery to me. I noticed on my own blog today there was an unusual spike of views for an older story, from November 29, which happened to be about this particular guy, Alparslan Çelik.
People must have googled his name, and maybe my story came up in the search results.
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finance.yahoo.com
While cheaper fuel is a boost to consumer spending power in much of the developed world, it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan and China, even as the Federal Reserve proceeds with glacial tightening.
Oil prices are ending the year how they began - under pressure.
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peakoilbarrel.com
Dean , 12/31/2015 at 1:13 pmPetroleum Supply Monthly is out:
- US #crudeoil production down to 9.347mbpd in Oct15 from an upward revised 9.460 in Sep15
- Texas #crude production down to 3391000 b/day in Oct15 from a revised down 3417000 b/day in Sep15
TechGuy , 12/31/2015 at 2:20 pm
http://trib.com/business/energy/top-wyoming-oil-companies-write-off-billion-in-assets/article_d380f763-962e-587d-9d9a-2af39b1e166d.html
Top Wyoming oil companies write off $41 billion in assets" The write-offs, known officially as impairments, represent a recognition that many wells will have shorter productive lives than initially anticipated, analysts said. It also reflects an acknowledgement that companies may have to pay for the cost of plugging and abandoning wells sooner than they expected, they noted. "
" Chesapeake Energy, Wyoming's fourth-largest oil producer, reported impairments of $15.4 billion through the first three quarters of 2015. The Oklahoma City-based producer's woes are primarily tied to natural gas. "
" Oil patch bankruptcies have accelerated in the fourth quarter of 2015 as a supply glut keeps prices stuck below $40 a barrel. Ten firms, with more than $2 billion in debt, have closed their doors since October, according to the Federal Reserve Bank of Dallas.
Capital spending has fallen 51 percent since the third quarter, the bank said . And the global supply glut may linger into 2017, it noted, pointing to estimates that production will outpace demand by 600,000 barrels per day through 2016."
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Peak Oil Barrel
Jeffrey J. Brown, 12/30/2015 at 4:16 pm
I suspect that we actually have a condensate glut, at least in the US, and perhaps globally.
Javier, 12/30/2015 at 4:33 pm
The possibility of a global recession in 2016 must be taken into account in any scenario, given how weak is the economic situation of the world.
A global recession in 2016 probably means the peak [reached in] oil [ production] in 2015 will last for at least 10 years, and probably forever.
Stavros Hadjiyiannis, 12/30/2015 at 5:23 pm
Is this the 545289658th time that someone has claimed that Russian oil production has peaked?
In any case, oil production is a function of primarily price. If the price is right, then there will be oil for many decades ahead. Oil production is also a function of geopolitics. Also a function of technology and also a function of alternatives. Ron seems to be missing the point that for decades, oil rich countries have no choice but to defer to a great extent to Western oil production. Those that are included in the Western security and financial system (GCC) have an extra incentive to do so, saving their oil for the future.
Ron Patterson, 12/30/2015 at 6:31 pm
Is this the 545289658th time that someone has claimed that Russian oil production has peaked?
Don't be a fucking smart ass. Make your point without stupid exaggerations.
In any case, oil production is a function of primarily price.
Really? Look at the chart above marked "The Rest of the World". Now tell me, at what point did very expensive oil increase production.
Oil production is also a function of geopolitics.
Bullshit! Oil production is affected by geopolitics. But it is not a function of geopolitics. Oil production is a function of the cost of production versus the price of oil… but the most important function is the availability of oil in the ground to produce. If the oil is not there then geopolitics or the price of oil counts for nothing. And that is what Stavros fails to understand.
Ron seems to be missing the point that for decades, oil rich countries have no choice but to defer to a great extent to Western oil production.
What in the hell are you talking about? Since when has Saudi Arabia deferred to Western oil production?
Those that are included in the Western security and financial system (GCC) have an extra incentive to do so, saving their oil for the future.
Give me a break. Every country is producing every barrel they possibly can. Which country was holding back when oil was over $100 a barrel? Saving oil for the future? They are in recession right now. Most of them anyway. No one is hording oil. A lot of oil is not being produced because of the very low price of oil but everyone is still trying desperately to meet their budgets by producing every barrel they possibly can at the cost they can afford.
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Dec. 30, 2015 | WSJ
The price rout has caused oil companies to cut deeply into investment. With the world awash in crude, the oil industry is contemplating a new problem the oversupply could tee up: an oil shortage.
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oilprice.com
08 December 2014 | OilPrice.com
Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem?Let me explain some of the issues:
Issue 1. If the price of oil is too low, it will simply be left in the ground.
The world badly needs oil for many purposes: to power its cars, to plant its fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics.
If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price leads to a whole series of secondary effects (debt defaults resulting from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank failures) that indirectly lead to a much quicker decline in oil production.
The view is sometimes expressed that once 50% of oil is extracted, the amount of oil we can extract will gradually begin to decline, for geological reasons. This view is only true if high prices prevail, as we hit limits. If our problem is low oil prices because of debt problems or other issues, then the decline is likely to be far more rapid. With low oil prices, even what we consider to be proved oil reserves today may be left in the ground.
Issue 2. The drop in oil prices is already having an impact on shale extraction and offshore drilling.
While many claims have been made that US shale drilling can be profitable at low prices, actions speak louder than words. (The problem may be a cash flow problem rather than profitability, but either problem cuts off drilling.) Reuters indicates that new oil and gas well permits tumbled by 40% in November.
Related: Who Comes Out On Top After Oil Pandemonium?
Offshore drilling is also being affected. Transocean, the owner of the biggest fleet of deep water drilling rigs, recently took a $2.76 billion charge, among a "drilling rig glut."
3. Shale operations have a huge impact on US employment.
Zero Hedge posted the following chart of employment growth, in states with and without current drilling from shale formations:
Figure 1. Jobs in States with and without Shale Formations, from Zero Hedge.
Clearly, the shale states are doing much better, job-wise. According to the article, since December 2007, shale states have added 1.36 million jobs, while non-shale states have lost 424,000 jobs. The growth in jobs includes all types of employment, including jobs only indirectly related to oil and gas production, such as jobs involved with the construction of a new supermarket to serve the growing population.
It might be noted that even the "Non-Shale" states have benefited to some extent from shale drilling. Some support jobs related to shale extraction, such as extraction of sand used in fracking, college courses to educate new engineers, and manufacturing of parts for drilling equipment, are in states other than those with shale formations. Also, all states benefit from the lower oil imports required.
Issue 4. Low oil prices tend to cause debt defaults that have wide ranging consequences. If defaults become widespread, they could affect bank deposits and international trade.
With low oil prices, it becomes much more difficult for shale drillers to pay back the loans they have taken out. Cash flow is much lower, and interest rates on new loans are likely much higher. The huge amount of debt that shale drillers have taken on suddenly becomes at-risk. Energy debt currently accounts for 16% of the US junk bond market , so the amount at risk is substantial.
Dropping oil prices affect international debt as well. The value of Venezuelan bonds recently fell to 51 cents on the dollar , because of the high default risk with low oil prices. Russia's Rosneft is also reported to be having difficulty with its loans .
There are many ways banks might be adversely affected by defaults, including
- Directly by defaults on loans held by a bank
- Indirectly, by defaults on securities the bank owns that relate to loans elsewhere
- By derivative defaults made more likely by sharp changes in interest rates or in currency levels
- By liquidity problems, relating to the need to quickly sell or buy securities related to ETFs
After the many bank bailouts in 2008, there has been discussion of changing the system so that there is no longer a need to bail out "too big to fail" banks. One proposal that has been discussed is to force bank depositors and pension funds to cover part of the losses, using Cyprus-style bail-ins. According to some reports , such an approach has been approved by the G20 at a meeting the weekend of November 16, 2014. If this is true, our bank accounts and pension plans could already be at risk.1
Another bank-related issue if debt defaults become widespread, is the possibility that junk bonds and Letters of Credit2 will become outrageously expensive for companies that have poor credit ratings. Supply chains often include some businesses with poor credit ratings. Thus, even businesses with good credit ratings may find their supply chains broken by companies that can no longer afford high-priced credit. This was one of the issues in the 2008 credit crisis.
Issue 5. Low oil prices can lead to collapses of oil exporters, and loss of virtually all of the oil they export.
The collapse of the Former Soviet Union in 1991 seems to be related to a drop in oil prices .
Figure 2. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2013.
Oil prices dropped dramatically in the 1980s after the issues that gave rise to the earlier spike were mitigated. The Soviet Union was dependent on oil for its export revenue. With low oil prices, its ability to invest in new production was impaired, and its export revenue dried up. The Soviet Union collapsed for a number of reasons, some of them financial, in late 1991, after several years of low oil prices had had a chance to affect its economy.
Many oil-exporting countries are at risk of collapse if oil prices stay very low very long. Venezuela is a clear risk, with its big debt problem. Nigeria's economy is reported to be "tanking." Russia even has a possibility of collapse, although probably not in the near future.
Even apart from collapse, there is the possibility of increased unrest in the Middle East, as oil-exporting nations find it necessary to cut back on their food and oil subsidies. There is also more possibility of warfare among groups, including new groups such as ISIL. When everyone is prosperous, there is little reason to fight, but when oil-related funds dry up, fighting among neighbors increases, as does unrest among those with lower subsidies.
Issue 6. The benefits to consumers of a drop in oil prices are likely to be much smaller than the adverse impact on consumers of an oil price rise.
When oil prices rose, businesses were quick to add fuel surcharges. They are less quick to offer fuel rebates when oil prices go down. They will try to keep the benefit of the oil price drop for themselves for as long as possible.
Airlines seem to be more interested in adding flights than reducing ticket prices in response to lower oil prices, perhaps because additional planes are already available. Their intent is to increase profits, through an increase in ticket sales, not to give consumers the benefit of lower prices.
In some cases, governments will take advantage of the lower oil prices to increase their revenue. China recently raised its oil products consumption tax, so that the government gets part of the benefit of lower prices. Malaysia is using the low oil prices as a time to reduce oil subsidies .
Most businesses recognize that the oil price drop is at most a temporary situation, since the cost of extraction continues to rise (because we are getting oil from more difficult-to-extract locations). Because the price drop is only temporary, few business people are saying to themselves, "Wow, oil is cheap again! I am going to invest a huge amount of money in a new road building company [or other business that depends on cheap oil]." Instead, they are cautious, making changes that require little capital investment and that can easily be reversed. While there may be some jobs added, those added will tend to be ones that can easily be dropped if oil prices rise again.
Issue 7. Hoped-for crude and LNG sales abroad are likely to disappear, with low oil prices.
There has been a great deal of publicity about the desire of US oil and gas producers to sell both crude oil and LNG abroad, so as to be able to take advantage of higher oil and gas prices outside the US. With a big drop in oil prices, these hopes are likely to be dashed. Already, we are seeing the story, Asia stops buying US crude oil . According to this story, "There's so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the US anymore."
LNG prices tend to drop if oil prices drop. (Some LNG prices are linked to oil prices, but even those that are not directly linked are likely to be affected by the lower demand for energy products.) At these lower prices, the financial incentive to export LNG becomes much less. Even fluctuating LNG prices become a problem for those considering investment in infrastructure such as ships to transport LNG.
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Issue 8. Hoped-for increases in renewables will become more difficult, if oil prices are low.
Many people believe that renewables can eventually take over the role of fossil fuels. ( I am not of the view that this is possible. ) For those with this view, low oil prices are a problem, because they discourage the hoped-for transition to renewables.
Despite all of the statements made about renewables, they don't really substitute for oil. Biofuels come closest, but they are simply oil-extenders. We add ethanol made from corn to gasoline to extend its quantity. But it still takes oil to operate the farm equipment to grow the corn, and oil to transport the corn to the ethanol plant. If oil isn't around, the biofuel production system comes to a screeching halt.
Issue 9. A major drop in oil prices tends to lead to deflation, and because of this, difficulty in repaying debts.
If oil prices rise, so do food prices, and the price of making most goods. Thus rising oil prices contribute to inflation. The reverse of this is true as well. Falling oil prices tend to lead to a lower price for growing food and a lower price for making most goods. The net result can be deflation. Not all countries are affected equally; some experience this result to a greater extent than others.
Those countries experiencing deflation are likely to eventually have problems with debt defaults, because it will become more difficult for workers to repay loans, if wages are drifting downward. These same countries are likely to experience an outflow of investment funds because investors realize that funds invested these countries will not earn an adequate return. This outflow of funds will tend to push their currencies down, relative to other currencies. This is at least part of what has been happening in recent months.
The value of the dollar has been rising rapidly, relative to many other currencies. Debt repayment is likely to especially be a problem for those countries where substantial debt is denominated in US dollars, but whose local currency has recently fallen in value relative to the US dollar.
Figure 3. US Dollar Index from Intercontinental Exchange
The big increase in the US dollar index came since June 2014 (Figure 3), which coincides with the drop in oil prices. Those countries with low currency prices, including Japan, Europe, Brazil, Argentina, and South Africa, find it expensive to import goods of all kinds, including those made with oil products. This is part of what reduces demand for oil products.
China's yuan is relatively closely tied to the dollar. The collapse of other currencies relative to the US dollar makes Chinese exports more expensive, and is part of the reason why the Chinese economy has been doing less well recently. There are, no doubt, other reasons why China's growth is lower recently, and thus its growth in debt. China is now trying to lower the level of its currency .
Issue 10. The drop in oil prices seems to reflect a basic underlying problem: the world is reaching the limits of its debt expansion.
There is a natural limit to the amount of debt that a government, or business, or individual can borrow. At some point, interest payments become so high, that it becomes difficult to cover other needed expenses. The obvious way around this problem is to lower interest rates to practically zero, through Quantitative Easing (QE) and other techniques.
(Increasing debt is a big part of pumped up "demand" for oil, and because of this, oil prices. If this is confusing, think of buying a car. It is much easier to buy a car with a loan than without one. So adding debt allows goods to be more affordable. Reducing debt levels has the opposite effect).
QE doesn't work as a long-term technique, because it tends to create bubbles in asset prices, such as stock market prices and prices of farmland. It also tends to encourage investment in enterprises that have questionable chance of success. Arguably, investment in shale oil and gas operations are in this category.
As it turns out, it looks very much as if the presence or absence of QE may have an impact on oil prices as well (Figure 4), providing the "uplift" needed to keep oil prices high enough to cover production costs.
Figure 4. World "liquids production" (that is oil and oil substitutes) based on EIA data, plus OPEC estimates and judgment of author for August to October 2014. Oil price is monthly average Brent oil spot price, based on EIA data.
The sharp drop in price in 2008 was credit-related , and was only solved when the US initiated its program of QE started in late November 2008 . Oil prices began to rise in December 2008. The US has had three periods of QE, with the last of these, QE3, finally tapering down and ending in October 2014. Since QE seems to have been part of the solution that stopped the drop in oil prices in 2008, we should not be surprised if discontinuing QE is contributing to the drop in oil prices now.
Part of the problem seems to be the differential effect that happens when other countries are continuing to use QE, but the US not. The US dollar tends to rise, relative to other currencies. This situation contributes to the situation shown in Figure 3.
QE allows more borrowing from the future than would be possible if market interest rates really had to be paid. This allows financiers to temporarily disguise a growing problem of un-affordability of oil and other commodities.
The problem we have is that, because we live in a finite world, we reach a point where it becomes more expensive to produce commodities of many kinds: oil (deeper wells, fracking), coal (farther from markets, so more transport costs), metals (poorer ore quality), fresh water (desalination needed), and food (more irrigation needed). Wages don't rise correspondingly, because more and more labor is needed to provide less and less actual benefit, in terms of the commodities produced and goods made from those commodities. Thus, workers find themselves becoming poorer and poorer, in terms of what they can afford to purchase.
QE allows financiers to disguise the growing mismatch between what it costs to produce commodities, and what customers can really afford . Thus, QE allows commodity prices to rise to levels that are unaffordable by customers, unless customers' lack of income is disguised by a continued growth in debt.
Once commodity prices (including oil prices) fall to levels that are affordable based on the incomes of customers, they fall to levels that cut out a large share of production of these commodities. As commodity production drops to levels that can be produced at affordable prices, so does the world's ability to make goods and services. Unfortunately, the goods whose production is likely to be cut back if commodity production is cut back are those of every kind, including houses, cars, food, and electrical transmission equipment.
Conclusion
There are really two different problems that a person can be concerned about:
1. Peak oil : the possibility that oil prices will rise, and because of this production will fall in a rounded curve. Substitutes that are possible because of high prices will perhaps take over.
2. Debt related collapse : oil limits will play out in a very different way than most have imagined, through lower oil prices as limits to growth in debt are reached, and thus a collapse in oil "demand" (really affordability). The collapse in production, when it comes, will be sharper and will affect the entire economy, not just oil.
In my view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse–in other words, the second of these two problems. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently.
Related: A Glimmer Of Hope In Current Oil Price Slide?
The timing of collapse may not be immediate. Low oil prices take a while to work their way through the system. It is also possible that the world's financiers will put off a major collapse for a while longer, through more QE, or more programs related to QE. For example, actually getting money into the hands of customers would seem to be temporarily helpful.
At some point the debt situation will eventually reach a breaking point. One way this could happen is through an increase in interest rates. If this happens, world economic growth is likely to slow greatly. Oil and commodity prices will fall further. Debt defaults will skyrocket. Not only will oil production drop, but production of many other commodities will drop, including natural gas and coal. In such a scenario, the downslope of all energy use is likely to be quite steep, perhaps similar to what is shown in the following chart.
Figure 5. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Notes:
[1] There is of course insurance by the FDIC and the PBGC , but the actual funding for these two insurance programs is tiny in relationship to the kind of risk that would occur if there were widespread debt defaults and derivative defaults affecting many banks and many pension plans at once. While depositors and pension holders might try to collect this insurance, there wouldn't be enough money to actually cover these demands. This problem would be similar to the issue that arose in Iceland in 2008 . Insurance would seem to be available, but in practice, would not pay out much.
[2] LOCs are required when goods are shipped internationally, before payment has actually been made. They offer a guarantee that a buyer will be able to "make good" on his promise to pay for goods when they arrive.
By Gail Tverberg
Source - http://ourfiniteworld.com/
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Heinrich Leopold , 12/31/2015 at 4:10 am
... condensate has one of the steepest decline rates – at least in Texas. As November and December 2014 production has been very high, the rates are very likely much steeper in November and December 2015, reaching record decline rates of 50% (see chart below).
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Ves , 12/25/2015 at 2:23 pmSteve,Cacerolo , 12/10/2015 at 12:00 am
I agree with your post about market dynamics between customers having to pay through their purchasing power in order to retire loans created by financial industry for oil companies. But there are a few things that make this oil crash little bit "strange" to say at least:1) OPEC (and mainly Saudis + GCC) did actually something by not doing anything and that is refusing to cut their production. Well that is "man made" decision as Oman oil minister said and not decision by invisible hand of market. I interpret this mainly as political decision and not economical.
2) Second. Wall Street was pretty much shocked if not pissed by that Saudi decision. I interpret that to be political reaction as well.
3) There is no worldwide collapse of demand that justify 65-70% fall of the oil price. I am sorry but Wall Street is creating ninja loans for cars, student loans, mortgages from the thin air with the same speed in the US. I would say that is political decision as well. Worldwide collapse is not happening as of now either that would justify 65-70% drop of price. Contraction is happening in Europe but very very gradually except in some marginal countries like Greece, and war torn countries in ME and Africa. But these marginal countries did not even have any big consumption to begin with.
4) Shale oil producer based on their balance sheet were bankrupt from Day 1. Why LTO even got the loans to begin with? That is also political decision and not an economic. Why are we waiting even a year after low prices for any major mergers, buyouts or bankruptcies? I am sorry but 100% of LTO are bankrupt so why Wall Street is extending and pretending and keeping them on a life support? Well it is again political decision.
So yes there are some market dynamics around this oil crash but there are a lot of political dynamics as well.
This is my first post in this blog.Clueless , 12/10/2015 at 5:13 amThere has been a lot of talk regarding the oil glut, but according to EIA crude inventories there is only 105.1 million more barrels of crude than a year ago. That is just 6.4 days of refineries inputs. It does not seem a lot, even less to justify a 60% decrease in the oil price. Oil must be the only commodity industry where one week of extra inventory produce such a price correction.
It is even worse if we consider that gasoline inventories are just 0.4% higher than a year ago. The most important product which represents 46% of the refineries output is at 2014 level. Where is the glut?
There is a glut in distilite fuel oil, residual fuel oil, propane/propylene and fuel ethanol. It seems that there is a big problem in the industrial part of the demand or maybe there is a big unbalance between what refineries can produce and what the market needs.
Warm weather promotes more driving, so we could start spring 2016 with gasoline inventories quite reduced and we could face a high gasoline price environment while we still have this huge oil glut that the media talks all day long.
I have no idea if what eia states in its inventory report as crude and other oils ( the two mayor inventory items by quantity) can be completely used as inputs to produce gasoline or if there are some technical limitations ( not any type of crude can be used to product any type of output). Maybe, and just maybe we have a glut of some types of oil and condensate that nobody needs in the quantities it has been produced since the shale boom.
It is basic economics when it comes to any commodity. If there is a shortage, the price can rise rapidly to the amount that the most critical user will pay. Ask yourself "at what price would the hospitals, ambulances, fire trucks, police cars, offshore drilling rigs [which are being leased for up to $600,000/day], say the price is too high, we will just shut down?" With a small surplus, the price of a commodity will drop like a rock, as buyers see no need to have high inventories and shop around for the lowest price, looking for a seller that has to sell at any price.oldfarmermac , 12/10/2015 at 7:56 amA game analogy. Musical chairs with 20 players and only 19 chairs (only short by 1), and two other rules: The person without a chair gets killed, but there is one chair for sale and anyone can buy it to guarantee their safety. How high would the bidding go? Up to the point of the person with the most money.
Same game with 20 players and 21 chairs (only 1 extra). How high would the bidding go? Zero, as everyone can see that there is more than enough for everybody.
You can easily see this play out even more frequently by looking at charts for agricultural products such as: wheat, corn, soybeans, etc.Prices can double quickly if there is a crop surplus, and fall by over 50% just as quickly if the next crop has a surplus.
Clueless, you are not when it comes to commodity prices. I wish I had thought of the musical chairs analogy myself. But you got in a little bit of a hurry in his last sentence and should have said prices can double quickly if there is a crop SHORTAGE.Clueless , 12/10/2015 at 4:35 pmCommodity food prices are not nearly so inelastic as oil prices, because there are generally plenty of substitutes for any GIVEN food that might be in short supply. But the price can still double in the event of a short crop, it happens.
There are NO short term substitutes for oil.
Thanks OFM. However, my error was not due to being in a hurry, it was due to being 4:13 am my time, and I was still half asleep.Nick G , 12/10/2015 at 4:44 pmThere are NO short term substitutes for oil.Patrick R , 12/10/2015 at 5:11 pmI know what you mean, but that's a little strong. Driving slower, driving your small car instead of your SUV, mass transit, carpooling: there are a lot of short term substitutes.
None of them are perfect substitutes for dirt cheap oil…but that's different (and, of course, dirt cheap oil doesn't really exist if we take into account externalities).
The US just needs to price driving accurately and a huge amount of low value wasteful trips would suddenly become understood as unnecessary. Furthermore the uplift this would give to all alternatives; not just EVs (you guys are so stuck in autodependency), but Transit, active modes, and, most importantly of all; the rise of the local, would huge. And please note, this is not subsidy, simply user pays, just price driving for all its costs, direct and external. Sorted.Also always remember that proximity trumps mobility; that's why cities exist!
Sprawl topia is doomed, but I guess that's hard to grasp when it's all people have ever known. And getting real about actual cost allocation is the mechanism to get North America out of the current stuck pattern. Climate change and all other pollution mitigation isn't about personal choice it's about rational cost allocation; by all means choose to stink, just actually pay the whole cost and there will be more rational actors than old contrarians.
Jeffrey J. Brown , 12/10/2015 at 7:40 amThe craziest thing is that otherwise libertarian freemarketers are violently committed to the Soviet style socialism that is your taxpayer funded driving amenity and no-price driving system. What kind of crisis will it take for reality to be grasped in this area? Cos I suspect you'll get it sooner or later.
Meantime: Keep on truckin'…
Dennis Coyne , 12/10/2015 at 9:06 amThere has been a lot of talk regarding the oil glut, but according to eia crude inventories there is only 105.1 million more barrils of crude than a year ago
What the EIA calls "Crude oil" is actually Crude + Condensate (C+C).
I suspect that most of the 2015 build in US and global C+C inventories consists of condensate, and I frequently cite a Reuters article earlier this year that documented case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper API limit for WTI crude (42 API gravity*), but that are deficient in distillates.
In any case, based on the most recent four week running average data, US refineries were dependent on net crude oil imports for 43% of the C+C processed in US refineries (7.1/16.5) versus 44% a year ago (7.1/16.2). If we had so much (generally cheaper than imported) actual crude oil on hand in the US, why are refiners importing the same amount of crude oil as they did last year?
*Most common overall dividing line between crude & condensate is 45 API
The market for oil is a World market, look at IEA reports for a better look at the International market. Last time I checked, st0rage levels in the OECD were about 250 million barrels above the 5 year average level. There is a limited number of places to put the oil that has been produced, and storing oil costs money, so when there is an excess prices fall. In theory this should increase demand at any given level of World GDP and it should reduce supply as higher cost production is less profitable at lower prices. It takes some time for this adjustment to take place (people don't go out and buy a gas guzzler right away and oil producers try to outlast their competitors, hoping the other guy stops producing as much). So far it has been about 12 months since oil prices dropped sharply, it may take another 12 months, maybe more for production to slow down and excess inventories to be used up.Heinrich Leopold , 12/10/2015 at 4:17 amIf there is not a severe recession worldwide in the next 24 months, I would be surprised if oil prices are not above $60/b, 18 months to 36 months from now, possibly they will be much higher.
It depends on how quickly the oil business can ramp back up after the downturn over the next 1 to 2 years. The longer it takes, the higher oil prices will go, but at some point there may be a major recession, due in part to inadequate oil supply two or three years in the future.
Chart below with the Reference Oil Price case for Brent Oil in 2013$ from the EIA's Annual Energy Outlook published in April 2015.
Given the recent discussions about where US oil and gas production is headed, I have tried to find some forward looking indicators. Well permits and well completions seem to give reasonable indicators for future production. Below chart indicates that at least Texan oil and gas production will steeply slump over the next months. Well permits declined fivefold to a six year low and well completions are not far behind. It will be interesting to see the consequences of this trend.Dennis Coyne , 12/10/2015 at 9:10 am
The RRC Production data is very bad for the most recent 18 months. Texas output has in fact been relatively flat from Nov 2014 to Sept 2015. Perhaps the completion data suffers from the same reporting problems. Permit data is just not very useful.
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likbez , 12/30/2015 at 9:50 pm
Glenn Stehle , 12/31/2015 at 9:43 amRon,
OK. Let's assume there is no geopolitics here. But then why Saudis are damping oil at such a low price.
In 2015 they exported over 7.3 Mb/d and got 118 Billions. In 2012 they exported something between 7.658 Mb/d (CIA, probably crude only) and 8.42 mb/d (Bloomberg, probably crude and refined products) and got 336.1 billion.
http://www.bloomberg.com/news/articles/2013-07-29/saudi-arabian-2012-oil-export-revenue-gained-5-as-iran-fell-12-If they just cut 1 Mb/d and that allows to preserve 2014 average price of oil (not even 2013 average price) they would get 125 billions (and preserve 12 Mb from their depleting wells for moment of higher prices which will eventually come.)
In any case they managed to achieve almost 3 times drop of revenue from 2012. Three times --
Now they have almost $100 billion budget deficit in 2015 (and almost the same, 86 billions estimate of deficit for 2016) and only around 600 billions in reserves.
Questions:
1. Why they rocked the boat?
2. Where is the logic in their actions, unless we assume that they want to destroy Iran (and hurt Russia) ?
3. Why MSM spread all this BS about Saudis defending their market share ? Does it look like they are defending something else ?
One theory afloat is that the US and Saudi Arabia are allies in an economic and political war against their enemies. According to this narrative, the intent of Saudi Arabia dramatically increasing oil production during a world oil glut, and sending oil prices into a tailspin, is to shipwreck the economies (and the polities) of US and/or Saudi enemies - e.g., Venezuela, Iran, and Russia.
"Obama's foreign policy goals get a boost from plunging oil prices"
https://www.washingtonpost.com/business/economy/as-crude-oil-prices-plunge-so-do-oil-exporters-revenue-hopes/2015/12/23/ed552372-a900-11e5-8058-480b572b4aae_story.htmlThe war, however, is not being conducted without inflicting significant damages on US allies - e.g., Mexico, Canada, Saudi Arabia, Colombia - and domestic US production as well.
Ambrose Evans-Pritchard, for instance, published an article a couple of days ago about the immense economic damage being inflicted on Saudi Arabia's economy and polity:
"Saudi riyal in danger as oil war escalates"
http://www.telegraph.co.uk/finance/economics/12071761/Saudi-riyal-in-danger-as-oil-war-escalates.htmlWe'll see who blinks first, or who is left standing after all the bloodletting takes place.
Peak Signs , 12/31/2015 at 10:32 am
"According to this theory, the intent of Saudi Arabia dramatically increasing oil production during a world oil glut…"
Saudi Arabia hasn't dramatically increased oil production. Their most recent peak in June of 2015 was only a couple hundred thousand barrels per day more than the previous peak back in mid-2013. That's about 2-3% increase over two years. I wouldn't call that, dramatic.
Glenn Stehle , 12/31/2015 at 11:00 am
I think you're arguing semantics.
Would you also argue that the Saudi response to the glut in 2009 was the same to its response to the glut in 2015?
Ablokeimet , 12/31/2015 at 3:07 am
oldfarmermac , 12/30/2015 at 11:23 pmRon is basically correct. The people who think that oil production is a function of the price are assuming that the oil is there to produce. Now, unless there are a few supergiant fields out there, already discovered and waiting for some State Oil Company or some multi-national oil company to make a Final Investment Decision, that assumption is incorrect. There is a handful of locations which could potentially have supergiant oil fields that are so far undiscovered, I'm not that confident that they are there to find, since discovery in the last couple of decades has been a long way short of consumption, even after the price went sky high and everybody and their dog was spending big on exploration.
What interests me is the bit from the previous post, where OPEC projected prices based on their estimate of what it cost to produce the marginal barrel. I think that is a good line to take, until it reaches the point where governments of OPEC countries decide that, with Peak Oil passed and production in irreversable decline, they are going to start hoarding production and make the rest of the world go short.
The thing to realise with projecting prices based on the cost of production of the marginal barrel is that it should be taken as a tendency working on a 5 year or even decadal scale. In time periods short of that, you can get price wars sending prices down below the marginal cost and price spikes producing windfall profits even for the highest cost producers. The price wars lead to national and multi-national oil companies cutting back on capital expenditure, which eventually leads to stagnating or declining production and a recovery in prices. Price spikes lead to huge resources being spent on exploration and development as everybody wants to cash in.
OPEC's production assumptions are a lot less sensible than their price projections. They assume two things:
(a) That the oil is there to increase global production; and
(b) Most of that oil, from 2020 to 2040, will come from OPEC countries.
Conventional crude oil production is flat out right now and, as I said above, unless someone is hiding a few undeveloped supergiant fields somewhere, it's got nowhere to go but down. Let's look at unconventional sources, then.
1. Polar and deepwater oil. A huge amount has been spent exploring for this and the results have been underwhelming. Sure, they've found oil, but not in anywhere near the quantities needed. Shell recently pulled out of the Arctic because of the combination of environmental protests and poor exploration results. If they were discovering heaps, they'd just tough out the protests – as anybody who knows the first thing about corporate capitalism could tell you.
2. Canadian tar sands. Production of these has been expanding, but it hasn't been to the rate that one might imagine from the published resource data. This is because the rate of production is subject to certain limits, due to inputs. The relevant inputs in this situation are water and natural gas – and it is water which is the harder limit. Basically, they can't produce more oil from the tar sands than the rivers of the region can support. These limits will sooner or later, and I believe sooner, put a ceiling on Canadian production. Absent a huge shift in consumption caused by climate change mitigation action, it will keep at that limit for many decades to come, but it won't exceed it.
3. Venezuelan extra heavy. This is the factor about which I know least, but there doesn't appear to be a lot of it on the market yet. There seem to be a lot of obstacles in the road of high production.
4. Tight oil. One thing that everybody who is knowledgeable admits is that there is a lot of "oil in place" in this category. The question is how much of this is recoverable in a practical sense. This industry has developed in the US, primarily because it brings a number of environmental hazards with it and, outside the US, landholders are blocking exploitation because of environmental concerns. In the US, landholders have a financial interest in ignoring these concerns, because mineral royalties are vested in the landowner.
Tight oil has been developed in the US on the basis of unrealistic projections of ongoing production, due to depletion rates being vastly higher than admitted when spruiking to investors. Sooner or later, it was bound to run into problems. These problems have arrived sooner, as opposed to later, due to OPEC's price war, which is aimed at sending the tight oil industry broke. Producers have cut back on drilling and concentrated with increased intensity on "sweet spots", where production is likely to be highest. They have also introduced technological progress that has cut the price of drilling substantially and thus cut the break-even price for a well of a given production level, but the industry is still losing money. A loss-making industry is unsustainable and, therefore, will not be sustained. Something has to give.
Eventually, the price of oil will recover to be equal to or greater than the marginal cost of production. At this point, what will be relevant is just how extensive the sweet spots in the tight oil formations are. Having been burnt once, investors will be working on much more careful examination of likely decline rates and won't support drilling wells just to keep production up, if those wells won't recover their costs within the time frame of the investment horizon.
The $64 thousand dollar question, therefore, is how long the US tight oil industry is going to be able to keep finding sweet spots where they can extract sufficient tight oil to pay back the cost of drilling.
What's going to happen in other countries? Not a great deal, I predict. Opposition from the local population, led by local landholders, will delay and minimise production from tight oil reservoirs. It won't completely prevent a tight oil industry developing in many other countries, but it will ensure that it never develops the dimensions of the current oil industry. Tight oil production will be a buffer for production on the way down, but it won't counteract the declines caused by the depletion of conventional oil fields.
In summary, the price of production of the marginal barrel of oil is going to go higher – a lot higher, but the marginal barrels won't be additional ones. Rather, rising prices will cause demand destruction. It is already doing so in OECD countries, and it will start doing it in Third World countries too, as existing fields deplete and have to be replaced by new and extraordinarily expensive oil.
Door number two looks damned good from where I sit in the audience, lol.In addition to putting a hurting on Russia and Iran, the Saudis are also no doubt getting the message across to other exporters, in and out of OPEC, that they will not carry the load alone, if and when they eventually decide to cut.
There is little doubt in my mind that secret negotiations about cuts are going on every day, day after day, between diplomats from other oil exporters and the Saudis. When the Saudi government gets what it wants, iron clad promises of cooperation, THEN they might be more inclined to cut.Maybe.
Sometimes something that walks like a duck, and quacks like a duck , and looks like a duck, is never the less not a duck .. Sometimes the resemblance is merely coincidental. Sometimes coincidences are highly advantageous to two or more parties involved.
Consider for instance that many or most well informed people consider that the House of Saud has managed to accumulate and hang onto the biggest fortune in the world only because the country is a client state of the American empire.
Otherwise all those princes and princesses would be dead, or in dungeons, or refugees.
I am NOT saying the Obama administration is colluding with the Saudis, secretly, to keep the price of oil down. I AM saying Uncle Sam is no doubt perfectly happy about oil selling for peanuts, because peanut oil prices are a damned good economic tonic. There must be fifty people happy about cheap gasoline for every one person hurting because he lost his ass or his job in the oil business. Fifty to one. No politician in his right mind can afford to overlook that sort of thing.
I'm ready to bet the farm that no documentation ever comes to light proving Uncle Sam is trying to force oil prices up at this time. OTOH, Uncle Sam and the Saudis share some very heavy duty common interests when it comes to Iran and Russia.
Hey guys, it ain't nothing but zero's in computers, in the last critical analysis, to the House of Saud. They have more than they can spend (on themselves ) anyway.
Suppose any one of you happened to have a personal fortune of say ten million bucks, and you discover you are at high risk of having a fatal heart attack. I doubt any of you would hesitate to spend a third or even half of that fortune to avoid that heart attack. You will never have eat beans and rice unless LIKE beans and rice, so long as you still have five million bucks. ( Unless maybe your physician insists!)
In the minds of the Saudis, the Russians and the Iranians may well represent a literal existential threat .
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Telegraph
Saudi Arabia is burning through foreign reserves at an unsustainable rate and may be forced to give up its prized dollar exchange peg as the oil slump drags on, the country's former reserve chief has warned.
"If anything happens to the riyal exchange peg, the consequences will be dramatic. There will be a serious loss of confidence," said Khalid Alsweilem, the former head of asset management at the Saudi central bank (SAMA).
"But if the reserves keep going down as they are now, they will not be able to keep the peg," he told The Telegraph.
His warning came as the Saudi finance ministry revealed that the country's deficit leapt to 367bn riyals (£66bn) this year , up from 54bn riyals the previous year. The International Monetary Fund has suggested Saudi Arabia could be running a deficit of around $140bn (£94bn).
Remittances by foreign workers in Saudi Arabia are draining a further $36bn a year, and capital outflows were picking up even before the oil price crash. Bank of America estimates that the deficit could rise to nearer $180bn if oil prices settle near $30 a barrel, testing the riyal peg to breaking point.
Dr Alsweilem said the country does not have deep enough pockets to wage a long war of attrition in the global crude markets, whatever the superficial appearances.
Concern has become acute after 12-month forward contracts on the Saudi Riyal reached 730 basis points over recent days, the highest since the worst days of last oil crisis in February 1999.
The contracts are watched closely by traders for signs of currency stress. The latest spike suggests that the riyal is under concerted attack by hedge funds and speculators in the region, risking a surge of capital flight.
A string of oil states have had to abandon their currency pegs over recent weeks. The Azerbaijani manat crashed by a third last Monday after the authorities finally admitted defeat.
The dollar peg has been the anchor of Saudi economic policy and credibility for over three decades. A forced devaluation would heighten fears that the crisis is spinning out of political control, further enflaming disputes within the royal family.
Foreign reserves and assets have fallen to $647bn from a peak of $746bn in August 2014, but headline figures often mean little in the complex world of central bank finances and derivative contracts.
See also
Black Swan
""He is drawing on a McKinsey study – 'Beyond Oil' -
that sketches how the country can break its unhealthy dependence on
crude, and double GDP by 2030 with a $4 trillion investment blitz across
eight industries, from petrochemicals to metals, steel, aluminium
smelting, cars, electrical manufacturing, tourism, and healthcare""McKinsey's advice to the Saudi suckers proves that global financial companies are crooks. Pray tell from where will Saudi Arabia get people to run the industries recommended by Mckinsey ? There is already global excess in the industries.
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finance.yahoo.com
While cheaper fuel is a boost to consumer spending power in much of the developed world, it is also a disinflationary force that reinforces bets on loose monetary policy in Europe, Japan and China, even as the Federal Reserve proceeds with glacial tightening.
Oil prices are ending the year how they began - under pressure.
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peakoilbarrel.com
Dean , 12/31/2015 at 1:13 pmPetroleum Supply Monthly is out:
- US #crudeoil production down to 9.347mbpd in Oct15 from an upward revised 9.460 in Sep15
- Texas #crude production down to 3391000 b/day in Oct15 from a revised down 3417000 b/day in Sep15
TechGuy , 12/31/2015 at 2:20 pm
http://trib.com/business/energy/top-wyoming-oil-companies-write-off-billion-in-assets/article_d380f763-962e-587d-9d9a-2af39b1e166d.html
Top Wyoming oil companies write off $41 billion in assets" The write-offs, known officially as impairments, represent a recognition that many wells will have shorter productive lives than initially anticipated, analysts said. It also reflects an acknowledgement that companies may have to pay for the cost of plugging and abandoning wells sooner than they expected, they noted. "
" Chesapeake Energy, Wyoming's fourth-largest oil producer, reported impairments of $15.4 billion through the first three quarters of 2015. The Oklahoma City-based producer's woes are primarily tied to natural gas. "
" Oil patch bankruptcies have accelerated in the fourth quarter of 2015 as a supply glut keeps prices stuck below $40 a barrel. Ten firms, with more than $2 billion in debt, have closed their doors since October, according to the Federal Reserve Bank of Dallas.
Capital spending has fallen 51 percent since the third quarter, the bank said . And the global supply glut may linger into 2017, it noted, pointing to estimates that production will outpace demand by 600,000 barrels per day through 2016."
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Zero Hedge
Submitted by David Stockman via Contra Corner blog,
...Already, investment is estimated to have dropped by 20% in 2015, and that is just the beginning.
This unfolding collapse of oil and gas investments, of course, will ricochet through the capital goods and heavy construction sectors with gale force. Eventually, annual investment may decline by $250 to $400 billion before balance is restored, meaning that what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead.
... ... ...
... as the credit bubble begins to shrink it means that profits, incomes, balance sheets and credit-worthiness are all shrinking, too. So is the related GDP.
But now the days of heady accumulation of "sovereign wealth" in Saudi Arabia, Norway, Kazakhstan and dozens of commodity producers in between is over and done. What is happening is that these funds are entering a cycle of liquidation which is unprecedented in financial history.
Indeed, the data for Saudi Arabia, Qatar, Kuwait, the UAE and other members of the Gulf Cooperation Council (GCC) is stunning. During the global credit boom they amassed sovereign wealth funds totaling $2.3 trillion. But with deficits now estimated at 13% of GDP and rising, the level of asset liquidation is soaring.
Thus, if crude oil prices recover to $56 per barrel next year, the GCC states will need to liquidate $208 billion of investments.
... ... ...
In a word, the unnatural Big Fat Bid of the sovereign wealth funds is going All Offers as oil and commodity producers struggle to fund their budgets.
... ... ...
Jack Burton
ENERGY Sector "what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead."
This is already crushing Canada and North Dakota, whose actual oil field cut backs are only now beginning as they tried to produce their way out of the debt crisis. But the hedges have run out, prices seem glued to the basement and NOW the time has come to eliminate the expeditures. That mean people losing jobs all up and down the line.
Stockman is brilliant here, as always.
I was watching "The Big Short" last night too. Excellent film. Very historic and everyone should watch it.
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Peak Oil Barrel
Jeffrey J. Brown, 12/30/2015 at 4:16 pm
I suspect that we actually have a condensate glut, at least in the US, and perhaps globally.
Javier, 12/30/2015 at 4:33 pm
The possibility of a global recession in 2016 must be taken into account in any scenario, given how weak is the economic situation of the world.
A global recession in 2016 probably means the peak [reached in] oil [ production] in 2015 will last for at least 10 years, and probably forever.
Stavros Hadjiyiannis, 12/30/2015 at 5:23 pm
Is this the 545289658th time that someone has claimed that Russian oil production has peaked?
In any case, oil production is a function of primarily price. If the price is right, then there will be oil for many decades ahead. Oil production is also a function of geopolitics. Also a function of technology and also a function of alternatives. Ron seems to be missing the point that for decades, oil rich countries have no choice but to defer to a great extent to Western oil production. Those that are included in the Western security and financial system (GCC) have an extra incentive to do so, saving their oil for the future.
Ron Patterson, 12/30/2015 at 6:31 pm
Is this the 545289658th time that someone has claimed that Russian oil production has peaked?
Don't be a fucking smart ass. Make your point without stupid exaggerations.
In any case, oil production is a function of primarily price.
Really? Look at the chart above marked "The Rest of the World". Now tell me, at what point did very expensive oil increase production.
Oil production is also a function of geopolitics.
Bullshit! Oil production is affected by geopolitics. But it is not a function of geopolitics. Oil production is a function of the cost of production versus the price of oil… but the most important function is the availability of oil in the ground to produce. If the oil is not there then geopolitics or the price of oil counts for nothing. And that is what Stavros fails to understand.
Ron seems to be missing the point that for decades, oil rich countries have no choice but to defer to a great extent to Western oil production.
What in the hell are you talking about? Since when has Saudi Arabia deferred to Western oil production?
Those that are included in the Western security and financial system (GCC) have an extra incentive to do so, saving their oil for the future.
Give me a break. Every country is producing every barrel they possibly can. Which country was holding back when oil was over $100 a barrel? Saving oil for the future? They are in recession right now. Most of them anyway. No one is hording oil. A lot of oil is not being produced because of the very low price of oil but everyone is still trying desperately to meet their budgets by producing every barrel they possibly can at the cost they can afford.
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Dec. 30, 2015 | WSJ
The price rout has caused oil companies to cut deeply into investment. With the world awash in crude, the oil industry is contemplating a new problem the oversupply could tee up: an oil shortage.
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oilprice.com
08 December 2014 | OilPrice.com
Not long ago, I wrote Ten Reasons Why High Oil Prices are a Problem. If high oil prices can be a problem, how can low oil prices also be a problem? In particular, how can the steep drop in oil prices we have recently been experiencing also be a problem?Let me explain some of the issues:
Issue 1. If the price of oil is too low, it will simply be left in the ground.
The world badly needs oil for many purposes: to power its cars, to plant its fields, to operate its oil-powered irrigation pumps, and to act as a raw material for making many kinds of products, including medicines and fabrics.
If the price of oil is too low, it will be left in the ground. With low oil prices, production may drop off rapidly. High price encourages more production and more substitutes; low price leads to a whole series of secondary effects (debt defaults resulting from deflation, job loss, collapse of oil exporters, loss of letters of credit needed for exports, bank failures) that indirectly lead to a much quicker decline in oil production.
The view is sometimes expressed that once 50% of oil is extracted, the amount of oil we can extract will gradually begin to decline, for geological reasons. This view is only true if high prices prevail, as we hit limits. If our problem is low oil prices because of debt problems or other issues, then the decline is likely to be far more rapid. With low oil prices, even what we consider to be proved oil reserves today may be left in the ground.
Issue 2. The drop in oil prices is already having an impact on shale extraction and offshore drilling.
While many claims have been made that US shale drilling can be profitable at low prices, actions speak louder than words. (The problem may be a cash flow problem rather than profitability, but either problem cuts off drilling.) Reuters indicates that new oil and gas well permits tumbled by 40% in November.
Related: Who Comes Out On Top After Oil Pandemonium?
Offshore drilling is also being affected. Transocean, the owner of the biggest fleet of deep water drilling rigs, recently took a $2.76 billion charge, among a "drilling rig glut."
3. Shale operations have a huge impact on US employment.
Zero Hedge posted the following chart of employment growth, in states with and without current drilling from shale formations:
Figure 1. Jobs in States with and without Shale Formations, from Zero Hedge.
Clearly, the shale states are doing much better, job-wise. According to the article, since December 2007, shale states have added 1.36 million jobs, while non-shale states have lost 424,000 jobs. The growth in jobs includes all types of employment, including jobs only indirectly related to oil and gas production, such as jobs involved with the construction of a new supermarket to serve the growing population.
It might be noted that even the "Non-Shale" states have benefited to some extent from shale drilling. Some support jobs related to shale extraction, such as extraction of sand used in fracking, college courses to educate new engineers, and manufacturing of parts for drilling equipment, are in states other than those with shale formations. Also, all states benefit from the lower oil imports required.
Issue 4. Low oil prices tend to cause debt defaults that have wide ranging consequences. If defaults become widespread, they could affect bank deposits and international trade.
With low oil prices, it becomes much more difficult for shale drillers to pay back the loans they have taken out. Cash flow is much lower, and interest rates on new loans are likely much higher. The huge amount of debt that shale drillers have taken on suddenly becomes at-risk. Energy debt currently accounts for 16% of the US junk bond market , so the amount at risk is substantial.
Dropping oil prices affect international debt as well. The value of Venezuelan bonds recently fell to 51 cents on the dollar , because of the high default risk with low oil prices. Russia's Rosneft is also reported to be having difficulty with its loans .
There are many ways banks might be adversely affected by defaults, including
- Directly by defaults on loans held by a bank
- Indirectly, by defaults on securities the bank owns that relate to loans elsewhere
- By derivative defaults made more likely by sharp changes in interest rates or in currency levels
- By liquidity problems, relating to the need to quickly sell or buy securities related to ETFs
After the many bank bailouts in 2008, there has been discussion of changing the system so that there is no longer a need to bail out "too big to fail" banks. One proposal that has been discussed is to force bank depositors and pension funds to cover part of the losses, using Cyprus-style bail-ins. According to some reports , such an approach has been approved by the G20 at a meeting the weekend of November 16, 2014. If this is true, our bank accounts and pension plans could already be at risk.1
Another bank-related issue if debt defaults become widespread, is the possibility that junk bonds and Letters of Credit2 will become outrageously expensive for companies that have poor credit ratings. Supply chains often include some businesses with poor credit ratings. Thus, even businesses with good credit ratings may find their supply chains broken by companies that can no longer afford high-priced credit. This was one of the issues in the 2008 credit crisis.
Issue 5. Low oil prices can lead to collapses of oil exporters, and loss of virtually all of the oil they export.
The collapse of the Former Soviet Union in 1991 seems to be related to a drop in oil prices .
Figure 2. Oil production and price of the Former Soviet Union, based on BP Statistical Review of World Energy 2013.
Oil prices dropped dramatically in the 1980s after the issues that gave rise to the earlier spike were mitigated. The Soviet Union was dependent on oil for its export revenue. With low oil prices, its ability to invest in new production was impaired, and its export revenue dried up. The Soviet Union collapsed for a number of reasons, some of them financial, in late 1991, after several years of low oil prices had had a chance to affect its economy.
Many oil-exporting countries are at risk of collapse if oil prices stay very low very long. Venezuela is a clear risk, with its big debt problem. Nigeria's economy is reported to be "tanking." Russia even has a possibility of collapse, although probably not in the near future.
Even apart from collapse, there is the possibility of increased unrest in the Middle East, as oil-exporting nations find it necessary to cut back on their food and oil subsidies. There is also more possibility of warfare among groups, including new groups such as ISIL. When everyone is prosperous, there is little reason to fight, but when oil-related funds dry up, fighting among neighbors increases, as does unrest among those with lower subsidies.
Issue 6. The benefits to consumers of a drop in oil prices are likely to be much smaller than the adverse impact on consumers of an oil price rise.
When oil prices rose, businesses were quick to add fuel surcharges. They are less quick to offer fuel rebates when oil prices go down. They will try to keep the benefit of the oil price drop for themselves for as long as possible.
Airlines seem to be more interested in adding flights than reducing ticket prices in response to lower oil prices, perhaps because additional planes are already available. Their intent is to increase profits, through an increase in ticket sales, not to give consumers the benefit of lower prices.
In some cases, governments will take advantage of the lower oil prices to increase their revenue. China recently raised its oil products consumption tax, so that the government gets part of the benefit of lower prices. Malaysia is using the low oil prices as a time to reduce oil subsidies .
Most businesses recognize that the oil price drop is at most a temporary situation, since the cost of extraction continues to rise (because we are getting oil from more difficult-to-extract locations). Because the price drop is only temporary, few business people are saying to themselves, "Wow, oil is cheap again! I am going to invest a huge amount of money in a new road building company [or other business that depends on cheap oil]." Instead, they are cautious, making changes that require little capital investment and that can easily be reversed. While there may be some jobs added, those added will tend to be ones that can easily be dropped if oil prices rise again.
Issue 7. Hoped-for crude and LNG sales abroad are likely to disappear, with low oil prices.
There has been a great deal of publicity about the desire of US oil and gas producers to sell both crude oil and LNG abroad, so as to be able to take advantage of higher oil and gas prices outside the US. With a big drop in oil prices, these hopes are likely to be dashed. Already, we are seeing the story, Asia stops buying US crude oil . According to this story, "There's so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the US anymore."
LNG prices tend to drop if oil prices drop. (Some LNG prices are linked to oil prices, but even those that are not directly linked are likely to be affected by the lower demand for energy products.) At these lower prices, the financial incentive to export LNG becomes much less. Even fluctuating LNG prices become a problem for those considering investment in infrastructure such as ships to transport LNG.
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Issue 8. Hoped-for increases in renewables will become more difficult, if oil prices are low.
Many people believe that renewables can eventually take over the role of fossil fuels. ( I am not of the view that this is possible. ) For those with this view, low oil prices are a problem, because they discourage the hoped-for transition to renewables.
Despite all of the statements made about renewables, they don't really substitute for oil. Biofuels come closest, but they are simply oil-extenders. We add ethanol made from corn to gasoline to extend its quantity. But it still takes oil to operate the farm equipment to grow the corn, and oil to transport the corn to the ethanol plant. If oil isn't around, the biofuel production system comes to a screeching halt.
Issue 9. A major drop in oil prices tends to lead to deflation, and because of this, difficulty in repaying debts.
If oil prices rise, so do food prices, and the price of making most goods. Thus rising oil prices contribute to inflation. The reverse of this is true as well. Falling oil prices tend to lead to a lower price for growing food and a lower price for making most goods. The net result can be deflation. Not all countries are affected equally; some experience this result to a greater extent than others.
Those countries experiencing deflation are likely to eventually have problems with debt defaults, because it will become more difficult for workers to repay loans, if wages are drifting downward. These same countries are likely to experience an outflow of investment funds because investors realize that funds invested these countries will not earn an adequate return. This outflow of funds will tend to push their currencies down, relative to other currencies. This is at least part of what has been happening in recent months.
The value of the dollar has been rising rapidly, relative to many other currencies. Debt repayment is likely to especially be a problem for those countries where substantial debt is denominated in US dollars, but whose local currency has recently fallen in value relative to the US dollar.
Figure 3. US Dollar Index from Intercontinental Exchange
The big increase in the US dollar index came since June 2014 (Figure 3), which coincides with the drop in oil prices. Those countries with low currency prices, including Japan, Europe, Brazil, Argentina, and South Africa, find it expensive to import goods of all kinds, including those made with oil products. This is part of what reduces demand for oil products.
China's yuan is relatively closely tied to the dollar. The collapse of other currencies relative to the US dollar makes Chinese exports more expensive, and is part of the reason why the Chinese economy has been doing less well recently. There are, no doubt, other reasons why China's growth is lower recently, and thus its growth in debt. China is now trying to lower the level of its currency .
Issue 10. The drop in oil prices seems to reflect a basic underlying problem: the world is reaching the limits of its debt expansion.
There is a natural limit to the amount of debt that a government, or business, or individual can borrow. At some point, interest payments become so high, that it becomes difficult to cover other needed expenses. The obvious way around this problem is to lower interest rates to practically zero, through Quantitative Easing (QE) and other techniques.
(Increasing debt is a big part of pumped up "demand" for oil, and because of this, oil prices. If this is confusing, think of buying a car. It is much easier to buy a car with a loan than without one. So adding debt allows goods to be more affordable. Reducing debt levels has the opposite effect).
QE doesn't work as a long-term technique, because it tends to create bubbles in asset prices, such as stock market prices and prices of farmland. It also tends to encourage investment in enterprises that have questionable chance of success. Arguably, investment in shale oil and gas operations are in this category.
As it turns out, it looks very much as if the presence or absence of QE may have an impact on oil prices as well (Figure 4), providing the "uplift" needed to keep oil prices high enough to cover production costs.
Figure 4. World "liquids production" (that is oil and oil substitutes) based on EIA data, plus OPEC estimates and judgment of author for August to October 2014. Oil price is monthly average Brent oil spot price, based on EIA data.
The sharp drop in price in 2008 was credit-related , and was only solved when the US initiated its program of QE started in late November 2008 . Oil prices began to rise in December 2008. The US has had three periods of QE, with the last of these, QE3, finally tapering down and ending in October 2014. Since QE seems to have been part of the solution that stopped the drop in oil prices in 2008, we should not be surprised if discontinuing QE is contributing to the drop in oil prices now.
Part of the problem seems to be the differential effect that happens when other countries are continuing to use QE, but the US not. The US dollar tends to rise, relative to other currencies. This situation contributes to the situation shown in Figure 3.
QE allows more borrowing from the future than would be possible if market interest rates really had to be paid. This allows financiers to temporarily disguise a growing problem of un-affordability of oil and other commodities.
The problem we have is that, because we live in a finite world, we reach a point where it becomes more expensive to produce commodities of many kinds: oil (deeper wells, fracking), coal (farther from markets, so more transport costs), metals (poorer ore quality), fresh water (desalination needed), and food (more irrigation needed). Wages don't rise correspondingly, because more and more labor is needed to provide less and less actual benefit, in terms of the commodities produced and goods made from those commodities. Thus, workers find themselves becoming poorer and poorer, in terms of what they can afford to purchase.
QE allows financiers to disguise the growing mismatch between what it costs to produce commodities, and what customers can really afford . Thus, QE allows commodity prices to rise to levels that are unaffordable by customers, unless customers' lack of income is disguised by a continued growth in debt.
Once commodity prices (including oil prices) fall to levels that are affordable based on the incomes of customers, they fall to levels that cut out a large share of production of these commodities. As commodity production drops to levels that can be produced at affordable prices, so does the world's ability to make goods and services. Unfortunately, the goods whose production is likely to be cut back if commodity production is cut back are those of every kind, including houses, cars, food, and electrical transmission equipment.
Conclusion
There are really two different problems that a person can be concerned about:
1. Peak oil : the possibility that oil prices will rise, and because of this production will fall in a rounded curve. Substitutes that are possible because of high prices will perhaps take over.
2. Debt related collapse : oil limits will play out in a very different way than most have imagined, through lower oil prices as limits to growth in debt are reached, and thus a collapse in oil "demand" (really affordability). The collapse in production, when it comes, will be sharper and will affect the entire economy, not just oil.
In my view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse–in other words, the second of these two problems. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently.
Related: A Glimmer Of Hope In Current Oil Price Slide?
The timing of collapse may not be immediate. Low oil prices take a while to work their way through the system. It is also possible that the world's financiers will put off a major collapse for a while longer, through more QE, or more programs related to QE. For example, actually getting money into the hands of customers would seem to be temporarily helpful.
At some point the debt situation will eventually reach a breaking point. One way this could happen is through an increase in interest rates. If this happens, world economic growth is likely to slow greatly. Oil and commodity prices will fall further. Debt defaults will skyrocket. Not only will oil production drop, but production of many other commodities will drop, including natural gas and coal. In such a scenario, the downslope of all energy use is likely to be quite steep, perhaps similar to what is shown in the following chart.
Figure 5. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Notes:
[1] There is of course insurance by the FDIC and the PBGC , but the actual funding for these two insurance programs is tiny in relationship to the kind of risk that would occur if there were widespread debt defaults and derivative defaults affecting many banks and many pension plans at once. While depositors and pension holders might try to collect this insurance, there wouldn't be enough money to actually cover these demands. This problem would be similar to the issue that arose in Iceland in 2008 . Insurance would seem to be available, but in practice, would not pay out much.
[2] LOCs are required when goods are shipped internationally, before payment has actually been made. They offer a guarantee that a buyer will be able to "make good" on his promise to pay for goods when they arrive.
By Gail Tverberg
Source - http://ourfiniteworld.com/
More Top Reads From Oilprice.com:
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peakoilbarrel.com
Heinrich Leopold , 12/31/2015 at 4:10 am
... condensate has one of the steepest decline rates – at least in Texas. As November and December 2014 production has been very high, the rates are very likely much steeper in November and December 2015, reaching record decline rates of 50% (see chart below).
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peakoilbarrel.com
Ves , 12/25/2015 at 2:23 pmSteve,Cacerolo , 12/10/2015 at 12:00 am
I agree with your post about market dynamics between customers having to pay through their purchasing power in order to retire loans created by financial industry for oil companies. But there are a few things that make this oil crash little bit "strange" to say at least:1) OPEC (and mainly Saudis + GCC) did actually something by not doing anything and that is refusing to cut their production. Well that is "man made" decision as Oman oil minister said and not decision by invisible hand of market. I interpret this mainly as political decision and not economical.
2) Second. Wall Street was pretty much shocked if not pissed by that Saudi decision. I interpret that to be political reaction as well.
3) There is no worldwide collapse of demand that justify 65-70% fall of the oil price. I am sorry but Wall Street is creating ninja loans for cars, student loans, mortgages from the thin air with the same speed in the US. I would say that is political decision as well. Worldwide collapse is not happening as of now either that would justify 65-70% drop of price. Contraction is happening in Europe but very very gradually except in some marginal countries like Greece, and war torn countries in ME and Africa. But these marginal countries did not even have any big consumption to begin with.
4) Shale oil producer based on their balance sheet were bankrupt from Day 1. Why LTO even got the loans to begin with? That is also political decision and not an economic. Why are we waiting even a year after low prices for any major mergers, buyouts or bankruptcies? I am sorry but 100% of LTO are bankrupt so why Wall Street is extending and pretending and keeping them on a life support? Well it is again political decision.
So yes there are some market dynamics around this oil crash but there are a lot of political dynamics as well.
This is my first post in this blog.Clueless , 12/10/2015 at 5:13 amThere has been a lot of talk regarding the oil glut, but according to EIA crude inventories there is only 105.1 million more barrels of crude than a year ago. That is just 6.4 days of refineries inputs. It does not seem a lot, even less to justify a 60% decrease in the oil price. Oil must be the only commodity industry where one week of extra inventory produce such a price correction.
It is even worse if we consider that gasoline inventories are just 0.4% higher than a year ago. The most important product which represents 46% of the refineries output is at 2014 level. Where is the glut?
There is a glut in distilite fuel oil, residual fuel oil, propane/propylene and fuel ethanol. It seems that there is a big problem in the industrial part of the demand or maybe there is a big unbalance between what refineries can produce and what the market needs.
Warm weather promotes more driving, so we could start spring 2016 with gasoline inventories quite reduced and we could face a high gasoline price environment while we still have this huge oil glut that the media talks all day long.
I have no idea if what eia states in its inventory report as crude and other oils ( the two mayor inventory items by quantity) can be completely used as inputs to produce gasoline or if there are some technical limitations ( not any type of crude can be used to product any type of output). Maybe, and just maybe we have a glut of some types of oil and condensate that nobody needs in the quantities it has been produced since the shale boom.
It is basic economics when it comes to any commodity. If there is a shortage, the price can rise rapidly to the amount that the most critical user will pay. Ask yourself "at what price would the hospitals, ambulances, fire trucks, police cars, offshore drilling rigs [which are being leased for up to $600,000/day], say the price is too high, we will just shut down?" With a small surplus, the price of a commodity will drop like a rock, as buyers see no need to have high inventories and shop around for the lowest price, looking for a seller that has to sell at any price.oldfarmermac , 12/10/2015 at 7:56 amA game analogy. Musical chairs with 20 players and only 19 chairs (only short by 1), and two other rules: The person without a chair gets killed, but there is one chair for sale and anyone can buy it to guarantee their safety. How high would the bidding go? Up to the point of the person with the most money.
Same game with 20 players and 21 chairs (only 1 extra). How high would the bidding go? Zero, as everyone can see that there is more than enough for everybody.
You can easily see this play out even more frequently by looking at charts for agricultural products such as: wheat, corn, soybeans, etc.Prices can double quickly if there is a crop surplus, and fall by over 50% just as quickly if the next crop has a surplus.
Clueless, you are not when it comes to commodity prices. I wish I had thought of the musical chairs analogy myself. But you got in a little bit of a hurry in his last sentence and should have said prices can double quickly if there is a crop SHORTAGE.Clueless , 12/10/2015 at 4:35 pmCommodity food prices are not nearly so inelastic as oil prices, because there are generally plenty of substitutes for any GIVEN food that might be in short supply. But the price can still double in the event of a short crop, it happens.
There are NO short term substitutes for oil.
Thanks OFM. However, my error was not due to being in a hurry, it was due to being 4:13 am my time, and I was still half asleep.Nick G , 12/10/2015 at 4:44 pmThere are NO short term substitutes for oil.Patrick R , 12/10/2015 at 5:11 pmI know what you mean, but that's a little strong. Driving slower, driving your small car instead of your SUV, mass transit, carpooling: there are a lot of short term substitutes.
None of them are perfect substitutes for dirt cheap oil…but that's different (and, of course, dirt cheap oil doesn't really exist if we take into account externalities).
The US just needs to price driving accurately and a huge amount of low value wasteful trips would suddenly become understood as unnecessary. Furthermore the uplift this would give to all alternatives; not just EVs (you guys are so stuck in autodependency), but Transit, active modes, and, most importantly of all; the rise of the local, would huge. And please note, this is not subsidy, simply user pays, just price driving for all its costs, direct and external. Sorted.Also always remember that proximity trumps mobility; that's why cities exist!
Sprawl topia is doomed, but I guess that's hard to grasp when it's all people have ever known. And getting real about actual cost allocation is the mechanism to get North America out of the current stuck pattern. Climate change and all other pollution mitigation isn't about personal choice it's about rational cost allocation; by all means choose to stink, just actually pay the whole cost and there will be more rational actors than old contrarians.
Jeffrey J. Brown , 12/10/2015 at 7:40 amThe craziest thing is that otherwise libertarian freemarketers are violently committed to the Soviet style socialism that is your taxpayer funded driving amenity and no-price driving system. What kind of crisis will it take for reality to be grasped in this area? Cos I suspect you'll get it sooner or later.
Meantime: Keep on truckin'…
Dennis Coyne , 12/10/2015 at 9:06 amThere has been a lot of talk regarding the oil glut, but according to eia crude inventories there is only 105.1 million more barrils of crude than a year ago
What the EIA calls "Crude oil" is actually Crude + Condensate (C+C).
I suspect that most of the 2015 build in US and global C+C inventories consists of condensate, and I frequently cite a Reuters article earlier this year that documented case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper API limit for WTI crude (42 API gravity*), but that are deficient in distillates.
In any case, based on the most recent four week running average data, US refineries were dependent on net crude oil imports for 43% of the C+C processed in US refineries (7.1/16.5) versus 44% a year ago (7.1/16.2). If we had so much (generally cheaper than imported) actual crude oil on hand in the US, why are refiners importing the same amount of crude oil as they did last year?
*Most common overall dividing line between crude & condensate is 45 API
The market for oil is a World market, look at IEA reports for a better look at the International market. Last time I checked, st0rage levels in the OECD were about 250 million barrels above the 5 year average level. There is a limited number of places to put the oil that has been produced, and storing oil costs money, so when there is an excess prices fall. In theory this should increase demand at any given level of World GDP and it should reduce supply as higher cost production is less profitable at lower prices. It takes some time for this adjustment to take place (people don't go out and buy a gas guzzler right away and oil producers try to outlast their competitors, hoping the other guy stops producing as much). So far it has been about 12 months since oil prices dropped sharply, it may take another 12 months, maybe more for production to slow down and excess inventories to be used up.Heinrich Leopold , 12/10/2015 at 4:17 amIf there is not a severe recession worldwide in the next 24 months, I would be surprised if oil prices are not above $60/b, 18 months to 36 months from now, possibly they will be much higher.
It depends on how quickly the oil business can ramp back up after the downturn over the next 1 to 2 years. The longer it takes, the higher oil prices will go, but at some point there may be a major recession, due in part to inadequate oil supply two or three years in the future.
Chart below with the Reference Oil Price case for Brent Oil in 2013$ from the EIA's Annual Energy Outlook published in April 2015.
Given the recent discussions about where US oil and gas production is headed, I have tried to find some forward looking indicators. Well permits and well completions seem to give reasonable indicators for future production. Below chart indicates that at least Texan oil and gas production will steeply slump over the next months. Well permits declined fivefold to a six year low and well completions are not far behind. It will be interesting to see the consequences of this trend.Dennis Coyne , 12/10/2015 at 9:10 am
The RRC Production data is very bad for the most recent 18 months. Texas output has in fact been relatively flat from Nov 2014 to Sept 2015. Perhaps the completion data suffers from the same reporting problems. Permit data is just not very useful.
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peakoilbarrel.com
likbez , 12/30/2015 at 9:50 pm
Glenn Stehle , 12/31/2015 at 9:43 amRon,
OK. Let's assume there is no geopolitics here. But then why Saudis are damping oil at such a low price.
In 2015 they exported over 7.3 Mb/d and got 118 Billions. In 2012 they exported something between 7.658 Mb/d (CIA, probably crude only) and 8.42 mb/d (Bloomberg, probably crude and refined products) and got 336.1 billion.
http://www.bloomberg.com/news/articles/2013-07-29/saudi-arabian-2012-oil-export-revenue-gained-5-as-iran-fell-12-If they just cut 1 Mb/d and that allows to preserve 2014 average price of oil (not even 2013 average price) they would get 125 billions (and preserve 12 Mb from their depleting wells for moment of higher prices which will eventually come.)
In any case they managed to achieve almost 3 times drop of revenue from 2012. Three times --
Now they have almost $100 billion budget deficit in 2015 (and almost the same, 86 billions estimate of deficit for 2016) and only around 600 billions in reserves.
Questions:
1. Why they rocked the boat?
2. Where is the logic in their actions, unless we assume that they want to destroy Iran (and hurt Russia) ?
3. Why MSM spread all this BS about Saudis defending their market share ? Does it look like they are defending something else ?
One theory afloat is that the US and Saudi Arabia are allies in an economic and political war against their enemies. According to this narrative, the intent of Saudi Arabia dramatically increasing oil production during a world oil glut, and sending oil prices into a tailspin, is to shipwreck the economies (and the polities) of US and/or Saudi enemies - e.g., Venezuela, Iran, and Russia.
"Obama's foreign policy goals get a boost from plunging oil prices"
https://www.washingtonpost.com/business/economy/as-crude-oil-prices-plunge-so-do-oil-exporters-revenue-hopes/2015/12/23/ed552372-a900-11e5-8058-480b572b4aae_story.htmlThe war, however, is not being conducted without inflicting significant damages on US allies - e.g., Mexico, Canada, Saudi Arabia, Colombia - and domestic US production as well.
Ambrose Evans-Pritchard, for instance, published an article a couple of days ago about the immense economic damage being inflicted on Saudi Arabia's economy and polity:
"Saudi riyal in danger as oil war escalates"
http://www.telegraph.co.uk/finance/economics/12071761/Saudi-riyal-in-danger-as-oil-war-escalates.htmlWe'll see who blinks first, or who is left standing after all the bloodletting takes place.
Peak Signs , 12/31/2015 at 10:32 am
"According to this theory, the intent of Saudi Arabia dramatically increasing oil production during a world oil glut…"
Saudi Arabia hasn't dramatically increased oil production. Their most recent peak in June of 2015 was only a couple hundred thousand barrels per day more than the previous peak back in mid-2013. That's about 2-3% increase over two years. I wouldn't call that, dramatic.
Glenn Stehle , 12/31/2015 at 11:00 am
I think you're arguing semantics.
Would you also argue that the Saudi response to the glut in 2009 was the same to its response to the glut in 2015?
Ablokeimet , 12/31/2015 at 3:07 am
oldfarmermac , 12/30/2015 at 11:23 pmRon is basically correct. The people who think that oil production is a function of the price are assuming that the oil is there to produce. Now, unless there are a few supergiant fields out there, already discovered and waiting for some State Oil Company or some multi-national oil company to make a Final Investment Decision, that assumption is incorrect. There is a handful of locations which could potentially have supergiant oil fields that are so far undiscovered, I'm not that confident that they are there to find, since discovery in the last couple of decades has been a long way short of consumption, even after the price went sky high and everybody and their dog was spending big on exploration.
What interests me is the bit from the previous post, where OPEC projected prices based on their estimate of what it cost to produce the marginal barrel. I think that is a good line to take, until it reaches the point where governments of OPEC countries decide that, with Peak Oil passed and production in irreversable decline, they are going to start hoarding production and make the rest of the world go short.
The thing to realise with projecting prices based on the cost of production of the marginal barrel is that it should be taken as a tendency working on a 5 year or even decadal scale. In time periods short of that, you can get price wars sending prices down below the marginal cost and price spikes producing windfall profits even for the highest cost producers. The price wars lead to national and multi-national oil companies cutting back on capital expenditure, which eventually leads to stagnating or declining production and a recovery in prices. Price spikes lead to huge resources being spent on exploration and development as everybody wants to cash in.
OPEC's production assumptions are a lot less sensible than their price projections. They assume two things:
(a) That the oil is there to increase global production; and
(b) Most of that oil, from 2020 to 2040, will come from OPEC countries.
Conventional crude oil production is flat out right now and, as I said above, unless someone is hiding a few undeveloped supergiant fields somewhere, it's got nowhere to go but down. Let's look at unconventional sources, then.
1. Polar and deepwater oil. A huge amount has been spent exploring for this and the results have been underwhelming. Sure, they've found oil, but not in anywhere near the quantities needed. Shell recently pulled out of the Arctic because of the combination of environmental protests and poor exploration results. If they were discovering heaps, they'd just tough out the protests – as anybody who knows the first thing about corporate capitalism could tell you.
2. Canadian tar sands. Production of these has been expanding, but it hasn't been to the rate that one might imagine from the published resource data. This is because the rate of production is subject to certain limits, due to inputs. The relevant inputs in this situation are water and natural gas – and it is water which is the harder limit. Basically, they can't produce more oil from the tar sands than the rivers of the region can support. These limits will sooner or later, and I believe sooner, put a ceiling on Canadian production. Absent a huge shift in consumption caused by climate change mitigation action, it will keep at that limit for many decades to come, but it won't exceed it.
3. Venezuelan extra heavy. This is the factor about which I know least, but there doesn't appear to be a lot of it on the market yet. There seem to be a lot of obstacles in the road of high production.
4. Tight oil. One thing that everybody who is knowledgeable admits is that there is a lot of "oil in place" in this category. The question is how much of this is recoverable in a practical sense. This industry has developed in the US, primarily because it brings a number of environmental hazards with it and, outside the US, landholders are blocking exploitation because of environmental concerns. In the US, landholders have a financial interest in ignoring these concerns, because mineral royalties are vested in the landowner.
Tight oil has been developed in the US on the basis of unrealistic projections of ongoing production, due to depletion rates being vastly higher than admitted when spruiking to investors. Sooner or later, it was bound to run into problems. These problems have arrived sooner, as opposed to later, due to OPEC's price war, which is aimed at sending the tight oil industry broke. Producers have cut back on drilling and concentrated with increased intensity on "sweet spots", where production is likely to be highest. They have also introduced technological progress that has cut the price of drilling substantially and thus cut the break-even price for a well of a given production level, but the industry is still losing money. A loss-making industry is unsustainable and, therefore, will not be sustained. Something has to give.
Eventually, the price of oil will recover to be equal to or greater than the marginal cost of production. At this point, what will be relevant is just how extensive the sweet spots in the tight oil formations are. Having been burnt once, investors will be working on much more careful examination of likely decline rates and won't support drilling wells just to keep production up, if those wells won't recover their costs within the time frame of the investment horizon.
The $64 thousand dollar question, therefore, is how long the US tight oil industry is going to be able to keep finding sweet spots where they can extract sufficient tight oil to pay back the cost of drilling.
What's going to happen in other countries? Not a great deal, I predict. Opposition from the local population, led by local landholders, will delay and minimise production from tight oil reservoirs. It won't completely prevent a tight oil industry developing in many other countries, but it will ensure that it never develops the dimensions of the current oil industry. Tight oil production will be a buffer for production on the way down, but it won't counteract the declines caused by the depletion of conventional oil fields.
In summary, the price of production of the marginal barrel of oil is going to go higher – a lot higher, but the marginal barrels won't be additional ones. Rather, rising prices will cause demand destruction. It is already doing so in OECD countries, and it will start doing it in Third World countries too, as existing fields deplete and have to be replaced by new and extraordinarily expensive oil.
Door number two looks damned good from where I sit in the audience, lol.In addition to putting a hurting on Russia and Iran, the Saudis are also no doubt getting the message across to other exporters, in and out of OPEC, that they will not carry the load alone, if and when they eventually decide to cut.
There is little doubt in my mind that secret negotiations about cuts are going on every day, day after day, between diplomats from other oil exporters and the Saudis. When the Saudi government gets what it wants, iron clad promises of cooperation, THEN they might be more inclined to cut.Maybe.
Sometimes something that walks like a duck, and quacks like a duck , and looks like a duck, is never the less not a duck .. Sometimes the resemblance is merely coincidental. Sometimes coincidences are highly advantageous to two or more parties involved.
Consider for instance that many or most well informed people consider that the House of Saud has managed to accumulate and hang onto the biggest fortune in the world only because the country is a client state of the American empire.
Otherwise all those princes and princesses would be dead, or in dungeons, or refugees.
I am NOT saying the Obama administration is colluding with the Saudis, secretly, to keep the price of oil down. I AM saying Uncle Sam is no doubt perfectly happy about oil selling for peanuts, because peanut oil prices are a damned good economic tonic. There must be fifty people happy about cheap gasoline for every one person hurting because he lost his ass or his job in the oil business. Fifty to one. No politician in his right mind can afford to overlook that sort of thing.
I'm ready to bet the farm that no documentation ever comes to light proving Uncle Sam is trying to force oil prices up at this time. OTOH, Uncle Sam and the Saudis share some very heavy duty common interests when it comes to Iran and Russia.
Hey guys, it ain't nothing but zero's in computers, in the last critical analysis, to the House of Saud. They have more than they can spend (on themselves ) anyway.
Suppose any one of you happened to have a personal fortune of say ten million bucks, and you discover you are at high risk of having a fatal heart attack. I doubt any of you would hesitate to spend a third or even half of that fortune to avoid that heart attack. You will never have eat beans and rice unless LIKE beans and rice, so long as you still have five million bucks. ( Unless maybe your physician insists!)
In the minds of the Saudis, the Russians and the Iranians may well represent a literal existential threat .
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Telegraph
Saudi Arabia is burning through foreign reserves at an unsustainable rate and may be forced to give up its prized dollar exchange peg as the oil slump drags on, the country's former reserve chief has warned.
"If anything happens to the riyal exchange peg, the consequences will be dramatic. There will be a serious loss of confidence," said Khalid Alsweilem, the former head of asset management at the Saudi central bank (SAMA).
"But if the reserves keep going down as they are now, they will not be able to keep the peg," he told The Telegraph.
His warning came as the Saudi finance ministry revealed that the country's deficit leapt to 367bn riyals (£66bn) this year , up from 54bn riyals the previous year. The International Monetary Fund has suggested Saudi Arabia could be running a deficit of around $140bn (£94bn).
Remittances by foreign workers in Saudi Arabia are draining a further $36bn a year, and capital outflows were picking up even before the oil price crash. Bank of America estimates that the deficit could rise to nearer $180bn if oil prices settle near $30 a barrel, testing the riyal peg to breaking point.
Dr Alsweilem said the country does not have deep enough pockets to wage a long war of attrition in the global crude markets, whatever the superficial appearances.
Concern has become acute after 12-month forward contracts on the Saudi Riyal reached 730 basis points over recent days, the highest since the worst days of last oil crisis in February 1999.
The contracts are watched closely by traders for signs of currency stress. The latest spike suggests that the riyal is under concerted attack by hedge funds and speculators in the region, risking a surge of capital flight.
A string of oil states have had to abandon their currency pegs over recent weeks. The Azerbaijani manat crashed by a third last Monday after the authorities finally admitted defeat.
The dollar peg has been the anchor of Saudi economic policy and credibility for over three decades. A forced devaluation would heighten fears that the crisis is spinning out of political control, further enflaming disputes within the royal family.
Foreign reserves and assets have fallen to $647bn from a peak of $746bn in August 2014, but headline figures often mean little in the complex world of central bank finances and derivative contracts.
See also
Black Swan
""He is drawing on a McKinsey study – 'Beyond Oil' -
that sketches how the country can break its unhealthy dependence on
crude, and double GDP by 2030 with a $4 trillion investment blitz across
eight industries, from petrochemicals to metals, steel, aluminium
smelting, cars, electrical manufacturing, tourism, and healthcare""McKinsey's advice to the Saudi suckers proves that global financial companies are crooks. Pray tell from where will Saudi Arabia get people to run the industries recommended by Mckinsey ? There is already global excess in the industries.
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news.yahoo.com
Stockpiles hit record highs at the Cushing, Oklahoma delivery hub for U.S. crude's West Texas Intermediate (WTI) futures. Gasoline and heating oil also posted larger-than-expected stock builds.
"In all the years I have been doing this, I have never seen builds in the last week of December," said Tariq Zahir, crude futures trader at Tyche Capital Advisors in Long Island, New York.
"At least for tax consequence reasons, refiners always ramp up runs at the year-end, and there's a draw. This is a first for me."
Ali al-Naimi, oil minister of OPEC leader Saudi Arabia, said the kingdom will not limit production, the Wall Street Journal reported.
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news.yahoo.com
Rebels still control large parts of the region, that also borders Israel, but have been largely on the defensive since their failed offensive in June to take the government-controlled part of Deraa city.Vladimir
Here's the latest from Russia's General Staff, with some interesting info about the US Air Force activities.In the course of last two days, since December 28, aircraft of the Russian Aerospace Forces in the Syrian Arab Republic have performed 121 combat sorties engaging 424 terrorists' objects
In the course of last two days, since December 28, aircraft of the Russian Aerospace Forces in the Syrian Arab Republic have performed 121 combat sorties engaging 424 terrorists' objects in the Aleppo, Idlib, Latakia, Hama, Homs, Damascus, Daraa, Raqqah and Deir ez-Zor provinces.
Near Mahin (Homs province), Russian Su-34 performed a strike on a large terrorists' base of the ISIS. A hangar with military hardware, depots with weapons, materiel and munitions of terrorists were destroyed. Five off-road vehicles equipped with large-caliber machine guns, an infantry fighting vehicle, and four trucks loaded with munitions were eliminated.
Near Shawarighat al-Arz (Aleppo province), Russian Su-25 destroyed a terrorists' strong point. Direct hits caused elimination of a tank and three off-road vehicles equipped with large-caliber machine guns.
Near Lahaya (Hama province), a Su-25 of the Russian Aerospace Forces eliminated two artillery guns and an ammunition depot.
In suburbs of al-Khadr (Latakia province), Su-25 carried out a strike on a large strong point of terrorists and eliminated 2 pieces of hardware.
Command staff of the Russian aviation group continues receiving information about objects of the ISIS and other terrorist groups active in Syria from representatives of patriotic opposition forces.
Therefore, on Monday, Russian party received information from representatives of one of the Syrian opposition detachments active in northeastern Syria concerning a planned meeting of the ISIS field commanders in the suburbs of Raqqah.
The Russian Defence Ministry organized a day-and-night air observation of the object. After receiving confirmation on arriving of militants' leaders to the assigned point, Russian Su-34 bomber performed a strike on the building, where the meeting was taking place. As a result of direct hit with guided missile, the building was destroyed with all its contents.
Several days ago, representatives of a patriotic opposition formation active in the Idlib province presented information to the Russian Defence Ministry about location of a large ammunition depot of the Jabhat al-Nusra near al-Zerba.
After making research on the aerial photographs of the region and checking reconnaissance data, Russian Su-24M hit the target. Objective monitoring data confirmed elimination of the object.
Means of intelligence detected a hidden reinforced concrete shelter of the AD complex Osa. A Su-34 bomber received an order to liquidate the target. Direct hits of BETAB-500 air bombs caused destruction of the building with all its contents.
In the course of actions aimed to cut terrorists' sources of income, the Russian aircraft eliminate large number of oil production, storing and transportation facilities on the ISIS-controlled territories in Syria.
In the course of last two days, the Russian aviation group destroyed six objects of oil trafficking in the Deir ez-Zor and Aleppo provinces.
In the course of the aerial intelligence operation near Kafr Nabl (Idlib province), the Russian aircraft detected concentration of oil tankers moving to the Syrian-Turkish borders. They were escorted by off-roaders equipped with anti-aircraft systems.
Russian Su-34 bomber performed a strike on the target and eliminated more than 20 oil trucks, which had been used by the ISIS for illegal oil transportation, two off-roaders equipped with ZU-23 AD systems.
***
It is necessary to pay attention to the statement made by representative of the US State Department. Time is changed. Situation is changed. Representatives of the State Department are changed. However, speech writers are not.
All these impersonal claims without evidences about performing strikes on civilian objects by allegedly Russian aviation in Syria close resemble performances held by hypnotists or chapiteau.
It is about absurd: there are serious accusations referring to some "reputable non-governmental organizations". However, there is no information about the exact name of these organizations and who they are reputable for.
All this is happening while actions and, the most important, results of the US air bombardment in this region are keeping absolute silent.
However, every day aircraft and strike UAV's of the US Air Force carry out from six to twenty combat sorties with performing missile and bomb strikes on ground targets.
Therefore, all the public community learns information about effectiveness of operations held by the US Air Force, when their "flights" had caused mass killing. It is impossible to be hide or shift responsibility to any party.
kingn500Russia carpet bombing is winning the war for the Syrian military that is a strong army that was losing due to lack of air force power and lack of cities war fare experience needed during the attack and defense of Syrian cities, Syrian military was not trained for guerrilla warfare inside the cities but with Russia carpet bombing and Russia retraining the Syrian military in cities warfare they begin to regain Syrian cities and defeating these terrorist rebels If this continue the Syrian military will regain control of all Syrian cities and all these terrorist islamic groups supported by foreign countries will be defeated and expelled from Syria. Good for the Syrian people that most of them don't want an islamic state in Syria. Go Russia go .
smlslk
Rebels from another mainstream anti-Assad armed opposition alongside some Islamist groups"
Well thats interesting. A "mainstream anti Assa armed group", yet they go through all that without actually revealing the name.
Is there any question now that the WH was simply letting Syria get demolished in the hopes Assad would fall?
Theres a lot of people that support Assad. The WH knows this. The WH stated that Assad hasent a chance in hell of getting re elected. Well if thats the case, why does the WH refuse to see his name on a ballot.
So lets get this strait. All the people that now back Assad including all the people that would now vote for him would then become the terrorist if the WH appointed one of these nameless "armed mainstream anti Assad terrorist groups". They are "Islamist" and the Christian genocide would continue on and on and on. Dont forget, not one of these guys came to power without holding on to a gun. Does that sound like someone you would vote for?
Ramsis
hilarious, while this silly article says the syrin army is making gains only after the Russian bombing. They slipped an wrote that the terrorists lost in June against the syrian army!! The russians only got involved in october!! propaganda always has its draw back....the truth!!
stefan
Until DC provides the list of Moderate Rebels that don't have any Islamic reference they ALL will be viewed as Islamic Terrorists Organizations. And until that list is provided let the Russians bomb the Hell out of them.
J M
Let's get this straight... IS militants are all TERRORISTS. Any rebel groups that are fighting alongside with the IS group are also part of the terrorist group. And if those so-called rebel groups are supported by the US or NATO or Turkey, it means that those nations are directly or indirectly supporting the ISIS or TERRORISTS.
DAVID
The Syrian Army announced minutes ago that its troops alongside the popular forces drove the militant groups back from the entire districts of the key town of Sheikh Meskeen North of Dara'a after killing, wounding and capturing a large number of the terrorists. "Sheikh Meskeen is now under the full control of the Syrian government forces," the army said.
"The militant groups have suffered a heavy death toll. Most of the militants in the town have been killed or wounded. In addition, a large number of the militants have surrendered, while the rest preferred to flee the war zone," the army added.
"The Syrian army is fortifying its positions in the town now," it went on to say.
"Pro-government troops are patrolling the town to find the rest of the militants," the army added.
"The Syrian soldiers are transferring the captured and injured militants to safer areas behind the frontline," the army went on to say.
"The engineering units of the army are defusing the Improvised Explosive Devices (IED) planted by the terrorists groups across the government buildings," the army said.
Reports said earlier that the Syrian government forces' rapid advances in the town of Sheikh Meskeen have forced the militant groups to start pulling back forces and fleeing the battlefield to evade more casualties.
"The Syrian army and the National Defense Forces (NDF) have continued to push back the militant groups from different districts of the town, including the residential area of the military forces and one of the main roundabouts of the strategic town," the army said.
"The militant groups, who have witnessed the heavy attacks of the Syria forces and the collapse of their defense lines in the Northeastern, Northern and Eastern parts of the city, have started to withdraw from more districts," the sources said.
"In the meantime, large groups of militants are fleeing the town in order to evade more casualties," the sources added.
"The militant groups have sustained a heavy death toll and are hopeless. The terrorists' commanders have called for fresh militants but have received no response from their comrades in other parts of the province thus far," the sources said.
"The government forces have completed their control over the Eastern part of the town, Pharmacy Street, al-Ra'esi Roundabout in the middle of the town, and Jame'a al-Omari and are advancing against the militants' strongholds," the sources said.
"The Syria forces also have surrounded the militant group of al-Wila Seif al-Sham in the city and are hunting them one by one," the sources said.
Reports said that the Russian and Syrian Air Forces' joint combat sorties over the militant groups' positions in Sheikh Meskeen North of Dara'a claimed the lives of large groups of terrorists and destroyed their military grid.
"The Russian and Syrian fighter jets, in over 25 sorties, massively bombed the militant positions in Sheikh Meskeen, which left many terrorists dead or wounded," the army sources said.
"The aerial coverage created by the Russian and Syrian fighter jets in Sheikh Meskeen battlefield was one the most important causes of the Syrian ground forces' advances against the militant groups on Tuesday," the army added.
The Syrian army and its allies have been significantly advancing against the militant groups in the province in the recent weeks, particularly in Sheikh Meskeen.
Army announced on Tuesday that its troops and their popular allies advanced in the Northern battlefronts of Sheikh Meskeen rapidly and pushed the militants back from more positions.
"Following the capture of Battalion 82 base and Tal al-Hish, the Syrian government forces captured the Sheikh Meskeen's Pool Facility, killing over 15 enemy combatants from the Free Syrian Army (FSA), the army said.
"The Syrian army, the National Defense Forces and other popular fighters are on a roll in the Dara'a province after launching a massive assault on the strategic town of Sheikh Meskeen over 72 hours ago," the army added.
Sheikh Meskeen is vital and strategic due to its location along the second most important highway in the Dara'a province; it is also the key to the cities of Nawa and Jassim.
Bill
MY FELLOW AMERICANS, the first "War on Terror" was during Jefferson's presidency. For nearly fifteen centuries the world has faced the disease of Islam, but our nation faced it head on when Thomas Jefferson, serving as the ambassador to France, and John Adams, servicing as the ambassador to Britain, went to London to meet with Ambassador Abdrahaman, the Dey of Tripoli's ambassador to Britain. Of course they met with Abdrahaman to negotiate a peace treaty, but keep in mind that in Islam, the only peace is submission to Islam.
After independence, however, pirates often captured U.S. merchant ships, pillaged cargoes and enslaved or held crew members for ransom. Jefferson had opposed paying tribute to the Barbary States since as far back as 1785, and in 1801, he authorized a U.S. Navy fleet under Commodore Richard Dale to make a show of force in the Mediterranean, the first American naval squadron to cross the Atlantic ...this lead to the "First Barbary Wars".
America, though this victory proved only temporary, according to Wood, "many Americans celebrated it as a vindication of their policy of spreading free trade around the world and as a great victory for liberty over tyranny." My fellow Americans, I am a veteran, I have fought against terror for over a decade (2001 to 2011). These radicalists have been like this from generation to generation to as far back as the 7th century. I'm concerned on what we will leave behind for our next generation and the future of this great nation! So I say onto you, my fellow Americans, LET NO ONE -AND I MEAN NO ONE- COME INTO OUR HOUSE AND PUSH US AROUND!
Paul
The Russians are doing this right, get rid of all terrorist groups including the one Israel and the U.S. are supporting, funding and arming.
TheTerrorists are no longer terrorists but are now called rebels? That would mean the Paris slaughter was done by rebels.
Kevin
Somebody please tell to these so called moderate rebels and their brothers in ISIS that their heydays are over. Run while you can.
Detritus of Sloth
Wonder what the US response would be to Russian airdropping thousands of RPG's and millions of rifles and ammunition to the #$%$, Aryan Nation, Nation of Islam and various militia group in the US who feel they are being oppressed?
Vicious
Since there wasn't a single mention of ISIS in this article, then the emphasis should have been Obama's Syrian "rebel" allies are getting the krap kicked out of them by the Russians.
But Reuters, being an Obama support group would only mention them as "backed by Western Powers".
RT
insurgents on the ground told Reuters........you mean Terrorists don't you? This is a constant source of the media information, the terrorists themselves. We know what color pajamas the Jihadists wear to bed at night, and every move they make, and why, but our military seems to have missed this.......
Does anyone see the connection between the terrorists, who are backed by the West, and the outright Lies the media tries to pass off as the truth. One other note here, they keep recycling parts of this article which appear almost verbatim in several other reports on Yahoo about Syria.
jane
Who know, maybe in 2016 all "Sunni moderate rebels" and ISIS will be expelled. Then Syria will see peace and its refugees can return home. But I bet the blood-thirsty US Snake Department and the CIA probably will prefer continued bloodshed.
Peetie
The US is guilty of arming rebels against a government with representation at the United Nations. That is a crime.
Hezbollah:
Let's look at so-called "moderate rebels" supported by American taxpayers. Example: Jeysh Al-Islam:
- It means "Army of Islam"
- Its leader called for extermination of all minorities in Damascus
- Its leader called Alawites "more infidel than Jews and Christians"
- Is directly financed by Saudis
- Has clearly shown its support for Islamic Caliphate and vehemently opposes democracy
- Been involved in series of tortures, beheadings, murders and disappearancesYep, "moderate rebels" all right.
J. de Molay
The two super powers, China and Russia, maneuvered on the global stage for supremacy while the US citizens politically in-fight with no clear future oriented goals or plans. Sadly, the US is slowly dissolving away from what is was supposed to be that was framed by the founders a mere 235+ years ago. All the US resources are wasted on misguided and ill-convince military adventures that support corporations than its own citizens.
Davin
Just like in the north of Syria....ALL the "rebel" groups in the south fight under Al-Nusra's umbrella and command structure. Al-Nusra plans ALL of their offensives, as well as ALL of their defense. You can call them moderate if you want. but ALL the "rebel" groups in Syria work hand-in-hand with the Salafist and Takfiri.
Relja
Seems 'the rebels' are regular troops from jordan and turkey. President Asad lost large teritorry because of turkish, joprdan and saudi 'rebels' loved by west/Us.
Reyter
Personally I think it's heartwarming the way Western governments and the 'free' press has lined up behind the radical Islamists against Russia and the secular regime in Syria where women can do such evil things as go outside without a sheet over their heads and men can drink beer and etc! This is madness! Russia is evil!
CRL
"Rebels from another mainstream anti-Assad armed opposition alongside some Islamist groups said they shelled the city of Izraa, a main government held town"
How many innocent civilians were killed? Did not see the number in the press.
Ramsis
stop this nonsense, no one believes it ny more... moderate rebels, barrel bombs ...they are all islamic terorrists, and very well funded and equipped by saudi arabia and qater and trained and supplied by turkey and the u.s. clear as day light ,they are all sunni muslim terrorists!
Mark
There is a news report "Christmas and New Year carnival in Damascus- Video" on SANA news website. I seriously doubt the "moderate" rebels would approve of anything Christmas-related. Assad looks a lot more moderate to me than the US-backed "moderates".
TruthMonger
Why our media is viewing Syrian events from the terrorists' perspective, never from the legitimate government's??
Scott
That GGAADDAAMMMM IDIOT BUSH & The AFFLUENZA Party (Republican Party) are 100% to Blame......for Creating ISIS....and The Whole Mess in Middle East.......Says RAND PAUL & TED CRUZ........92% of Americans Agree
analogy
I keep on reading "rebels , freedom fighters, moderates" that this means the Paris attackers and the ones that brought down the towers are one of the above?
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news.yahoo.com
Moscow (AFP) - Russian President Vladimir Putin fired off an angry tirade against Turkey on Thursday, ruling out any reconciliation with its leaders and accusing Ankara of shooting down a Russian warplane to impress the United States.
In comments littered with crude language, Putin dismissed the possibility that the downing of the warplane over the Turkey-Syria border last month was an accident, calling it a "hostile act".
"We find it difficult if not impossible to come to an agreement with the current leadership of Turkey," the Kremlin strongman said at his annual news conference.
"On the state level, I don't see any prospects of improving relations with the Turkish leadership," he said of Turkish counterpart Recep Tayyip Erdogan.
Ties between Russia and the NATO member have hit rock bottom since the November 24 incident, which led to deaths of two Russian military officers.
Turkey has said the Russian jet strayed into its airspace and ignored repeated warnings, but Moscow insists it never left Syrian territory.
Putin said he did not rule out that Ankara was acting with tacit approval from Washington, possibly so that the United States would look the other way to let Turkey "go onto Iraqi territory and occupy part of it".
"I don't know if there was such a trade-off, maybe there was," Putin said.
"If somebody in the Turkish leadership decided to lick the Americans in one place... I don't know, if they did the right thing," he added.
"Did they think we would run away now? Russia is not that kind of country," Putin said, speaking of Moscow's increased military presence in Syria.
"If Turkey flew there all the time before, breaching Syrian airspace, well, let's see how they fly now."
Turkey has voiced concern about Russian air raids in northern Syria because of the Turkmen minority in the area, a Turkic-speaking people who have had an uneasy relationship with the regime of President Bashar al-Assad.
But Putin declared: "I've never heard anything about these so-called Turkmen.
"I know that there are our Turkmen, living in Turkmenistan," he said, referring to the ex-Soviet Central Asian country.
Putin also accused Turkey's leaders of overseeing a "creeping Islamisation" of the country "which would probably cause (modern Turkey's founding father Mustafa Kemal) Ataturk to turn in his grave."
- Not an 'enemy state' -
Putin and Erdogan have been locked in a war of words since the plane downing, and Moscow has even accused Erdogan's family of engaging in oil smuggling operations with Islamic State jihadists.
On Thursday, Putin went as far as to say that the Islamic State group was a "secondary issue" in Syria as it was created as "cannon fodder under Islamist slogans" to protect economic interests of other players, although he did not name Turkey.
However, he said he does not consider Turkey an enemy state. "They committed an enemy act against our aviation, but to say that we view Turkey as enemy state -- that is not the case."
Russia has imposed a number of sanctions on Turkey but Putin brushed aside questions from journalists about raids against Turkish firms and expulsions of Turkish students from Russian universities.
Putin said that had the downing of the plane been an accident, Turkish leaders should have tried to "pick up the phone and explain themselves".
Erdogan attempted to call Putin on the day of the incident, but the Kremlin ignored his request to speak to the Russian leader.
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news.yahoo.com
Moscow (AFP) - Moscow on Wednesday called for Ankara to arrest a rebel it claims killed the pilot of the Russian jet downed by Turkey last month on the Syrian border.
"We demand that the Turkish authorities take immediate steps to apprehend Alparslan Celik and his accomplices and bring them to justice for the murder of the Russian pilot," foreign ministry spokeswoman Maria Zakharova said in a statement.
In an interview published Sunday in Turkish newspaper Hurriyet, Celik -- a Turkmen rebel and citizen of Turkey -- said that his "conscience cannot be bothered by a person who threw bombs at Turkmen civilians every day," referring to the slain Russian pilot.
Both pilots aboard the downed Su-24 jet ejected and parachuted to the ground on the Syrian side of the border, one of whom was killed by gun fire from the ground.
"Revenge is the most natural right," Celik said in the interview, while refraining from claiming the pilot's death.
Moscow and Ankara have been locked in a bitter spat over the downing of the Su-24 jet on November 24, with the Kremlin imposing a raft of economic sanctions against Turkey.
Zakharova said that the publication of Celik's comments in a major Turkish newspaper had angered and surprised Moscow, and accused the media outlet of being a "platform where terrorists and murderers brag about their crimes and spread hate of Russia and the Russian people through nationalist ideology."
She added that Celik's comments constituted an admission of his "direct involvement in the murder of the Russian pilot".
Turkish authorities have accused Russia of "ethnic cleansing" in Syria, targeting Turkmen and Sunni population that oppose the regime of Syrian President Bashar al-Assad, Moscow's long-time ally.
Turkey says the Russian jet strayed into its airspace and ignored repeated warnings, while Moscow insisted it did not cross over from Syria and accused Ankara of a planned provocation.
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www.cnbc.com
James Cordier, founder of Optionssellers.com. Speaking to CNBC's "Closing Bell" on Monday, he said the summer driving season may influence the possibility of a supply cut from OPEC's de facto leader by its next meeting in June."Simply a 5 percent production cut could give a, say, 20 percent rise in price; that might be a trade that the Saudis might be willing to do," he said.
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news.yahoo.com
RMax304823
Well, glut up, price down, etc. It all look very temporary once outside of the box. OPEC has opened the floodgates to knee-cap attempts to develop shale oil and sustainable energy sources. It's working but it can't last forever.
(1) Oil is a finite resource.
(2) The developed and emerging markets are using it up at an increasing pace.
(3) We will run out.
Actually, we'll never entirely "run out" of oil. It will just reach a point at which extracting, processing, and shipping it is not worth the energy and expense of the product itself.
I hope the current glut doesn't blind us to this simple fact because petroleum gives us more than just gasoline and heating oil. We get plastics from it, and synthetic fabrics, and innumerable other goods, including the indispensable WD-40.
We really should be getting ahead of the curve on this one but there's a good deal of opposition to that because somehow oil has become defined as a political issue instead of an economic one. It's a short-sighted view. Future historians will refer to the last 200 years as The Petroleum Age.
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Dec 30, 2015 | naked capitalism
The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and 'tactics' to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they're all too squeezed by the demise of Chinese demand growth, if not demand, period.Ever since 2008, the entire world economy has been kept afloat by the $25 trillion or so that China printed to build overleveraged overcapacity. And now that is gone, never to return. There is nowhere else left for our economies to turn for growth. Everyone counted on China to take them down the yellow brick road to la-la-land, forever. And then it didn't happen.
What 2015 should have made clear, and did in a way but not nearly clear enough, is that the world economy is falling apart due to a Ponzi bubble of over-production, over-capacity, over-investment, over-borrowing, all of which was grossly overleveraged. And that this now is, for lack of a better word, over.
Most people who read this will have noticed the troubled waters investment funds -hedge funds, mutual funds, money market funds et al- have recently landed in. But perhaps not many understand what this means, and where it may lead. These things tend to be seen as incidents, as is anything that diverts attention away from the 'recovery just around the corner' narrative.
Not only do the losses and redemptions at investment funds drive these funds to the brink, everything they've invested in also tumbles. Add to this the fact that most of the investments are highly leveraged, which means that typically a loss of just a few percent can wipe out all of the principal, and a notion of the risks becomes clear.
Of course, since many of the funds hold the same or similar investments, we can add yet another risk factor: contagion. Things will blow up first where the risk is highest. Then everything else becomes riskier. Low interest rates have caused many parties to chase high yields -junk bonds-, and that's where risks are highest.
This is the 2015 story of investment funds, and it will continue, and aggravate, in 2016. Ultra low interest rates drive economies into deflation and investors into ever riskier assets. This is a process of unavoidable deterioration, unstoppable until it has played out in full. A 0.25% rate hike won't do anything to change that.
Why do interest rate hikes pose such a problem? Because ZIRP has invited if not beckoned everyone to be up to their necks in debt. The entire economy is being kept lopsidedly upright, Wile. E style, by debt. Asset prices, even as commodities have now begun to fall in serious fashion, still look sort of OK, but only until you start to look at the amount of leverage that's pinning it all up.
Once you see that, you understand how fragile it all is. Go one step further, and it becomes clear that this exponentially growing 'machinery' can only be 'sustained' by ever more debt and leverage. Until it no longer can.
Commodities prices have nowhere to go but down for a long time to come. These prices have been propped up by the illusionary expectations for Chinese growth and demand, and now that growth is gone. So, too, then, must the over-leveraged over-investments both in China and abroad.
Growth that was expected to be in double digits for years to come has shrunk to levels well below that 'official' 7%. China's switch to a consumer driven economy is as much a fantasy as the western switch to a knowledge economy has proved to be. If you don't actually produce things, you're done. And producing for export markets is futile when there's no-one left to spend in those markets.
Ergo, commodities, raw materials, the very building blocks of our economies, from oil all the way to steel, are caught in a fire sale. Everything must go! Eventually, commodities prices will more or less stabilize, but at much lower levels than they -still- are at present. That we will need to figure this out in 2016 instead of 2015 is our own fault. We could have been healing, but we've yet to face the pain.
... ... ...
I was impressed with the following earlier this month from David Stockman, Reagan's Director of the Office of Management and Budget, who now seems to have firmly caught up with the deflation theme Nicole Foss and I have been warning about ever since we started writing – pre-TAE – at the Oil Drum 10 years ago. Stockman today says that we are entering an epic deflation and the world economy is actually going to shrink for the first time since the 1930s. (!)The End Of The Bubble Finance Era
There has been so much over-investment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come. [..] .. there will be a severe curtailment in the production of mining and construction equipment, oilfield drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.
It's good to see people finally acknowledging this. It's still rare. But there's another, again interlinked, development that is very poorly understood. Which is that in a debt deflation, the 'money' that appears to be real and present in leveraged investments more often than not doesn't get pulled out of one 'investment' only to be put into another, it just goes POOF, it vanishes.
And though it may seem strange, conventional economics has a very hard time with that. In the eyes of that field, if you don't spend your money, you must be saving it. The possibility of losing it altogether is not a viable option. Or, if you lose it, someone else must be gaining it, zero-sum style.
But that view ignores the entire 'pyramid' of leveraged loans and investments and commodity prices, which precisely because that pyramid contained no more than a few percentage points of 'real collateral' to underpin everything it kept afloat, should have been a red flag. Because this is the very essence of debt deflation.
PlutoniumKun,New Deal democrat,The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and 'tactics' to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they're all too squeezed by the demise of Chinese demand growth, if not demand, period.
I'm not sure I buy this at all. IEA figures show a consistent growth of oil demand in China the past few years. There is certainly a question mark over whether this is 'real' demand growth or whether it is largely driven by stockpiling (I strongly suspect the latter), but whatever way you look at it, China is buying more oil consistently year on year.
While certainly demand is not growing as much as the oil industry hoped, I haven't seen any evidence to contradict the general view that the core reason for the collapse in price is that the Saudi's fear their loss of influence as a result of the huge growth in unconventional oils, and have decided to kill them off by crashing prices. The desperate need by struggling oil producers to increase cash flow, and so not slow down production in response to low prices, accounts for the rest of the oil crash. I don't question the overall thesis of the article, but its not doing itself any favours by this sort of argument.
Growth that was expected to be in double digits for years to come has shrunk to levels well below that 'official' 7%. China's switch to a consumer driven economy is as much a fantasy as the western switch to a knowledge economy has proved to be. If you don't actually produce things, you're done. And producing for export markets is futile when there's no-one left to spend in those markets.
The switch to a consumer driven economy is not a fantasy, it is in fact happening and measurable, as Michael Pettis has pointed out. Anyone who keeps an eye on China knows that the CCP commitment to boosting the domestic consumer sector is real. The question is whether they are doing enough, fast enough – the answer to that (as Pettis concludes in that article) is that it is not happening fast enough. In reality, China has changed focus away from export markets and domestic investment quite significantly – but it is probably too late to prevent real disruption and internal deflation along with much slower real growth. Again, this doesn't contradict Ilargi's thesis, but he's not doing his arguments any favours by making sweeping statements like this which are only partially backed by real figures.
Steven,In 2009, Illargi thought monthly job losses would accelerate by about 100,000 each month from 1 MILLION a month to 2 Million a month. In fact they declined by 100,000 a month to nearly zero by year's end.
On the very day of the stock market bottom in 2009, Illargi savaged Warren Buffett, who had said the stock market was making a historic low, and said anyone who took Bufffett's advice to buy stocks would be making a horrific mistake.
I collected these horrible calls in this post: http://bonddad.blogspot.com/2015/08/the-pied-piper-of-doom-and-automatic.html Those kind of gargantuan errors ought to disqualify Illargi from being taken seriously.
As to deflation in 2016, right now gas prices are down about 12% YoY, their least negative reading in over a year. They are only $.02 lower than they were at their bottom in the last week of this past January: https://research.stlouisfed.org/fred2/graph/?g=30wx
Caveat reader.
likbez,What's tragic about all this is its utter stupidity. The US economy has been marching down the road of waste and conspicuous consumption (AKA the 'American lifestyle') paved by Black Gold (oil) for more than a hundred years; the global economy for at least half that long, having destroyed itself in world wars at least twice in the last century.
This has all been done so people with more money than they need at the moment or in several lifetimes can continue making more – 'keeping score' I believe they call it. If TPTB really wanted to 'save capitalism' they would be using their wholly owned governmental subsidies to write laws that made technologies with at least a chance of saving billions of lives, e.g. renewable energy and the electrification of transportation, profitable. (The end game is some form of 'socialism' that makes life possible for those billions while preserving the prerogatives of wealth inherited from previous generations or more recently created ex nihilo ('out of thin air') by the bankers and financiers. Remember: "Anyone can create money. The problem is getting it accepted." (Well, not really. You have to have access to credit.)
They (TPTB) have instead chosen to try to sustain the illusion their money-based wealth, i.e. money created ex nihilo – money that goes "Poof" at the end of every business cycle – first by fractional reserve bankers nominally based on gold or some other form of purported 'real' wealth and these days by bogus, impenetrable mathematics that hide the reality of "debts that can't be repaid (and) won't be" at least until the next financial crash (or world war).
The world has been marching down the wrong road for far too long – if the lives of several billion people matter – a road these days paved with the ambitions of Middle Eastern royalty mobilizing their troops with a religious fanaticism encouraging the most ruthless barbarism. It has precious little time remaining to find its direction.
"Price discovery has already started (oil, commodities), and central banks have benched themselves. They could only re-enter the game if they quit interfering in the markets, but they're too afraid, all of them, of the consequences that might have, not even so much for their economies but for their TBTF banks. "
Good point. That will be the most interesting part of 2016 in oil. But is a sense price discovery for shale industry already ended. They have few chances to survive below $70-80 (if junk dent to be paid) and $50-$60 if it will be rotated or maturity extended.
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Dec 30, 2015 | UPI.com
Russian Energy Minister Alexander Novak said oil production in Western Siberia, once a major contributor to overall output, was declining at an average rate of around 1 percent per year. Changes in a tax system, where so-called excess profits will be taxed at 70 percent, will make Western Siberia commercially viable.
Under the current tax regime, Novak said about 73 billion barrels of oil are not economic.
...Novak said a return to oil priced around $100 barrel is a long ways off. Volatility is expected to linger through the early part of 2015 before some level of balance returns to the market.
"It is unlikely there will be a sharp surge in prices," he said. "In my opinion, as of today the price of around $50 a barrel would be fair, if we proceed from economic parameters, the balance of supply and demand and the cost of oil production."
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www.theguardian.com
The IMF managing director, Christine Lagarde, said the prospect of rising interest rates in the US and an economic slowdown in China were feeding uncertainty and a higher risk of economic vulnerability worldwide.
Added to that, growth in global trade has slowed considerably and a decline in raw material prices was posing problems for economies reliant on commodities, while many countries still had weak financial sectors as the financial risks increase in emerging markets, she said.
"All of that means global growth will be disappointing and uneven in 2016," Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth. In October, the IMF forecast that the world economy would grow by 3.6% in 2016.
... ... ....
Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases.
Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could "infect" banks and states.
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Dec 30, 2015 | UPI.com
The ministry reported total revenue for fiscal year 2015 at $162 billion, an estimated 15 percent decline from budgeted revenues. Oil revenues are expected to reach $118 billion, a decline of 23 percent from the previous year.
... ... ...
The Saudi government said that, because of "excessive" volatility in crude oil prices, a budget support provision of $48.7 billion was established to help finance projects designated as national priorities.
Non-oil revenue for Saudi Arabia increased 29 percent from last year to $43.5 billion.
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Rigzone
...China's apparent demand for crude oil will reach 550 million tonnes (11 million barrels per day) and apparent demand for natural gas will hit 205 billion cubic metres, Nur Bekri, head of the National Energy Administration (NEA), said, according to Xinhua.
...This year, China will have imported 330 million tonnes (6.6 million bpd) of oil and 60 bcm of natural gas. Installed energy capacity will have reached 1.47 billion kilowatts, up 7.5 percent.
...Crude oil production is expected to rise to 220 million tonnes (4.4 million bpd), even as global prices near 11-year lows. Natural gas production, including shale gas and coal-bed methane, is expected to rise to 140 bcm, he said.
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Bloomberg Business
In Kern County, California, one of the nation's biggest oil producers, tumbling energy prices have wiped more than $8 billion from its property-tax base, forcing officials to tap into reserves and cut every department's budget. It's only getting worse.The county of 875,000 in the arid Central Valley north of Los Angeles may face another blow in January, when it reassess the oil-rich fields that line the landscape. Last year's tax bills were based on crude selling for $54 a barrel. It finished Monday at less than $37.
Alaska, Louisiana and Oklahoma have seen tax collections diminished by the rout, which has put pressure on credit ratings and led investors to demand higher yields on some securities. In Texas, the largest producer, the state's sales-tax revenue dropped 3 percent in November from a year earlier as the energy industry exerted a drag on the economy.
Further west, Colorado's legislative forecasters on Dec. 21 estimated that the state's current year budget will have a shortfall of $208 million, in part because of the impact of lower commodity prices. In North Dakota, tax collections have trailed forecasts by 9 percent so far for the 2015-2017 budget."The longer it goes the more significant it gets," said Chris Mier, managing director with Loop Capital Markets in Chicago.
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crudeoilpeak.info
matt , December 29, 2015The media is full with news that there is a global oil glut.There are now more than 3bn barrels of excess oil in the world
Record oil glut stands at 3bn barrels
13/11/2015
http://www.bbc.com/news/business-34808487It was parroted by the Australian public broadcaster ABC TV, using this (unsuitable) opportunity to take a swipe at peak oil:
Peak oil losing credibility as renewables shift accelerates
24/12/2015
"With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background."
http://www.abc.net.au/news/2015-12-24/peak-oil-losing-credibility-as-shift-to-renewables-accelerates/7052196These stories go back to the IEA's Monthly Oil Market Report (OMR), November 2015 which reads:
"Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/bbl oil."
https://www.iea.org/oilmarketreport/reports/2015/1115/So how much is 3 bn barrels?
Let's have a look at the statistics in the latest IEA OMR of December 2015. It's only about OECD stocks, not the whole world.
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crudeoilpeak.info
matt , December 29, 2015The media is full with news that there is a global oil glut.There are now more than 3bn barrels of excess oil in the world
Record oil glut stands at 3bn barrels
13/11/2015
http://www.bbc.com/news/business-34808487It was parroted by the Australian public broadcaster ABC TV, using this (unsuitable) opportunity to take a swipe at peak oil:
Peak oil losing credibility as renewables shift accelerates
24/12/2015
"With the world awash with too much crude oil at the moment, the fear of an economic catastrophe when fossil fuels start running out is quietly fading in the background."
http://www.abc.net.au/news/2015-12-24/peak-oil-losing-credibility-as-shift-to-renewables-accelerates/7052196These stories go back to the IEA's Monthly Oil Market Report (OMR), November 2015 which reads:
"Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/bbl oil."
https://www.iea.org/oilmarketreport/reports/2015/1115/So how much is 3 bn barrels?
Let's have a look at the statistics in the latest IEA OMR of December 2015. It's only about OECD stocks, not the whole world.
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Dec 29, 2015 | Zero Hedge
Yesterday, when Saudi Arabia revealed its "draconian" 2016 budget, boosting gasoline prices by 40%, while trimming welfare programs after forecasting a collapse in oil revenue (even while allocating the biggest part of government spending in next year's budget to defense and security)Bloomberg reported that "the kingdom's 2016 budget is probably based on crude prices of about $29 a barrel, according Riyadh-based Jadwa Investment Co."
Clueless, 12/30/2015 at 7:26 pmWith regard to peak oil, I have always [perhaps incorrectly] put most of the weight on the charts/graphs of "new discovery quantities" by year, for the past 80 years.Put those graphs against consumption graphs for those same 80 years. Looking at those two in conjunction should give pause to most people.
Unless they believe that there dozens of elephant fields out there somewhere that have not been discovered and which will be economic at some price below $75.
The fact that Saudi can produce oil at $5 per barrel is meaningless, since they have created a country with a growing population that needs over $75 per barrel to survive as a country.
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Dec 29, 2015 | Reuters
U.S. oil production has fallen by about 200,000 barrels per day since an over four-decade high in April, a decline that's been far shallower than many expected. Non-OPEC annual supply growth shrank to below 300,000 bpd in November from 2.2 million at the start of the year, according to the International Energy Agency. New data showing a deeper or more definitive decline in output could give bulls a reason to pile back in.
... ... ....
If any one thing points to the dangers of a supply shortfall in the future, it's a lack of investment. As ex-BP chief Tony Hayward told a conference in New York this year, if the money doesn't go into the ground, the oil won't come out. Non-OPEC investment has been cut by around $130 billion this year from about $650 billion in 2014, OPEC Secretary General Abdullah al-Badri said in October.
In the United States, the oil rig count just keeps falling. Last week it dropped for the 14th of the last 15 weeks, to 524, a third of what it was a year ago. A Barclays survey found that North American oil firms could cut investment by up to $19 billion next year after slashing it by $68 billion this year.
... ... ...
One major factor weighing on oil markets is the expected reemergence of Iran as an exporter next year after sanctions are lifted. Tehran has said it is gearing up to pump an extra 500,000 bpd of crude as soon as mid-year as sanctions are eased within months. If those exports do not materialize or are delayed, bulls may be emboldened to charge in.
... ... ...
For all the talk of oversupply, it may not be as big as many think. Global markets are only oversupplied by about 1 million bpd, according to a report from Citi analysts on Tuesday, and a bridging of the gap is already under way. With incomplete and often lagging data, any sudden sign that the supply excess is diminishing more quickly than expected could ignite buying.
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Dec 29, 2015 | OilPrice.com
...uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. "The shale sector is now being financially stress-tested, exposing shale's dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow," Citi wrote in September. Here's a look at what the bank means:... image deleted (see original post for it)...
Of course this all worked out fine in an environment characterized by relatively high crude prices and ultra-accommodative monetary policy. The cost of capital was low and yield-starved investors were forgiving, allowing the US oil patch to keeping drilling and pumping long after it should have been bankrupt. Now, the proverbial chickens have come home to roost. In the wake of the Fed hike, HY is rolling over and as UBS noted over the summer, "the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis; sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries."
As Bruce Richards, chief executive officer of Marathon Asset Management told Bloomberg last week, "the price of a barrel of oil could fall below $30 due to a "glut of supply," and as many as a third of energy companies will default over the next three years."
"This is the worst non-recessionary year we've ever had for high yield," Richards said. New York-based Marathon has added to short positions on energy bonds, he said.
This week's gains notwithstanding, and a likely misguided assumption about the impact the lifting of America's crude export ban will have on WTI aside, the fundamentals here are a nightmare. Iraq is pumping at record levels, Iranian supply is set to ramp up starting next month, once sanctions are lifted, and OPEC is completely disjointed. Furthermore, producers are bumping up against the limits of how many jobs they can cut and how much capex can be slashed (ultimately, you have to retain enough human capital and capacity to remain operational). The takeaway: the bankruptcies are coming.
As the Dallas Fed notes in its latest quarterly energy outlook, bankruptcies in the space are now at their highest levels since the crisis and things look bleak going forward. Below, find excerpts from the report.
* * *
From The Dallas FedWest Texas Intermediate (WTI) crude oil prices have fallen around 23 percent so far in the fourth quarter. Expectations have shifted toward a weaker price outlook because sanctions against Iran are likely to be lifted in early 2016, the Organization of the Petroleum Exporting Countries (OPEC) has scrapped any pretense of a production ceiling, and U.S. production declines have slowed. Supply Glut Drives Oil Prices to 10-Year Lows The imbalance in global supply and demand has led oil prices to slump to levels last seen over 10 years ago.
World petroleum production will exceed consumption by an average of 1.7 million barrels per day (mb/d) in 2015, according to December estimates by the Energy Information Administration (EIA). This excess supply is higher than during the Asian financial crisis and the Great Recession. OPEC supply has bloated markets with nearly 1 mb/d more this year than what the EIA initially predicted in November 2014. In 2016, global supply is expected to exceed demand by 0.6 mb/d on average (Chart 1).
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Zero Hedge
In the words of BMO's Lowell Yura, "this year is a wake-up call to think about lower returns for the next several years," warning that "investor expectations for both equities and bonds have been [mistakenly] elevated by recent history." Jim Bianco added that 2015 could be the worst for asset allocation funds since World War I: "for the first time since 2001, none of the major asset-classes returned more than 10%."
...Mr. Armitage's $15 billion London firm quietly booked the $1.5 billion profit with its bearish energy wagers and overall pivot to safer markets in the U.S. and Europe.
JoeTurner
Reading stories like these makes me think of 'Fast Eddie' Felson...nowadays the markets are pure gambling with the central banks as Minnesota Fats...
Exalt
Using 8x leverage doesn't impress me. If she'd have gotten that call wrong she'd be a bum right now. I guess if people want to throw their lives away on trades like that, that's their business. I wonder if she came up the ranks with that strategy and if she will continue making those ballsy and downright stupid plays or quietly exit now having won the lottery basically.
I don't care how smart you are or what info you have, the market is not 100% predictable and the impact of her risk is devastating even if she exited early.
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peakoilbarrel.com
Heinrich Leopold, 12/29/2015 at 9:45 am
According to the latest top stories of http://www.bentekenergy.com (Production revisions bring year to date low), US natural gas production fell to the lowest in over one year to 68.1 bcf/d and nearly down 10% year over year. Texas production fell to 18.3 bcf/d, nearly 25% down from last year (see below chart). These numbers are staggering and come despite vast pipeline expansions over the fall/summer and very high demand of 92.4 bcf/d and falling inventories. As we have not yet seen a shale gas correction, the slowdown could be far steeper than many expect.
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finance.yahoo.com
OPEC also issued a word of caution in its report. While oil markets experience oversupply in the short- to medium-term, massive investments in exploration and production are still needed to meet demand over the long-term. OPEC believes $10 trillion will be necessary over the next 25 years to ensure adequate oil supplies. "If the right signals are not forthcoming, there is the possibility that the market could find that there is not enough new capacity and infrastructure in place to meet future rising demand levels, and this would obviously have a knock-on impact for prices," OPEC concluded. About $250 billion each year will have to come from non-OPEC countries.
In a similar but more disconcerting conclusion, the Oslo-based Rystad Energy recently concluded that the current state of oversupply could be "turned upside down over the next few years." That is because the drastic spending cuts today will result in a shortage within a few years. To put things in perspective, Rystad says that the oil industry "needs to replace 34 billion barrels of crude every year – equal to current consumption." But as a result of the collapse in prices, the industry has slashed spending across the board and "investment decisions for only 8 billion barrels were made in 2015. This amount is less than 25% of what the market requires long-term," Rystad Energy concluded. The industry cut upstream investment by $250 billion in 2015, and another $70 billion could be cut in 2016. The latter figure did not take into account the recent decision by OPEC to abandon its production target, which sent oil prices falling further.
So what are we to make of this? There could be plenty of oil supplies in the future, but as it stands, the industry is massively underinvesting? This illustrates a troubling tension within the oil industry. Oil prices will be set by the marginal cost of production, and recent efficiency gains notwithstanding, marginal costs have generally increased over time. Low-cost production depletes, and the industry becomes more reliant on deep-water, shale, or Arctic oil, all of which require higher levels of spending.
In many cases, these sorts of projects are not profitable at today's prices. The price spikes seen in 2011-2014 sowed the seeds of the current bust, but the pullback today could create the conditions of another spike in the future. OPEC could be a bit too sanguine with its call for $95 oil in 2040.
At the same time, future price spikes set up the possibility of much greater demand destruction, especially if alternatives become more viable. This is the difficult balancing act that the industry must pull off over the next few decades.
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www.bloomberg.com
Economy Minister Adel Fakeih said Monday that 20 billion riyals of this year's spending overshoot was due to increased military and security spending related to the military operation against Shiite Houthi rebels in Yemen.
The Ministry of Finance said its 2016 budget is based on "extremely low oil prices" that prompted Gulf states to cut spending.
SHORING UP FINANCES
The government, headed by King Salman bin Abdulaziz Al Saud, pledged to take action to shore up public finances, including the possible sale of government entities and the revision of fuel, water and power subsidies over the next five years.
It immediately rolled out the first batch of revisions after the budget announcement, raising the prices of water and electricity supplied to households and the cost of gasoline, ethane and gas. The revisions focused on "directing subsidies to those who really deserve it," Fakeih said.
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www.rt.com
Saudi Arabia has destabilized the crude market while increasing its oil output by 1.5 million barrels a day, said Russia's Energy Minister Aleksandr Novak."This year Saudi Arabia has ramped up production by 1.5 million barrels per day, which in fact destabilized the situation on the market," Novak told Rossiya 24 TV channel.
According to him, the balance of oil supply and demand could be achieved in 2016. Iran's return to the global energy market could also affect oil prices, Novak added.
Dec 28, 2015 | RT Business
Nonyank
The world saw this behavior from the Saudi's in 1975 and 1978 when they created oil shortages to gain market share just as they are doing today, sacrificing fellow members of OPEC for their own greed.....we have seen this dumb show before and yet the world allows it to continue.
Tom Brite > Greg G1
Greg G
Saudi Arabia responsible for oil market destabilization. Russia seems to be doing so as well. Just wait till Iranian oil hits the market!vann tedd > nikko sharkenstein
nikko sharkenstein
Kathryn Roston
What is now emerging, especially clear since the Turkish deliberate ambush of the Russian SU-24 jet inside Syrian airspace, is that Russia is not fighting a war against merely ISIS terrorists, nor against the ISIS backers in Turkey. Russia is taking on, perhaps unknowingly, a vastly more dangerous plot. Behind that plot is the hidden role of Saudi Arabia and its new monarch, King Salman bin Abdulaziz Al Saud, together with his son, the Defense Minister, Prince Salman.
The Saudi monarchy is determined to control the oil fields of Iraq and of Syria using ISIS to do it. They clearly want to control the entire world oil market, first bankrupting the recent challenge from US shale oil producers, then by controlling through Turkey the oil flows of Iraq and Syria.
If we strip away the phony religious cover, what emerges is a Saudi move to grab some of the world's largest oil reserves, those of the Sunni parts of Iraq, and of Syria, using the criminal Turkish regime in the role of thug to do the rough work, like a bouncer in a brothel.
It's the monarchy of King Salman and his hot-headed son, Prince Salman. For decades they have financed terrorism under a fake religious disguise, to advance their private plutocratic agenda. It has nothing to do with religion and everything to do with money and oil. A look at the ISIS map from Iraq to Syria shows that they precisely targeted the oil riches of those two sovereign states. Saudi control of that oil wealth via their ISIS agents, along with her clear plan to take out the US shale oil competition, or so Riyadh reckons, would make the Saudi monarchy a vastly richer state, one, perhaps because of that money, finally respected by white western rich men and their society.
http://journal-neo.org/2015/12/08/what-stinks-in-saudi-aint-the-camel-dung/What Russia is facing is an indirect soft war from United States. in at least 3 fronts, in Ukraine, in Syria and on its Economy. but also it could be said in IRAQ too, since just like Syria and IRAN, IRAQ is the other of the few countries in middle east that Americans do not fully control, and that cooperates with Russia and buys a lot of military hardware from them. Saudi king, Turkey, US and ISrael are the lifeline of ISIS and Alqaeda. This is why is impossible to completely defeat the organization as long those countries continues recruiting terrorist, and aiding terrorism with money and weapons.
And logistics and training. It could be said that well organized terrorism, but also ultra radical right wing nazis like in Ukraine and baltic states are groups that Americans Government as a policy, helps to organize and to become more powerful, simply because they can be used to fight Russia. The major world conflict in the world today, the major wars, are all caused by Americans with the aim to weaken and isolate Russia. We are effectively in a "Cold war 2.0", that Americans began against Russia, and forcing them to defend itself before the problem grows too much (what Americans wants) and affect directly the security of Russia directly and its long term economic interest.
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Dec 28, 2015 | Monthly Review
... ... ...Summers's remarks and articles were followed by an explosion of debate concerning "secular stagnation"-a term commonly associated with Alvin Hansen's work from the 1930s to '50s, and frequently employed in Monthly Review to explain developments in the advanced economies from the 1970s to the early 2000s.2 Secular stagnation can be defined as the tendency to long-term (or secular) stagnation in the private accumulation process of the capitalist economy, manifested in rising unemployment and excess capacity and a slowdown in overall economic growth. It is often referred to simply as "stagnation." There are numerous theories of secular stagnation but most mainstream theories hearken back to Hansen, who was Keynes's leading early follower in the United States, and who derived the idea from various suggestions in Keynes's General Theory of Employment, Interest and Money (1936).
Responses to Summers have been all over the map, reflecting both the fact that the capitalist economy has been slowing down, and the role in denying it by many of those seeking to legitimate the system. Stanford economist John B. Taylor contributed a stalwart denial of secular stagnation in the Wall Street Journal. In contrast, Paul Krugman, who is closely aligned with Summers, endorsed secular stagnation on several occasions in the New York Times. Other notable economists such as Brad DeLong and Michael Spence soon weighed in with their own views.3
Three prominent economists have new books directly addressing the phenomena of secular stagnation.4 It has now been formally modelled by Brown University economists Gauti Eggertsson and Neil Mehrotra, while Thomas Piketty's high-profile book bases its theoretical argument and policy recommendations on stagnation tendencies of capitalism. This explosion of interest in the Summers/Krugman version of stagnation has also resulted in a collection of articles and debate, edited by Coen Teulings and Richard Baldwin, entitled Secular Stagnation: Facts, Causes and Cures.5
Seven years after "The Great Financial Crisis" of 2007–2008, the recovery remains sluggish. It can be argued that the length and depth of the Great Financial Crisis is a rather ordinary cyclical crisis. However, the monetary and fiscal measures to combat it were extraordinary. This has resulted in a widespread sense that there will not be a return to "normal." Summers/Krugman's resurrection within the mainstream of Hansen's concept of secular stagnation is an attempt to explain how extraordinary policy measures following the 2007–2008 crisis merely led to the stabilization of a lethargic, if not comatose, economy.
But what do these economists mean by secular stagnation? If stagnation is a reality, does their conception of it make current policy tools obsolete? And what is the relationship between the Summers/Krugman notion of secular stagnation and the monopoly-finance capital theory?
... ... ...
In "secular stagnation," the term "secular" is intended to differentiate between the normal business cycle and long-term, chronic stagnation. A long-term slowdown in the economy over decades can be seen as superimposed on the regular business cycle, reflecting the trend rather than the cycle.
In the general language of economics, secular stagnation, or simply stagnation, thus implies that the long-run potential economic growth has fallen, constituting the first pillar of MISS. This has been most forcefully argued for by Robert Gordon, as well as Garry Kasparov and Peter Thiel.6 Their argument is that the cumulative growth effect of current (and future) technological changes will be far weaker than in the past. Moreover, demographic changes place limits on the development of "human capital." The focus is on technology, which orthodox economics generally sees as a factor external to the economy and on the supply-side (i.e., in relation to cost). Gordon's position is thus different than that of moderate Keynesians like Summers and Krugman, who focus on demand-side contradictions of the system. In Gordon's supply-side, technocratic view, there are forces at work that will limit the growth in productive input and the efficiency of these inputs. This pillar of MISS emphasizes that it is constraints on the aggregate supply-side of the economy that have diminished absolutely the long-run potential growth.
The second pillar of MISS, also a supply-side view, goes back at least to Joseph Schumpeter. To explain the massive slump of 1937, Schumpeter maintained there had emerged a growing anti-business climate. Moreover, he contended that the rise of the modern corporation had displaced the role of the entrepreneur; the anti-business spirit had a repressive effect on entrepreneurs' confidence and optimism.7 Today, this second pillar of MISS has been resurrected suggestively by John B. Taylor, who argues the poor recovery is best "explained by policy uncertainty" and "increased regulation" that is unfavorable to business. Likewise, Baker, Bloom, and Davis have forcefully argued that political uncertainty can hold back private investment and economic growth.8
Summers and Krugman, as Keynesians, emphasize a third MISS pillar, derived from Keynes's famous liquidity trap theory, which contends that the "full-employment real interest rate" has declined in recent years. Indeed, both Summers and Krugman demonstrate that real interest rates have declined over recent decades, therefore moving from an exogenous explanation (as in pillars one and two) to a more endogenous explanation of secular stagnation.9 The ultimate problem here is lack of investment demand, such that, in order for net investment to occur at all, interest rates have to be driven to near zero or below. Their strong argument is that there are now times when negative real interest rates are needed to equate saving and investment with full employment.
However, "interest rates are not fully flexible in modern economies"-in other words, market-determined interest rate adjustments chronically fail to achieve full employment. Summers contends there are financial forces that prohibit the real interest rate from becoming negative; hence, full employment cannot be realized.10
Some theorists contend that there has been demographic structural shifts increasing the supply of saving, thus decreasing interest rates. These shifts include an increase in life expectancy, a decrease in retirement age, and a decline in the growth rate of population.
Others, including Summers, point out that stagnation in capital formation (or accumulation) can be attributed to a decrease in the demand for loanable funds for investment. One mainstream explanation offered for this is that today's new technologies and companies, such as Google, Microsoft, Amazon, and Facebook, require far less capital investment. Another hypothesis is that there has been an important decrease in the demand for loanable funds, although they argue this is due to a preference for safe assets. These factors can function together to keep the real interest rate very low. The policy implication of secular low interest rates is that monetary policy is more difficult to implement effectually; during a recession, it is weakened and can even become ineffectual.
Edward Glaeser, focusing on "secular joblessness," places severe doubt on the first pillar of MISS, but then makes a very important additional argument. Glaeser rejects the notion that there has been a slowdown in technological innovation; innovation is simply "unrelenting." Likewise, he is far less concerned with secular low real interest rates, which may be far more cyclical. "Therefore," contends Glaeser, "stagnation is likely to be temporary."
Nonetheless, Glaeser underscores secular joblessness, and thus the dysfunction of U.S. labor markets constitutes a fourth pillar of MISS: "The dysfunction in the labour market is real and serious, and seems unlikely to be solved by any obvious economic trend." Somehow, then, the problem is due to a misfit of skills or "human capital" on the side of workers, who thus need retraining. "The massive secular trend in joblessness is a terrible social problem for the US, and one that the country must try to address" with targeted policy.11 Glaeser's argument for the dysfunction of U.S. labor markets is based on recession-generated shocks to employment, specifically of less-skilled U.S. workers. After 1970, when workers lost their job, the damage to human capital became permanent. In short, when human capital depreciates due to unemployment, overall abilities and "talent" are "lost" permanently. This may be because the skills required in today's economy need to be constantly practiced to be retained. Thus, there is a ratchet-like effect in joblessness caused by recessions, whereby recession-linked joblessness is not fully reversed during recoveries-and all this is related to skills (the human capital of the workers), and not to capital itself. According to Glaeser, the ratchet-like effect of recession-linked joblessness is further exacerbated by the U.S. social-safety net, which has "made joblessness less painful and increased the incentives to stay out of work."12
Glaeser contends that, if his secular joblessness argument is correct, the macroeconomic fiscal interventions argued for by Summers and Krugman are off-base.13 Instead, the safety net should be redesigned in order to encourage rather than discourage people from working. Additionally, incentives to work need to be radically improved through targeted investments in education and workforce training.14 Such views within the mainstream debate, emphasizing exogenous factors, are generally promoted by freshwater (conservative) rather than saltwater (liberal) economists. Thus, they tend to emphasize supply-side or cost factors.
The fifth pillar of MISS contends that output and productivity growth are stagnant due to a failure to invest in infrastructure, education, and training. Nearly all versions of MISS subscribe to some version of this, although there are both conservative and liberal variations. Barry Eichengreen underscores this pillar and condemns recent U.S. fiscal developments that have "cut to the bone" federal government spending devoted to infrastructure, education, and training.
The fifth pillar of MISS necessarily reflects an imbalance between public and private investment spending. Many theorists maintain that the imbalance between public and private investment spending, hence secular stagnation, "is not inevitable." For example, Eichengreen contends if "the US experiences secular stagnation, the condition will be self-inflicted. It will reflect the country's failure to address its infrastructure, education and training needs. It will reflect its failure to…support aggregate demand in an effort to bring the long-term unemployed back into the labour market."15
The sixth pillar of MISS argues that the "debt overhang" from the overleveraging of financial firms and households, as well as private and public indebtedness, are a serious drag on the economy. This position has been argued for most forcefully by several colleagues of Summers at Harvard, most notably Carmen Reinhart and Kenneth Rogoff.16 Atif Mian and Amir Sufi also argue that household indebtedness was the primary culprit causing the economic collapse of 2007–2008. Their policy recommendation is that the risk to mortgage borrowers must be reduced to avoid future calamities.17
As noted, the defenders of MISS do not necessarily support a compatibility between the above six pillars: those favored by conservatives are supply-side and exogenous in emphasis, while liberals tend towards demand-side and endogenous ones. Instead, most often these pillars are developed as competing theories to explain the warrant of some aspect of secular stagnation, and/or to defend particular policy positions while criticizing alternative policy positions. However, the concern here is not whether there is the possibility for a synthesis of mainstream views. Rather, the emphasis is on how partial and separate such explanations are, both individually and in combination.
Hans G. Despain teaches political economy at Nichols College, where he is the chair of the Department of Economics.
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Dec 25, 2015 | The New York Times
But now we're witnessing a revolution on multiple fronts. The biggest effects so far have come from fracking, which has ended fears about peak oil and could, if properly regulated, be some help on climate change: Fracked gas is still fossil fuel, but burning it generates a lot less greenhouse emissions than burning coal.
The bigger revolution looking forward, however, is in renewable energy, where costs of wind and especially solar have dropped incredibly fast.
Carolyn Egeli, Valley Lee, Md December 25, 2015
Merry Christmas everyone! And for sure have Happy Holidays! Here's to the New Year with more renewable energy and far less fossil fuel consumption! Even though the rest of the world is quickly moving away from fossil fuel consumption to even 100% renewable energy in more than a couple of countries, we lag at 13% renewable in the U.S. Why? Because we are controlled by the fosil fuel companies, including natural gas, which is the biggest boondoggle we've gotten involved in yet. It doesn't help us, it pollutes us.
While other countries are nearing 100% renewable sources for energy around the world, we have let the foxes guard the henhouse of possibilities in nearly every way, from banks controlling the fed (whose worth and assets are so completely tied up in unburned fossil fuels) to wars for those assets. Wars burn fuel, and wars need weaponry.
Until the government spends money on renewable energy instead of wars and oil, we will not see much progress in cleaning up our world or even surviving as a species. Yes, it is politics, but it is mostly MONEY in politics. But first let's break up the banks, and do some serious anti-trust enforcement, and we might be able to undo citizens united. That's the politics that really is holding us back now. GO BERNIE SANDERS!!
lgalb, Albany December 25, 2015
Americans have been enamored with the notion that we can solve our problems by converting from fossil fuels to renewable energy. That may be substituting one addiction for another.
Ultimately, we need to move toward societies that are less dependent on cheap energy for everything. We've abandoned farms because it's cheaper to transport foods from around the world. Consider the insanity of the modern practice of raising chickens in the US, then shipping them to China for processing and then shipped back for sale in our supermarkets.
Consider how we worry about obesity while building suburban developments where you have to drive to go anywhere. Their design actively discourages walking and bicycling as an everyday activity.
Transitioning to renewable energy is only a first step. Ultimately, we need to pay more attention to sustainable living that does not treat energy as an infinite resource that costs nothing to consume.
dbsweden, is a trusted commenter Sweden December 25, 2015
Unfortunately, though fracking produces oil, it produces methane and more damaging gases. Methane is 20 times worse than carbon dioxide. Therefore, fracking will worsen global warming. Unless the energy industry eliminates the destructive bi-products of fracking, we can kiss humanity goodbye.
Happy Holidays.
Karen Garcia, New Paltz, NY December 25, 2015
Merry Christmas, everybody.
In the encyclical Laudato Si', Pope Francis wrote:
"The continued acceleration of changes affecting humanity and the planet is coupled today with a more intensified pace of life and work which might be called 'rapidification.' Although change is part of the working of complex systems, the speed with which human activity has developed contrasts with the naturally slow pace of biological evolution. Moreover, the goals of this rapid and constant change are not necessarily geared to the common good or to integral and sustainable human development. Change is something desirable, yet it becomes a source of anxiety when it causes harm to the world and to the quality of life of much of humanity."
Progress proceeds with the speed of blight. While a billionaire sends his rockets into space, and fellow billionaires wait in line to be space tourists, the number of refugees displaced by the technologies of war has now surpassed a million. Pope Francis is also right in calling the catastrophe "a piecemeal World War III."
While international bigwigs are patting themselves on the back for agreeing to agree at the Paris climate summit, Congress has quietly lifted the ban on exporting domestic oil. The miracle of fracking has created quite the glut. Instead conserving, we're urged to gas up and go, go, go.
In our haste to extract huge pieces of the earth, we seem to have forgotten all about Peace on Earth.
Joseph Huben, Upstate NY December 25, 2015
Ridiculous and possibly Republican "free cheese" is more dangerous than climate change is a willful grasp for any straw that will permit privilege. The top marginal rates prior to the 1957 Sputnik refute musings about the good old days of the private sector producing wonders. The only wonders the private sector ever produces occur on roads, railroads, the sea and in the air that have been secured by government and the industrial might that government commissioned.
Elon Musk has triumphed in producing a vehicle that will enable travel to the government space station. All of the preliminary work was accomplished with government programs. The people of the United States welcome the entrepreneurs to travel on the roads that we have all built.
Edward Corey, Bronx, NY December 25, 2015
When Sputnik was launched, the rich paid their fair share of taxes. The social safety net was much larger, the roads and other infrastructure were in much better shape, and CEOs' compensation was a lot closer to that of workers. Deterioration began with the Republican hegemony initiated by the election of Richard Nixon.
Capt Planet, Crown Heights Brooklyn December 25, 2015
I'm a firm believer that the real challenge lies not in outer space but inner space. How can we think about Elon Musk's accomplishments when we have mass terror threatening our sense of comfort and well-being? We need to get along with each other and the rest of creation before we start running off to outer space. To not do that will mean just more wasted energy on false solutions. We're the real problem.
Rima Regas, Mission Viejo, CA December 25, 2015
Professor Joseph Stiglitz' work, Rewrite The Rules, at the Roosevelt Institute examines precisely the issues you raise here. It's highly recommended reading. I greatly miss reading him in the NYT.
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finance.yahoo.com
The government announced its budget on Monday, projecting spending of $224 billion (840 billion riyals) in 2016 versus $137 billion (513 billion riyals) in revenue.
Trav
Don't underestimate the Saudi's. They've gutted the oil market to the point that it's hurting U.S. oil companies and more importantly the U.S. economy. Once that's accomplished they can cut off the flow of oil and hurt us even more. They're not losing money without a purpose and their purpose is likely to eventually hurt us.
backahead
Pikers. Obama banging the drums cause we just had our best year ever with him as President...only $450Billion more debt this year. Hey, least it's no longer $1Trillion/yr. Record revenues collected too.
JET
I would gladly pay more for my fuel if it meant putting the thousands of oil workers back to work. It costs US taxpayers millions if not billions to unemployment, food stamps, renal assist and the other social support programs for our unemployed people.
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finance.yahoo.com
...Wolff continued, "although I do think you start to see a bottom in and a rebuild going into the second half of 2016."
For Societe Generale macro strategist Larry McDonald, "the consistent relationship between lower oil prices and higher U.S. equity market volatility" has been "the story of 2015."
Any rally in equities is "suspect" without "a follow-through in oil," said McDonald. "So if oil doesn't follow equities higher and rolls over, get long volatility and short the S&P 500 (INDEX: .SPX)."
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OilPrice.com
It also sees the current trend of lower spending and therefore lower production by non-OPEC producers eventually cutting into the supply of oil, increasing demand and thereby raising prices. One chart in the report shows an expectation that non-OPEC production will rise from 57.4 million barrels per day in 2015 to 61.5 million barrels per day in 10 years, then decline to 59.7 million barrels per day by 2040.But all this depends on capital spending by oil companies. If it doesn't increase, OPEC Secretary-General Abdallah el-Badri wrote in the report's foreword, "there is the possibility that the market could find that there is not enough new capacity and infrastructure in place to meet future rising demand levels, and this would obviously have a knock-on impact for prices."
While OPEC expects the demand in many Western countries is likely to decline between now and 2040 due to "energy efficiency improvements and climate change mitigation policies. … However, oil demand in developing countries is expected to increase significantly (by almost 26 mb/d) to reach 66.1 mb/d at the end of the forecast period. Finally, demand in Eurasia is estimated at 5.8 mb/d in 2040."
The key, then, is for oil companies to maintain balanced investments in exploration, infrastructure and production, according to el-Badri. "In the current market environment, what this underlines is the delicate balance between prices, the cost of the marginal barrel and future supplies," he wrote. "This balance is essential in making sure the necessary future investments are made."
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Dec 27, 2015 | OilPrice.com
6. Falling U.S. output. U.S. oil production is perhaps the most-watched figure in terms of market analysts trying to gauge when the rebound will come. Production has declined from a peak of 9.6 million barrels per day (mb/d) in April, to 9.3 mb/d in September, although weekly estimates suggest output is somewhere around 9.1-9.2 mb/d currently.
The shale boom is over, but production has not fallen fast enough to warrant a rebound in prices. More declines should be expected throughout 2016, but a key question remains: how far and how fast?
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Dec 27, 2015 | Bloomberg Business
Because of methodological challenges involved in making direct comparisons between high-yield bond spreads and the Standard & Poor's 500-stock index, the pressing concern for equity investors is how much the current weakness in junk bonds infects the market for investment-grade bonds sold by companies with healthier balance sheets (on the eve of a potential rate hike from the Federal Reserve, no less).
The "new divergence" highlighted by Goldman Sachs-a burgeoning disconnect between weaker investment-grade credit spreads and relatively stronger equities in December-is a potential risk to the performance of the S&P 500 in the short term, the strategists note.
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Art Berman
It's not important whether this is the final, maximum world production peak or not. It is a signal about a trend that needs to be acknowledged and incorporated into our evolving paradigm about oil supply.
Peak oil production was accelerated by a confluence of factors. Zero interest rates in the U.S. and Middle East supply interruptions before 2014 caused high oil prices. Easy money caused over-investment in the oil business. Over-production and weakened demand resulted in the collapse in world oil prices. OPEC's reaction and decision to produce at maximum rates have created the "perfect storm" for peak oil production several years before it would have occurred otherwise.
All oil producers are losing money at current prices but companies and countries are producing at high rates. Indebted conventional and unconventional players need cash flow to service debt so they are producing at high rates. OPEC is producing at high rates to maintain or gain market share. Everyone is acting rationally from their own perspective but from a high level, it looks like they have all lost their minds.
Peak oil is not about running out of oil. It is about what happens when the supply of conventional oil begins to decline. Once this happens, higher-cost, lower-quality sources of oil become increasingly necessary to meet global demand.
Those secondary sources of oil include unconventional (oil sand and tight oil) and deep-water production. The contribution of unconventional and deep-water production has grown from about 15% in 2000 to approximately one-third of total supply today, and it will probably represent more than 40% by 2030.
Despite a popular belief that tight oil is price-competitive with conventional oil production, it is not
The economics of tight oil plays require spot oil prices that are double and wellhead prices that are triple current face values. Excluding new SAGD projects, tight oil is the world's most-expensive and, therefore, marginal barrel of oil and its cost of production today is more than $70.
Roger Baker, December 27th, 2015 at 1:02 pmSo Congress finally got around to legalizing the export of our unrefined U.S. domestic crude oil production? However this comes at a time when today's market price of our domestic WTI oil is $38.10, whereas the global benchmark Brent oil is about $37.89, or slightly cheaper. Trying to make a profit by paying to ship a more expensive commodity abroad is a fine trick if you can figure out a way to make it work. This is especially so when both grades are selling at a huge loss on their production cost.
Euan Mearns, December 27th, 2015 at 1:55 pm
Art, throughout the history of the North Sea, the UK has had a vibrant export / import trade in crude, even since we became a net importer. The reason being to match the refining spectrum to the crude available.
A lot of US refineries were tuned to heavy Mexican crude, and there's maybe more of that coming to market some day soon. But you are awash in condensate. Perhaps this explains more than anything the WTI Brent spread.
Far Eastern refineries are tuned to light oil – Boney Light – so let them have it while you buy heavy crude form Saudi and UK. The WTI – Brent spread disappeared in a flash. Does this solve the oil price crash crisis? I don't think so. The IEA has Nov US, global and OPEC production all up.
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Dec 27, 2015 | Forbes
... ... ...
Perception is Everything
Congress' decision to lift the 40-year U.S. ban on crude oil exports reflects the same misinformed and distorted thinking that declares that the world's highest cost producer–tight oil–can somehow also be the world's swing producer.
The 1975 export ban was enacted because of the disastrous economic consequences of becoming dependent on imports following the peaking of U.S. oil production in 1970. Now that oil production is again close to peak levels, we have apparently forgotten that imports were the problem then and that we import twice as much today as in 1975.
The same thinking concludes that because oil markets are over-supplied by about 1.5 mmbpd today, prices will remain low for years if not decades. Although there is certainly a rationale for low prices based on fundamentals of supply and demand in the near term, the longer view is shaped largely by perception.
Oil prices (Brent) rallied, after all, to $65 per barrel in May when the market was more over-supplied (2.25 mmbpd) than it is today. That was based on perception that falling rig counts in the United States and withdrawals from oil-storage inventories would bring less supply. Neither perception was correct in the short term but it didn't matter. Prices rose. There were, of course, other factors including concerns about the growth of the Chinese economy, the Greek debt crisis, and renewed Iranian exports.
Despite the recent trend toward price capitulation since late November, there is a certain potential energy in the market to find excuses to raise prices or to at least establish a bottom. For example, this week, U.S. crude oil stocks declined by 5 mm barrels and WTI futures increased $3.36 per barrel. We are in the winter de-stocking period so a withdrawal from inventory is normal but the previous week saw an addition to stocks that made this withdrawal seem somehow more important. A price increase of that magnitude makes no sense especially since U.S. stocks are more than 125 mm barrels above the 5-year average. That is the power of perception.
Energy and oil in particular underlie everything in our global economic lives. Oil prices reflect our collective emotional response to the circumstances of the world. Fundamentals are the vital signs of oil price's body but perception is the key to its psyche.
The more-than $3 per barrel increase in WTI prices last week is an example of a very short-term reaction to some event or circumstance. Oil prices also reflect longer-term longer term price responses that involve considerable lags. For instance, a global production surplus appeared in January 2014 and continued for 6 months before prices responded downward.
... ... ...
The prevailing perspective–lower for longer–is that oil prices will remain low for many years. This is reasonable based on vital signs. The global over-supply of oil persists after a year-and-a-half of lower prices. Iran and Libya could potentially add another 1-2 mmbpd to the existing over-supply. U.S. production has not declined as much as most experts anticipated, and there is considerable if unknown spare capacity in drilled, uncompleted wells. China's economic growth has slowed and the global economy is weak. Demand for oil will continue to grow but at a slower rate than in 2015.
What Lies Ahead in 2016
In another week, the world will go back to work after the holidays. The bleeding in the oil patch will get worse and prices will plunge again. Year-end results for oil and gas companies will be the worst so far. The Federal Reserve Bank and Standard & Poor's have issued warnings about bad debt in the U.S. oil and gas business. The tight oil companies have put the best face they can on a desperate situation.
But investors and their bankers should be out of patience. They should be tired of phony economics and tall tales about giant new reserves when the companies they invested in are losing billions of dollars every quarter.
The lower-for-longer perception will begin to change in 2016 barring a global economic collapse. It is, after all, founded on the simultaneous occurrence of every possible negative outcome. The long-awaited response in the economy to lower oil prices will begin to emerge. Demand for oil will increase. Concern about lower growth in China is largely accepted already. U.S. production will continue to fall 100,000 barrels per day every month as predicted, just later than expected. Drilled uncompleted wells will not deliver as much new oil as many now fear.
None of this will happen overnight. Market balance will likely return more slowly than it unravelled. The oil bubble took 5 years to inflate but the world is impatient and expects a quick return to normal. All of the signs are right–lower rig counts, distress for overly leveraged companies, lower budgets for crucial exploration and development projects–but it all takes time.
Energy is the economy. Lower oil and gas prices will be a huge benefit to the global economy but that takes time also. And the longer prices are low the better, although it doesn't feel that way in the oil business right now.
Tight oil has bought the U.S. another decade or so of additional oil supply but, as peak oil predicted, at a cost. The technology behind tight oil has also made it the world's most expensive barrel. As all of this sinks in, perception will start to change. Analysts and investors will begin to see that data points more toward long-term scarcity than toward long-term abundance of oil supply.
The U.S. is far more economically vulnerable and dependent on foreign oil today than when crude oil export was banned 40 years ago. The world has finite oil resources and the production party of the last 5 years has accelerated the timing of peak global production. A shooting war in the world would bring all of this into instantaneous focus if the data presented here has not.
It is a curious paradox that peak oil should manifest in the midst of over-supply and low oil prices. That is certainly not how I thought things would happen. Perceptions will change and oil-market balance will be restored in ways that few of us thought likely. Peak oil will be part of that change.
Art Berman
Petroleum Geologist and Professional Speaker
Visit my website for more information: artberman.com
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AlexS , 12/26/2015 at 2:27 pm$15-20 for a long period of time?likbez , 12/26/2015 at 2:43 pmLet's look at it from a historical perspective.
In today's dollars (adjusted for inflation) annual average oil prices have not been below $20 since 1998 ($18.5), and below $15 since 1972.
Brent oil price in 2014 dollars, 1970-2015
Source: BP Statistical Review of World Energy June 2015, my estimate for 2015
Everything is possible in the world where the price of oil is determined by Wall Street (despite some people having illusions about supply and demand equilibrium; this is just a factor and probably not the decisive factor).But I think even at $40 per barrel the US shale production will be decimated in a year or two. They managed to get financing for 2016, but that's about it. And that's over 3 Mb/d. Additional cars that were bought in the US, India and China in 2015 will be on the road for another 10 years or so.
In this sense EIA prediction of $50 average in 2016 does not look completely outlandish. But to achieve such average from low start of $38 per barrel and typically low prices in the Q1 you need at least half of the months to be above $50 by $10. Thats looks less probable now.
AlexS, 12/26/2015 at 3:04 pm
Unlike $35-40, $20/barrel is below cash operating costs for many conventional producers worldwide.That means that, at that price, not only upstream investments would be severely cut, but also a large number of the currently producing wells will be idled.
$20 is almost twice as low as the current price, and supply-side response will be much stronger than what we are seeing now.
Oil price may temporarily touch $20, as Goldman predicts (although this is not their base scenario), but it will not stay at these levels for long term.
likbez, 12/26/2015 at 4:19 pm
"Oil price may temporarily touch $20, as Goldman predicts (although this is not their base scenario), but it will not stay at these levels for long term."
Thank you. That's exactly my point.
The key consideration here is that the Wall Street instruments create a strong positive feedback loop that destabilized the system and amplifies any price movements. So oscillations became more and more powerful creating more and more moments with absurd prices. Right now on the down side.
$20 per barrel is such an absurd in the current circumstances price, but it is not that outlandish estimate of a short time minimum possible in the destabilized system, especially in Q1.
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finance.yahoo.com
Dan Dicker of Merc-block and author of the book "Shale boom, shale bust: The Myth of Saudi Arabia" peered into his crystal ball to see if the commodity get back to an equilibrium price sometime in the near future.
"It's always tough because the oil market has never really seen an equilibrium price - it's nothing but spikes up and spikes down and I think it will continue to do that," Dicker says in the attached video. That being said, Dicker says getting to that equilibrium price entails figuring out the price of extracting the 'marginal' barrel of oil out of the ground, meaning that last barrel that would fill demand.
"You've got to get that marginal barrel out of the ground." he says. "That doesn't equate to breakeven points for any particular player, but if you have 92 million barrels a day of oil that's in demand, to get an equilibrium price you've got to pay [for] that last hundred thousand barrels to to meet demand - and everybody gets priced off of that last piece of the puzzle and that's that's closer to about $80."
Although there will be some shakeout, Dicker does believe some names - small and large, in the energy sector will survive and do well. To hear more about those, watch the rest of the video above.
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Ron Patterson, 12/26/2015 at 8:51 amHere is an interesting article that tries to explain why some companies just keep drilling wells in spite of the very low oil prices.shallow sand, 12/26/2015 at 9:24 amHoping for a Price Surge, Oil Companies Keep Wells in Reserve
Their well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado's Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.
The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly
……….
But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, about the same amount of oil that Iran is expected to add to the glutted global market after it complies with the recent nuclear deal by the end of next year.
Some analysts say oil companies like Anadarko, EOG Resources and Continental Resources may collectively risk suffocating the very price revival they anticipate by releasing abundant new supplies once prices inch up. Others say the eventual impact would be small and short-lived, but since the industry has never used this strategy before, no one can be sure……….
On the completion side, fracking crews are easier to come by and their contracts tend to be more fluid. Now those completion costs have also come down - meaning that the uncompleted wells will eventually be brought on line at a lower cost, executives say.
Well that's just great.oldfarmermac, 12/26/2015 at 9:39 amThe article touts how smart this strategy is.
The company focused on, Anadarko, lost $2.2 BILLION last QUARTER.
Hi SS,Ron Patterson, 12/26/2015 at 9:49 amIf you have or can raise the cash, it makes sense to drill now and produce a year or two down the road-IF you believe prices will be up. According to what I read here, the costs of drilling a well may be down by a third, due to so many men and machines and so much steel and sand etc , "looking for a home".
I don't know if this is "one third off" drilling sales event is totally for real, it might be only a quarter or a fifth off. Hopefully somebody who crunches tight oil numbers will have something to say about it.
Tight oil production brought on by drilling now and producing later is not going to noticeably affect the price later.
oldfarmermac, 12/26/2015 at 3:46 pmTight oil production brought on by drilling now and producing later is not going to noticeably affect the price later.By what logic did you arrive at that conclusion?
The article states: But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, …
Now I think an extra half a million barrels per day would noticeably affect the price.
A half a million barrels WOULD be enough to influence prices. An individual company does not expect it's OWN production to influence the market price- unless maybe the company is a REALLY big one maybe.shallow sand, 12/26/2015 at 10:56 amIf any given company drills say fifty such wells, that would be only twenty thousand barrels a day, maybe less -- most definitely not enough to move the market price needle. It's not the industry as whole, but individual companies that make the decision.
I DID not go into Christmas trees, personally, for fear the industry was setting itself up to CHOKE itself on excess production. I was wrong about that, I could have made a LOT of money in Christmas trees, not enough people took the gamble to glut the market.
Wine grape growers took the gamble and are asshole deep in grapes that won't sell for enough to cover production costs in a lot of places these days, including my neighborhood.
OFM.oldfarmermac, 12/26/2015 at 4:21 pmWhat you say may make sense of you are using cash and have little to no debt. It may make sense for ExxonMobil.
Most LTO companies don't have cash. Most have a gob of debt. I don't think sinking cash into wells that will generate $0 revenue for a year or two is a good idea, especially given the financial shape LTO is in already.
Also, the entire premise is that there will soon be a steep rise in the price of oil. That is a total crap shoot.
So they are strictly gambling that oil prices will rise steeply in the next couple years? Is that a good business strategy for multi-billion dollar corporations to undertake, especially when the futures market says otherwise?
Ask Harold Hamm how easy it is to predict the future price of oil.
Hi SS,shallow sand, 12/26/2015 at 1:08 pmI am not an expert, but I HAVE read a representative sample of the books you read to get your MBA. Read me for insight, or comic relief, but DON'T bet more than beer and cigarette money on MY opinions.
Things DON'T always make sense. Under their suits and hats, corporate managers are just naked apes.
Since you are a hands on guy, I expect at some point you have gotten into some soft ground off the highway with a truck, and realized you are were in trouble and that IF YOU STOPPED, you would be walking out for SURE.
SO – you put the pedal to the metal, and hopefully got thru. If not, you were STUCK ANYWAY.
This could be thought of as a NO DOWNSIDE BET-IF you are convinced you are apt to go broke anyway.Win, you get to keep it all, lose, you are not going to pay ANY OF IT back anyway, it's somebody else's money, and your company is in bk court.
The size of the gamble is offset by the size of the potential winnings.
I looked up Anadarko on CO state website. Operate under Kerr McGee. Assuming 4,800 operated wells, by my math the average well is producing 23 barrels of oil and 112 mcf of gas per day, gross.AlexS, 12/26/2015 at 1:23 pmAssuming 25% royalty burden, and remembering the basis spread in CO for both oil and gas is horrible, it looks like GROSS revenue per well at current price would be in the neighborhood of $200K per year.
I keep begging, and will again. Someone come on here and explain how drilling, but not completing 13,000′ horizontal wells that won't cum. 100,000 BO in 40 years makes one lick of sense?
shallow sand,I agree with you. There is no sense in drilling but not completing wells, especially as they are spending borrowed money.
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Dec 25, 2015 | Zero Hedge
Now, more importantly, back to the commodity supply side. The table below shows an extract from a recent Americas Metals & Mining report by Deutsche Bank. Commodity producers are cutting their CAPEX in a huge way. Globally, we see the same picture across the board. That's your pork cycle at work right there. We are once again setting ourselves up for future commodity shortages.
Interesting article that I suggest you ignore. If you follow ZH you have been killed. Even two weeks ago ZH predicted a calamity when the capital markets were going to get killed when the Fed increased rates and a lot of liquidity was removed from the market. This never happened. What this article misses is that as worldwide artificial demand created by 0 interst rates the glut of increased capacity created without real long term demand caused a commidity price crash. What we are seeing is not cyclical, rather its structural created by unwarranted capacity creation by quants who only saw upward demand and 0 based rates. ZH is wrong. The facts I see them are that a commidity price drop of 80% are just the real market coming. The excess liquidity will soon drive equity prices into the tank the same way that they did to commidity prices. ZH micro manages things to fill a web site to sell advertisers. Its a simple as this.
Uchtdorf , 12/25/2015 - 23:19 | 6964374
From the article:
"For example, in 2011, nobody was yet aware of fracking. We now know this new technology turned the oil market upside down."
From Wikipedia:
"Hydraulic fracturing began as an experiment in 1947, and the first commercially successful application followed in 1950. As of 2012, 2.5 million "frac jobs" had been performed worldwide on oil and gas wells; over one million of those within the U.S.[3] Such treatment is generally necessary to achieve adequate flow rates in shale gas, tight gas, tight oil, and coal seam gas wells.[4] Some hydraulic fractures can form naturally in certain veins or [5]"
From a novel by Orson Scott Card, written in 1987:
"'You can bet they're making gasoline out of shale oil,' Tina said." >
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Ron Patterson, 12/21/2015 at 10:49 am
So as the price of oil continues lower, oil production will continue to increase.Arceus, 12/21/2015 at 10:56 amOh don't be silly. Just because Saudi Arabia has increased production in order to meet their budget does not mean the world will increase production because of cheap oil. (Iraq would have increased production regardless.)
No, upstream investment will, or has, dropped dramatically. This will cause production decline down the road.
Yes, I should have added "in the short term" to that, but then it wouldn't have sounded as glib.canabuck, 12/21/2015 at 3:49 pmAnd what is "short term"?Huckleberry Finn, 12/21/2015 at 6:35 pm
12 months, or maybe 3-4 years.If the world is 2 Mbbl/day oversupplied right now, and decline rates are 6%, and there is only minimal new oil wells. (so, overall decline rate is 2% ?). We should see the oversupply disappear in a year or so.
Looks closer to 10% in some cases. From previous thread.Fernando Leanme, 12/23/2015 at 8:46 amThe low prices are taking their toll.
http://www.newswire.ca/news-releases/ecopetrol-announces-us48-billion-investment-plan-for-2016-561775541.htmlEcopetrol, the largest Colombian producer announced that it will produce 755,000 barrels a day in 2016 vs 760,000/day in third quarter of 2015.
That does not sound like much a of drop, until you realize that Ecopetrol will be taking over the Rubiales field from a joint venture by not extending their partners contract.That will add 70,000 barrels a day to their production.Or about 35,000 barrels day annualized since it happens mid-year. So adjusted for this their production will decline from 795,000 barrels to 755,000 barrels per day, or a drop of 5%. And that is after spending 4.8 Billion USD. So I am guessing their base decline rate is closer to 10%I don't think the oversupply is 2 mm. My guess it's less than 1.2 mm in December.
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Javier, 12/21/2015 at 10:25 am
2005: Peak Conventional OilMatt White, 12/21/2015 at 12:36 pm
2015: Peak OilWe should look not at the consequences of Peak Oil, but to Peak Oil as a consequence of the underlying economical and financial global situation. Peak Oil is going to make sure we never recover during the cyclical upswings. We have found the limits to growth, and those limits are going to be getting smaller with time.
So are you denying this:Marcus, 12/21/2015 at 1:11 pmhttp://euanmearns.com/a-new-peak-in-conventional-crude-oil-production/
I know a lot of people in the peak oil scene keep clinging to that 2005 date, might be time to let it go.
Matt,Dennis Coyne, 12/22/2015 at 7:31 amAs per your link Euan Mearns sites 73.2 Mbpd in 2005 vs 74.28 Mbpd in December 2014 according to the EIA. The problem is that the figures from JODI, IEA, EIA & BP etc are not all in perfect agreement and I don't think we can definitively say that world production is "x' amount with that degree of accuracy especially since the numbers are often revised up or down a year or two down the line.
What we can do is look at the general trend over several years & its clear that 2005 marked a point where conventional oil production either peaked or at best grew very slowly within the context of a rather bumpy plateau.
So the highest oil prices in history failed to significantly increase conventional production and low oil price environment is unlikely to be conducive to new sources of unconventional production. I would suggest on that basis that the future does not look too rosy.
Hi Matt,tahoe1780, 12/21/2015 at 1:12 pmIn 2015 C+C output will be about 79.4 Mb/d, the data is not perfect but output will not be revised down by 6 Mb/d.
As far as 2005 being peak "cheap" oil, the lowest monthly oil price was about $46/b in Jan 2005 and for the year oil was $59/b (all prices in Dec 2015$).
For 2015 the average oil price will be about $49/b and the lowest monthly price was about $42/b in Nov 2015. I would say 2015 has been peak "cheap" oil, though some may claim the condensate should not be counted, we do not have good international data on the condensate output so we can only speculate on that.
So what are we calling "oil" nowadays? http://resourceinsights.blogspot.com/2012/07/how-changing-definition-of-oil-has.html Can anyone provide a graph of the ratio change between crude and condensate over the years? http://www.aogr.com/magazine/editors-choice/growing-condensates-require-optimized-designs-for-gathering-processingDennis Coyne, 12/22/2015 at 7:38 amThere is not good data on international condensate output, the only decent data we have is on crude plus condensate ( and that data is not great, but the best we have).Javier, 12/21/2015 at 1:14 pmCrude output has always included some condensate output in the data reported and few nations separate the crude and condensate data.
OPEC, Canada, Russia, and the US do, and that is a lot of World output, we can assume the ratio of condensate to crude is the same for the rest of the World and make an estimate of the crude divided by C+C. I have not done so, but I believe others have.
No. That in 10 years production has managed to temporarily increase by 1.5%, when in the previous 10 years it grew by 18% fits my concept of Peak Conventional Oil. Conventional oil got to a bumpy plateau in 2005. A bumpy plateau is by definition bumpy. We are in a bump. If production keeps increasing, it will negate the Conventional Peak Oil. If it falls back it will not.DougT, 12/21/2015 at 1:54 pmI refer to the 2005 plateau as "peak cheap oil". Today's current price certainly does not reflect today's marginal cost of supply already built into the production stream.coffeeguyzz, 12/26/2015 at 5:13 pmSarkocoffeeguyzz, 12/26/2015 at 5:31 pmWhen any company in any industry runs cash flow negative, one of two things inevitably occurs … they get better or they get gone.
In the US unconventional field, the 'get gones' are lining up at the exit doors with their list of assets to sell to the 'get better', who are in the process of emerging from this downturn with a ferocious degree of resilience that will shock many, especially the far off be-robed sheiks who will be fortunate to not have their own heads lopped off as well as worldwide idealogues pining for an emergence of their 'inner peasants' (h/t to Fernando for that apt phrase).
As for future reserves, see my response below to shallow re the Riverview well, and apply the principal to hydrocarbon bearing shales and 'tight rocks' on a global scale.
Shallowshallow sand, 12/26/2015 at 6:19 pmI'm having a hard time posting on my 'stupid phone'.
Some responses …
I have no financial interest of any kind in any company whatsoever – oil/gas or otherwise.
The operational and technical advances have indeed played a major role in the current situation as a quick glance at any production chart shows huge increases.
You well know, I hope, that I have always questioned the financial underpinnings of these operators vis-à-vis their motives/goals with their continual drilling despite horrific price realizations. (Oilandgas360dotcom has an excellent article, dated Dec 23 3015 called "Why Drill?". It picks seven Appalachian operators and describes the motives/circumstances of each. Info filled piece).I mention the Riverview well in response to Dennis' comment re lack of recovery improvement. Actually, the Riverview may be far more significant, akin to the Jake well in 2009 (by EOG), the Renz well (2004, Range), and the recent Scotts Run well (2015, EQT) in opening up to he Niobrara, the Marcellus, and the Deep Utica.
The particulars of the Riverview's completion (previously displayed in the EF) will not only be emulated by other operators, it will INCREASE the number of wells per section providing far more resource recovery.
Coffee, I know where you are coming from. I do agree that drilling two miles down and two miles out and doing all those frac stages can be pretty cool.coffeeguyzz, 12/26/2015 at 5:46 pmI have made known several of times I am biased against shale, because it rained on my parade. So anything I post should be viewed in that light. It makes a huge difference if one has a financial motive or not. If I had sold out in 2013 like maybe I should have, I would not give a crap about shale and like 99.5% of the US, would be loving $1.75 gasoline at the pump.
Heck, I get a charge out of filling up my truck for $35 even though it is hurting on the other end. That is one place where we are seeing a reduction in OPEX, fuel cost for trucks and other equipment. Way down.
My friend who owns a trucking company is making record profits. They are adding more trucks. I suspect demand growth of 1.2 million bopd in 2016 is on the low side. I doubt $30 oil was utilized in making those predictions.
However, I do try hard to stick to facts. I also am most focused on economics, because no well IMO should ever be drilled without economics in mind.
A small segment of the US economy is being hurt by low oil and gas prices. However, the vast majority is taking off because of it IMO, just like the late 1980s and 1990s.
The same cannot be said for Russia and OPEC, no matter how they try to spin it. Low oil prices hurt FSU and the Middle East in the 1990s and it is again.
As long as GCC can't get along with Iran, Iraq and Russia, US will be happy about oil prices. Non-oil people I talk to here think that the lack of cooperation on the part of those countries is great for the US.
Gasoline is not a huge part of families' budgets in the US. Housing, including utilities, is way more. So is healthcare. So is secondary education for those who go to college. We spend more on food than fuel.
So if the oil exporters want to keep digging and bury themselves, the populace in the West says more power to them.
Shallowshallow sand, 12/26/2015 at 6:26 pmRe Anadarko
Several thousand of those wells are legacy vertical wells from their 2000/2006 acquisitions from Union Pacific Resources and Kerr McGee.
Anadarko's output from 2010 thru 2015 (not full year), 7.1Mmbo …8 Mmbo …10.8 Mmbo …16.8 Mmbo …27.9 Mmbo … 26.9 Mmbo
Gas output doubled from 80 Bcf to 152 Bcf (not full year).
Virtually all Anadarko's holdings are Land Grant given to the Union Pacific railroad 150 years ago. I do not know the precise impact on royalty payments, it is a significant reduction. (Several Appalachian Basin operators have similar leasing circumstances).
These Niobrara guys are popping in wells at $3 million per … including completions. Still, $35 WTI would seem to be way low to be feasible.
Coffee. I recall Enno Peters recently did an analysis on CO LTO recently. As I recall the wells have a steeper decline than Bakken, are more gassy, and EUR is much less. I am sure you are correct, that they are cheaper.shallow sand, 12/26/2015 at 1:08 pmI agree with you on current economics too.
I looked up Anadarko on CO state website.AlexS, 12/26/2015 at 1:23 pmOperate under Kerr McGee.
Assuming 4,800 operated wells, by my math the average well is producing 23 barrels of oil and 112 mcf of gas per day, gross.
Assuming 25% royalty burden, and remembering the basis spread in CO for both oil and gas is horrible, it looks like GROSS revenue per well at current price would be in the neighborhood of $200K per year.
I keep begging, and will again. Someone come on here and explain how drilling, but not completing 13,000′ horizontal wells that won't cum. 100,000 BO in 40 years makes one lick of sense?
shallow sand,
I agree with you. There is no sense in drilling but not completing wells, especially as they are spending borrowed money.
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Stavros H, 12/21/2015 at 10:23 pm@Ron PattersonJimmy, 12/22/2015 at 12:37 amYou continue to ignore the role of geopolitics in setting the tone for the global oil market, and especially the current oil market.
KSA have not been pumping oil at a record pace in order to cover their budget (which is simply impossible at current prices without a massive devaluation of their currency which will annihilate their trade position, since KSA cannot feed or clothe itself) KSA have been doing what they are doing because they are in a shooting war with Russia. The Syrian Arab Army, the Iraqi Shia militias, the Shia-dominated Iraqi government, Iran itself, as well as Hezbollah are Russia's allies in a grand regional struggle against NATO-GCC across the Middle East. The battlefield includes Syria, Iraq and Yemen. East Ukraine is a derivative or diversionary front in what some people describe as the First Global Hybrid War.
Russia, Iraq and Iran have massive oil (and gas) reserves that can be brought into production in the future. Something similar applies to Venezuela (but I reckon that Venezuela's reserves will be more expensive in relative terms) This potentiality threatens the global balance of power, as western oil & gas output is destined to decline (as well as output by countries under western domination) and the potential oil production of Russia, Iran & Iraq becomes a necessity for the global economy.
This is one of the two main reasons (the other being the potential routes of gas pipelines) why we now have an extremely dangerous (media and political leaders vastly understate the true extent of brinkmanship currently ongoing) process of escalation in the Middle East.
What you fail to acknowledge in your articles, is that NATO-GCC have as a strategic imperative to strangle Russia, Iran & Iraq in any which way they can. This includes the imposition of sanctions, military pressure and all other kinds of sabotage one can think of. What we are now witnessing in the global oil (and gas) markets is that excess investment has been ongoing in places such as the US, Canada, the North Sea (as well as several offshore locations, performed by western majors) etc while there is an under-investment in places such as Russia, Iran and Iraq (also Libya & Venezuela) The latter group of countries is much less capital rich than the NATO-GCC countries (and their proxies) and less proficient technologically, hence my firm belief that their production is well below potential.
NATO-GCC's calculation once they embarked on their oil-price war more than a year ago, was that the combination of sanctions, a crushed oil price and loss of trade with Ukraine would have pummeled Russia into submission, hence ending that country's support for the Syrian Arab Army, Iran and Iraq. Simply put, if Russia falls, then the Middle East will be at the mercy of the NATO-GCC-Israel alliance (the world's dominant group of countries) One can also imagine what that would entail for China's position on the world stage.
As for Russia's oil output in 2016, I cannot say very much. There are so many factors at play (price, sanctions, unknown Russian technological capabilities) but even if there is a considerable fall, then it will have nothing to do with Peak Oil (in the traditional sense) finally hitting Russia, but with NATO-GCC pressure bearing some fruit.
In conclusion, my point is that several countries with vast oil & gas reserves, have been intentionally starved of investment due to geopolitical factors, NOT economic ones. As for Russia in particular, I am guessing you have been in the business of monitoring the global oil industry for many years now, how many times have you heard/read western "experts" claim that any minute now, Russian oil production will be entering terminal decline? I can attest that I have been coming across such claims since the day I started following such things, more than a decade ago.
Iran & Iraq also have mythical reserves of oil still untapped. Libya, once stabilized (probably under a NATO-puppet government) can also boost its oil production significantly.
NATO didn't do so shit-hot in Afghanistan. The days of anybody being at the mercy of NATO are long over. If NATO learnt anything in Afghanistan it's to stay out of land wars in Asia. This has been the case since Alexander the Great but great powers seem to need a reminder every century or so.Glenn Stehle, 12/22/2015 at 8:55 amI suggest USA is no longer a dominant power. Preeminent yes but not dominant. 25 years ago anybody who defied the USA was in trouble. They'd fly half way around the world and kick your ass. On a Tuesday if they wanted. For 5 billion dollars.
Today we see that Russia, Iran and China have joined together to defy USA/NATO policy in Syria and they're doing rather well. It'll be along time until USA fights any winning battles anywhere in Asia.
The literature on perceptions suggests that, however they come to be formed, the beliefs of national leaders (including their beliefs about the relative power of states in the international system) are slow to change.Glenn Stehle, 12/22/2015 at 8:40 amKenneth Boulding argues that such adjustments occur rarely, if at all, while John Stoessinger asserts that change is possible only as a consequence of some monumental disaster.
The precise point at which the scales of power turn…is imperceptible to common observation…some progress must be made in the new direction, before the change is perceived. They who are in the sinking scale…do not easily come off from the habitual prejudices of superior wealth, or power, or skill, or courage, nor from the confidence that these prejudices inspire. They who are in the rising scale do not immediately feel their strength, nor assume that confidence in it which successful experience gives them afterwards. They who are the most concerned to watch the variations of this balance, midjudge often in the same manner, and from the same prejudices. They continue to dread a power no longer able to hurt them, or they continue to have no apprehension of a power that grows daily more formidable.
–EDWARD VOSE GULICK, Europe's Classical Balance of Power
Stavros H,Ves, 12/22/2015 at 10:31 amThank you so much.
Your narrative is at least as plausible as the narrative that KSA is pumping oil at a record pace in order to cover their budget.
The narrative put forth by Ron and Rockman defies reality and common sense because, as Peter notes below, "Saudi Arabia is making half as much now producing 10 million than they were producing 8 million per day."
http://peakoilbarrel.com/all-roads-lead-to-peak-oil/comment-page-1/#comment-551980Saudi Arabia appears to have other motives besides maximizing its income from oil sales. Its motives are not stricly economic, and waging war is never without cost.
Again, I don't claim to know what Saudi Arabia's motives are, but your explanation seems as plausible as any.
One thing we can be sure of, however, is that the balance of power which attained after 1989 is now very much in flux, and is very much being challenged.
Stavro,Nick G, 12/22/2015 at 10:33 amThe big picture that you describe is somewhat on the money but the devil is in the details. And when you look at these details from different frame of mind you will get different picture.
1) If you use terms like NATO, GCC, EU, IMF you have to be aware that these are just labels that are representing cartels. In North America they like to talk about OPEC cartel but not so much about other cartels. If you don't talk about them than we pretend they do not exist. Main purpose of NATO is not to fight the war with "enemies" but to collect a money racket from the "allies". Country A is in the NATO, regardless if it likes it or not, has to have 3% of budget spent on military. That 3% is your racket. And that racket has to be collected every year. And you can only spend it on hardware from NATO catalogue. No free market there even if there are cheaper and better options. The more countries join the cartel the more money is in the pot. Small countries – no problem, they can join. Poor countries – no problem, they can join too. You can always extract something. In military sense these countries are useful as much as your Facebook friends (practically not friends at all) but what it does it keeps money trickling to the core.
2) Second note is about the fine print of the notion how much some country can produce oil. There is misconception in the discussion that certain country has huge X amount reserves and it will produce huge X amount of oil in the future. Country A with supposedly huge reserves, if assume it has sovereign elite, will produce just enough that suits their economic development and no more. It is as simple as that. The notion that Russia or Iran or whoever will produce so much that European elite can entertain themselves with Formula 1 races every weekend is pretty much nonsense that is result of 50 year of propagandazition. If American elite wants to piss their remaining shale oil on NASCAR races or 20 miles drive to the nearest Wal-Mart for jug of milk, or to keep military bases around the world, well, that is their choice. But eventually it will come to the point where this way of life is not possible and you have to adapt to a new circumstance. This blip period where oil prices are very low are just consequences of geopolitical war that you describe where everybody produce maximum regardless of profit in order to undercut the competition. If you don't have domestic source of oil then you can't play empire games anymore. You have to be "normal" country again. And that is not that tragic because if you ask 99% that question if they would like to be a "normal" country again they would take that in a heartbeat.
This potentiality threatens the global balance of power, as western oil & gas output is destined to decline (as well as output by countries under western domination) and the potential oil production of Russia, Iran & Iraq becomes a necessity for the global economy.It's certainly time to put the era of the "great prize" of oil behind us, and transition to new forms of transportation and energy.
If that were to reduce the chances for this kind of senseless conflict, that would be enormously valuable.
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Sarko, 12/26/2015 at 6:16 amTechnology is great but what happened with technology development when companies are cash flow negative? True, most of today fracking technology come online during 2003-2008 period, when price go from $25 to $140 per barrel.shallow sand, 12/26/2015 at 9:21 amAlso, do you believe is there over 100 billion barrels in US oil reserves? I don't know, i ask you, because i see you are in industry on some way and OPEC and EIA future projections for production in mb/d suggest just that.
Coffee.We've discussed tech v economics a lot, of course. If you have answered this before, and I have forgotten, I apologize.
Do you own an interest in any oil and/or gas wells? Do you own any stocks or bonds in any E & P companies?
If the tech is working wonders, why is $38 WTI and $2 Henry Hub so devastating?
I wish you would at least focus on the whole of well productivity, and not just the record setting stuff.
Per NDIC, the highest Bakken per well barrels of oil per day field wide was 11/08 at 146. 143 per day was achieved 10/12. 10/15 it is now down to 108.
108 x .75 = 81. 81 x 365 = 29,565 barrels of oil per year to the WI owners.
29,565 x $28 = $827,820.00.
Subtract $82,782 for production taxes. Subtract $268,000 for OPEX. Subtract $75,000 for G & A.
The average well nets $402,000 in the above scenario.
Say you borrowed $5 million of the cost of this average well at 6% interest. It comes due in 2020. $300K interest. You now have $102,000 left to put towards principal of $5 million. Thus far, you likely haven't put any of that meager amount towards principal, if you are US shale. You are still putting it towards trying for a record setting well.
You have likely sold your conventional production for 1/3 of what it would have brought in 2013, also to achieve said record setting well.
Coffee, I hope someday you realize that high IP is really not that important.
I also hope you understand why those of us who actually own an interest in US oil production grow tired of hearing about the supposed technological wonders.
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Sarko, 12/25/2015 at 8:47 amNo way that oil price will be average $60 per barrel in 2016. Russian budget assume base scenario $50 but they will lower on $40-45 average in 2016. Russians said they not expected that average oil price be over $60 till 2018, they are very pessimistic on oil price.likbez, 12/25/2015 at 11:31 am
I have one question: what is really number for LTO reserves in USA(USGS and EIA) on price around $60-70(in 2015 $)? Because, if it is around 30-35 billion barrels this all charts(not only OPEC but EIA) for US LTO production are mathematically impossible. They have average US LTO production on 4-4.5 mb/b but when you calculate that on 25 years period reserves need are around 40 billion barrels.
4.25mb/d x 365 days=1.55 billion barrels per year
1.55 barrels/year x 25 years=38.7 billion barrels.
I'm something miss or badly calculate?"Russians said they not expected that average oil price be over $60 till 2018, they are very pessimistic on oil price."Sarko, 12/25/2015 at 12:07 pmThey don't. My impression is that most Russian analysts expect mass bankruptcy of shale companies in the USA and $50-$60 on average in 2016
- http://www.finanz.ru/novosti/valyuty/chto-budet-s-cenami-na-neft-i-kursom-rublya-v-2016-godu-1000971038
- http://www.vestifinance.ru/articles/65848
Google translate is your friend...
It is not government prediction but private funds and Lukoil, biggest private oil company in Russia. This is official government prediction, unfortunately it is on Russian.AlexS, 12/25/2015 at 12:27 pmhttp://i73.fastpic.ru/big/2015/1201/b8/df6cd754ec0dc3da1e6480127c206fb8.png
First row is projections of price, two scenarios:
Base price for Ural (around $2 discount on Brent)
2016: $50
2017: $52
2018: $55Pesimistic
2016-2018 average price $40.
All budget plans, GDP, CPI are project on this oil price projections in Russia. So Russian government don't see oil price on brent over $60 in 2018. And if i'm correct, Russian Central Bank and finance/economic minister now make plans for $30-35 average price for 2016.
I just see official numbers of EIA for LTO reserves in USA and that is around 14 billion, if that is true all predictions about US LTO production on 4mb/d in next 25 are impossible, they even impossible if there is increased of 200% in LTO reserves from today level.
Russian oil company, Gazpromneft, recently said that their current operations will remain profitable at $15 per barrel, and at $20 they will drill new wells
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Ron Patterson , 12/26/2015 at 8:51 amHere is an interesting article that tries to explain why some companies just keep drilling wells in spite of the very low oil prices.shallow sand, 12/26/2015 at 9:24 amHoping for a Price Surge, Oil Companies Keep Wells in Reserve
Their well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado's Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.
The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly……….
But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, about the same amount of oil that Iran is expected to add to the glutted global market after it complies with the recent nuclear deal by the end of next year.
Some analysts say oil companies like Anadarko, EOG Resources and Continental Resources may collectively risk suffocating the very price revival they anticipate by releasing abundant new supplies once prices inch up. Others say the eventual impact would be small and short-lived, but since the industry has never used this strategy before, no one can be sure……….
On the completion side, fracking crews are easier to come by and their contracts tend to be more fluid. Now those completion costs have also come down - meaning that the uncompleted wells will eventually be brought on line at a lower cost, executives say.
Well that's just great. The article touts how smart this strategy is. The company thry focused on, Anadarko, lost $2.2 BILLION last QUARTER.oldfarmermac, 12/26/2015 at 9:39 amHi SS,Ron Patterson, 12/26/2015 at 9:49 amIf you have or can raise the cash, it makes sense to drill now and produce a year or two down the road-IF you believe prices will be up. According to what I read here, the costs of drilling a well may be down by a third, due to so many men and machines and so much steel and sand etc , "looking for a home".
I don't know if this is "one third off" drilling sales event is totally for real, it might be only a quarter or a fifth off. Hopefully somebody who crunches tight oil numbers will have something to say about it.
Tight oil production brought on by drilling now and producing later is not going to noticeably affect the price later.
Tight oil production brought on by drilling now and producing later is not going to noticeably affect the price later.shallow sand, 12/26/2015 at 10:56 amBy what logic did you arrive at that conclusion?
The article states: But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, …
Now I think an extra half a million barrels per day would noticeably affect the price.
OFM.What you say may make sense of you are using cash and have little to no debt. It may make sense for ExxonMobil.
Most LTO companies don't have cash. Most have a gob of debt. I don't think sinking cash into wells that will generate $0 revenue for a year or two is a good idea, especially given the financial shape LTO is in already.
Also, the entire premise is that there will soon be a steep rise in the price of oil. That is a total crap shoot.
So they are strictly gambling that oil prices will rise steeply in the next couple years? Is that a good business strategy for multi-billion dollar corporations to undertake, especially when the futures market says otherwise?
Ask Harold Hamm how easy it is to predict the future price of oil.
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peakoilbarrel.com
It is with the US and Canada where OPEC is most optimistic. They see US and Canada liquids production continuing onward and upward with not much of a pause.
OPEC expects light tight oil to increase in 2016. They only show a slight uptick in LTO in 2016 but an uptick nevertheless. I just don't believe that is possible.
But what about prices. Are not prices killing production in the oil patch, especially in the USA? Well the 2015 World Oil Outlook does not present any price charts or tables. But they do tell us what prices need to do in order for their reference case predictions to be fulfilled, all on page 8. Bold mine.In this Outlook, the price of the ORB is assumed to average $55/b during 2015 and to resume an upward trend in both the medium- and long-term. The medium-term foresees a $5/b increase each year so that a level of $80/b (nominal) for the ORB is reached by 2020, reflecting a gradual improvement in market conditions as growing demand and slower than previously expected non-OPEC supply growth eliminate the existing oversupply and lead to a more balanced market. This, in turn, will provide support to prices. Translated into real prices, the oil price is assumed to be $70.7/b by 2020 (in 2014 prices).
The long-term price assumption is based on the estimated cost of supplying the marginal barrel which will gradually move to more expensive areas. This continues to be the major factor in the period through to 2040. The price of the ORB in real terms is assumed to rise from more than $70/b in 2020 (in 2014 prices) to $95/b in 2040 (in 2014 prices). Correspondingly, nominal prices reach $80/b in 2020, rising to almost $123/b by 2030 and more than $160/b by 2040. It should be noted that these are not price forecasts, but working assumptions to guide the development of the Reference Case scenario.
They are saying that if prices increase by $5 a barrel a year, from $55 a barrel that they assume will be the 2015 average, then all will be well after only a slight dip in production in 2016 and 2017. So in 2016 we should see prices averaging $60 a barrel if they get their "Reference Case" started off on the right foot.
Glenn Stehle, 12/25/2015 at 10:10 am
Could this be a head fake on the part of OPEC, an attempt to appeal to the wishful thinking of Western policy makers (e.g., the sublime promises coming out of Cowboyistan and Planet Green) and to lure them into believing they have OPEC by the short hairs?
If so, OPEC has plenty of takers, such as Anatole Kaletsky:
Assuming that a combination of shale development, environmental pressure, and advances in clean energy keep the OPEC cartel paralyzed, oil will now trade like any other commodity in a normal competitive market, as it did from 1986 to 2005. As investors appreciate this new reality, they will focus on a basic principle of economics: "marginal cost pricing."
In a normal competitive market, prices will be set by the cost of producing an extra barrel from the cheapest oilfields with spare capacity. This means that all the reserves in Saudi Arabia, Iran, Iraq, Russia, and Central Asia would have to be fully developed and exhausted before anyone even bothered exploring under the Arctic ice cap or deep in the Gulf of Mexico or hundreds of miles off the Brazilian coast….
[W]ith OPEC on the ropes, the broad principle applies: ExxonMobil, Shell, and BP can no longer hope to compete with Saudi, Iranian, or Russian companies, which now have exclusive access to reserves that can be extracted with nothing more sophisticated than nineteenth-century "nodding donkeys."….
For Western oil companies, the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing ("fracking") to oil-producing countries….
There are two reasons why this has not happened – yet. Oil company managements still believe, with quasi-religious fervor, in perpetually rising demand and prices. So they prefer to waste money seeking new reserves instead of maximizing shareholders' cash payouts. And they contemptuously dismiss the only other plausible strategy: an investment shift from oil exploration to new energy technologies that will eventually replace fossil fuels.
Redirecting just half the $50 billion that oil companies are likely to spend this year on exploring for new reserves would more than double the $10 billion for clean-energy research announced this month by 20 governments at the Paris climate-change conference. The financial returns from such investment would almost certainly be far higher than from oil exploration….
As long as OPEC's output restrictions and expansion of cheap Middle Eastern oilfields sheltered Western oil companies from marginal-cost pricing, such complacency was understandable. But the Saudis and other OPEC governments now seem to recognize that output restrictions merely cede market share to American frackers and other higher-cost producers, while environmental pressures and advances in clean energy transform much of their oil into a worthless "stranded asset" that can never be used or sold….
OPEC seems finally to have absorbed this message and realized that the Oil Age is ending. Western oil companies need to wake up to the same reality, stop exploring, and either innovate or liquidate.
Ron Patterson, 12/25/2015 at 10:40 am
Quoting Anatole Kaletsky:
In a normal competitive market, prices will be set by the cost of producing an extra barrel from the cheapest oilfields with spare capacity.
No, that is simply not so. I have heard this claim made many times in the last 15 or so years. That is the claim is that: "Oil is priced on the margin." That is, as Kaletsky believes, the price of oil is set by the cost of producing the highest price barrel. And every time that is proposed, it gets shot down by people a lot smarter than me.
If the cost of producing that extra barrel is, say $80 a barrel, but only 80 million barrels can possibly be produced and the world could use 90 million barrels, then the price will rise to a lot higher than $80 a barrel.
Oil, just like everything else in the world, is priced by supply and demand and not what it costs to produce the highest priced barrel to produce.
Note: There are a few exceptions to the supply an demand rule. Rationing for example. Or price controls… or if you can corner the market on any one product like a life saving drug. Or another example: Congress says Medicare is not allowed open bidding for drugs but must pay the price that big Pharma asks. Big Pharma bought your congressman and demanded that the "no bid" clause be wrote into the bill. They did as they were told by the money that bought them their election.
The Veterans Administration is allowed to bid for the lowest price on drugs and as a result they get their drugs at a far cheaper price than does Medicare.
AlexS, 12/25/2015 at 10:28 am
Huckleberry Finn, 12/25/2015 at 11:56 amRon,
What they call "OPEC crude supply" is not projected actual production, but "the requirement for OPEC crude", i.e. global demand less non-OPEC supply. OPEC NGLs and OPEC other liquids (mainly GTL).
Actual OPEC crude production will most likely be higher (Iran, Iraq, Lybia)
So I think this is a brilliant report.Anyone in OECD holding out for higher prices makes decisions based on this then even the 3 million barrels of additional supply, which is 600,000 barrels per day per year, will not happen.
Even if that does, at $55 demand should grow in excess of 1 million barrels per day per year.
The best part about this is if SA has the biggest hand in getting this report done, and I have no reason to believe otherwise, all OPEC members should be ready to cooperate with cuts.
At $55 half the OPEC members get bankrupt in 5 years, including Saudi Arabia.
I think once December 31st passes OPEC might cut. Why December 31st? That is the price the auditors will use to assess the value of the oil in the ground for US shale companies. A low price then assures they will not get any credit increases till December 2016 even if the price rebounds.
If they are going to cut, it will be after December 31st.
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Huckleberry Finn, 12/25/2015 at 8:32 amDoes a barrel of NGL have the same BTU as a Barrel of Crude or Condensate?Ron Patterson, 12/25/2015 at 9:06 am
If not, converting all into BTU would show whether total BTUs provided are increasing or static.Rune Likvern says: NGLs have around 60 – 70% of the volumetric energy (heat) content of crude oil.Jeffrey J. Brown, 12/25/2015 at 10:05 amHowever peak oil will happen when oil peaks, not NGLs. Liquid transportation BTUs should not be mixed with other types of BTUs. Otherwise we would need to count BTUs from coal as well.
Some EIA million BTU (MMBTU) conversion factors:Ovi, 12/25/2015 at 9:14 amhttps://www.eia.gov/forecasts/aeo/pdf/appg.pdf
Of course, what the EIA calls "Crude oil" is actually Crude + Condensate (C+C), and condensate can't be used to meet crude oil contractual obligations at Cushing. I assume that the listed value for gasoline, 5.2 MMBTU, is a pretty good approximation for an average value for condensate.
For the first nine months of 2015, the EIA estimates that the ratio of US Lower 48 condensate* to US Lower 48 "Crude oil" Production, i.e., C+C, was 22%, or 2 million bpd of Lower 48 condensate production:
https://www.eia.gov/todayinenergy/detail.cfm?id=23952
These numbers are consistent with some estimates that I used in the following comment, where I tried to come up with an estimate of actual global crude oil production (45 API and lower crude oil, i.e., the stuff that corresponds to the global price indexes), versus global condensate production, using the only available data, some EIA API gravity estimates and EIA/OPEC data.
My premise was and is that we have been on an "Undulating plateau" in actual global crude oil production, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase:
http://peakoilbarrel.com/jean-laherreres-bakken-update/comment-page-1/#comment-534101
*Condensate with API gravity of 45 degrees or more
Ron I note that in the post, some places use the word Supply and in others, Production. In OPEC terminology, Supply adds processing gains to Production. Could this be part of the difference you mention between EIA and OPEC?Ron Patterson, 12/25/2015 at 10:06 amNo, I don't think so. In the charts that I copied and pasted, they say supply and, in this case anyway, they mean total production. And I was comparing only the supply marked as "crude". This does not include anything except crude. OPEC's total "crude" is way less than the EIA's or even JODI's "crude + condensate".oldfarmermac, 12/25/2015 at 9:52 amWorld crude oil production according to the EIA, JODI and OPEC in million barrels per day. 2014 2015 EIA 77.9 79.7 Avg. 1st 6 Months JODI 74.1 76.1 Avg. 1st 10 Months OPEC 72.7 74.2The actual net energy available on a per barrel basis, the way the accounting is done, including ever higher percentages of very light oil, condensate, natural gas liquids, etc, MUST be falling off significantly.How we should account for this loss in energy density is debatable, in terms of the peak oil debate. But in the real 3D world, it is no doubt already a big enough loss that it should be accounted for in forecasting future consumption measured in barrels.
If oil production is going to actually increase , for another couple of decades, in the face of the depletion of today's legacy oil fields, then the exploration guys are going to have to work some miracles, finding oil in substantial amounts, in places that have been combed over multiple times already. And the production guys are going to have to come up with some miracles too, in order to keep the per barrel cost in constant money below a hundred bucks.
Now being a practical old farmer, I do believe in " miracles", having witnessed half a dozen or so over my life time,for example cell phones, no till planting, genetic engineering, etc. But I don't believe in PREDICTING they will come to pass within any given field, within any given time frame.
I am with Ron, I believe all these rosy forecasts are nothing less than ridiculous, in terms of increasing total production annually going forward, especially at the prices mentioned.
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The Washington Post
Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States' adversaries under greater stress.
After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia's economic and political calculations, and dampening Iranian leaders' hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.
At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.
"Cheap oil hurts revenues for some of our foes and helps some of our friends. The Europeans, South Koreans and Japanese - they're all winners," said Robert McNally, director for energy in President George W. Bush's National Security Council and now head of the Rapidan Group, a consulting firm. "It's not good for Russia, that's for sure, and it's not good for Iran."
... ... ...
In Iran, cheap oil is forcing the government to ratchet down expectations.
The much-anticipated lifting of sanctions as a result of the deal to limit Iran's nuclear program is expected to result in an additional half-million barrels a day of oil exports by the middle of 2016.
But at current prices, Iran's income from those sales will still fall short of revenue earned from constrained oil exports a year ago.
Moreover, low prices are making it difficult for Iran to persuade international oil companies to develop Iran's long-neglected oil and gas fields, which have been off limits since sanctions were broadened in 2012.
"Should Iran come out of sanctions, they will face a very different market than the one they had left in 2012," Amos Hochstein, the State Department's special envoy and coordinator for international energy affairs, said in an interview. "They were forced to recede in a world of over $100 oil, and sanctions will be lifted at $36 oil. They will have to work harder to convince companies to come in and take the risk for supporting their energy infrastructure and their energy production."
Meanwhile, in Russia, low oil prices have compounded damage done by U.S. and European sanctions that were designed to target Russia's energy and financial sectors. And when Iran increases output, its grade of crude oil will most likely go to Europe, where it will compete directly with Russia's Urals oil, McNally said.
Steven Mufson covers the White House. Since joining The Post, he has covered economics, China, foreign policy and energy.
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crudeoilpeak.info
JEDDAH: Custodian of the Two Holy Mosques King Salman has ordered that Saudi Arabia's aid and investment package to Egypt should be increased to SR30 billion (US$ 8 bn) in the next five years.The announcement was made by Deputy Crown Prince Mohammed bin Salman at a meeting with Egyptian Prime Minister Sherif Ismail in Cairo on Tuesday, said SPA (Saudi Press Agency)
Prince Mohammed said at the start of the meeting that King Salman ordered the increase in the package - to contribute to Egypt's oil needs for five years and for an increase in traffic for Saudi ships in the Suez Canal.
According to a report in Bloomberg quoting Egyptian Investment Minister Ashraf Salman on Wednesday, the investment of SR30 billion would be through Saudi Arabia's public and sovereign funds, with inflows beginning immediately. Egypt is also set to renew a deal to import Saudi oil products for five years on favorable terms, Ismail said."
http://www.arabnews.com/featured/news/851651
This follows pledges of US$ 12.5 bn aid by Saudi Arabia, Kuwait, the UAE and Oman in March 2015, at an economic conference (EEDC) in Sharm el-Sheikh.
Will that be enough to rescue Egypt?
Let's have a look at Egypt's budget. In the previous post we found that Egypt's oil production peaked in 1993. Declining and now stagnating oil production against an ever-growing oil demand of a ballooning population meant that Egypt is a net-oil importer since 2010. How did that impact on the budget? We use IMF data available from this website: http://www.imf.org/external/country/egy/index.htm
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crudeoilpeak.info
JEDDAH: Custodian of the Two Holy Mosques King Salman has ordered that Saudi Arabia's aid and investment package to Egypt should be increased to SR30 billion (US$ 8 bn) in the next five years.The announcement was made by Deputy Crown Prince Mohammed bin Salman at a meeting with Egyptian Prime Minister Sherif Ismail in Cairo on Tuesday, said SPA (Saudi Press Agency)
Prince Mohammed said at the start of the meeting that King Salman ordered the increase in the package - to contribute to Egypt's oil needs for five years and for an increase in traffic for Saudi ships in the Suez Canal.
According to a report in Bloomberg quoting Egyptian Investment Minister Ashraf Salman on Wednesday, the investment of SR30 billion would be through Saudi Arabia's public and sovereign funds, with inflows beginning immediately. Egypt is also set to renew a deal to import Saudi oil products for five years on favorable terms, Ismail said."
http://www.arabnews.com/featured/news/851651
This follows pledges of US$ 12.5 bn aid by Saudi Arabia, Kuwait, the UAE and Oman in March 2015, at an economic conference (EEDC) in Sharm el-Sheikh.
Will that be enough to rescue Egypt?
Let's have a look at Egypt's budget. In the previous post we found that Egypt's oil production peaked in 1993. Declining and now stagnating oil production against an ever-growing oil demand of a ballooning population meant that Egypt is a net-oil importer since 2010. How did that impact on the budget? We use IMF data available from this website: http://www.imf.org/external/country/egy/index.htm
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www.forbes.com
What about biofuels? The world currently consumes about 92 million barrels of oil per day. The world produces about 1.5 million barrels of oil equivalent (BOE) of biofuels per day. Since 2005, biofuel production in the world has grown by 1 million barrels a day, while crude oil production has grown by nearly 7 million barrels a day. Biofuels are certainly not growing at a fast enough rate to meet world demand – much less cut into petroleum's dominance. Further, there isn't enough available arable land in the world for biofuels to ever make more than a tiny contribution to the world's oil supply. Advanced biofuels which many advocates assured us could deliver us from our oil dependence have failed to deliver.
That brings me to the other primary contender often mentioned as a crude oil killer: the electric vehicle (EV). In theory, as the world switches to EVs, our crude oil consumption will peak and fall. But what is actually happening?
According to Inside EVs, a website that reports on EV sales, through the first 11 months of 2014 there were 110,011 EVs sold in the U.S. This year, sales in the first 11 months have fallen to 102,898 vehicles - a decline of 6.5%. Annual EV sales did grow rapidly from 2011 to 2013, but haven't grown much beyond 2013′s 97,507 vehicles sold.
But 100,000 vehicles per year is nothing to sneeze at, right? Well, let's compare that against overall vehicle sales. According to Automotive News, the first 11 months of 2014 saw overall vehicle sales in the U.S. of 15,015,434 automobiles (cars, light-duty trucks, and SUVs). That means that electric cars sales accounted for about 0.7% of the market. But what's much more revealing is that overall vehicle sales in the U.S. this year through November were 15,826,634 automobiles. Thus, in one year the number of cars sold in the U.S. has increased by 811,200 vehicles.
That's a one-year increase that's more than double the total EV sales of the past 5 years - and almost all of those vehicles run on petroleum.
...there is still nothing on the horizon that signals even the beginning of the end of the oil age.
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peakoilbarrel.com
Ovi, 12/23/2015 at 10:20 pmThe U.S. oil production miracle continues today. According to today's EIA inventory report, U.S. production was up another 1 kb/d this week. Added September US production from the EIA monthly International Stats to the attached chart. From September 4 (8,683 kb/d) to Dec 18 (8,653 kb/d) lower 48 production has only dropped by 30 kb/d.
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econbrowser.com
Jeffrey J. BrownSteven Kopits is predicting $85 oil by the end of the third quarter [of 2015]. Here's the link to the recent interview with Steven on CNBC:
http://video.cnbc.com/gallery/?video=3000384466
So far, monthly Brent crude oil prices are recovering at about twice the rate of increase that we saw following the December, 2008 monthly low in Brent prices. From January, 2015 to May, 2015, monthly Brent price increased at an annualized rate of about 90%/year. Monthly Brent prices rose at an annualized rate of 43%/year from December, 2008 to February, 2011.
Regarding Saudi Arabia, their post-2005 annual net exports (total petroleum liquids + other liquids, EIA data) have been substantially below (their recently revised upward) 2005 level of 9.5 MMBPD (million barrels per day) for nine straight years. Based on the 2005 to 2013 rate of decline in the ratio of Saudi production to consumption, I estimate that Saudi Arabia may have already shipped more than 40% of their post-2005 CNE (Cumulative Net Exports).
The key question about tight/shale plays is whether plays like the Bakken – with an average per well production rate of a little over 100 bpd, with a median production rate of less than 100 bpd, with an overall very rapid decline rate – will work in higher operating cost areas around the world.
In addition, not all shale plays are commercial in the US, and those that are commercial tend to very much gas prone.
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peakoilbarrel.com
Jeffrey J. Brown, 12/10/2015 at 7:40 amThere has been a lot of talk regarding the oil glut, but according to eia crude inventories there is only 105.1 million more barrils of crude than a year ago
What the EIA calls "Crude oil" is actually Crude + Condensate (C+C).
I suspect that most of the 2015 build in US and global C+C inventories consists of condensate, and I frequently cite a Reuters article earlier this year that documented case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper API limit for WTI crude (42 API gravity*), but that are deficient in distillates.
In any case, based on the most recent four week running average data, US refineries were dependent on net crude oil imports for 43% of the C+C processed in US refineries (7.1/16.5) versus 44% a year ago (7.1/16.2). If we had so much (generally cheaper than imported) actual crude oil on hand in the US, why are refiners importing the same amount of crude oil as they did last year?
*Most common overall dividing line between crude & condensate is 45 API
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Dec 24, 2015 | ft.com
US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector….
Banks including Wells Fargo have recently spoken about the dangers of low oil prices that could make exploration companies and oil producers unable to pay their loans.
There are now five times as many oil and gas loans in danger of default to the oil and gas sector as there were a year ago, a trio of US regulators warned in November….
"It's the fact that they have 28 negative things hitting you at once that makes them challenging," said Mr Goldberg.
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finance.yahoo.com
"The lifting of the ban on U.S. exports will provide some underlying support for U.S. crude. Oil demand in 2015 was exceptionally high and at current prices, demand is going to remain strong next year," said Olivier Jakob, analyst at Petromatrix.
...Crude inventories, which were expected to rise, fell 5.88 million barrels, the Energy Information Administration said.
...Baker Hughes reported that U.S. oil drillers cut rigs for a fifth week in the last six, a sign that low prices are curbing activity and could slow output.
TUSC
Different whats being said elsewhere, Oil [slump is] based on the USA dollar creep up. WTI went above Brent Oil prices for the first time in years.
Saudi Oil is running out, they are producing a little bit less than they did this time last year and that is with more new oil wells and pumps, Saudi King as issued a statement for its country to move away from the dependence on oil. That's a sure sign oil stocks in Saudi Arabia have started to fall.
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peakoilbarrel.com
Silicon Valley Observer, 12/24/2015 at 10:58 amI live in an area that could be considered ground zero for renewable energy activism. Electric vehicles are commonplace in Silicon Valley - especially in the Whole Foods parking lot. Solar panels are also found many places - on homes, on office buildings, on the structures that shade the parking lot at my son's high school. Just a short drive up the road Tesla is cranking out electric status symbols that herald a new era.Even so, electric vehicles are still a tiny minority of all vehicles and the solar panels that exist are not close to being sufficient to meet the electrical needs of residents and businesses. There are those on this forum who are more than happy to point out that all of this probably wouldn't be happening without government subsidies. And that is largely true. And some of the subsidies are truly silly. For example, I had a solar powered skylight installed in my house and, just because it had a solar panel, it qualified for a generous tax subsidy - even though the electricity it saves is minuscule.
The subsidies were insufficient to create widespread adoption when energy prices were high; today it's an even tougher sell. There would always be enthusiasts who would ignore the economics because they can afford to and it does buy a certain cache in Cupertino. But there aren't enough Apple and Google engineers to make a difference. The cashier at my local Walmart isn't going to spend an extra $10K to $20K on a Nissan Leaf over an economical ICE vehicle; and there are a lot more people like her than like the Apple/Google engineers.
To me, the bottom line is that it's really hard to compete with an energy source as energy-dense, portable, and cheap as oil - especially at today's prices. But whereas some people, even on this forum, would take some pleasure in pointing out the inadequacies of electric vehicles and their associated subsidies and, I assume, argue for their elimination, I do not.
Unless one believes that inexpensive oil will last forever, a transition must take place. In my opinion, that transition will fall somewhere on a continuum from immediate economic collapse to a slower economic collapse. Collapse is inevitable because no energy source can replace oil and oil underlies our entire economy. In this viewpoint, whether or not we have electric vehicles will make little difference. We won't have jobs to drive to. We won't have products in the stores to buy even if we can drive to them. Yes, there will be a small portion of the population who will do better than most - Silicon Valley will probably be one of those places for quite a while - and for them electric vehicles will provide some value. But not for the vast majority.
So hooray for government subsidies. They do very little harm and create some small measure of good. They cost a lot less than bombs and bank bailouts.
Will they make a meaningful difference in the broad arc of history? I think not. But I have been wrong before. To those who would criticize them I ask you to take the longer view and tell me, what is your vision of the future?
Merry Christmas
[Dec 24, 2015] Dicker Oil isn't going anywhere in 2016
Notable quotes:
"... 2016 might be only marginally better. Oil prices might rise in the third quarter ..."
finance.yahoo.com
Dan Dicker of MercBlock reveals his 2016 outlook for oil. He made the following points
- 2016 might be only marginally better. Oil prices might rise in the third quarter
- Oil maker is never seen in equilibrium it knows nothing but spike down and spikes up, but is we can talk about this mythical Equilibrium oil price I guess is around $80 but it will not be achieved in 2016.
- 2016 we will see many defaults, bankruptcies and restructures in 2016 and consolidation of the players
- Big names (Exxon, Chevron, BP) can now be used as bond equivalents for dividends they produce. Use them as holding boxes in your energy portfolio. That's how I use them.
[Dec 24, 2015] California Gas Leak Now Being Called Worst Catastrophe Since BP Spill Zero Hedge
Notable quotes:
"... Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping, as according to the California Air Resources Board, methane - a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide - has been escaping from the Aliso Canyon site with force equivalent "to a volcanic eruption" for about two months now. ..."
"... So far, the total leaked gas measures somewhere around 100,000 tons - adding "approximately one-quarter to the regular statewide methane emissions" during that same time frame. ..."
"... Officials and experts are concerned, and they can't recall another leak of this magnitude in decades - if ever. "I asked this question of our staff of 30 years," said Steve Bohlen, who recently left his position as state supervisor of oil and gas. "This is unique in the last three or four decades. This is an unusual event, period." ..."
"... no one really knows the potential long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas. ..."
"... In fact, there are some 300 such depleted subterranean oil fields being employed this way around the United States ..."
"... Aliso Canyon, a natural gas storage site since the 1970s, has one of the largest capacities: 86 billion cubic feet. During the summer, gas earmarked for winter heating is pumped into these underground cavities by SoCalGas - and the process is reversed with the turn of the seasons. ..."
www.zerohedge.com
Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes, "the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane - a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide - has been escaping from the Aliso Canyon site with force equivalent "to a volcanic eruption" for about two months now.New infrared footage exposes the massive leak..
Infographic of leak (and potential solution)
As TheAntiMedia.org's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site - at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.
This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it.
This methane disaster is worse than can be sufficiently described in words, because while it's estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can't be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix - which remains a dubiously open question.
According to the California Air Resources Board, methane - a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide - has been escaping from the Aliso Canyon site with force equivalent "to a volcanic eruption" for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons - adding "approximately one-quarter to the regular statewide methane emissions" during that same time frame.
"The relative magnitude of emissions from the leak compared to other sources of methane in the State underscores the urgency of stopping the gas leak. This comes on top of any problems caused by odor and any potential impacts from exposure," states the initial report on the Aliso leak by air quality officials.
"The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping. As the pressure from the weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area," explained Erin Brockovich, who spent time in nearby Porter Ranch investigating the leak.
Officials and experts are concerned, and they can't recall another leak of this magnitude in decades - if ever. "I asked this question of our staff of 30 years," said Steve Bohlen, who recently left his position as state supervisor of oil and gas. "This is unique in the last three or four decades. This is an unusual event, period."
Though methane, itself, has no odor, the addition of odorants methyl mercaptan and tetrahydrothiophene - a safety measure to alert people by smell to the presence of natural gas - has made the enormous methane seepage impossible to ignore. Thousands of households have evacuated the area, despite little help, much less information, from the gas company about when they might be able to return. As reported by the Los Angeles Times, SoCalGas spokesperson Michael Mizrahi claimed the company had paid to relocate and house 2,092 households - but that effort is severely lacking, says Los Angeles City Attorney Mike Feuer.
Yesterday, the city attorney's office sought a restraining order to mandate SoCalGas relocate residents in the affected area within 48 hours of their request; and it is also seeking a "special master" to oversee the entire relocation operation, which is currently being handled by the gas company. Not only does the present relocation lack speed and coordination, but a housing crunch has resulted in surrounding areas - in some cases landlords, who prefer year-long leases to shorter terms, have driven rent as high as $8,500 per month. Hotels are operating at capacity, and in "some of those hotel rooms there are not enough beds for the people who are being moved," explained chief deputy to the city attorney, James P. Clark.
"It's time Porter Ranch residents had direct and complete answers about all facets of this leak," Clark continued, "including what caused it, how to stop it, and what will be done to assure it never happens again. They should receive better, quicker, and completely adequate relocation assistance."
On Thursday, Los Angeles Unified School District board members voted unanimously to close two Porter Ranch schools and relocate their 1,900 students and staff to different locations for the foreseeable future. A local emergency has been declared by the Los Angeles County Board of Supervisors.
Multiple lawsuits have now been initiated against SoCalGas and/or its parent company, Sempra Energy. A Los Angeles firm representing three of the families, who filed their suit Friday, described in a statement that the well has been "leaking noxious odors, hazardous gases, chemicals, pollutants, and contaminants due to a massive well failure and blowout. However, SoCalGas failed to inform residents of neighboring communities of the disastrous gas leak in a timely manner, putting the health and well-being of thousands of families in jeopardy." Those suits allege "negligence, strict liability of ultra-hazardous activity, private nuisance, inverse condemnation, and trespass."
A class-action lawsuit has also been filed on behalf of the Save Porter Ranch group; and City Attorney Mike Feuer filed a civil suit earlier this month due to the leak's continued threat to residents' health and damage to the environment, alleging failure by SoCalGas to prevent the leak and further exacerbation of "the effects of that failure by allowing the acute odor and health problems faced by the community to persist for more than one month, to say nothing about the indefinite time it will persist into the future," state the court documents. "No community should have to endure what the residents of Porter Ranch have suffered from the gas company's continued failure to stop that leak," Feuer stated.
SoCalGas insists there will be no long-term health effects resulting from the persistent leak; but as Brockovich pointed out, "no one really knows the potential long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas." In an email to the Los Angeles Daily News, SoCalGas stated they were "providing air filters for people's homes" and "have established a claims process for those who feel they may have suffered harm or injury. And our top priority remains stopping this leak as quickly and safely as possible.
"While the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk."
But what's making this massive leak so difficult to stop pertains to the storage 'container,' itself. "We have the largest natural gas storage system in the world," boasts Chris McGill, vice president of the American Gas Association. In the United States, old underground oil fields are often put to use as storage vessels for natural gas - because, hey, that geology worked just fine to hold oil for millions of years, so why not natural gas?
In fact, there are some 300 such depleted subterranean oil fields being employed this way around the United States.
Aliso Canyon, a natural gas storage site since the 1970s, has one of the largest capacities: 86 billion cubic feet. During the summer, gas earmarked for winter heating is pumped into these underground cavities by SoCalGas - and the process is reversed with the turn of the seasons. However, this year, workers encountered what quickly became evident was anything but a typical hiccup. As Wired reported:
"On October 23, workers noticed the leak at a 40-year-old well in Aliso Canyon. Small leaks are routine, says Bohlen, and SoCalGas did what it routinely does: put fluid down the well to stop the leak and tinker with the well head. It didn't work. The company tried it five more times, and the gas kept leaking. At this point, it was clear the leak was far from routine, and the problem was deeper underground."
Beginning December 4th, SoCalGas crews began drilling a relief well to intercept the fissured pipe. Cement will then be poured into both to seal the wells permanently. Of course, for this to work, crews must locate that original pipe, which is a mere seven inches in diameter, thousands of feet underground - without accidentally creating any sparks, whatsoever. Work near the leak site, therefore, has been prohibited after nightfall, when lighting equipment could potentially cause such a spark; though drilling for the relief well is situated far enough away to continue nonstop.
Flaring, or setting a deliberate fire to burn off excess gas, simply isn't an option. The mammoth scope of this leak means a flare would ultimately complicate matters even further.
"There is no stone being left unturned to get this well closed," Bohlen stated. "It's our top priority."
In the meantime, it will be months without any possibility of halting this disaster-in-motion. Sickened, uprooted, and furious residents can rest assured, though, because even as methane spews nonstop into the air, SoCalGas did have this consolation:
"We are deeply sorry for the frustration."
See also
- Porter Ranch gas leak a catastrophe not seen since the BP oil spill MSNBC
- City attorney demands faster relocation of residents near Porter Ranch gas leak - LA Times
- Gas Leak Into Porter Ranch to Be Declared Local State of Emergency NBC Southern California
- Porter Ranch Residents See Infrared Video of 'Hydrocarbon Plume' NBC Southern California
[Dec 24, 2015] Low oil prices destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices
Notable quotes:
"... "Around $200 billion of investments in energy have been canceled this year, with energy companies planning to cut another 3 to 8 percent from their investments next year," Abdulaziz said. "This is the first time since the mid-1980s that the oil and gas industry will have cut investment in two consecutive years." ..."
"... He said the capital spending cuts would defer projects capable of producing nearly 5 million barrels a day, about 5 percent of world consumption. The Standard and Poor's global oil index is down 25.4 percent over the past year. ..."
"... The major banks, including Wells Fargo, have also set aside additional reserves in case some domestic oil and gas producers need to defer - or default on - loan payments. ..."
"... the domestic U.S. industry will cut budgets another 20 to 30 percent in 2016.In an email, he said that there would also be more layoffs on top of 250,000 people laid off already. ..."
"... ...Abdulaziz ... warned that too much reduction in world supplies could cause a snapping back of prices. ..."
"... the average fuel efficiency of new passenger vehicles in November was 25 miles per gallon, below the 25.7 mpg level reached in May 2014, ..."
"... Low prices are "going to destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices," McNally said. "And boom-and-bust oil prices are bad for everybody." ..."
"... And they see, at least temporarily, low oil prices as aligning with their foreign policy goals in the Middle East, i.e., make the Iranian regime suffer whenever possible. ..."
"... We could have placed FREE solar panels on every home and business in the south and southwest for a fraction of the cost of the Iraq war. ..."
"... Fracking's role in the larger policy issue is so minor as to hardly merit mention. The total cost of fracking, not including the price to be paid later for reclamation, at the wellhead is so far above the spot as to make it economically unviable. That fracking is now on the downturn and headed toward extinction is both economically sound and socially responsible. ..."
"... If you believe this was not a part of Obama's early calculus in his repeated negotiations with the Saudis, you're not a deep thinker. ..."
"... The US Federal Government funded the basic research for hydraulic fractionating, to the tune of about $150 million. A GREAT investment and one that the Feds can assert has dramatically changed global markets and the politics that have resulted. So yes indeed Obama HAS done a LOT for the industry. Now Sylendra, and some of the renewable energy failures, are Federal disasters. The record is mixed, not always/absolute win or lose. ..."
"... First, the monopolist, once he's sure the competition is destroyed, immediately raises prices; seeking to accomplish two objectives, (1) to "claw-back" foregone profits of the commodities sold at a loss; or at negative profit margins; and (2) to establish a successor price equilibrium point higher than historical norms; and staves off competitors, for generations into the future. ..."
"... And the prior post is correct. We need to do something about oil speculation. The main reason for the futures market is hedging costs and liquidity. There are no issues with liquidity. Those hedging should be required to take delivery on their futures. Speculators can't take delivery. We'll have a much more stable market without them. ..."
"... Anyone that thinks that this just a fluke, doesn't understand the back end work of the much maligned US Govt. These were strategic moves to thwart Russian and Iranian aggressions. The ricochet effect is that others that depended on high priced oil revenues, like Brazil, Cuba, Libya, Venezuela, Nigeria, etc, etc, also get pinched. The net effect is that those countries now have suffering economies and populations who are clamoring for and instituting change. ..."
The Washington Post
Obama's foreign policy goals get a boost from plunging oil prices by Steven Mufson
At a conference in Doha in early November, Prince Abdulaziz bin Salman al Saud, Saudi Arabia's vice minister of petroleum and mineral resources, explained the depth of the global impact.
"Around $200 billion of investments in energy have been canceled this year, with energy companies planning to cut another 3 to 8 percent from their investments next year," Abdulaziz said. "This is the first time since the mid-1980s that the oil and gas industry will have cut investment in two consecutive years."
He said the capital spending cuts would defer projects capable of producing nearly 5 million barrels a day, about 5 percent of world consumption. The Standard and Poor's global oil index is down 25.4 percent over the past year.
...The major banks, including Wells Fargo, have also set aside additional reserves in case some domestic oil and gas producers need to defer - or default on - loan payments.
...the domestic U.S. industry will cut budgets another 20 to 30 percent in 2016.In an email, he said that there would also be more layoffs on top of 250,000 people laid off already.
"The oil industry is being dismantled," he said, noting that the loss of workers to other industries would make it "hard for industry to respond quickly when an oil shortage occurs."
...Abdulaziz ... warned that too much reduction in world supplies could cause a snapping back of prices.
...U.S. gas consumption is up 3 percent this year, and the average fuel efficiency of new passenger vehicles in November was 25 miles per gallon, below the 25.7 mpg level reached in May 2014, according to the University of Michigan's Transportation Research Institute.
Low prices are "going to destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices," McNally said. "And boom-and-bust oil prices are bad for everybody."
UJ, 10:18 AM EST
At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.
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That's not an accident or a coincidence. That's Democratic policy and Obama policy in particular, that's causing all that.baltic wolf, 10:35 AM EST
I would also add that the Saudis have in the past demonstrated that they will do what they can to prevent us from reducing our imports from their country----as they did in the early 1980's when we introduced CAFE standards for automobiles. They responded by ramping up production which reduced the incentive to drive more gas efficient cars.
And they see, at least temporarily, low oil prices as aligning with their foreign policy goals in the Middle East, i.e., make the Iranian regime suffer whenever possible.
Manchester0913, 10:43 AM EST
If you're trying to claim that this administration hasn't been friendly to the fracking industry, it's time to turn off faux news and pay attention.
4blazek, 10:15 AM EST
"There's no way to quantify whether cheap oil is good for us, because the bad guys lose and good guys win," Hochstein cautioned. "It doesn't work that way. There are winners and losers all across the board." anyone that believes Hchstein's words is a moron as is his words. America is in the process of changing the world energy hierarchy. We are recovering reserves larger than that of the Middle East and it is all right here!. Our challenge is to migrate both power generation and state and federal transportation over to natural gas, which will do several things: 1) reduce US emission to levels to targets 75 years in advance, 2) reduce demand and hence retail price of both gasoline and diesel fuel, 3) have the critical mass of CNG powered vehicles to get the auto industry to offer these vehicles ready to go, without conversion, 4) put a nail in the coffin of those nations using oil receipts to fund terror activities, and 5) lower state and federal spending on fuel for transportation. And who has the courage to get this done? TRUMP...
Publius38, 10:14 AM EST
So why then is Big Oil pushing now to make the USA an oil exporter?
Warwick71, 10:09 AM EST
Because not all oil is the same. Oil produced in various parts of the world contain contaminants at varying levels which must be removed in the refining process. Much of US refining capacity is built to handle imported oil; switching to a different source can't be done without major mods to the refinery, or even building new capacity entirely. Building new capacity is virtually impossible due to restrictive permitting requirements. It's all market driven.
Last Gasp, 10:15 AM EST
Why is this a bad thing?
4blazek, 10:18 AM EST
Because natural gas prices are artificially depressed because of the the export restrictions. Higher NG prices make their way into the hands of Landowners across America from where these resources are being recovered. Instead of making the Saudis rich, we are making fellow Americans better off. Our family farms are right in the Utica play, I can see it first hand...
Skeptical 0bserver, 10:10 AM EST
At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue.
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Barry must have personally attended to the oil prices drop...ParFore, 9:51 AM EST
Interestingly, the House Freedumb Caucus believes it is so unimportant that it's now time to sell-off the strategic oil reserves ...at great loss. Could be the fracking folks were hoping for a golden parachute.
irisiri, 9:53 AM EST [Edited]
Oil is a commodity that's why. The only national interest implication here is that we insist on getting involved in wars due to this product. We should be using so many other sources of energy that oil would be only ONE of the commodities we need. We could have placed FREE solar panels on every home and business in the south and southwest for a fraction of the cost of the Iraq war.
baltic wolf, 9:45 AM EST
Here's an interesting link for those who advocate we accelerate our investment and reliance on wind and solar: http://www.pbs.org/newshour/bb/how-building-a-bett...
Essentially it was saying that we're already producing lots of energy through wind and solar, but we don't have adequate ways to store the power.
In SoCal for instance, the utility there is using lithium batteries to store the energy generated by wind turbines----a necessity because wind speeds and thus energy output is greatest at night but energy demand is greatest during the day.There are promising new technologies emerging to store the energy more reliably than in lithium batteries (which have a relatively short life span) but they are in their infancy, so it's not reasonable to expect that they will be used widely anytime soon.
edbyronadams, 9:50 AM EST
When Diablo Canyon, one of the last nuclear power projects in the country was built, a twin project called the Helm's Creek project was built in the Sierra where a reservoir stored pumped water during non peak demand times since nuclear piles run at steady output. Standard hydro generation from the project was turned on during peak demand times.
Chortling_Heel, 9:41 AM EST
"U.S. gas consumption is up 3 percent this year, and the average fuel efficiency of new passenger vehicles in November was 25 miles per gallon, below the 25.7 mpg level reached in May 2014 . . . "
______________________________People love their inefficient SUVs and 'Cross-overs" . . . .
ParFore, 9:40 AM EST
Fracking's role in the larger policy issue is so minor as to hardly merit mention. The total cost of fracking, not including the price to be paid later for reclamation, at the wellhead is so far above the spot as to make it economically unviable. That fracking is now on the downturn and headed toward extinction is both economically sound and socially responsible.
If you believe this was not a part of Obama's early calculus in his repeated negotiations with the Saudis, you're not a deep thinker.
Bresponsible, 9:19 AM EST
Producing and exporting oil at the current price is IMHO very, very short term thinking and long term stupid. We can not compete with Saudi production capability.
More important, fracking is last life effort and can be done only a limited number of times per well. Producing and exporting oil at these prices is economic suicide -- again IMHO.
When we have fracked every well -- and we have no alternate energy alternatives to turn to -- we must return to the market and pay the price. Watch our economy tank when that happens.
centex1, 9:00 AM EST
can anyone explain why we are now going to export our precious oil seeing we have just regained some degree of energy independence from Middle Eastern oil......big oil's greed will yet again paint us in a corner .....offshore bank accounts, shell corporations and now this.......maybe "nationalization" isn't such a dirty word after all.....the American public are but pawns to their unquenchable greed.
Giedi Prime, 8:48 AM EST
"The reason for the deep drop in oil prices continues to be Saudi Arabia's refusal to cut its oil exports in order to prop up prices."
And that's why POTUS stopped in to meet the new King on the way home from India this year. Because in the long game, the Saudis keeping the pumps wide open was more powerful than any bomb or bullet in checking Putin's goals.
edbyronadams, 8:52 AM EST
Is the quid pro quo a promise to protect the House of Saud from the Shia hordes by putting US troops in between?
Manchester0913, 8:55 AM EST
No. But strange that you wing-nuts have a problem with that, but not about putting troops in Syria. Hypocrite much?
Hermitian Operator, 8:32 AM EST
Why are those countries listed as America's "adversaries"?
Why don't the Global Cop elites in Washington allow the Venezuelans to figure things out for themselves? And the Russian people too. What happens in Ukraine is a European problem. Let the Europeans handle it. Same thing with the dystopian Middle East. Let those countries fish or cut bait with ISIS.
The U.S. hyper-interventionist government is the 800 pound Global Cop Gorilla that wrecks just about everything it touches. Why should we be surprised that the arrogant but stupid Power Elites in Washington have created a litany of "adversaries"? Cheered on of course by the Neoconned MSM sycophants like the Washington Post.
And all of that stupidity costs the taxpayers TRILLIONS. But what the heck? From the Elites' PoV, it ain't their money. And OBTW, they always walk away personally rich from the wreckage they create.
P.S. Merry Christmas...
Hermitian Operator, 8:56 AM EST
The U.S. is up against a severe shortage of the primary care physicians. Partly because of the lack of residency slots, (funded by Medicare.) Obama flushed $500,000,000 of American Green down the toilet in sending weapons to "moderate" jihadists in Syria.
Ask the American people if they'd want that money to be stuffed into the pockets of Islamic lunatics in the Middle East or used to train up more doctors here at home.
Plenty more examples of the economic wreckage hatched by the Elites including Obama and his cast of arrogant, cronied-up mediocrities.
CharlesRoy, 9:00 AM EST
The US Federal Government funded the basic research for hydraulic fractionating, to the tune of about $150 million. A GREAT investment and one that the Feds can assert has dramatically changed global markets and the politics that have resulted. So yes indeed Obama HAS done a LOT for the industry. Now Sylendra, and some of the renewable energy failures, are Federal disasters. The record is mixed, not always/absolute win or lose.
onegenius, 8:06 AM EST
The most worrisome issue is the greed of the oil speculators who siphoned $billions$ in profits and cause the wild swing in oil prices. Take them out of the equation and much of the problem goes away. Congress out to pass a law that when you buy oil you are required to take delivery of it, weeding out the pure greedy speculators.
rc115RogerThat, 7:54 AM EST
This Zionist menace and propagandist may think that cheerleading for the Zionist war against the Tsars and other alleged enemies of the Zionist state is a good thing. But it is in fact, very near treason. The destruction of the domestic US energy infrastructure (by collapsing global prices for fossil energy) is an unqualified act of economic warfare, that the US should be respond to in-kind; by the threat of our military abandonment of the Saudi despotism to ether the tender mercies of Iran; or the other nations of the Middle East, who have never benefited from non-existent pan-Islamic largess of Saudi royal family. Worst of all, the article completely overlooks the consequences of a monopolist's successful destruction of his competitors (in and outside of his industry) through under price-fixing.
First, the monopolist, once he's sure the competition is destroyed, immediately raises prices; seeking to accomplish two objectives, (1) to "claw-back" foregone profits of the commodities sold at a loss; or at negative profit margins; and (2) to establish a successor price equilibrium point higher than historical norms; and staves off competitors, for generations into the future.
This is exactly what we have witnessed. Saudi Arabia's destructive under price-fixing of the early 1980s collapsed the price of oil, destroyed the US Savings & Loan industry, and put off modernization of oil and gas exploration technologies in the US (and the rest of the mature producing world), for 30 years.
When those new technologies began to again emerge again (in the early 2000s) in the form of fracking for gas; and oil-shale extraction, the monopolist, and his fellow-traveling traitors struck again. And as for the technologies of alternative energy sources and techniques, their destruction is merely a collateral damage benefit achieved by the Saudi's overall strategy.
LunaTics, 8:06 AM EST
Going with the word "Zionist" three times in the first sentence is a bold choice.
wingerone, 7:49 AM EST
Many weaker oil producers will fail. The stronger producers will weather this, buy the assets and equipment of the weaker producers at bargain basement prices and their cost of production will plummet. They will continue to pump oil as long as it is profitable. Oil prices will remain low longer than most expect and could drop further.
Yes, there eventually will be a snap back. It will be a great investment opportunity. Keep your power dry and be patient. Your return won't be in percentages, it will be in multiples. Look for good companies that bought up cheap assets.
And the prior post is correct. We need to do something about oil speculation. The main reason for the futures market is hedging costs and liquidity. There are no issues with liquidity. Those hedging should be required to take delivery on their futures. Speculators can't take delivery. We'll have a much more stable market without them.
onegenius, 7:33 AM EST
The most worrisome issue is the greed of the oil speculators who siphoned $billions$ in profits and cause the wild swing in oil prices. Take them out of the equation and much of the problem goes away. Congress out to pass a law that when you buy oil you are required to take delivery of it, weeding out the pure greedy speculators.
WhiskeyTangoFoxtrot1, 5:29 AM EST
There's a lot of take away to this story, the main thing I see is it's mostly about Saudi Arabia's foreign policy. In the short term, it's in their geopolitical interests to keep oil prices low because of the effect on their adversaries; namely Iran. An Iran with less money won't be as well armed and will be less able to foment problems in places like Yemen. This policy also maintains Saudi Arabia market share and helps their long-time strategic ally, the United States, by driving down the primary revenue sources in places where we have adversarial relations with countries such as Russia, Iran, ISIS, and Syria.
edbyronadams, 6:35 AM EST
Russia has gone all in for the Shia for some time now.
That alone is enough for the Saudis to want to punish them. They have to pay for their military adventure in Syria some other way.
Marla Burke, 4:01 AM EST
Steven Mufson writes for the business section of the Post and he doesn't seem to know that falling oil prices have made America's energy independence a fading dream, cost 200,000 American oil workers their jobs and has been the boon for folks like me. http://www.nytimes.com/2013/09/02/opinion/drilling... Thanks Steve.
Alfak9, 3:40 AM EST [Edited]
Anyone that thinks that this just a fluke, doesn't understand the back end work of the much maligned US Govt. These were strategic moves to thwart Russian and Iranian aggressions. The ricochet effect is that others that depended on high priced oil revenues, like Brazil, Cuba, Libya, Venezuela, Nigeria, etc, etc, also get pinched. The net effect is that those countries now have suffering economies and populations who are clamoring for and instituting change.
Thanks Obama!
Jesus in Jerusalem, 12:35 AM EST
Steven Mufson has the story of the year. It is the story of 2016.
Will Russia and Iran coerce - with threats and demonstration of force -
Saudi Arabia to cut production? Gulf oil ports are indefensible. Or will President Obama deter the Russian and Iranian missiles and air force with a powerful threat that they take seriously?Right now an Obama red line is visible only with infra-red glasses. But give Secretary of Defense Ashton Carter another few weeks in Iraq with the allied taking of Ramadi... and an assurance of another eight years as the strategic military leader of the United States - no matter who gets elected - and the US credibility with the Russians and Iranians will be restored. Putin and Lavrov know who Ash Carter is... with his 1984-2016 detailed understanding of nuclear forces and military capabilities. You can't bluff Ash Carter with one submarine in the Mediterranean Sea and fifty jets in Syria. He is on record saying we can take Iran's air defenses in one night; let's hear what he has to say about deterring a Russian threat to Saudi Arabia.
Michel de Montaigne, 2:55 AM EST
From your vantage point in a very very tiny country, I can understand your comment.
We others do not share these apocalyptic games.Marla Burke, 4:07 AM EST
High oil prices were needed or the hydraulic Fracturing industry could not turn a profit - that's why 200,000 American oil workers lost their jobs this year . . . And, the Saudi's turned up their oil production quotas
Ben Jarvis, 12/23/2015 11:20 PM EST
"This year, the Russian government was forced to tap its reserve fund to balance the federal budget and will undoubtedly do so again." ----- reserve fund? remember when the u.s.a. had one of those, until george w. bush & dick cheney (mr. "deficits don't matter") gave it all away in that huge, insane tax rebate scheme?
Giantsmax, 12/23/2015 10:25 PM EST
I hope countries take advantage of the cheaper oil and build up some domestic industry. I wonder how the low oil costs will effect this climate change agreement, what if the greener energies now costs I don't know---20% to 200% more than these low oil costs. How do some countries trying to build up their economies decide what to import or produce???
danstrayer, 12/23/2015 9:51 PM EST
Today was a good example of why higher oil prices are not only tolerable but necessary for world economies, with some exceptions. Stocks were up strongly across the board. Generally higher commodities would benefit much of the world,and they will follow oil.
big billy g, 12/23/2015 9:45 PM EST
"And boom-and-bust oil prices are bad for everybody."
Wall street speculators beg to differ..
[Dec 24, 2015] European Leaders Cry Foul Against Germany's Support for Gas Pipeline
Dec 21, 2015 | OilPrice.com
There is a growing chorus in Europe against Germany's support to expand a major natural gas pipeline from Russia over fears that it will leave Europe more dependent on their eastern neighbor.The Nord Stream 2 would build on the existing Nord Stream pipeline, a conduit that delivers Russian natural gas to Germany via the Baltic Sea. Crucially, the project cuts out Ukraine, a key strategic objective for Russia since the original project's inception.
The latest $11 billion expansion would double the pipeline's current capacity of 55 billion cubic meters of gas per year. From Russia's perspective, the project will increase market share and gas sales; from Germany's point of view, the project increases sources of supply. Nord Stream 2 was originally conceived of years ago, but in June 2015 Gazprom signed a memorandum with Royal Dutch Shell and OMV to move forward.
Nick Cunningham is a Vermont-based writer on energy and environmental issues. You can follow him on twitter at @nickcunningham1
[Dec 24, 2015] America's Top Shale Gas Basin in Decline
Notable quotes:
"... The supply overhang will likely linger with storage levels at such highs. There is just too much gas, ..."
Dec 22, 2015 | OilPrice.com
...Reuters recently reported that new drilling permits for the Marcellus declined to just 68 in October, which was a dip from the 76 issued in September. But, those figures are vastly down from the peak of 600 per month routinely seen at the height of drilling five years ago.
... ... ...
Prices are so low that drillers are shutting in production, a once unfathomable development. This suggests that prices could be at an absolute bottom. Still, that is not to say that prices will rebound substantially anytime soon. The supply overhang will likely linger with storage levels at such highs. "There is just too much gas," Justin Kastner of Global Land Partners, a company that finds oil and gas leases for drillers, told Reuters. "I expect to see a downturn for the next two years."
Nick Cunningham is a Vermont-based writer on energy and environmental issues. You can follow him on twitter at @nickcunningham1
[Dec 24, 2015] Obama's foreign policy goals get a boost from plunging oil prices
Notable quotes:
"... At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States. ..."
The Washington Post
Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States' adversaries under greater stress.
After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia's economic and political calculations, and dampening Iranian leaders' hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.
At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration's foreign policy goals: pressuring Russian President Vladimir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.
"Cheap oil hurts revenues for some of our foes and helps some of our friends. The Europeans, South Koreans and Japanese - they're all winners," said Robert McNally, director for energy in President George W. Bush's National Security Council and now head of the Rapidan Group, a consulting firm. "It's not good for Russia, that's for sure, and it's not good for Iran."
... ... ...
In Iran, cheap oil is forcing the government to ratchet down expectations.
The much-anticipated lifting of sanctions as a result of the deal to limit Iran's nuclear program is expected to result in an additional half-million barrels a day of oil exports by the middle of 2016.
But at current prices, Iran's income from those sales will still fall short of revenue earned from constrained oil exports a year ago.
Moreover, low prices are making it difficult for Iran to persuade international oil companies to develop Iran's long-neglected oil and gas fields, which have been off limits since sanctions were broadened in 2012.
"Should Iran come out of sanctions, they will face a very different market than the one they had left in 2012," Amos Hochstein, the State Department's special envoy and coordinator for international energy affairs, said in an interview. "They were forced to recede in a world of over $100 oil, and sanctions will be lifted at $36 oil. They will have to work harder to convince companies to come in and take the risk for supporting their energy infrastructure and their energy production."
Meanwhile, in Russia, low oil prices have compounded damage done by U.S. and European sanctions that were designed to target Russia's energy and financial sectors. And when Iran increases output, its grade of crude oil will most likely go to Europe, where it will compete directly with Russia's Urals oil, McNally said.
Steven Mufson covers the White House. Since joining The Post, he has covered economics, China, foreign policy and energy.
[Dec 24, 2015] Is The Russian-Turkish Standoff An Opportunity For The West
Notable quotes:
"... apparently, two USAF F-15C Eagle air superiority fighters (which had been deployed to Incirlik Air Force Base, Turkey, in November 2015) were in the air as back-up to the Türk Hava Kuvvetleri (Turkish Air Force: THK) F-16s, one of which shot down the Su-24. ..."
"... At best, Russia may now move to cover its tactical operations in northern Syria more effectively by offering its own deterrence of top cover by advanced fighters while the ground attack aircraft, such as the Su-24s, do their job. It is also clear that any further Turkish incursions into Syrian airspace were now at-risk, but the Turks already knew that. ..."
Dec 14, 2015 | OilPrice.com
It was, in this latest incident, Turkey, working with the U.S. Government of President Barack Obama, which planned and executed the November 24, 2015, interception of the Russian Air Force Su-24. The event was not a spontaneous occurrence, and, apparently, two USAF F-15C Eagle air superiority fighters (which had been deployed to Incirlik Air Force Base, Turkey, in November 2015) were in the air as back-up to the Türk Hava Kuvvetleri (Turkish Air Force: THK) F-16s, one of which shot down the Su-24. USAF sources subsequently said that the U.S. was taken by surprise when the THK shot down the Sukhoi, but that hardly squares with the historical Turkish practice of coordinating such actions with Washington. Moreover, the Turkish narrative that it "warned" the Russian aircraft several times over a period of five minutes before the THK F-16 shot it down also does not square with reality.
And in this particular ground attack operation, the two Su-24s - including the one which was destroyed - were engaged on missions which did not require them to enter Turkish airspace, even though an acci-dental entry into it was conceivable. Their targets were in the area of northern Syria: pro-Ankara Turkmen militia engaged in supporting the massive cross-border operations of ISIS (asad- Dawlah al-Islamiyah fi al-'Iraq wash-Sham, or Islamic State) moving oil, fighters, and weapons across the Syria-Turkish border.
Dave Majumdar, Defense Editor at the U.S. blogsite, The National Interest, on December 7, 2015, noted: "The United States and Turkey are working on an agreement that would allow the US Air Force F-15Cs to defend Turkish airspace. However, the precise rules of engagement and procedures have yet to be ironed out." It is possible that Turkey wanted to illustrate to the US that its airspace was, in fact, threatened. But what has been clear is that no credible Russian military threat to Turkey existed.
At best, Russia may now move to cover its tactical operations in northern Syria more effectively by offering its own deterrence of top cover by advanced fighters while the ground attack aircraft, such as the Su-24s, do their job. It is also clear that any further Turkish incursions into Syrian airspace were now at-risk, but the Turks already knew that.
Recently-retired U.S. Defense Intelligence Agency Director Lt.-Gen. Michael Flynn publicly said in Moscow on December 10, 2015, that there was no possibility that the Turkish shootdown was undertaken without the express permission and direction of "the highest authority" in Turkey.
Indeed, Turkey has traditionally played the role of aggressor in terms of airspace violation. Not only did the THK lose an RF-4E Phantom II reconnaissance aircraft well into Syrian airspace on June 22, 2012, as a result of surface-to-air missile fire, it continues to consistently invade the airspace of fellow NATO member and neighbor Greece in a manner far more hostile than the penetration of Turkish airspace it alleged Russia undertook (for 17 seconds). THK F-16s entered Greek airspace some 2,200 times in 2014 alone. Moreover, Turkey consistently has violated Cypriot air-, sea, and land-space since its 1974 invasion and occupation of the northern 37 percent of Cyprus.1
So Turkey is hardly the victim. [Indeed, by deliberately starting the "civil war" to remove Pres. Bashar al-Assad from power in Syria, Turkey only incurred a "refugee problem" as a result of its own actions, and has subsequently sought to push those refugees onward into Europe as quickly as possible, seeking political rewards from Europe as the only power capable of stopping the refugee flows.]
In any event, Pres. Erdogan, three years ago said that "a short- term border violation can never be a pre-text for an attack". But that, of course, was when a THK aircraft was shot down by Syria when the THK F-4E deliberately and for some time penetrated Syrian airspace on a mission against Syria.
... .... ....
Turkey, too, will not remain inactive. It will resume its support for anti-Russian terrorism, including support for jihadist movements in the Caucasus. These have included such groups as Kvadrat (Quadrant), a Bos-nia-based Wahhabist unit, which had "laundered" its operations through Turkish-occupied Northern Cy-prus, thence into Turkey and on into the Russian Caucasus.4 But the reactivation of Turkish-backed terror-ism in the Russian Caucasus will be far wider than just Kvadrat: Turkey works extensively, even now, with Chechen and other Caucasus groups inside ISIS and in the jihadi operations in Syria.
Significantly, by early December 2015, President Erdogan assumed that the crisis had passed sufficiently for Turkey to expand its activities in the area. There was no indication that Turkey and ISIS had diminished their extensive and integrated operations in terms of oil transactions, the supply of weapons to ISIS via Turkey, and the use of Turkey as a medical support arena for ISIS wounded. But Turkey went further and deployed Turkish Army troops into northern Iraq near the ISIS-held city of Mosul in early December 2015. Iraqi Prime Minister Haider al-Abadi led calls for Turkish troops to be withdrawn immediately; they had not been withdrawn by the time this report went to press.
... ... ...
The path, however, is open for a great Russian cooperation with the Kurdish forces, as well as with other regional allies which are concerned about Turkey's strategic adventurism. The Kurds, particularly those led by the majority Kurdish force (under the PKK: Partiya Karkerên Kurdistan, the Kurdish Workers' Par-ty), are now well underway in responding to Ankara. The civil war is underway inside Turkey, and it re-mains literally out-of-bounds to the international media. What is significant is that the Kurds have thus far not agreed to cooperate with Russia, but are awaiting a nod from their principal ally, Israel, before trust-ing Russia.
Thus Israel's position becomes critical in this debate.
Much of the Israeli leadership still hopes that a rapprochement might be achievable with Turkey, but that hope is fading. On the other hand, Israeli planners have to consider whether a broken Turkey - perhaps replaced by a patchwork of states, and with no non-Arab player other than Iran to monitor the region - is worse than a troublesome Turkey. There is also the question of whether unqualified Israeli support for the Kurdish "big push" against Turkey would then jeopardize Israeli strategic relations with Saudi Arabia, which is apparently undecided on whether, or how much, it favors a continuation of the Turkish state.
Without Turkey, according to the Saudi rationale, who would be the counterweight to Iran?
Israel is also not immune to this argument, although for Israel the prospect exists for an eventual reunion with Tehran, after the clerical leadership goes, or modifies.
So Russia is left with three potential regional allies - apart from Syria, Iraq, and Iran - against Ankara: Greece, Egypt, and Jordan. And Cyprus and Armenia to the limited extent that they can assist.
... ... ...
Articles 10 to 18 are the articles which allow for various states, including Russia, to transit military ships through the straits. In short, if Turkey invoked either Article 20 or Article 21, Russia would be legally blocked from moving any naval vessel through the Straits.
Moscow has clearly long gamed out this scenario, which accounts for President Putin's commitment to a measured response to Ankara. Thus it must be a proxy response, for the most part, as well as an economic one. But while it demonstrates the delicacy needed by Moscow, it also demonstrates the reality that Russia cannot continue to be strategically constrained by an increasingly hostile and ambitious Turkey.
So where Turkey is vulnerable is in its economy.
The effects of Russian economic embargoes against Turkey are far more significant than would seem to be the case because the Turkish economy is more vulnerable than it has been portrayed. It is far more leveraged with borrowings than at any time in the recent past. It has a discreet outflow of domestic capital and is heavily reliant on discreet financial injections, probably coming from Qatar, and possible Saudi Arabia. But Saudi Arabia's ability to prop up Turkey is becoming limited.
...while Turkey may not be regarded as an entirely stable partner for the PRC in the region, Beijing would be wary of acting precipitously against it.
...Iran - like Russia - is constrained to act cautiously and indirectly against Turkey. Moreover, Iran cannot risk that its own Kurdish population could join with Syrian, Iraqi, and Turkish Kurds to form a new Kurdish state.
...And in the short-term, this all has hardened Ankara's position on remaining in control of the northern 37 percent of Cyprus, which it has occupied militarily since 1974.
...There is no doubt that Pres. Erdogan believes that continued brinkmanship will be possible, although he is not perhaps aware that he is losing the information war, or the psychological war.
Amvet on December 15 2015 said:
Thank you Mr. Copley for a well researched, honest, and very interesting article. Any chance of getting this published in any US mainstream
newspaper or magazine ?? .Jim on December 15 2015 said:
...Nice information actually, most mainstream media doesn't even come close. Thanks. definitely a deliberate and pre-approved escalation of the conflict, pointing fingers back to Washington, D.C.
Chris on December 15 2015 said:
A great article that brings together much of what has been reported and provides a coherent framework for understanding it. This piece should be in a general interest publication such as the NY Times so that more Americans could understand what is really going on in the Middle East.
[Dec 23, 2015] OPEC bashes prospects for electric cars
Notable quotes:
"... battery-powered electric cars will capture just 1% of global vehicle sales by 2040. ..."
"... ...It says hybrids will capture 14% market share by 2040. ..."
"... over 40% of global oil demand comes from road vehicles ..."
money.cnn.com
OPEC is predicting that 94% of cars on the road will still be powered by oil-based fuels in 2040.
"Without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future," the organization said in its annual World Oil Outlook.
The group predicts battery-powered electric cars will capture just 1% of global vehicle sales by 2040.
...It says hybrids will capture 14% market share by 2040.
The OPEC report says that over 40% of global oil demand comes from road vehicles. That's not expected to change over the next 25 years.
[Dec 23, 2015] Developing countries car fleet and oil consumption are quicky rising and the US consumers are switching to SUVs
Low oil prices has a negative effect of switching to more efficient cars in the USA and elsewhere. It looks like it's not only going to be a hard candy Christmas in Cowboyistan, but in the Green Utopia as well.
Notable quotes:
"... A problem is the big surge in oil use is in developing countries. Animals are being replaced by tractors, motor bikes are being replaced by autos or small trucks, etc. In China the increase in auto numbers and in auto size is amazing. ..."
"... In November, fuel efficiency of vehicles purchased fell sharply to 25 mpg – down 0.8 mpg from a peak in August 2014, said University of Michigan researcher Michael Sivak, who tracks fuel efficiency. ..."
"... Nearly 59 percent of U.S. vehicle sales this year have been of sport-utility vehicles, pickup trucks or other larger vehicles, up from 54 percent last year, according to industry consultant Autodata Corp. ..."
"... Toyota Motor Corp says within two years its RAV4 SUV will displace the Camry mid-size car as its top-selling model in the United States…. ..."
"... "There is a huge gap looming between government projections and consumer purchases of highly fuel-efficient vehicles," said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers – the trade association representing major automakers. ..."
peakoilbarrel.com
Amvet, 12/22/2015 at 4:27 am
Glenn Stehle, 12/21/2015 at 8:04 pmA problem is the big surge in oil use is in developing countries. Animals are being replaced by tractors, motor bikes are being replaced by autos or small trucks, etc. In China the increase in auto numbers and in auto size is amazing.
So, my guess is any reduction in oil use in industrialized countries will be buried in the increase from developing countries.
Electric cars in many developing countries have little chance because of the shortage of electricity there. Will they get new electricity from, hydro, coal, NG, or nuclear?
Arceus,Arceus, 12/21/2015 at 8:12 pmIn fact, it seems like the world is moving in exactly the opposite direction.
Los Amigos de la Tierra called the COP21 conference in Paris a "farse," and Vía Campesina, the worldwide coordinator of campesino movements , was equally as severe.
http://www.jornada.unam.mx/2015/12/20/opinion/020a1munThe New Internationalist blasted the Paris deal as an "epic fail on a planetary scale."
http://newint.org/features/web-exclusive/2015/12/12/cop21-paris-deal-epi-fail-on-planetary-scale/And back home, due to consumer behavior, the push is underway to roll back the CAFE mandates:
Surging demand for trucks and SUVs fueled by cheap gasoline is holding back improvements in U.S. fuel economy and greenhouse gas emissions, a government report due out on Wednesday is expected to show.
The disconnect between consumer demand for larger, less efficient vehicles and the Obama administration's climate goals sets up a clash between the auto industry and federal regulators.
Mark Rosekind, who heads the National Highway Traffic Safety Administration, said in a Reuters interview last week the administration will consider automakers' arguments that the shift away from cars makes it harder to hit the 2025 fleet average fuel economy target of 54.5 miles (87.7 km) per gallon….
Consumers are responding to signals from gas pumps, where a combination of relatively low taxes – federal gasoline taxes have not gone up since 1993 – and oil unleashed by hydraulic fracturing or fracking have pushed U.S. gasoline prices to an average of just over $2 a gallon – the lowest level in six years.
In November, fuel efficiency of vehicles purchased fell sharply to 25 mpg – down 0.8 mpg from a peak in August 2014, said University of Michigan researcher Michael Sivak, who tracks fuel efficiency.
Nearly 59 percent of U.S. vehicle sales this year have been of sport-utility vehicles, pickup trucks or other larger vehicles, up from 54 percent last year, according to industry consultant Autodata Corp.
Toyota Motor Corp says within two years its RAV4 SUV will displace the Camry mid-size car as its top-selling model in the United States….
"There is a huge gap looming between government projections and consumer purchases of highly fuel-efficient vehicles," said Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers – the trade association representing major automakers.
So mark one up for Team Carbon, because the public has tuned out the warnings of peak oil and global warming prognosticators.
Yes, but that is because oil is so cheap right now. I do not think it can remain this inexpensive. When gas hits $4 per gallon, you will see more people getting interested in EVs (assuming they continue making them as a severe recession might entail some big cutbacks to EV model lineups.)likbez, 12/23/2015 at 12:36 pm"There is a possibility that a supersized battery and electric motor will cost LESS in ten years than a conventional engine, transmission , and all the related engine accessories such as gasoline tank, exhaust system, etc."I am all for electrical cars, but neither technology nor infrastructure (charging stations) are present. And probably you need not $4 per gallon gas but much higher for the switch to materialize. Probably close to $8 per gallon (European price before oil price slump)
Right now they are limited to home owners who can install special charging sockets. For apartment dwellers they are out of reach. And the most attractive use is as the second car for short commutes (for example daily commute to work or train) when you own a regular car, or SUV, or truck for other needs.
With the current cost of rare metals and copper you might be right as far the gap between the costs or regular drivetrain and electrical drivetrain, but costs of rare metals and copper can increase dramatically in 10 years.
The EV battery is a very expensive proposition. The cost of replacing batteries in Prius is $3,000. Leaf battery is around $5,500. Also some cells are dying during normal exploitation period (10 years I think for Prius). Regular gas engine and transmission last longer. Assuming 10K miles per year they can probably last 20 years (200K total).
If we assume $5000, then most probably for next decade small car drivetrain complete rebuild costs less. Actually for $6000 you can buy a decent three years old Chevy Spark with, say, less then 50K mileage now.
[Dec 23, 2015] Saudi Arabia Said to Weigh Selling State-Run Entities Stakes
Bloomberg Business
...the kingdom may raise domestic energy prices, privatize and tax mines and consider taxing cigarettes. Like other Gulf Cooperation Council members, it's also plans to implement a value-added-tax.
In November 2013, the Arab world's biggest economy took action against illegal workers as it pushed to create more private-sector jobs for its citizens. At that time, unemployment was about 12 percent. The official data show joblessness at 11.6 percent for the first half of this year. Youth unemployment is almost 30 percent, according to World Bank data.
[Dec 23, 2015] Saudi Crude Exports Rose in October to Most in Four Months
Dec 20, 2015 | Bloomberg Business
Saudi shipments rose to 7.364 million barrels a day in the month from 7.111 million in September, according to the latest figures from the Joint Organisations Data Initiative. The monthly exports were the most since June and 7 percent higher than in October 2014, the data released on Sunday showed. JODI is an industry group supervised by the Riyadh-based International Energy Forum.
Saudi Arabia produced 10.28 million barrels a day in October, up from 10.23 million in September, the JODI figures showed.
[Dec 23, 2015] WTI Crude Runs To $37
Well permits and well completions seem to give reasonable indicators for future production. Now it is clear that at least Texan oil and gas production will steeply slump over the next months.
Notable quotes:
"... we are more and more convinced that we've seen the lows in crude and we do not make that statement lightly ..."
Dec 23, 2015 | Zero Hedge
From $35.35 lows (in Feb contract) on Monday, WTI crude has extended its overnight post-API inventory gains, pressing up to $37...
Can it continue? Who knows... well one person does...
Gartman: "we are more and more convinced that we've seen the lows in crude and we do not make that statement lightly."
[Dec 23, 2015] 2015 LTO output output might be surpassed by 2018 with a final peak between 2020 and 2025
Notable quotes:
"... The Rest of the World(ROW) declines by 484 kb/d each year (2420 kb/d over 5 years) so we have a 4500 kb/d increase minus a 2420 kb/d decrease for a net of 2080 kb/d above 2015 C+C output in 2020 ..."
"... If the increasing countries are flat as a group in 2016 (due mostly to decreases in US output) and the increase is linear over the next 4 years, then the 2015 "peak" might be surpassed by 2017 (but barely, only 157 kb/d higher). For that reason my expectation is that 2015 output will be surpassed by 2018 with a final peak between 2020 and 2025. ..."
Dec 23, 2015 | Peak Oil Barrel
Dennis Coyne, 12/23/2015 at 8:43 am
Hi Ron,
The LTO plays in the US (Bakken, Eagle Ford, and Permian) will probably be able to ramp up to 750 kb/d above 2015 levels by 2021, Canadian oil sands will be able to increase by about 1 Mb/d, Brazil may be able to increase by 500 kb/d, China by 250 kb/d, Russia will hold steady, KSA steady, Iran 250 kb/d, and Iraq 500 kb/d, all above 2015 levels of output by 2021. If the rest of the world continues its linear decline of about 480 kb/d per year and all of these guesses for Brazil, Canada, China, Iran, Iraq, Russia, Saudi Arabia, and the US are correct then World output peaks in 2019 at 370 kb/d above 2015 output.
Looking at the charts for Brazil, Canada, China, Iran, Iraq, Russia, Saudi Arabia, and the US, I am a little more optimistic. I will keep the 750 kb/d increase for the US and KSA remains flat, Russia and China I expect about a 250 kb/d increase over 5 years, Iran, Iraq, and Canada I expect about 1 Mb/d from each, and Brazil I expect 250 kb/d increase over 5 years. The Rest of the World(ROW) declines by 484 kb/d each year (2420 kb/d over 5 years) so we have a 4500 kb/d increase minus a 2420 kb/d decrease for a net of 2080 kb/d above 2015 C+C output in 2020.
If the increasing countries are flat as a group in 2016 (due mostly to decreases in US output) and the increase is linear over the next 4 years, then the 2015 "peak" might be surpassed by 2017 (but barely, only 157 kb/d higher). For that reason my expectation is that 2015 output will be surpassed by 2018 with a final peak between 2020 and 2025.
[Dec 23, 2015] Important geopolitical dimension of oil counsumption growth in a world of peak oil
Notable quotes:
"... ...India is importing 100% of oil consumption in a world where trade is no longer growing and available world net exports of oil has declined significantly ..."
"... the US cannot permit China's oil imports to persist at a level at, or above, that of the US with available global net oil exports falling and peak global oil production per capita. ..."
"... The condition, should it persist, poses a regional geopolitical threat to US hegemony ..."
peakoilbarrel.com
BC, 12/22/2015 at 2:10 pm...India is importing 100% of oil consumption in a world where trade is no longer growing and available world net exports of oil has declined significantly since 2005-08 and will continue declining hereafter. India is 40-45 to 80-100 years too late to industrialization.Moreover, the US cannot permit China's oil imports to persist at a level at, or above, that of the US with available global net oil exports falling and peak global oil production per capita.
The condition, should it persist, poses a regional geopolitical threat to US hegemony, which is among many reasons why trade, diplomatic, and geopolitical tensions are increasing between the US and China, and why there has been the "Pivot to Asia" and expansion of Africom by the Anglo-American imperial military.
[Dec 23, 2015] What is behind Saudi strategy of dumping oil on the market
Great question: Why would a country drive down the price to maintain market share when they know they will lose market share due to declining production.
Notable quotes:
"... According to you Saudi Arabia were doing everything possible in Jan 2013 just to stop decline. ..."
"... Yet here we are 3 years on and they are producing 1mmbld more and flooding the market. Please explain. Why would a country drive down the price to maintain market share when they know they will lose market share due to declining production. ..."
"... Peter, the only reason I can figure out is that the Saudis bought into the hype being peddled by Team Carbon (see graph below from https://www.eia.gov/conference/2015/pdf/presentations/hamm.pdf ), and wanted to stop "the Great American Shale Revolution" in its tracks. ..."
"... Could the Saudis be that stupid, to believe the hype? I doubt it. ..."
peakoilbarrel.com
Peter, 12/21/2015 at 2:15 pmRonRon Patterson, 12/21/2015 at 3:12 pmAccording to you Saudi Arabia were doing everything possible in Jan 2013 just to stop decline.
http://www.theoildrum.com/node/9798
Yet here we are 3 years on and they are producing 1mmbld more and flooding the market. Please explain. Why would a country drive down the price to maintain market share when they know they will lose market share due to declining production.
According to you Saudi Arabia were doing everything possible in Jan 2013 just to stop decline.Glenn Stehle, 12/21/2015 at 5:29 pmAnd they did. In addition to dramatically increasing infill drilling in their old fields, they brought Khurais on line, then increased water injection in Khurais and in 2013 they brought Manifa on line ahead of schedule.
Saudi Aramco Starts Pumping From Manifa Oil Field Ahead of Plan
April 15, 2013
Saudi Arabian Oil Co. started producing crude from Manifa, the world's fifth-largest oil field, on April 10, three months ahead schedule.Saudi Aramco, as the state-owned producer is known, said today the field will produce 500,000 barrels a day of Arabian heavy crude by July and it will reach 900,000 barrels a day by end of next year.
And they are still working desperately to stem the decline in their old giant fields.
Saudi Aramco to expand Shaybah, Khurais oil output in 2016-17
"This will bring it up to a million barrels (per day). We're in the process of awarding the contract in the next few days," he said, adding that an ongoing project at Shaybah will also add 250,000 bpd of natural gas liquids output in end-2014.
The Khurais expansion project was at the front-end engineering stage and the expansion to increase the field's output by 300,000 bpd to 1.5 million bpd should be completed by 2017, he said.
Khurais, Shaybah and Manifa are all very old fields that, for various reasons, were mothballed years ago. But now they are called into service to to stem the decline in their other old giants.
Saudi intends to hold production at current levels for several more years. How successful they will be remains to be seen. But they have not and will not dramatically increase production.
Peter said:Why would a country drive down the price to maintain market share when they know they will lose market share due to declining production.
Peter, the only reason I can figure out is that the Saudis bought into the hype being peddled by Team Carbon (see graph below from https://www.eia.gov/conference/2015/pdf/presentations/hamm.pdf ), and wanted to stop "the Great American Shale Revolution" in its tracks.
Could the Saudis be that stupid, to believe the hype? I doubt it.
I suspect that the Saudis and Russians have other reasons for wanting the price of oil low, reasons which folks like Rockman cannot even conceive of.
We are wandering about in a wilderness of unknowns, but that doesn't stop the speculation.
[Dec 23, 2015] Peak oil is price depedent and at $40 we did reached peak oil in 2015
Notable quotes:
"... I doubt that the Saudis are pumping full out to increase their revenue, they could easily cut back production (along with the rest of OPEC) and make more revenue with lower output. Their aim is to hurt other oil producers such as the Russians and Americans (and perhaps the Iranians) with low prices. ..."
"... As to whether the peak is here in 2015, I think a rise in oil prices in 2017 will bring about higher output with a peak sometime after that (maybe 2018 to 2022), ..."
"... Watcher is correct that nobody knows how much oil will be produced, what the oil price will be or the eventual URR for oil will be. All of it is just guesses. ..."
"... Dennis, so higher prices will bring higher output. And just where is this higher output going to come from? That is higher output that overtakes all declines between now and then and continuing that decline even then? Where Dennis, just which countries are you talking about? Who will supply all this oil? ..."
"... Economics is politics. War is politics with other means. War is the business of empire. War is good business for imperialists. Therefore, economics is politics is the legal, moral/amoral, and intellectual rationalization for the business of empire, i.e., war, which is the use of state violence to expand business, expropriation of resources, exploitation of cheap labor, and the resulting ecocide and genocide in the process. ..."
"... To paraphrase Carl Von Clausewitz 'war is politics by other means'. I'll go two further. Politics is economics by other means, and economics is ecology by other means. Roughly speaking anyway. ..."
"... Ron, first I would say that if oil remains below $40 per barrel, then I would agree with you that 2015 will likely be the year of peak oil. However, I believe that oil will rise to at least $80 in the coming years and may go as high as $150 depending on the strength/weakness of the dollar. ..."
"... I believe most of the oil in the coming years will continue to come from the Middle East and while Saudi seems to be peaking, Iran, Iraq, Libya are not. ..."
"... I do not believe Russia has peaked if oil reaches $80 plus per barrel. Even the U.S. may be able to coax more oil out of the Gulf, Alaska and shale plays if there is money to be made (finding capable, experienced oil field workers may be a problem though). There is oil in Brazil, Canada, Kazakstan, various spots in south america, off-shore africa, etc. ..."
"... I don't believe any of the sources for future oil production increases will offset decline. Unless peace breaks out in Libya I'd suggest they're a write off. Canada conventional peaked and now all they can ramp up on is Bitumen. Maybe we'll get another million a day out of Canadian bitumen but it won't be very soon or very cheap. I believe the infill drilling in KSA will lead to a steep decline before 2022. KSA is taking their last kick at the can as is evidenced by their current desperate policy manoeuvres. ..."
"... Ron – I believe it is clear that all those prognosticators, including the "transition to renewables crowd, are also predicting a future where everyone is wealthy and can afford the much more expensive … EVERYTHING! ..."
peakoilbarrel.com
Dennis Coyne 12/21/2015 at 4:20 pmHi Ron,Ron Patterson, 12/21/2015 at 4:56 pmI doubt that the Saudis are pumping full out to increase their revenue, they could easily cut back production (along with the rest of OPEC) and make more revenue with lower output. Their aim is to hurt other oil producers such as the Russians and Americans (and perhaps the Iranians) with low prices. They are certainly having that effect on American oil producers, another 6 months and they won't need to cut back as the US output may have fallen by then as the financing for drilling unprofitable wells will have dried up (if oil prices remain under $35/b).
As to whether the peak is here in 2015, I think a rise in oil prices in 2017 will bring about higher output with a peak sometime after that (maybe 2018 to 2022),
Watcher is correct that nobody knows how much oil will be produced, what the oil price will be or the eventual URR for oil will be. All of it is just guesses.
Chart below is another wag, for a medium URR (2800 Gb C+C less extra heavy+600 Gb oil sands) which peaks in 2023 at 80.1 Mb/d after a 2016 decline of 700 kb/d. Chart below.
I think a rise in oil prices in 2017 will bring about higher output with a peak sometime after that (maybe 2018 to 2022),…BC, 12/21/2015 at 4:24 pmDennis, so higher prices will bring higher output. And just where is this higher output going to come from? That is higher output that overtakes all declines between now and then and continuing that decline even then? Where Dennis, just which countries are you talking about? Who will supply all this oil?
Dennis, as the thug said to Dirty Harry, "Hey… I gots to know!"
https://www.youtube.com/watch?v=kgig1QVU2lYJimmy, 12/21/2015 at 5:36 pmEconomics is politics. War is politics with other means. War is the business of empire. War is good business for imperialists. Therefore, economics is politics is the legal, moral/amoral, and intellectual rationalization for the business of empire, i.e., war, which is the use of state violence to expand business, expropriation of resources, exploitation of cheap labor, and the resulting ecocide and genocide in the process.
Happy Xmas and New Year to all.
To paraphrase Carl Von Clausewitz 'war is politics by other means'. I'll go two further. Politics is economics by other means, and economics is ecology by other means. Roughly speaking anyway.Richard, 12/21/2015 at 4:50 pmHI: I look forward to the day oil will not be burned but will be used only to make great products like super strong polymers that can be used to build cars, boats, airplanes, houses, etc. Yes, peak production of oil may be upon us, but peak use of oil could be on us as well.Ron Patterson, 12/21/2015 at 5:09 pm> People:…. All you prognosticators out there who are picking the peak somewhere in the distant future, please tell me where all this increase in oil production is going to come from?Arceus, 12/21/2015 at 5:32 pmI have explained, in post after post, and especially this one, why I think the peak will be 2015. But some of you say My own feeling is that oil will peak sometime between 2020 and 2030,… and others say: "I agree with that prediction too,…"
Well hell, that's all well and good. But there must be a reason you think the peak will hold off for another ten years or so. Just who is going to produce all this oil. I have shown that Non-OPEC, less US and Russia, is clearly in decline in spite of oil prices being above $100 a barrel for five years. Okay… are you saying they are going to turn that around? That this time around $100 oil will do the trick where it clearly failed before, before they clearly declined for another ten years?
Hey, if you have an opinion, there must be a reason for that opinion? Otherwise you are just blowing smoke.
Ron, first I would say that if oil remains below $40 per barrel, then I would agree with you that 2015 will likely be the year of peak oil. However, I believe that oil will rise to at least $80 in the coming years and may go as high as $150 depending on the strength/weakness of the dollar.Jimmy, 12/21/2015 at 5:41 pmI believe most of the oil in the coming years will continue to come from the Middle East and while Saudi seems to be peaking, Iran, Iraq, Libya are not.
I do not believe Russia has peaked if oil reaches $80 plus per barrel. Even the U.S. may be able to coax more oil out of the Gulf, Alaska and shale plays if there is money to be made (finding capable, experienced oil field workers may be a problem though). There is oil in Brazil, Canada, Kazakstan, various spots in south america, off-shore africa, etc.
Yes, it is getting more difficult to and expensive to get oil out of the ground, but these things play out longer than most people expect. Would you believe 15% of computers still use Windows XP or earlier as their operating system?
I don't believe any of the sources for future oil production increases will offset decline. Unless peace breaks out in Libya I'd suggest they're a write off. Canada conventional peaked and now all they can ramp up on is Bitumen. Maybe we'll get another million a day out of Canadian bitumen but it won't be very soon or very cheap. I believe the infill drilling in KSA will lead to a steep decline before 2022. KSA is taking their last kick at the can as is evidenced by their current desperate policy manoeuvres.Jef, 12/21/2015 at 5:41 pmRon – I believe it is clear that all those prognosticators, including the "transition to renewables crowd, are also predicting a future where everyone is wealthy and can afford the much more expensive … EVERYTHING!
[Dec 23, 2015] Iraqi production could face decline in 2016….they simply cannot pay their bills; US shale capex cuts will bite in 2016
peakoilbarrel.com
John, 12/21/2015 at 11:27 amIraqi production could face decline in 2016….they simply cannot pay their bills even with emergency loans from world bank…Only OPEC [countries that have] increase 2015 was Iraq and SA….SA going full out and Iraq declining.
Russia full out….Iran…who would invest there with $35 oil?
US shale capex cuts will bite and declines will increase in 2016.
[Dec 23, 2015] The first US crude export since the new law was signed
This is a light crude that is sold to foreign refineries because it can't be processed in the USA. Most probably it is sold at discount to production cost.
peakoilbarrel.com
AlexS, 12/23/2015 at 1:15 pmOPEC estimate of WTI breakeven prices by play ($/boe)
2011 2012 2013 2014 2015 Bakken 64.1 71.0 65.3 58 46.4 Eagle Ford 101.1 75.2 73.7 61 48.8 Permian Delaware 85.5 70.2 65.6 49.9 40.0 Permian Midland 145.0 107.1 85.3 91.3 73.0 Niobrara 94.5 69.9 52.0 55.0 44.0 coffeeguyzz, 12/23/2015 at 2:20 pm
AlexPlatts is running a story that a 600,000 barrel shipment of US oil is due to leave a Texas port in two weeks' time … the first US crude export since the new law was signed.
Should be interesting to see how much impact this new environment will have on US oil industry.
[Dec 23, 2015] Black box hedge funds lead winners from oil collapse
Notable quotes:
"... So after crude lost 46 percent in 2014, they were already betting strongly at the start of this year that the trend would continue, largely through oil futures and other energy derivatives markets. ..."
"... By the laws of economics, the oil market will turn back up at some point and trend-following funds may struggle then. But in the meantime, some are producing impressive returns. Millburn Commodity Program, for instance, was up 25.3 percent in the year to Dec. 15, performance data seen by Reuters showed. ..."
"... But Lawler said they typically cut their negative bets when crude fell below $40 a barrel this month, believing the market had hit its floor. Instead it kept falling to around $36 on Tuesday, showing how hard it is for flesh-and-blood traders to get their timing right in a rumor-fueled market. ..."
"... Taylor Woods Capital, for example, rode the oil market down for a third straight year of double-digit percentage gains and its best since 2013. However, oil trader Andy Hall's Astenbeck Capital Management stands to lose hundreds of millions of dollars from his so far failed bet on a crude price recovery. ..."
"... On average, energy-focused hedge funds have risen 3.6 percent in the year to November, trumping their commodity peers which have fallen 2.4 percent, HFR data showed. The average fund of any strategy, meanwhile, is up 0.3 percent. ..."
"... Andurand - who achieved a return of 210 percent in 2008 after correctly calling an oil price jump and subsequent collapse - told investors recently that crude may fall below $25 in the first quarter of next year, and he was using options to benefit from the move. ..."
"... There is certainly still a chance of lower prices in the next month or so, but weighing that possibility against the virtual inevitability of higher prices down the road leads to a simple conclusion: now is not the time to exit the market . ..."
finance.yahoo.com
LONDON/NEW YORK (Reuters) - To make money from the sharp fall in oil prices this year, it helped if you weren't human.
While a handful of big name traders have profited from some of oil's 35 percent plunge, it has been computer-based or "systematic" funds which have captured much of the spoils.
These black box funds use programs to follow various asset classes and look to latch on to market trends. So after crude lost 46 percent in 2014, they were already betting strongly at the start of this year that the trend would continue, largely through oil futures and other energy derivatives markets.
Apart from a modest recovery early this year, crude prices have mostly been a one-way bet and now languish 66 percent below their levels around $115 a barrel 18 months ago.
"The main beneficiaries have been the systematic, or trend-following guys," said Anthony Lawler, head of portfolio management at investor GAM. "The stronger the trend, the bigger the position ... Since the middle of 2014, oil's been trending lower, so that's quite a long trend. As a result, they have meaningful exposure in energy."
By the laws of economics, the oil market will turn back up at some point and trend-following funds may struggle then. But in the meantime, some are producing impressive returns. Millburn Commodity Program, for instance, was up 25.3 percent in the year to Dec. 15, performance data seen by Reuters showed.
"Discretionary" funds - those where a living person pushes the trading button - can come into their own when the market turns.
But Lawler said they typically cut their negative bets when crude fell below $40 a barrel this month, believing the market had hit its floor. Instead it kept falling to around $36 on Tuesday, showing how hard it is for flesh-and-blood traders to get their timing right in a rumor-fueled market.
The fall has hit funds of all stripes holding energy stocks and debt, and buoyed those which invest in firms that are large consumers of energy and have therefore benefited through lower costs. Energy-focused discretionary funds have been the purest play on the move, and their performances vary considerably.
Taylor Woods Capital, for example, rode the oil market down for a third straight year of double-digit percentage gains and its best since 2013. However, oil trader Andy Hall's Astenbeck Capital Management stands to lose hundreds of millions of dollars from his so far failed bet on a crude price recovery.
On average, energy-focused hedge funds have risen 3.6 percent in the year to November, trumping their commodity peers which have fallen 2.4 percent, HFR data showed. The average fund of any strategy, meanwhile, is up 0.3 percent.
WINNERS, LOSERSTaylor Woods, run by former Credit Suisse traders Beau Taylor and Trevor Woods, posted a 20 percent gain in the year to mid-December. The Greenwich, Connecticut-based hedge fund started the year with about $1 billion in assets and could make $200 million in profit if it maintains its performance to the end of the year, people familiar with its funding and returns said.
Investors stuck by the fund even when crude prices unexpectedly jumped 25 percent in April during the short-lived rally. "They had low volatility in some of the most challenging times," an industry source said, noting withdrawals that month had been a relatively modest 5 percent of the total sum invested. "That sort of risk management was rare this year."
Taylor Woods declined comment when contacted by Reuters.
Just behind lies the $615 million London-based Andurand Capital, run by former Vitol oil trader Pierre Andurand, which is up 8 percent in the year to Dec. 11.
Andurand - who achieved a return of 210 percent in 2008 after correctly calling an oil price jump and subsequent collapse - told investors recently that crude may fall below $25 in the first quarter of next year, and he was using options to benefit from the move.
Andy Hall has been one of the most successful fund managers of the last decade but this year Astenbeck is among the worst performers. The fund, based in Southport, Connecticut, lost 26 percent in the year to November as he stuck to his conviction that oil prices would recover. This year's decline is the largest ever for Astenbeck, which manages more than $2 billion and was launched by Hall in 2008. Its biggest annual drop before this was 8 percent in 2013. Hall did not respond to requests for comment. But in a letter to investors earlier this month he refused to back down from his conviction. "There is certainly still a chance of lower prices in the next month or so, but weighing that possibility against the virtual inevitability of higher prices down the road leads to a simple conclusion: now is not the time to exit the market".
Other laggards include New York-based BBL Commodities, down more than 10 percent in the year to November after beginning the year with more than $550 million, market sources said. Run by ex-Goldman Sachs trader Jonathan Goldberg, it was one of the best performing energy funds in 2014, gaining 51 percent. Goldberg declined comment.
London-based Merchant Commodity Fund has also failed to maintain its strong 2014 performance. It lost 8 percent up to November, after a near 60 percent gain in 2014.
Assets at Merchant declined from nearly $290 million in January to around $210 million, a note circulated by the fund to investors and seen by Reuters showed.
[Dec 22, 2015] JODI numbers interpretation
Notable quotes:
"... the difference is this is Crude + Condensate and does not include Natural Gas Liquids. ..."
"... The EIA has world crude plus condensate at about 80 million barrels per day. The EIA has production of Crude Oil, NGPL, and Other Liquids at 93,770,000 barrels per day in June 2015. That was a jump of about one and one quarter million barrels per day from May. Somehow I just don't really think that was the case. ..."
peakoilbarrel.com
dclonghorn, 12/21/2015 at 12:10 pm
Thanks for the post. I find it very informative. One question I have is why the JODI totals are around 75 million bopd, when world production is often discussed as being around 90 million bopd. I suspect the difference is in how condensate and bitumen are counted, but I would like to know what the differences are.Watcher, 12/21/2015 at 12:22 pmRon's actually on top of these little variances in oil stats from various sources. He juggles the secondary sources choice with gov't reported and the issue of C+C vs just C. The choices always look rational to me.Ron Patterson, 12/21/2015 at 1:06 pmAs to what leads to decline in output when, it's pretty amazing to me that people still try to predict this stuff. I can find you distinguished analysts saying opposite things, and you can find them too, and without much effort. The odd part of this is the reluctance of people to recognize none of them know anything.
One other thing worth thinking about. There is no long run. The long run is now, because now was the long run a year or five ago. No one is allowed to say such and such is true today "but in the long run" something else will be true. What's true now is true in the long run.
DC, the difference is this is Crude + Condensate and does not include Natural Gas Liquids. The 90 million bpd you quoted does include natural gas liquids. That said however the JODI numbers are somewhat less than the EIA numbers because the EIA counts OPEC condensate while JODI does not. Also there may be a few very small producers that does not report to JODI.The EIA has world crude plus condensate at about 80 million barrels per day. The EIA has production of Crude Oil, NGPL, and Other Liquids at 93,770,000 barrels per day in June 2015. That was a jump of about one and one quarter million barrels per day from May. Somehow I just don't really think that was the case.
[Dec 22, 2015] USA will be exporting light oil to world market while importing heavier brands
I think the real reason is that US refiner does not want light oil form shale, but there are refiners win other part of the globe thaat dependon such oil. Also restarting a shale well is like restarting a rusted tractor. It take time and cost money.
peakoilbarrel.com
Glenn Stehle, 12/21/2015 at 7:54 pmAnd this from the Cowboyistan Ministry of Truth, from John's link above:http://peakoilbarrel.com/all-roads-lead-to-peak-oil/comment-page-1/#comment-551941
Saudi Arabia is likely afraid to find out how quickly U.S. shale output will rise when oil prices creep up. And now that U.S. exports are in play, everyone wonders how quickly American entrepreneurs will capture markets that, until now, have seen little competition. For OPEC, it's better to put the day of reckoning off as long as possible.
But the radically different characteristic of the new oil era is not so much that America has emerged as a big source of swing supply. That of course was a surprise to many, and the central fact animating Congressional action. The single difference that really frightens OPEC and Russia the most can be captured in a single word: velocity.
Shale technology allows astonishingly fast increases in production and at volumes that can move global markets; furthermore, U.S. capital markets are inherently flexible, fast and have plenty of capacity to fuel shale expansion almost overnight if prices, and profits, creep back up.
In addition, in the shale fields of America, drillers can get permits in weeks on private and state lands, as opposed to years for both U.S. federal lands and those of other nations. Then, shale wells can be drilled and completed in weeks not years.
Every single metric associated with shale drilling and production has not only improved radically in the past half-dozen years, but continues to do so at stunning speeds. The combination of experience (it is, after all, a very new industry) and technology progress (which is propelled by pressures on profit margins) is yielding ever more efficiency gains.
SW, 12/21/2015 at 9:28 pm
likbez , 12/22/2015 at 9:09 pmPlus, they can do all of this with an unlimited supply of free money! It is a story that makes that hippie with the loaves and fishes look like an amateur.
That's a very weak article. One thing is this persistent talking about oil glut. EIA figures for world production probably have margin of error well above 1%. That means plus/minus 1 Mb/d. So when they are talking about 1 Mb/d extra production this is within the margin of error of their measurements. So the glut might exist but it well might be not.I think redistribution of oil production facilities is what in play now. Which started with Iraq and Libya wars and continued with Syria war. Kind of "Disaster capitalism" translated into oil dimension (http://www.amazon.com/The-Shock-Doctrine-Disaster-Capitalism/dp/0312427999). Who do you think will own Venezuela fields in two or three years?
How about predatory pricing with the effect deliberately multiplied via HFT and hedge funds mechanism? Right now Saudis are engaged in predatory pricing. That's an established fact. Actually the hypothesis that Saudis want to hurt US shale industry is extremely weak: Saudis are the USA vassal state and are in principle incapable of such action without prior approval of the US government. So it looks like the USA shale industry is just a collateral damage of this bombing. Real target of this bombing lies elsewhere.
It will be interesting to see how long prices below $40 persist. At this price level most producers have losses and somehow the situation continues. My impression is that the mechanism to force producers to endure such losses is Saudis + stock exchange HFT and futures.
In any case current low prices is a sign how dysfunctional the international finance system has become.
[Dec 22, 2015] Oil is an irreplaceable commodit which now due to low prices burned in excessive quantities
Notable quotes:
"... IMHO the current lows in oil prices were caused more by algorithmic trading and hedge funds then fundamentals so predicting anything in this environment requires being an insider. ..."
peakoilbarrel.com
wimbi, 12/22/2015 at 2:29 amAs a mere dude sitting on the fence watching this oil-price rodeo, I keep wondering why none of you fancy rope slingers is giving any attention at all to some of the biggest bulls in the paddock.Dennis Coyne, 12/22/2015 at 12:16 pm1) Paris says we WILL cut back on carbon
2) Pope says we SHOULD cut back
3) Science says we MUST cut back.
4) Probability says we are gonna be FORCED to cut back.And each and all of these don't have any effect on your thinking on the price of oil???
Hi Wimbi,likbez , 12/22/2015 at 1:03 pmI would think that over the short term oil prices will increase, both due to reduced supply and possibly due to increased carbon taxes. Eventually this may lead to lower prices as people reduce their demand for fossil fuels, but it will probably be 2050 or so before we get there, I would like it to be sooner, but I am not that much of an optimist.
Saying is not doing. There are powerful forces that will prevent any significant progress in lowing carbon emissions.Even a minor change in oil consuming industries takes decades. Look at the pace of introduction of hybrid cars in the USA as an example. And you might better understand the future of cutting carbon emissions.
Oil is an irreplaceable commodity. And it is sad that with current low prices it will be burned at higher pace then it would otherwise for several years.
IMHO the current lows in oil prices were caused more by algorithmic trading and hedge funds then fundamentals so predicting anything in this environment requires being an insider.
But that does not change the total irrationality of the current situation (and international financial markets).
So for the price of oil the best answer was given long ago by JP Morgan: When asked what the stock market will do: It will fluctuate. Now we probably are close to trend reversal but when it will come is anybody guess. But if it come there is a guarantee that it will overshoot.
So there is no guarantee that the current irrationality with low oil prices will not reoccur in the future.
All this deregulation under casino capitalism and financialization of everything (it would be nice to hang a couple of oil traders who try to short non-existent oil like in good old times ) made the system unstable.
[Dec 22, 2015] A note on wells annual decline rate
peakoilbarrel.com
Amvet, 12/22/2015 at 4:15 am... I have two examples to add to the discussion:Dennis Coyne, 12/22/2015 at 12:01 pm
(1) The 2014 IEA study of 1,600 oil fields that supply 70% of global oil showed a decline rate of 6.2%.
If this is true, the globe needs, including demand growth, over 4 million bpd of new production per year to stay even. 100K bpd new production makes the news. Where is 4 million?
(2) The classic example of "in the ground does not mean in the barrel": Kazakstan´s Kashagan giant Oil Field. Discovered 2000, 45 API oil, 19% H2S, 11,168 psi. Shallow water in the Caspian. Stormy weather.
So far less than one month production. Latest problem, pipe corrosion. Next year (or later) starting production of 180K bpd. Planned max production 370K bpd. Cost around $190 billionHi Amvet,See
http://www.theoildrum.com/node/4763
where they estimate around 4.5% annual decline rate for World output in Nov 2008. It is possible this has increased since then, but assuming it has not, then at least that amount of output has been developed each year because output in 2015 will be about 6.5 Mb/d higher than in 2008. So roughly 4.2 Mb/d of new output was added each year on average from 2009 to 2015, if the decline rate was 4.5%/year on average each year from 2009 to 2015. Eventually a peak will be reached, when that will be is hard to say with confidence.
[Dec 22, 2015] How oil could go even lower--commentary
Notable quotes:
"... The most vulnerable producers are U.S. stripper wells. Totaling at least 700,000 barrels per day, these small wells would begin to shut down if crude ranged around $35 for at least six months. ..."
"... Other candidates are Canadian tar sands; North Sea and Russian brownfield supply (which depends on continuous capex to arrest steep decline rates); and of course shale oil output, which is in the process of rolling over, with declines likely to accelerate. ..."
"... Some 5 million b/d of supply has been deferred or canceled. This means supply that had previously been expected to become available in 2018 or 2019 will not be there. ..."
Dec 18, 2015 | cnbc.com
...The most vulnerable producers are U.S. stripper wells. Totaling at least 700,000 barrels per day, these small wells would begin to shut down if crude ranged around $35 for at least six months. However, stripper well owners are likely to continue pumping until a maintenance issue arises that would force a shut down. Significant shut-ins would only appear after months-to-quarters of lower prices. More often than not, stripper well shut-ins are permanent due to various geological and mechanical factors, reinforcing their owners' reluctance to shut them off. Other candidates are Canadian tar sands; North Sea and Russian brownfield supply (which depends on continuous capex to arrest steep decline rates); and of course shale oil output, which is in the process of rolling over, with declines likely to accelerate.
...In July, Wood Mackenzie reported oil and gas companies have delayed some $200 billion of investment in more than 45 projects, exclusive of U.S. shale, due to the price slump. More than half of affected reserves are in deep-water projects, and nearly 30 percent are in Canadian oil sands. In September, Wood Mackenzie predicted 140 of the 330 fields in the UK North Sea could close in the next five years, even if oil prices recover to $85 a barrel. Some 5 million b/d of supply has been deferred or canceled. This means supply that had previously been expected to become available in 2018 or 2019 will not be there.
Commentary by Robert McNally, founder and president of The Rapidan Group, an independent energy-consulting and market advisory firm based in the Washington, DC, area. From 2001 to 2003, Mr. McNally served as the top international and domestic energy adviser on the White House staff, holding the posts of Special Assistant to the President on the National Economic Council and, in 2003, Senior Director for International Energy on the National Security Council.
[Dec 22, 2015] Oil Bears Exit Market Too Soon as Prices Slide to Another Low
Notable quotes:
"... Speculators' short positions in WTI fell by 15,224 contracts to 166,625 futures and options ..."
"... Net-long positions rose by 15,280 to 95,754. ..."
Dec 16, 2015 | Bloomberg Business
Money managers' short position in West Texas Intermediate crude fell 8.4 percent from an all-time high in the week ended Dec. 15, data from the U.S. Commodity Futures Trading Commission show. Net-long positions rose 19 percent.
Speculators' short positions in WTI fell by 15,224 contracts to 166,625 futures and options, CFTC data show. Shorts in the prior week were the most in records dating back to 2006. Longs increased by 56. Net-long positions rose by 15,280 to 95,754.
"This is all short covering," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "It's not a bet that prices will rise, it's a wager that prices might not continue lower."
Traders reduced their bullish stance in Brent crude during the period. Speculators reduced net-longs to 171,834 contracts, according to data from ICE Futures Europe.
[Dec 22, 2015] It has been many months since we have seen rigs on the North Dakota rig page as "stacking". Last week we saw the first, today we have another
peakoilbarrel.com
Toolpush, 12/22/2015 at 1:38 pm
BC, 12/22/2015 at 2:17 pmIt has been many months since we have seen rigs on the North Dakota rig page as "stacking". Last week we saw the first, today we have another. I believe this will be the beginning of the response to the decreasing oil price, and the restricted 2016 capex budgets of the oil companies.
Strangely enough, one is from XTO, and the other from EOG, both strong players. I would have expected the weaker player to cut back first, but then again, maybe they can't afford to!
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2R6JEconomic indices imply a worst recession in ND than in 2007-09, and the worst in 25 years.
Mass out-migration as typically occurs and an aging population will tend to prevent the U rate from spiking, however.
[Dec 22, 2015] The global oil production glut might not exist
If global daily consumption is around 94 Mb/d and error in its measurement is over 1% (discrepancies between various agencies are even higher) how they can talk about "glut" with a strait face. They should talk about "dumping" by Saudis with full support of Wall Street sharks and HFT mechanisms.
Notable quotes:
"... Are massive futures trades and a bit of theater causing the glut? What is your opinion? ..."
"... But in reality, only a few countries have actually increased production since then and it was not by a huge amount. ..."
"... At the same time, rig counts have fallen dramatically as have investments in new oil projects. It would seem, viewed in a certain light, that oil would be ready to rebound and fairly quickly. ..."
"... The world is swimming in debt and this limits economic growth which in turn limits demand for oil. Also there are Iran, Iraq, Libya, Russia and Venezuela – all of which likely have the potential to increase oil production. ..."
"... None of these countries, quoting you: likely have the potential to increase oil production. Every one of these countries are currently producing every barrel of oil they possibly can. Libya and Iran will likely have that potential sometime in the future, but not today. By how much is just not known at this point. ..."
peakoilbarrel.com
Amvet, 12/21/2015 at 3:15 pmRon, I suspect that the global oil production glut does not exist.Ron Patterson, 12/21/2015 at 4:31 pm
Some of the reasons given to support the glut are interesting:
- The Saudis cut prices to protect market share.
- The price went down.
- US storage increased after imports surged.
- The Saudis, OPEC, Russia, refused to cut production.
- Industrialized countries storage increased.
- Tankers are lined up to unload.
Are massive futures trades and a bit of theater causing the glut? What is your opinion?
Regards.
What is your opinion?
No, I do not think futures traders can cause a glut and certainly not the appearance of a glut if none exist. Glut may be too strong a word but there definitely was an oversupply as evidenced by the storage levels, not just in the US but all over the world.Arceus, 12/21/2015 at 5:03 pmUS storage increased after imports surged. The Saudis, OPEC, Russia, refused to cut production. Industrialized countries storage increased. Tankers are lined up to unload.
That is the very definition of an oversupply, and perhaps even a glut.
There is something of a case to be made for that (no glut)…Ron Patterson, 12/21/2015 at 5:39 pmIt goes something like this – oil production has been declining since the Sauds and Opec decided not to cut production. But in reality, only a few countries have actually increased production since then and it was not by a huge amount.
At the same time as production has leveled off, demand for "cheap" oil has been increasing steadily. Moreover, most oil production is measured in boe or barrel of oil equivalents (not all of it is crude oil), and so crude oil production may have actually decreased more than many believe.
At the same time, rig counts have fallen dramatically as have investments in new oil projects. It would seem, viewed in a certain light, that oil would be ready to rebound and fairly quickly.
But not so fast. There are many more things to consider, and here are just a few. Look at natural gas and how it has declined for a very long time, and it is not hard to imagine oil doing the same thing. Also, the dollar has been strengthening (which is a negative for all commodities) and Yellen and company appear to want to keep it that way.
The world is swimming in debt and this limits economic growth which in turn limits demand for oil. Also there are Iran, Iraq, Libya, Russia and Venezuela – all of which likely have the potential to increase oil production.
Unemployment seems to be growing – this subdues demand for oil. Anyway, just a few things off the top of the head…
Also there are Iran, Iraq, Libya, Russia and Venezuela – all of which likely have the potential to increase oil production.None of these countries, quoting you: likely have the potential to increase oil production. Every one of these countries are currently producing every barrel of oil they possibly can. Libya and Iran will likely have that potential sometime in the future, but not today. By how much is just not known at this point.
Venezuela has very serious political problems and their production is far more likely to go down than up. But if you think Russia has the ability to increase production you need to explain why your prognostications are better than just about everyone else in the world who are predicting Russia will decline.
Iraq is a big question mark. I don't think they have much ability to increase production. And their political problems are likely to get a lot worse instead of better.
As for there being no glut, there is a very definite oversupply at the moment. Otherwise supply and demand is a myth. And it most definitely is not.
[Dec 22, 2015] Recapping reality of oil consumption
peakoilbarrel.com
Watcher, 12/22/2015 at 11:02 am
Recapping reality.
- China and India have oil consumption growth that is exploding. US conservation just pours more oil in their tanks.
- Price is not compelling. This is why God gave us subsidies. No candidate who says "it's good price rose to crush your oil consumption and degrade your life" is going to win vs a candidate who says "this oil spike must be stopped and it is the role of government and its central bank to stop it and reduce the burden on the citizenry".
- Y'all left wing folks don't really care about people driving F150s, with which they can carry things around. You want to command people how to live, but you're not willing to take up arms to mow them down if they don't obey.
- China has a moral responsibility to continue their growth of oil consumption to AT LEAST the US levels of per capita consumption. China has no Social Security. No other pension plan. No other array of safety nets funded in the US by GDP. They have to get their consumption up RIGHT NOW in order to fulfill responsibility to their people. Not gradually and drawn out. Not waiting for imaginary replacements for oil. RIGHT NOW. And if they do, global supply has to be something like 130 million bpd. It can't get there. China HAS to take it from someone else, the first being those 4+ million bpd in tankers heading north along the Shanghai coast to Japan. Just confiscate that.
- India is burning over 4 mbpd now. sashay over to mazamascience.com/OilExport to see the black consumption line for each country. 45 degree slope for India, just a few degrees less than China's slope. KSA's slope looks early exponential. No reason why it shouldn't be. It's their oil.
- This stuff about giving up . . . why do you want to give up. Fund weapons to prepare to TAKE what you must have.
[Dec 22, 2015] Oil market to correct in 2016 Harold Hamm
Notable quotes:
"... Hamm said the price of oil will return to $40 to $50 in the first half of 2015 ..."
"... The volumes of oil output will be going down, and as a result, its price will be climbing back, but that will happen during the mid term ..."
www.cnbc.com
...Hamm said the price of oil will return to $40 to $50 in the first half of 2015. He also expects the gap between Brent and U.S. crude to narrow following the lifting last week of a 40-year-old ban on exporting crude oil from the United States.
Allowing producers to export U.S. crude will help the product find a market in countries with refineries capable of processing it, Hamm said, noting that foreign acquisition of U.S. refineries has reduced capacity for American oil.
Vagit Alekperov, CEO of Russian oil giant Lukoil, told CNBC on Monday the oil market will be able to sustain $40 to $50 per barrel next year.
"The current purchases taking place in the industry do not incentivize the development of new exploration projects. … The volumes of oil output will be going down, and as a result, its price will be climbing back, but that will happen during the mid term," he said through an interpreter.
[Dec 22, 2015] More pain for oil Hofmeister
In this video former Shell Oil President John Hofmeister, expects more pain in the oil and gas industry in the first quarter of 2016 before recovery will start. there is light in the end of the tunnel.
Notable quotes:
"... But once a correction occurs, Hofmeister said, he is concerned the oil market will not achieve equilibrium, but instead enter a period of undersupply, ultimately resulting in a price spike. ..."
"... That is because producers are destroying value as they race to cut costs to offset declining revenues, he said. The industry is cannibalizing parts from idled rigs and equipment, laying off workers and reducing inventories, leaving companies ill-prepared for an uptick in demand, he added. ..."
"... Further, Hofmeister believes U.S. drillers will have a tough time borrowing money to fund new production. ..."
"... The turning point in the supply-demand imbalance may be the decline in high-cost U.S. crude production, which is expected to fall by about 500,000 barrels per day next year, he said. ..."
finance.yahoo.com
The recent leg lower in crude prices is no surprise, and market watchers should expect the oil rout to get worse before it gets better, former Royal Dutch Shell President John Hofmeister said Tuesday."I think the first quarter of next year is going to be probably the roughest quarter that the oil and gas industry has seen really in a long time," he told CNBC's "Squawk on the Street."
... ... ....
The current price environment will continue for some time so long as top oil exporter Saudi Arabia continues to tap its extensive reserves and borrow money to fund its policy of keeping oil production roughly steady, Hofmeister said.
Oil markets can only achieve a more rational level of production when state-owned companies bring output in line with slower global fuel demand, he said.
But once a correction occurs, Hofmeister said, he is concerned the oil market will not achieve equilibrium, but instead enter a period of undersupply, ultimately resulting in a price spike.
That is because producers are destroying value as they race to cut costs to offset declining revenues, he said. The industry is "cannibalizing" parts from idled rigs and equipment, laying off workers and reducing inventories, leaving companies ill-prepared for an uptick in demand, he added.
Further, Hofmeister believes U.S. drillers will have a tough time borrowing money to fund new production.
The turning point in the supply-demand imbalance may be the decline in high-cost U.S. crude production, which is expected to fall by about 500,000 barrels per day next year, he said.
The U.S. Energy Information Administration projects the country's output will decline through the third quarter of 2016.
[Dec 22, 2015] I Know Of No One Who Predicted This Russian Oil Production Hits Record As Saudi Gambit Fails
Zero Hedge
But not everyone agrees that this is sustainable. Some say efforts to improve efficiency have run their course and with financing for exploration scarce, further gains may be hard to come by. Interestingly, Bloomberg also notes that because Moscow takes "nearly everything above $30-$40 a barrel" on exports, producers won't feel the impact of low prices until crude falls substantially below those levels.
The takeaway here is that the Saudi gambit failed to wrench market share away from the Russians and between the conflict in Syria, Moscow's closer ties with Beijing, and Riyadh's move to antagonize The Kremlin by encroaching on Russia's eastern European market share, one shouldn't expect Putin to back down any time soon. In short, if John Kerry and Riyadh did in fact plan to bankrupt the Russians by tanking crude prices, the effort was a miserable failure that resulted not only in a 20% fiscal deficit for the Saudis, but also in the destruction of American jobs in the oil patch.
MalteseFalcon
Peak oil is sometimes qualified as peak cheap oil.
If the Saudi's are at peak oil it's because the Saudi "cost structure" is too high and includes generous welfare to keep their over-procreating rabble from revolting, expense accounts for over 100 "princes", funding for extreme Islamic radicals all over the globe, a war in Syria and a war in Yemen.
In a word: bullshit.
Gregory Poonsores
Found it a bit weird myself.
Most of the increases by Russia would have been baked in before the price fell, so I don't understand the song a dance about it.
I mean the Saudis were already on a massive infill drilling program which boosted their output this year.
Of course this presupposes the Russians are actually increasing production or just trying to spook the Saudis whose production is dropping again anyway. Besides, all OPEC increases seem to be coming from Iraq now.
Seer
When everyone is backpedaling/contracting I'd think that any increase, even a "paltry" 3-4%, is fairly significant. Think Caterpillar wouldn't want that? (hell, they' probably love to be able to maintain, rather than DROP, production).
Again, for those that don't have a clue about the business world, when things are really tight ANY gains are HUGE. Seeing as most of the West's bankers are force-feeding inflation at 2% (figure it as faked "growth") that 3-4% could be seen as 5-6%,
For the mathematically-challenged, this exponentially pencils out to a DOUBLING of production in only 11 1/2 to 14 years.
The point isn't to show off how much you can produce, it's about out-lasting your competition.
[Dec 22, 2015] Iran and Saudi Arabia to Increase Crude Oil Production in 2016
finance.yahoo.com
Iran crude oil production
Iran's Ministry of Petroleum reported that its oil sanctions might be removed by the first week of January 2015. The easing of sanctions would mean Iran could scale up crude oil production by 0.5 MMbpd (million barrels per day) to 1 MMbpd in the next six months to one year.
...Iran has the lowest production cost at just $10–$15 per barrel. It also has the lowest break-even cost in OPEC and in the world. Iran's strategic location allows it to transport vast amounts of crude oil.
[Dec 21, 2015] Oil Prices Slump to 11-Year Lows in Asia and Europe
Notable quotes:
"... supplies from outside of OPEC will decline next year. ..."
"... Production in the United States remains strong, as higher production from projects in the Gulf of Mexico offsets declines in shale oil production on shore ..."
"... In a recent report, the International Energy Agency said it expected global inventories to keep growing at least until late 2016, although at a much slower pace than this year. "As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market," the agency said. ..."
Dec 21, 2015 | The New York Times
...the International Energy Agency, the Paris-based monitoring organization, forecasts that supplies from outside of OPEC will decline next year.
Still, those prospects have not been enough to shore up prices. Production in the United States remains strong, as higher production from projects in the Gulf of Mexico offsets declines in shale oil production on shore, where low prices have discouraged some energy companies from investing in new drilling. Russia, meanwhile, is essentially shrugging off the impact of Western sanctions over Ukraine and is still producing at high levels.
In a recent report, the International Energy Agency said it expected global inventories to keep growing at least until late 2016, although at a much slower pace than this year. "As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market," the agency said.
[Dec 21, 2015] America cannot do away without Russian oil
Fort Russ
The income changed accordingly. In 10 months of the year it amounted to $35,209 billion for gas, which is a 25,65% decrease from the same period in 2014, according to the data of the Federal Customs Service. Our country received 1.75 times less from oil exports in January-October of 2015 compared to the same period of last year - $76,738 billion.
There are also issues with exports. Despite the slowdown in the global economy (according to different estimates it amounts to less than 3%), energy resources remain the "blood" of the modern world order. Therefore it is reasonable to think about the potential for the export of Russian hydrocarbons and new areas of cooperation.
Here assessments are also different. For example, "Transneft" predicts the decline of Russian oil exports in 2016 to 210 million tons from 222 million tons in 2015. This was announced by first vice-president Maxim Grishanin.
The head of the Energy Ministry of Russia, Alexander Novak expects Russian oil exports at the level of 237 million tonnes a year in 2015 and 2016. According to the Ministry of Economic Development, Russia will sell 227,5 million tons of "black gold" abroad in 2016
According to the forecast of the Ministry of Economic Development gas exports will amount to 174,7 billion cubic meters in 2016.
Operational statistics are not sufficient for the forecast to be more or less reliable, thinks the leading expert of the Union of Oil & Gas Producers, Rustam Tankaev. However, he says some assessments can be made.
...This year one of unexpected destinations for the exports of "black gold" became the US, reminds Rustam Tankaev. "Apparently, this market will continue to grow next year, especially as shale oil production in the New World is gradually declining due to low prices," - he suggests.
[Dec 21, 2015] Iran expecting to produce 4 million barrels of oil per day
EIA estimated that an increase in Iranian crude oil production in 2016 will be around 600,000 barrels per day and is likely to occur in the second half of the year . Richard Nephew, program director for Economic Statecraft at Columbia University and former sanctions coordinator at the U.S. State Department, said in a research brief that larger volume of oil will flow from Iran in 2016, but likely not at the levels that optimists predict.
UPI.com
TEHRAN, Sept. 2 (UPI) -- Iranian oil production by the end of 2016 will be in excess of 4 million barrels per day, more than in the pre-sanctions era, the nation's oil minister said.
Iranian Oil Minister Bijan Zangeneh said the country will increase net oil production by more than 1.5 million barrels per day, bringing total production for the Islamic republic to just over 4 million bpd.
"Around the end of next year, we will be close to this figure," he said in an interview broadcast by CNN.
Zangeneh said his country could become the second largest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia, within seven or eight months of sanctions relief. Production during the pre-sanctions area was around 3 million bpd.
[Dec 21, 2015] Oil Price Scenarios for 2016
Notable quotes:
"... mature fields would decline at 9% naturally without infield capex, mitigated decline, (such as infill wells, sidetracks, recompletions, acid wash, debottlenecking, new compressors etc) would slow the decline to 6.4%, Current decline including newer fields is about 3.1 % – lowered capex would increase decline rate ..."
"... 300 mb would be gone within one year at the rate of 1 mb/d for OECD countries. ..."
"... FWIW, my own outsider's 'guess' for YE 2016 is around $75-80/bbl. That puts most US shale back in business ..."
"... I think perhaps you overestimate the role of stocks. Oil in storage is owned by somebody, usually oil traders, and their #1 priority is to get the maximum price when they sell. Balancing the market is of no concern to them at all. If prices are rising, they will buy more. ..."
"... The oil stocks do NOT serve to balance the market, outside the SPR they are largely owned by speculators. ..."
Dec 21, 2015 |
Let's cut to the quick. My forecast for Brent at around this time next year in my BAU (business as usual) scenario is $37. This is grim reading for all those involved in and around the oil industry. Worse still, I think there is high probability that we see sub-$20 oil before the first quarter is out. But this is great news for consumers. The reason is gross over-supply sustained throughout 2016, helped by Iran coming back to full market with an additional 800,000 bpd.
Aslangeo, December 16, 2015 at 8:43 am
an interesting point of view from nawar alsaadi – http://m.authorstream.com/presentation/nawar295779-2683608-2014-2015-oil-crash/
I do not know who he is but he feels that prices are likely to increase in the longer term as production form existing fields declines and is not adequately replaced due to Capex cuts
Slide 26 "mature fields would decline at 9% naturally without infield capex, mitigated decline, (such as infill wells, sidetracks, recompletions, acid wash, debottlenecking, new compressors etc) would slow the decline to 6.4%, Current decline including newer fields is about 3.1 % – lowered capex would increase decline rate"
Javier, December 17, 2015 at 10:16 am
Euan,
You know better than anybody that world crude increase since 2010 has come from the shale revolution. But the shale revolution ended the day prices crashed. Investor gullibility, hedges, and inertia sustained production for a year. Investors don't want to know anything with shale oil anymore (bond interests spiking, companies stocks cratering), hedges have expired, and inertia is over and now works against a recovery.
Now the rest of the world has to increase production to compensate for the sinking shale that could easily lose 1 mbpd in 2016, plus to increase world production. And it is just not happening. Since August world production is going down, and it is likely to accelerate its decline in the first months of 2016.
What happens next is anybody's guess, but it would be a pity that after so long you would go to miss Peak Oil just when it is taking place.
After all Peak Oil has to take place with maximal production and moderate to low oil prices, since high prices are conductive to increase production.
Stay well.
Huckleberry Finn, December 17, 2015 at 1:22 am
Pretty funny stuff. You should do stand up.
5 Million cut??????
Over the last year inventories have built at less than 1 million barrels per day. And you espouse 5 Million barrels cut for $100 oil????And then your 3 Billion barrel 1000 day draw down.
Wow just wow. You expect people to draw down this stuff to zero? We have had 300 Million barrel build. If we were 300 Million below the 5 year average we would be at $150.
Don't take the IEA for gospel. 250% increase in SUV sales in China year on year will not result in 200,000 barrel increase in demand unless you blow your hot air in them.
Huckleberry Finn, December 17, 2015 at 3:56 pmOk. You kinda implied the 1000 day drawdown.
Now, When you say considering the inventories built, nowhere in your model do you put that into context.
For example if we have a 3 day extra in inventory versus 3 day less surely the price is different, but where do you get that in the model?
Like I said, this excess supply is a myth. We have a 1 million oversupply currently.
We built inventories by 1 million barrels a day in 2015.Time will tell.
Peace.Euan Mearns, December 17, 2015 at 7:54 pm
Huckleberry, via email I've also been pulled up on not placing inventories in context and that is valid criticism. On the size of surplus going to storage. I'm simply taking the IEA numbers. I stopped following the EIA when they fell 150 years behind 😉
The trouble with the IEA is that all the data needs to be transcribed by hand from the OMRs. Its about time this was all available on XL, bang up to date. What are the IEA thinking about, an OECD institution, no doubt funded by us, trying to give competitive advantage to the rich by drip feeding data into public domain.
The supply demand price model is all I have to go on to try and convert market dynamic to price. Phil Hart, who I think founded the concept, based this on volume produced not volume consumed. So there is no doubt room for refinement, but it means transcribing years of data by hand from OMRs – a task I'm going to hand over to Luis who has made a habit of telling me what I should be doing.
Reply
mushalik (@crudeoilpeak), December 18, 2015 at 3:34 am
That 3 Gb comercial inventory number is from the IEA November OMR report
https://www.iea.org/media/omrreports/fullissues/2015-11-13.pdf
Have a look at the graph on page 4. The 5 year OECD inventory average is between 2,600 – 2,800 mb. So can we consider this as a "normal operating condition"?
Therefore, 3,000 mb has to be compared with, say, 2,700 mb which is around 10% more. Not really much. 300 mb would be gone within one year at the rate of 1 mb/d for OECD countries.
If inventories were to go below the lower bound, say 2,500 mb, the IEA would certainly issue a warning
Euan Mearns, December 18, 2015 at 10:34 am
I concede that I got the emphasis wrong on stock levels.
ristvan, December 17, 2015 at 8:53 pm
Euan, there are some background factors that could be added to your overall analysis.
1. Roughly 40% of Saudi output is from Ghawar. In 2010, after reworking the sourthern Haradh section for secondary water flood, they said Ghawar could produce for another 38 years (watercut is already 55%) iff production was continually cut back from the then 5.1mbpd. So their price war is to some extent hurting their own production future. Plus, their social spend drew down foreign currency reserves by about $100 billion in 12 months, in addition to withdrawing $70 billion from asset managers. iMF says the deficit is about 20% of GDP. At that rate, they run out of surplus cash in (650/[100+70]) three and a half years. Even the Saudis cannot afford to keep this going for long.
2. The 2008 IEA survey of ~800 major fields (including all giants and supergiants) which produced over 60% of that years crude showed an average annual decline rate of 5.1%. it would be more by now. That means the world has to add (0.051*0.6) about three percent additional capacity each year just to stay even. If demand growth is 1.5% as you estimate, that net new capacity has to be about 4.5% annually just to remain in balance. You estimate demand at 96mbpd 2h2016 in fig. 3. That means about 4.3mbpd of new capacity by YE 2016. Iran says it can increase exports 0.5mbpd in 2016 after sanctions are lifted. That leaves 4mbpd to be made up by the undeferred portion of the new capacity pipeline next year. That is quite a lot.
I think that the Saudis figured all this out, and that the price war will be over before YE2016. Even the Saudis cannot afford it to go on longer, and it does not take much to bring demand and supply back into balance. Just cutting back Ghawar to prevent field damage would almost do the trick; in 2012 Ghawar alone was 6.1% of total world crude production excluding NGL.
FWIW, my own outsider's 'guess' for YE 2016 is around $75-80/bbl. That puts most US shale back in business, but does not enable new deepwater (BP and Chevron estimate a minimum $85/bbl, and Brazil is in turmoil) or the discovered Yamal giants in Russia lacking infrastructure (estimate $100/bbl needed.)
Then within 2 more years, back over $100 because Brazil's subsalts and the Yamal fields will be needed to replace the annual decline in other conventional oil (defined as API>10, reservoir porosity >5%, reservoir permeability > 10 darcies).
mushalik (@crudeoilpeak), December 18, 2015 at 2:13 pm
There can be no doubt that crude oil production started to peak in 2005. The response of the system to this event was quantitative easing and unconventional oil which brought about an increase in crude oil production from US shale oil and Canadian tar sands 5-6 years later.
http://crudeoilpeak.info/latest-graphs
The 2005 WEO is here:
http://www.worldenergyoutlook.org/media/weowebsite/2008-1994/weo2005.pdfIt predicted 105 mb/d by 2020 (p 90), including processing gains. By latest OMR numbers we are now at 97 mb including 2.6 mb/d biofuels
According to table 3.5 of the WEO 2015, shown here by ASPO Germany on slide 3
https://drive.google.com/file/d/0B9AZj5ZYb55NdlBtQTRWZlVPZ28/view?pli=12020 production would be 95.9 mb/d or 9 mb/d less than estimated 10 years earlier.
IEA did not foresee shale oil but thought much higher supplies would come from from OPEC
It only shows how difficult is to predict future supplies.
Stuart , December 17, 2015 at 9:17 pm
Euan,
I think perhaps you overestimate the role of stocks. Oil in storage is owned by somebody, usually oil traders, and their #1 priority is to get the maximum price when they sell. Balancing the market is of no concern to them at all. If prices are rising, they will buy more.
The oil stocks do NOT serve to balance the market, outside the SPR they are largely owned by speculators.
[Dec 21, 2015] $100 barrel oil Gazprom predicts Russia's rebound
Notable quotes:
"... According to Dyukov, currently there is shorting game . One of the reasons is the expectation of a rate increase by the Fed. For now the price has stabilized. Theoretically, if the shorting game will continue, the price may get lower but it is obvious that this decline will be short-term, - said Alexander Dyukov. ..."
"... If you removed 1.5 to 2 million barrels of oil from the market, it would bring oil prices to 65 dollars per barrel, guaranteed ..."
"... The extraction of unconventional hydrocarbons in North America is likely to decline, which will balance supply and demand in the medium term. This will lead to higher prices. The lifting of the embargo on oil exports from the United States, according to Dyukov, will not have a significant impact on the global market. ..."
December 21, 2015 | Fort Russ
Orginally publushed by Rossijskaya Gazeta. Translated from Russian by Kristina Rus for Fort Russ
Global oil prices could sink below the current level of 36 dollars per barrel, but it will not last long, says general director of "Gazprom Oil," Alexander Dyukov.
"No matter what, in the medium or long term the rates will begin to return to the level that is just and right for consumers and producers. I'm talking about the price of 90-100 dollars per barrel", - he declared in an interview with TV channel "Russia 24".
According to Dyukov, currently there is "shorting game". One of the reasons is the expectation of a rate increase by the Fed. For now the price has stabilized. "Theoretically, if the shorting game will continue, the price may get lower but it is obvious that this decline will be short-term," - said Alexander Dyukov.
However, reaching the level of $90-100 per barrel may take a few years. The head of "Gazprom Oil" called the current situation not the most favorable.
"It will have long term implications not just for oil companies but for the consumers," - he said. Dyukov also believes that Russia should not change the strategy on the global oil market in an attempt to maintain global oil prices.
"We don't feel the weakest in this game, we have a serious margin of safety. I don't see any point for us to change the strategy that was chosen by the Russian Federation. If we talk about this competition - we won't lose it for sure. It's a game of nerves, who'll blink first, but Russia is absolutely prepared for this game. In production costs we are not far behind the Middle East, maybe even better off in some ways," - he said.
The lost balance of supply and demand in the oil market could be restored by OPEC and Saudi Arabia.
"But Saudi Arabia is currently fighting for the market share, in addition to increasing its share it is trying to take over expensive projects from many investors. If you removed 1.5 to 2 million barrels of oil from the market, it would bring oil prices to 65 dollars per barrel, guaranteed", - said Dyukov.
The extraction of unconventional hydrocarbons in North America is likely to decline, which will balance supply and demand in the medium term. This will lead to higher prices. The lifting of the embargo on oil exports from the United States, according to Dyukov, will not have a significant impact on the global market.
[Dec 21, 2015] Iraq Sees Crude Oil Prices Rising on Strong Fundamentals
Notable quotes:
"... Crude prices are set to rise from current "very low" levels that are hurting producers, Iraq's Oil Minister Adel Abdul Mahdi said after a meeting of Arab petroleum-exporting nations. ..."
Dec 20, 2015 | Bloomberg Business
Crude prices are set to rise from current "very low" levels that are hurting producers, Iraq's Oil Minister Adel Abdul Mahdi said after a meeting of Arab petroleum-exporting nations.
Abdul Mahdi, whose country is the second-biggest producer in OPEC, didn't forecast when prices would rebound from an almost seven-year low for Brent, the benchmark for more than half of the world's oil. Qatar's Energy Minister Mohammed Al Sada told reporters before the meeting in Cairo there was no need to be pessimistic about prices.
"There is no doubt that oil prices will rebound," Abdul Mahdi told reporters Sunday after the meeting of the Organization of Arab Petroleum Exporting Countries. "This current level is too low, and it's affecting oil producers. I think economic factors and fundamentals are still strong."
[Dec 20, 2015] History repreats: Shale junk bonds were offloaded by Wall Street firms to public investors
Notable quotes:
"... A reminder that a few weeks or months ago at a JP Morgan investment meeting, maybe even annual, a question was posed to management about their exposure to high yield bonds from shale. The answer was "we have offloaded that risk to public investors". ..."
"... JPM will have managed accounts. They are authorized to trade client money without informing the client of what has been done for each trade, and of course the theory would be that if the client doesn't benefit then they will pull their money from the account. ..."
"... Well, the account managers are trained and polished in selling ice cream to eskimos. They are professionals at persuading money to stay within the Assets Under Management umbrella and the client is not professional at countering those persuasion techniques. ..."
"... It's a new world out there. In 2007 hedge funds and Goldman cooperated in arranging short positions in mortgage backed securities and then spread the word those securities were non performing mortgages, DESPITE the fact Goldman had put clients into them to offload their own risk. Do not believe these guys will place client interests above their own. hahahah how absurd would that be. ..."
"... Methinks a lot of pension funds are facing some pretty large losses on oil and gas bonds. ..."
peakoilbarrel.com
Watcher, 12/20/2015 at 12:44 pmA reminder that a few weeks or months ago at a JP Morgan investment meeting, maybe even annual, a question was posed to management about their exposure to high yield bonds from shale. The answer was "we have offloaded that risk to public investors".Jeffrey J. Brown, 12/20/2015 at 12:51 pmWhat you may not understand is what that can mean in terms of awareness. JPM will have managed accounts. They are authorized to trade client money without informing the client of what has been done for each trade, and of course the theory would be that if the client doesn't benefit then they will pull their money from the account.
Well, the account managers are trained and polished in selling ice cream to eskimos. They are professionals at persuading money to stay within the Assets Under Management umbrella and the client is not professional at countering those persuasion techniques.
The point being, this lending money to shale (in that meeting it was done to service loans already made to shale and keep them current) can be with Other People's Money and those people may not know, and probably don't know.
It's a new world out there. In 2007 hedge funds and Goldman cooperated in arranging short positions in mortgage backed securities and then spread the word those securities were non performing mortgages, DESPITE the fact Goldman had put clients into them to offload their own risk. Do not believe these guys will place client interests above their own. hahahah how absurd would that be.
And so, stop thinking that pre 2007 Normal in the world still applies. It doesn't. There are no precedents to what is happening in many things. At the core of the reasons why . . . is scarcity.
Methinks a lot of pension funds are facing some pretty large losses on oil and gas bonds.
[Dec 20, 2015] The low prices are taking their toll
Notable quotes:
"... Ecopetrol, the largest Colombian producer announced that it will produce 755,000 barrels a day in 2016 vs 760,000/day in third quarter of 2015. That does not sound like much a of drop, until you realize that Ecopetrol will be taking over the Rubiales field from a joint venture by not extending their partners contract. ..."
"... So I am guessing their base decline rate is closer to 10% ..."
peakoilbarrel.com
Huckleberry Finn, 12/20/2015 at 12:32 pmThe low prices are taking their toll. http://www.newswire.ca/news-releases/ecopetrol-announces-us48-billion-investment-plan-for-2016-561775541.html
Ecopetrol, the largest Colombian producer announced that it will produce 755,000 barrels a day in 2016 vs 760,000/day in third quarter of 2015. That does not sound like much a of drop, until you realize that Ecopetrol will be taking over the Rubiales field from a joint venture by not extending their partners contract.
That will add 70,000 barrels a day to their production. Or about 35,000 barrels day annualized since it happens mid-year. So adjusted for this their production will decline from 795,000 barrels to 755,000 barrels per day, or a drop of 5%.
And that is after spending 4.8 Billion USD. So I am guessing their base decline rate is closer to 10%
[Dec 20, 2015] When Will Oil Prices Turn Around
OilPrice.com
For the first half of 2015, the tight oil-weighted E&P companies that I follow spent about $2.20 in capital expenditures for every dollar they earned from operations (Figure 5).
[Dec 20, 2015] Forecast of Crude Oil Prices
useconomy.about.com
Energy Information Administration (EIA) forecasts that WTI futures contracts for March 2016 delivery will rebound to $44/b. However, it warns that volatility makes this forecast uncertain. It noted that commodities traders said prices could be anywhere between $30/b and $63/b.
That's much lower than EIA's July forecast for October delivery. That averaged $59.45/b. Traders said there was only a 20% chance it would go below $50/barrel.
They said prices would remain above $41/b in December. Instead, WTI for January delivery plummeted to $37.51 a barrel on the New York Mercantile Exchange. (Source: Market Prices and Uncertainty Report, EIA, July 7, 2015).
... ... ...
It accurately predicted that global Brent crude oil would drop to a level of $49/b in early 2015. It wrongly said prices would rebound to between $56/b to $60/b by year end. Inventories and production remained higher than expected. Inventories rose 1.8 million b/d in the first three-quarters of 2015.
... ... ...
Why Are Oil Prices So Volatile Right Now?
...many producers had to keep pumping oil, once the wells were opened. Capping off a well is expensive.
Second, forex traders drove up the value of the dollar by 15% in the last six months of 2014. Since all oil transactions are paid in dollars, this offset and possibly even caused 15% of the decline in the price of oil for exporting countries.
[Dec 20, 2015] This is what will happen when U.S. oil producers start to export
I agree that the effect of lifting the US export ban will be limited. Basically, the current spread between WTI and Brent will be largely eliminated.
Notable quotes:
"... If oil rises above $50, however, the picture could change. And the higher prices go, the stronger the incentive will be for U.S. producers to crank up drilling and send the crude overseas. ..."
finance.yahoo.com
If oil rises above $50, however, the picture could change. And the higher prices go, the stronger the incentive will be for U.S. producers to crank up drilling and send the crude overseas.
"With higher prices, U.S. producers would produce more again," says analyst Mark Broadbent of research firm Wook Mackenzie. "In a stronger price environment I'd expect to see more exports and producers eager to ramp up prices."
[Dec 20, 2015] Vultures start circling shale companies
Notable quotes:
"... I would guess that by now, most can see what is happening and therefore, what is going to happen in the future since the model has been established. The banks are not going to take serious hits. Re: Magnum Hunter and New Gulf Resources. ..."
"... I remember seeing some vulture investor discussions back in 2009. They were stating that they would never buy equity in failing companies: they would take control thru the debt. Much more upside possible. ..."
"... The investment/hedge funds step in. They can buy $1 billion of debt for $300 million or less, and the are praying that the company does go belly up. If it does, they get 100% of the equity, and agree to put in another $200 million to ride out the storm. A totally non-contested, prearranged bankruptcy. If things come back [even partially], they might own a company worth $2 billion for their $500 million investment. ..."
"... The vultures give the unsecured bond holders the option of taking pennies on the dollar or becoming subordinate the vultures on all the debt the vultures are able to trade out. ..."
"... In any event, after burning several million dollars, the sold the assets and I am sure took a big loss. ..."
peakoilbarrel.com
Clueless, 12/19/2015 at 10:40 pm
I would guess that by now, most can see what is happening and therefore, what is going to happen in the future since the model has been established. The banks are not going to take serious hits. Re: Magnum Hunter and New Gulf Resources.shallow sand, 12/19/2015 at 11:20 pmI remember seeing some vulture investor discussions back in 2009. They were stating that they would never buy equity in failing companies: they would take control thru the debt. Much more upside possible. So, a company with $1 billion in debt has its bonds trading at say 70 cents on the $ and it is rated junk. The bond funds that hold the debt [their covenants prohibit them from holding "bankrupt" rated debt] sells to novice speculators. Then the debt plunges to 10- 30 cents on the dollar.
The investment/hedge funds step in. They can buy $1 billion of debt for $300 million or less, and the are praying that the company does go belly up. If it does, they get 100% of the equity, and agree to put in another $200 million to ride out the storm. A totally non-contested, prearranged bankruptcy. If things come back [even partially], they might own a company worth $2 billion for their $500 million investment.
Clueless. You are correct. I might add that the vultures do not appear to be just purchasing the debt. They are trading unsecured debt for second lien debt. I am not sure how this works, but from what I have read, the unsecured bonds have very weak covenants. The vultures give the unsecured bond holders the option of taking pennies on the dollar or becoming subordinate the vultures on all the debt the vultures are able to trade out.The vultures better be pretty sharp, however. 1st, they better have a good handle on the assets they are trying to acquire. Second, they better have a good team put together to operate the assets. Third, they better have a better handle on future oil and gas prices than schmucks like me.
I saw something similar to this up close in the aftermath if the 1998-99 crash. An investor group bought the bad debt from a bank for pennies on the dollar, took assignment of the liens and foreclosed.
The investor group found out in a hurry that they didn't quite know what they had bought, and that it wasn't easy to manage from 1000+ miles away. They had a hell of a field superintendent, but of course they thought they were smarter than him, despite him having grown up in the middle of the field.
In any event, after burning several million dollars, the sold the assets and I am sure took a big loss. They also screwed up on timing the sale. Had they held on for about 3 more years they could have at least quintupled the sale proceeds. But they knew about as much as I, or really any of us, know about where oil prices are headed.
I am sure these distressed buyers are real sharks. But sharks can die too.
[Dec 20, 2015] Report Eagle Ford Shale Has Peaked, Lifting of Oil Export Ban Could Drain Field More Quickly
Notable quotes:
"... As a result, the drilling treadmill - seeking out new locales to frack in order to keep productivity rates flat - continues apace. The problem, Hughes points out, is that there isn't anywhere left to turn. ..."
"... "This is somewhat counterintuitive as conventional wisdom suggests that companies are focusing drilling efforts on their best acreage, which is in top counties such as Karnes, and withdrawing from more marginal parts of the play in order to maximize economics in a low oil price environment," he writes. "The reason for the steeper decline in Karnes County is likely that it is the most heavily drilled and high quality locations are running out." ..."
"... The hype surrounding tight oil as a means to bolster global oil production over the long term is not justified. Geological fundamentals clearly show that high decline rates, limited sweet spots, and finite numbers of drilling locations will limit long term contributions to production ..."
"... The optimistic tight oil forecasts of the EIA, and even more optimistic forecasts of some industry watchers, are unhelpful abstractions in developing energy policy for a more sustainable future ..."
Dec 18,2015 | naked capitalism
A new report published by the Post Carbon Institute concludes that Texas' Eagle Ford Shale basin, the most prolific shale oil basin in the U.S., has peaked and reached terminal decline status.
... ... ...
As a result, the drilling treadmill - seeking out new locales to frack in order to keep productivity rates flat - continues apace. The problem, Hughes points out, is that there isn't anywhere left to turn.
"This is somewhat counterintuitive as conventional wisdom suggests that companies are focusing drilling efforts on their best acreage, which is in top counties such as Karnes, and withdrawing from more marginal parts of the play in order to maximize economics in a low oil price environment," he writes. "The reason for the steeper decline in Karnes County is likely that it is the most heavily drilled and high quality locations are running out."
These drilling trends are also mapped out for readers to see what the drilling treadmill and sweet spots looks like in action.
... ... ...
Hughes closes the report by suggesting that U.S. energy policy (and thus global energy policy) is dictated by a drilling technique that has already eclipsed peak production mode just over a half decade after its birth.
"The hype surrounding tight oil as a means to bolster global oil production over the long term is not justified. Geological fundamentals clearly show that high decline rates, limited sweet spots, and finite numbers of drilling locations will limit long term contributions to production," wrote Hughes.
"The optimistic tight oil forecasts of the EIA, and even more optimistic forecasts of some industry watchers, are unhelpful abstractions in developing energy policy for a more sustainable future."
This is pretty much exactly as the geologist Arthur Berman (and others) predicted quite a few years ago. Extrapolations from the outputs existing shale oil wells ignored the fact that experienced drillers don't drill randomly – they know what they are doing and usually are very good at hitting the sweet spots. Add in the strong incentive drillers have to exaggerate their success rate and you have a recipe for over optimistic predictions and over investment. The nature of tight oil is such that a decline is likely to be very rapid after the peak is hit as established techniques for drawing out the life of a conventional well (such as fracking around an oil bearing void or pumping in seawater/CO2) can't be used.
night-Train
Agreed. I am doubtful of secondary and tertiary recovery processes as used in conventional oil fields being effective in tight oil bearing formations. These plays and their ability to make the US an energy independent nation have been over sold to the American public. Now, allowing for these finite resources to be exported is foolish and will prove to be the height of political folly. If we are to move forward with it, we should remove all Federal subsidies and tax breaks to the industry. Let the industry sink or swim on its own dime. If it isn't a strategic resource for this country, as a country, we have no imperative to support it more than any other commodity or enterprise.
ambrit
Your comment highlights one of the 'hidden' developments of the modern political economic landscape: Internationalism, or Globalization.
Properly speaking, those who 'manage' the resources have become 'equal partners' with the National governments. Something very akin to the old Robber Barons has arisen; a new Oligopoly. I hesitate to say that the old version of the film "Rolerball" was prescient, but, there it is. Rather than teams sponsored by and representing Industries we have stadia doing that job. Would that I live long enough to see the Army Navy game played in the "Military Industrial Complex Stadium!"
Hail Hydra! Let's do the Strut.Likely accurate and therefore devastating. I still don't know how the fracking industry is surviving, as every barrel they pump is a loss–under no model I have ever seen is fracking economical at $40 a barrel and dropping. And the dropping is hiding in plain sight the significant (massive?) contraction of the global economy. Growing economies do not use fewer inputs of energy and raw materials. This is so obvious it's amazing that it goes unreported (are people blind to the big picture, swallowed up in the minutiae, or just whistling past the graveyard?).
As with the banks, the government is setting things up for the Oligarchs to make One Last Killing on fossil fuels. The aftermath is not going to be pretty.
Carla
This post sent me looking for the origins of a famous quote, which may first have been uttered by Native American Alanis Obomsawin, "an Abenaki from the Odanak reserve, seventy odd miles northeast of Montreal."
"Canada, the most affluent of countries, operates on a depletion economy which leaves destruction in its wake. Your people are driven by a terrible sense of deficiency. When the last tree is cut, the last fish is caught, and the last river is polluted; when to breathe the air is sickening, you will realize, too late, that wealth is not in bank accounts and that you can't eat money."
http://quoteinvestigator.com/2011/10/20/last-tree-cut/
The sentence "Your people are driven by a terrible sense of deficiency" just nails it, does it not?
different clue
I remember reading that a Pacific Northwest Nations person is supposed to have said something similar.
" When the last salmon has been fished from the last river, then the White Man will learn that he can't eat money."
One could update it this way: "When the last can of cat food is gone from the last shelf in the last WalMart, then the White Man will learn that he can't eat money."
Reply ↓
My understanding is that they can keep going partly because the marginal cost of keeping existing wells going is very low (i.e. if you pretend there wasn't a heavy upfront investment) and that many operators were heavily hedged (showing that their investors aren't complete fools). Of course, that raises the question of who is making the hedging losses.
But as Wolf has pointed out, the hedges will likely run out early 2016, at which point the naked swimmers will be all too visible.
different clue
I remember reading that a Pacific Northwest Nations person is supposed to have said something similar.
" When the last salmon has been fished from the last river, then the White Man will learn that he can't eat money."
One could update it this way: "When the last can of cat food is gone from the last shelf in the last WalMart, then the White Man will learn that he can't eat money."
Reply ↓
My understanding is that they can keep going partly because the marginal cost of keeping existing wells going is very low (i.e. if you pretend there wasn't a heavy upfront investment) and that many operators were heavily hedged (showing that their investors aren't complete fools). Of course, that raises the question of who is making the hedging losses.
But as Wolf has pointed out, the hedges will likely run out early 2016, at which point the naked swimmers will be all too visible.
Reply ↓
James – partly it comes down to a different investment model in commodities and base products. It is always assumed if you invest in those that there will be periods where the market price is well below what is profitable. You lose when oil prices are low, you gain when they peak. So investors are conditioned to gritting their teeth when prices are low. What is important to the producers is that the price can cover running costs – which is why sometimes oil supply increases when prices are low – existing wells raise production to keep a cash flow going. Quite simply, investments on this scale are made on 20-25 year timescales, they will assume (or hope for) sufficient super-profitable peaks to tide over the low periods. And of course wiser investors will have hedged anyway so they may not be feeling the pain as much as you might think.
Of course, there is also the 'sunk cost fallacy' at work – having put billions into oil, many investors feel they have no choice but to keep the operators going in the hope that somehow a war somewhere will lead to a spike that will rescue them. Hence there is a bit of a 'too big to fail' mentality at work, nobody wants to start a panic by being the first one to move to wind up loss making operators, its easier to make sub contractors suffer by cutting costs to the bone, up production in existing wells to keep some cash flowing, and hope for the best.
different clue
If you borrow that billion dollars in the form of re-sellable loan instruments, and then you sell those interest-bearing instruments to some greater fool before you have begun spending down the billion, then you do not worry about going bankrupt. Some Greater Fool gets to worry about going bankrupt.
You get to skim off just enough money from that billion dollars so that when the rest of it is gone, the factory shuts down and you declare "bankruptcy". But you haven't lost anything. The people you sold the debt-repayment-instruments to are the people who lose everything. You walk away with whatever survival-money you quietly skimmed off the billion while operating your factory at a visible loss with the rest of the billion till the rest of the billion is gone.
Reply ↓
OilduskNice synopsis of the Private Equity model as practiced successfully by vampires like Mitt Romney.
Why didn't you note that the number of drilling rigs in the Eagle Ford has gone from about 250 in late 2015 to 47? Perhaps that had something to do with the decline rate? The Eagle Ford has considerably more potential than you suggest and your graph would look considerably different if 247 rigs were still active there – as will happen when oil prices rebound back in the next year or two.
Eliminating the Oil Export Tax on oil is long overdue. It will close the gap between Brent and WTI – so that at least US oil producers aren't having to sell oil produced in the US for less than oil produced by OPEC. It will also eliminate the economic wastage of U.S. produced light oil being sold to U.S. refineries who buy it so cheaply that they substitute it for medium grade oil in their refinery processes. Keeping my fingers crossed that this law gets eliminated next week.
Crazy Horse
Multiply known depletion rates of individual wells by lower productivity per new well as the sweet spots are all tapped and the mathematics are so simple that even a Texan should be able to understand them. 247 rigs or 2,000 rigs drilling holes with production rates that fail to recover their capital costs won't do much for reversing oil field senility.
But I'm sure changing the tax policy is the solution. Perhaps having the Government just pay for all drilling costs would do the trick- at least long enough to create a few more Koch dynasties.
... ... ...
night-Train
CH – your are raining on the "Shale Miracle". For it to work, we must all believe, believe with all our hearts. It's like Tinkerbell. All it needs to succeed is unquestioning belief and $100/bbl oil.
"Why didn't you note that the number of drilling rigs in the Eagle Ford has gone from about 250 in late 2015 to 47?"
I could entertain this idea. Figure 1 would be more informative if it had a rig count as well as an active well count. It's clear to see that the leveling off of the active well count takes place at or just after the peak production. If the rig count dropped off at the same time I think the phenomenon it actually illustrates is just how drastic the depletion rate is for fracked wells especially at this point in the development of this field. I would take that as reinforcing the study's point, not opposing it.
[Dec 19, 2015] Russia opens black box of jet downed by Turkey
Notable quotes:
"... I believe it was not there on patrol, but specifically to shoot the Russian plane down and come back ..."
"... Although I believe the Turkish map, I still think the Turks proved themselves on the side of the terrorists. ..."
"... Crossing that strip of Turkish territory by a friendly plane should not have been reason for shooting it down, only a PRETEXT. That may be the reason why the plane was shot down, because the Russians were not expecting the Turks to shoot at them. ..."
news.yahoo.com
Mister 2 hours ago 0
[The air force commander said 14 countries had been invited to monitor the (Russian) investigation but only China and Britain had accepted the official offer]
Shameful.
Shelly Winters 1 day ago 5
Not sure what information this "black box" contains, but CVR's and FDR's in most all aircraft (especially commercial jetliners) records only what the flight crew says in the cockpit and what operational parameters the aircraft experienced i.e. throttle settings, aileron positions, pitch, etc. It's questionable if the downed fighter aircraft's actual flight path would be stored internally in any such device, especially a fighter aircraft operating in hostile airspace. This data the Russians claim to have, if it really exists, could be certainly manipulated. The only true data for flight path would be a ground radar tape pulled from two different locations in the area.
James
I said it before, I believe the radar map the Turks showed with the paths was correct. And here are the military, but also their Religious reasons.
"War of the maps: Turkey released a map showing where Russia violated its airspace, and Russia countered"
/finance[dot]yahoo[dot]com/news/war-maps-turkey-released-map-210422386.html
You can see there is a very narrow strip of Turkish territory, about a mile wide, protruding deep into the Syrian territory. I don't know exactly the frequency of the sweep of the Turkish radar, but still, looking at the distances between dots, you can figure out the speed. The time to cross the Turkish strip must have been no longer than 20seconds, my initial estimate was 8, the Turks later said 17, but that's not important. The Russian plane is seen to make a wide circle near the Syrian border, flying much below it's maximum speed, probably looking for terrorist bases and convoys, and which circles crossed that limb. It was flying slow and probably low, and in circles, to get a good look. During the next cycle, I do believe the Turks warned it while flying over Syria, 10 times during 5' not to cross that 1 mile strip again. The Russian Su-24 bomber is seen heading for the strip the second time. Notice the Su-24 is a bomber not a dog-fighter like the F-16 and it's older. And there were two F-16's. The Turkish map shows only one path though. But the Russian maps shows only one too! On the Turkish map though, the F-16 is seen lurking in the air, and at some point accelerated sharply, approaching very close and very fast, probably in full afterburner, which is specifically reserved for attack.
I believe it was not there on patrol, but specifically to shoot the Russian plane down and come back. At (probably) the same time, the Russian path is seen with a very sharp small quirk. A sort of a mini-loop. I am sure they were trying to avoid incoming missiles. Their plane got hit, and it is seen trying to accelerate, probably to flee, and then the record ends.
HOWEVER ----------------- Although I believe the Turkish map, I still think the Turks proved themselves on the side of the terrorists.
After all, if the Russian plane was trying to get rid of the terrorists at the Turkish border, and no HONEST state wants terrorists at it's border, and the Russians were trying to do the "dirty job" of getting rid of them, Turkey should have been glad the Russians are helping them. But the fact they shot the Russian plane down, proves Turkey is harboring and abetting terrorists, if not recruits and send them itself.
Crossing that strip of Turkish territory by a friendly plane should not have been reason for shooting it down, only a PRETEXT. That may be the reason why the plane was shot down, because the Russians were not expecting the Turks to shoot at them.
So the Turks are not technically lying, but they ARE! The Russians probably did go through that miserable strip, and that's the technical truth. But Turkey is defending terrorists, and claiming it is not, that's the lie!
There are very sharp Religious reasons why they should do that, and still show the correct map. INTERESTING.. Ever heard of Tawriyya? Let me explain it for you in short. The Koran forbids a Muslim to lie, under penalty of the white-hot fires of Hell. But.. We already know if he becomes a Martyr, all his sins including lies will be forgotten.
But.. for a lie, you will be forgotten, if it's technically, a truth. What does that mean? Say, a Muslim has a $100 bill in his pocket. Somebody comes and asks him for a nickel. He will say: I don't have a nickel in my pockets! That's Tawriya, and Allah will have no reason to send him to Hell, because indeed he does not have a nickel in his pockets! That's a technical truth.
Erdogan, if he were asked "Are the terrorists working for you"? He could answer "Not a single terrorist is working for me". Indeed. Not one, but thousands. Allah won't punish him for that.
He could be asked: "Why did you shoot the plane down"? and he could answer "It was flying over our territory". He will not mention the reason was to protect his terrorists and their oil convoys. That's "Kitman". Saying half the truth. Allah won't punish him for that either.
As for lying to the Infidels, Allah won't punish him if he does it out of fear of the Infidels. Yes, but Islam is at perpetual war with the Infidels, until they either convert or disappear from the face of the Earth by any means, so orders Allah. So being at war with ANY infidel, a Muslim can lie to an Infidel all day and all night long! BUT THEY ARE ALWAYS AT WAR WITH ALL INFIDELS, UNTIL THERE ARE NO MORE INFIDELS! SO ORDERS ALLAH! DO YOU REALIZE WHAT THAT MEANS?
BUT THE TOUGHEST OF ALL IS THE "MURUNA" DOCTRINE. That literally explains terrorism. If you get to understand, you will be very surprised, of how you didn't know it.
If you want to find what terrorism is, and why Erdogan himself, said "There is no moderate and extremist Islam. There is only Islam". And he knew what he was talking about, learn more. So find the MURUNA concept or doctrine. You can find a better explanation here:
You can look on Google for this: "Knowing Four Arabic Words May Save Our Civilization from Islamic Takeover"
And save it before it disappears.
Remember, you won't win any battle not knowing your enemy first.
BTW, did you know where the expression "the writing is on the wall" comes from? I's origin is also explained there.
[Dec 19, 2015] The situation of shale drillers is extreme and is getting worse
Notable quotes:
"... If 98% of Permian is uneconomic at $30, I would be surprised as I would think 100% should be. ..."
"... these fast talking, wheeler-dealer promoter types in the oil and gas business and their cohorts on Wall Street have been throwing out highly inflated reserve figures for quite some time now. ..."
"... And an "as-yet-unreleased study" of the Barnett Shale by the Bureau of Economic Geology at the University of Texas at Austin, which looked at the performance of 16,000 wells through June 2011, projected an average lifetime production of 1.44 BCF ( ..."
"... Chesapeake claimed that the Barnett Shale wells on their DFW Airport Lease would produce for "At least 50 years." At least 50 months" would have been more accurate. Five years after the initial wells were drilled and completed, about half of that initial group of wells were already plugged and abandoned. ..."
"... Pricewise we are past the point of arguing about economics. ..."
"... This is extreme, and is only getting worse. People who are about to BK are usually in denial. ..."
peakoilbarrel.com
coffeeguyzz, 12/19/2015 at 11:01 amJohn, Shallow, Mr. StehleGlenn Stehle, 12/19/2015 at 12:07 pmYou folks may want to recognize the analytical process that Art Berman uses in this piece closely resembles numerous others who were consistently shown wrong when early on looking at the Bakken. Please Google back a few years' predictions to verify this.
If 98% of Permian is uneconomic at $30, I would be surprised as I would think 100% should be.
However, all you folks who chart the numbers should see that the big push towards horizontal drilling just started to get underway relatively recently in the Permian, yet Mr. Berman uses the earlier, learning phase wells to make his overall projections.
These wells will continue to increase in productivity as the costs to drill/complete come down. (Monobore wells alone should show significant improvements).
30 bucks per [barrel] is squat. Tens of billions of barrels of recoverable resource is not.
coffeeguyzz,Jeffrey J. Brown, 12/19/2015 at 3:11 pmWell I certainly hope you're right. But these fast talking, wheeler-dealer promoter types in the oil and gas business and their cohorts on Wall Street have been throwing out highly inflated reserve figures for quite some time now.
For instance, in 2013 the Fort Worth Star Telegram wrote an article titled "Report questions long-term productivity of gas wells in Barnett Shale."
Back in the heyday of the Barnett Shale (2005 – 2008) the financial reports of companies active in the Barnett Shale routinely threw out average EURs of 5 BCF(Billion Cubic Feet) per well.
By the time of the writing of the Star Telegram story in 2013 they had lowered their sites a little bit: to an average of 3 BCF per well.
However, a study conducted by the U.S. Geological Survey the year before had pegged average EURs in the Barnett Shale at only 1 BCF per well.
And an "as-yet-unreleased study" of the Barnett Shale by the Bureau of Economic Geology at the University of Texas at Austin, which looked at the performance of 16,000 wells through June 2011, projected an average lifetime production of 1.44 BCF ((Billion Cubic Feet) per well.
Undaunted by all this, the article quotes Gregg Jacob, Devon Energy's unit manager for the Barnett Shale, as saying "Devon expects its 4,800-plus wells in the Barnett Shale to produce the equivalent of 3 billion cubic feet of gas, natural gas liquids and oil over their lives."
Chesapeake claimed that the Barnett Shale wells on their DFW Airport Lease would produce for "At least 50 years." "At least 50 months" would have been more accurate. Five years after the initial wells were drilled and completed, about half of that initial group of wells were already plugged and abandoned.shallow sand, 12/19/2015 at 12:27 pmCoffee. It is tough to analyze the Permian, at least compared to Bakken and EFS. Many different zones. I have seen tremendous wells and wells that wont have cumulative production of 100K BO. Look at the energy net auction site.Look at my post above about Pioneer's 2015 hedging gains.
Remove those and plug in $18 per BOE, which is where they are today. Pioneer hemorrhages cash at $18 BOE.
Pricewise we are past the point of arguing about economics. Plug in todays oil, NGL and gas prices into any company's PDP PV10. See if you can find one US public E&P, outside maybe XOM, that has greater PDP PV10 value than long term debt. If $50 WTI and $2.75/nat gas dropped CLR from $22 billion to $9 billion, where does $34 WTI and $1.75 gas put it?
This is extreme, and is only getting worse. People who are about to BK are usually in denial.
[Dec 19, 2015] Over 1 trillion in oil related equity losses, 500bn in bond devaluation including a 10 pecent loss in high yield bonds
Notable quotes:
"... I doubt even those prices will be enough to remove all rigs from the Bakken. ..."
"... However, the fierce battle for market share comes at a price for the US economy. Over 1 trillion USD in oil related equity losses, 500bn in bond devaluation in oil related bonds including private equity bond losses as well as a 10% loss of the general high yield bond market. So, in my estimate the US economy has lost already over 2 trn USD so far. Most of it are paper losses, yet the impact is huge. ..."
peakoilbarrel.com
KL, 12/19/2015 at 8:19 amShale Oil Production in Bakken, Eagle Ford Held Steady in November: Platts Bentekshallow sand, 12/19/2015 at 10:43 am
http://www.platts.com/pressreleases/2015/121815b/no?hootpostid=7da8c0be16213d5c336d783ed00ab303It appears I am onto something. Most of the US drop in oil production will be due to drops in US conventional oil.Heinrich Leopold, 12/19/2015 at 12:08 pmIt is all about financing, IMO. How about this scenario, if GS is correct and we go to $20 WTI, re a bakken well in 2016
Oil sales $12 x 88,000 net barrels. $1,056,000
Gas sales. 100,000 mcf at $1.00. $100,000Gross sales. $1,156,000
Less:
OPEX @ $4.00 $386,000
Sev tax @ 10%. $115,600
G & A @ $2.50. $241,665
Interest at 5%. $375,0002016 net. $38,335.00
I doubt even those prices will be enough to remove all rigs from the Bakken.
KL,However, the fierce battle for market share comes at a price for the US economy. Over 1 trillion USD in oil related equity losses, 500bn in bond devaluation in oil related bonds including private equity bond losses as well as a 10% loss of the general high yield bond market. So, in my estimate the US economy has lost already over 2 trn USD so far. Most of it are paper losses, yet the impact is huge.
In effect, the US, Saudi Arabia and Russia are subsidizing the economies in Europe and China. Thank you America and keep going, we can need this stimulus package.
[Dec 19, 2015] 2 Percent of Permian Basin Commercial at $30 by Art Berman
Art Berman
The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.
None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.
[Dec 19, 2015] Turkey Blasts Breakthrough UN Resolution On Syria It Lacks Perspective. Assad Must Go!
Notable quotes:
"... "Now, is there a way of us constructing a bridge, creating a political transition, that allows those who are allied with Assad right now, allows the Russians, allows the Iranians to ensure that their equities are respected, that minorities like the Alawites are not crushed or retribution is not the order of the day? I think that's going to be very important as well." ..."
"... Seymour Hersh Links Turkey to Benghazi, Syria and Sarin ..."
"... The assessment of the Defense Intelligence Agency is that the sarin was supplied by Turkey to elements in Ghouta with the intent of "push[ing] Obama over the red line. " Intercepted transmissions from Turkish operators in the aftermath of the attack are jubilant, and the success of their covert mission must have seemed well in hand. Obama's implicit call to war in the coming month was proof of that. ..."
Dec 19, 2015 | Zero Hedge
Following June elections in which AKP lost its absolute parliamentary majority thanks in part to a stronger than expected showing at the polls by the pro-Kurdish HDP, Turkish President Recip Tayyip Erdogan began to lose his mind.The vote put in jeopardy Erdogan's bid to effectively rewrite the country's constitution on the way to consolidating his power in an executive presidency. That decisively undesirable outcome could not stand and so Erdogan did what any respectable autocrat would do: he nullified the election. First, the President undermined the coalition building process so he could call for new elections. Next, he fanned the flames of civil war and reignited a long-simmering conflict with the PKK. The idea was to scare the electorate into believing that a "strong" AKP government was the only antidote to domestic and international terror. Finally, Erdogan cracked down on the press and anyone else critical of his rule. AKP was also suspected of covertly backing attacks on HDP offices and newspapers. Some (i.e. the PKK) went so far as to suggest that Erdogan secretly worked with Sunni extremists to orchestrate suicide bombings - in other words, there's speculation Erdogan terrorized his own people.
Sure enough, AKP had a better showing at re-do elections last month, but by that point, Erdogan was on the fast track to dictatorial delirium. On November 24, he shot down a Russian fighter jet near the border with Syria in the first such direct military confrontation between Russia and a NATO member in at least six decades. And the madness didn't stop there. After Putin and the Russian MoD laid out their case against Ankara's role in financing Islamic State via Turkey's complicity in the group's lucrative oil trafficking business, Turkey sent hundreds of troops and around two dozen tanks to Bashiqa in Iraq which is right on the crude smuggling route. The deployment infuriated Baghdad and after Turkey refused to pull the troops out, Iraq went to the UN Security Council. Subsequently, Turkish troops were "attacked" by Islamic State.
The Turks claim that Iraq invited them in the past, a contention Baghdad vehemently denies. Thanks to Barzani and the Kurds, Ankara gets to claim that at least someone welcomes the Turkish troop presence (remember, despite Erdogan's hatred of the PKK and the YPG, Turkey is friendly with Erbil, which relies on Turkey to get some 630,000 b/d of what is technically illegal crude to market).
Well, for anyone who thought Turkey might be set to bow to international pressure by moving its troops north and thus back towards the Turkey-Iraq border, think again because on Saturday, Turkish PM Ahmet Davutoglu was out with a series of declarations that seem to suggest Turkey is going full-belligerent-retard as Erdogan scrambles to preserve the "Assad must go" narrative on the way to securing whatever Ankara's interests are in both Iraq and Syria.
First, Davutoglu said that the provision of training to the Peshmerga and Mosul militiamen is "in line with a request from Iraq authorities and as such, the mission in Iraq will continue "until Mosul is freed" from ISIS.
Ok, so two things there. The deployment is not "in line with a request from Iraq." At this point, Turkey's position has moved from comically absurd to maddeningly obstinate. How many times does Baghdad have to say that Turkey isn't invited before NATO forces Turkey to drop the "they told us we could be here" line? Further, the idea that Turkey will stay until Mosul "is liberated" from ISIS, means Erdogan plans to remain in Iraq indefinitely. As we've documented on several occasions, an operation to retake Mosul is for all intents and purposes a pipe dream and if Turkey intends to wait it out, the troops and tanks could be there for years.
Next, Davutoglu claims that the Islamic State attacks on Turkish positions in Bashiqa prove Turkey "is right." "Right" about what, it's not clear, but what's interesting is that the attacks came just as ISIS launched its first major offensive in northern Iraq since July in a move that US officials say was likely designed to disrupt preparations for an assault on Mosul. The point: all of this is rather conveniently timed.
Davutoglu then slammed a UN Security Council resolution agreed in New York on Friday. The meeting of foreign ministers was tipped by John Kerry in Moscow on Tuesday and when discussions ended, diplomats adopted a resolution which purports to draw a road map for ending the war in Syria. As WSJ notes, the resolution "left unresolved divisions among world powers on key issues in the conflict."
Which "key issues", you ask? Well, the only ones that matter - namely, i) the fate of Bashar al-Assad and ii) which groups should be recognized as "terrorists" and which should be awarded the "moderate opposition" badge.
"Both issues were left out of the resolution after an hourslong meeting of foreign ministers in New York on Friday failed to reach a compromise and at one point verged on collapse," WSJ goes on the recount, adding that "Russian and Iranian diplomats said the question of Mr. Assad wasn't discussed on Friday because neither of their countries would accept a deal that calls for Mr. Assad's exit, even at the end of a political transition period."
As we've said on too many occasions to count, Syria is absolutely critical for Tehran when it comes to preserving Iranian influence and ensuring that the so-called "Shiite crescent" doesn't wane. For Russia, this is a chance to supplant the US as Mid-East superpower puppet master and Moscow isn't about to see it slip away by agreeing to a resolution that makes Assad's ouster a foregone conclusion.
For Turkey, the absence of a decision on Assad's future is maddening. The Security Council resolution "lacks realistic perspective," Davutoglu said on Saturday, before adding that the "Syria crisis can only be solved if Bashar al-Assad leaves power."
Consider that, and consider the fact that, as we reported yesterday, Ankara is now establishing a military base in Qatar in order that the two country's might work more closely on tackling "common enemies."
What we're beginning to see here is the formation of three alliances in the Mid-East: 1) Russia, Iran, Syria, and Iraq; 2) Turkey, Saudi Arabia, and Qatar; 3) Britain, France, and Germany. The first alliance is pro-Assad, anti-terror. The second is anti-Assad, pro-Sunni extremist. The third is anti-Assad (although less vehemently so), anti-terror (conspiracy theories aside). Note that we've left the US out. Why? Because Washington is now stuck. The US wants desperately to maintain coordination with Ankara, Riyadh, and Doha, but between stepped up media coverage of Saudi Arabia's role in underwriting extremism (via the promotion of Wahhabism) and hightened scrutiny on Erdogan's role in financing terrorists, the position is becoming increasingly untenable. But aligning solely with the UK, France, and Germany entails adopting a more conciliatory approach to Assad - just ask Berlin which, as we reported on Friday, is now working with Assad's intelligence police and may soon establish a base in Damascus.
With that in mind, we'll close with the following from Obama, which underscores the extent to which the US is now thoroughly confused as to what to do next:
JustObserving"Now, is there a way of us constructing a bridge, creating a political transition, that allows those who are allied with Assad right now, allows the Russians, allows the Iranians to ensure that their equities are respected, that minorities like the Alawites are not crushed or retribution is not the order of the day? I think that's going to be very important as well."
WTFRLYFirst try the sarin gas supplying war criminal, Erdogan
Turkey supplied the sarin that killed over 1300 Syrians in Ghouta to try to get the Nobel Prize Winner to bomb Assad into oblivion
Seymour Hersh Links Turkey to Benghazi, Syria and Sarin
The assessment of the Defense Intelligence Agency is that the sarin was supplied by Turkey to elements in Ghouta with the intent of "push[ing] Obama over the red line." Intercepted transmissions from Turkish operators in the aftermath of the attack are jubilant, and the success of their covert mission must have seemed well in hand. Obama's implicit call to war in the coming month was proof of that.
http://www.foreignpolicyjournal.com/2014/05/06/seymour-hersh-links-turke...
DeadFredWhite House, Media Silent One Year After Murder of US Reporter Who Exposed Western Links to ISIS October 20, 2015
Turkey killed and American reporter to protect the lies. British reporter Jackie Sutton was found dead a year to the day in Istanbul airport...
There aren't that many Turkish troops in Iraq, they can be removed with Iraqi Army and Shiite militia ground troops. The Russian can fly CAP but they shouldn't be involved beyond that. The purpose of Erdogan's insanities is to goad Putin into doing something that will bring NATO against him. He's been wise enough to avoid that so far. The Western economies are a gnats eyelash from collapse so all he needs to so is wait. Maybe selling a few shares of SPY at the right time would help or giving a few billion to some untracable players who call for delivery on their gold futures. I hope he's patient, the end-game is upon us but the fewer nukes that get used the better.two hootsIsrael, where are you in all of this? Oh, see below:
Forget Qatar/Russia pipelines.
Israel/Turkey/US/NATO connection found here: "That would allow Turkey to reduce its energy dependence on Russia and open up a new market for Israeli and U.S. developers of a new natural gas project off the Israeli coast." (WSJ)
http://www.wsj.com/articles/israel-turkey-poised-to-renew-diplomatic-relations-1450438539
Nat Gas in Israel waters: "Israel has proposed that EU countries invest in a multi-billion euro pipeline to carry its natural gas to the continent, noting that the supply from Israel would reduce Europe's current dependence on natural gas from Russia." (Start Up-Israel)
http://www.timesofisrael.com/israel-pitches-massive-natural-gas-pipeline-plan-to-europe/
It could be a whole new NG game? And what thinks Russia/Qatar in all of this?
[Dec 19, 2015] A lot of lower producing wells are being temporarily or permanently abandoned at these oil prices
Notable quotes:
"... This is about a 3% per month decline rate and a 30% annual decline rate, yikes! ..."
"... No doubt a lot of lower producing wells are being temporarily or permanently abandoned at these oil prices. If oil prices continue lower or even remain at the current level (around $35/b), the LTO plays cannot be far behind. ..."
"... I think LTO has held up somewhat because the reduced capex was primarily the result of cost deflation. In 2016, the reduced capex will translate directly into much fewer wells being drilled as there is not much room for lowering costs. So far, the reductions look to be at least 25-30% from 2015 levels. ..."
"... Can you say a little something about what is involved in shutting in a stripper well that is running in the red, in terms of how much it would cost to put it back into production a year or two down the road ? ..."
"... The costs vary quite a bit, depending on well depth, how corrosive water is, etc. Also, much would depend on the injection system. How long shut down matters a great deal. ..."
"... Imagine the difference between idling your tractor, in the elements, for a month or two versus a year or more. ..."
"... Electrical can be a concern. Mice like to chew on. ..."
"... If roads and locations are not maintained, that would require expense. Many times pumping units are removed from idle wells and used as replacements on producing wells when $ is tight, so that is also a possible issue. ..."
"... A large (for our field) operator shut in a large percentage of production (30-40%)I believe in 1998-1999 crash. My understanding they lost money trying to get everything back going again for the next 18 months or so once prices rebounded in 1999. ..."
"... Shutting down wells is a last resort, especially with a water flood. The few we have shut in thus far are not floods, or maybe a low volume well in a multi well flood. ..."
"... I would also note some wells can be run intermittently. I hear a lot of that is going on now. Kind of like driving the old work truck every so often to warm the engine, etc. ..."
"... Two of the most efficient leases we operate are ones we reactivated after them being shut in many years. Others had them, went BK, and they went idle. Many times leases are shut in more based on the overall solvency of the operator, than on how economic they are on their own. ..."
peakoilbarrel.com
Dennis Coyne, 12/18/2015 at 3:52 pmThanks Shallowsand,shallow sand, 12/18/2015 at 4:12 pmI added up your data
and 12/14 output was 2,354,030 and 10/15 output was 1,739,365 for all your reporting.This is about a 3% per month decline rate and a 30% annual decline rate, yikes!
No doubt a lot of lower producing wells are being temporarily or permanently abandoned at these oil prices. If oil prices continue lower or even remain at the current level (around $35/b), the LTO plays cannot be far behind.
Edit: As much of this data is from Texas, I question if we are comparing apples with apples, I just don't trust the Texas data.
Dennis.AlexS, 12/18/2015 at 4:25 pmI agree possibly on the county data, which comes from a large number of operators, some of whom maybe are late in reporting.
However, all but Citation are public companies. Citation is a large private company in business since the early 1980s. I feel their numbers are accurate, and as I noted, there were down trends pretty much across the board from December, 2014. Also, many were heading up in 2014. I think the extreme drop in numbers of vertical rigs beginning 12/14 has taken its toll. Just 87 vertical rigs drilling in latest report, I suspect lower than the depths of 1998-1999. The low point on oil rigs per EIA was 108 in July, 1999. Not sure how many of those were non vertical.
Did you read my Kansas post? Also declining significantly.
I'll look at some others and post as I have time.
shallow sand,shallow sand, 12/18/2015 at 4:41 pmIf your numbers for conventional onshore production are correct, that implies that, at least until recently, conventional accounted for a large part of the decline in total US output. Hence, LTO production was more resilient than we thought.
AlexS. I agree. Many LTO producers reported higher Q3 than Q2 production and most were higher in Q2 than Q1. Many, however, are guiding lower for Q4 and 2016.John Keller, 12/18/2015 at 7:15 pmAs far as my numbers being correct, I am just pulling them off state websites. I am very capable of typographical errors, so if you see something amiss, please point it out.
I think LTO has held up somewhat because the reduced capex was primarily the result of cost deflation. In 2016, the reduced capex will translate directly into much fewer wells being drilled as there is not much room for lowering costs. So far, the reductions look to be at least 25-30% from 2015 levels.oldfarmermac, 12/18/2015 at 4:58 pm
Hi SS,shallow sand, 12/18/2015 at 6:01 pmCan you say a little something about what is involved in shutting in a stripper well that is running in the red, in terms of how much it would cost to put it back into production a year or two down the road ?
I have read that some such wells, maybe a lot of them, will never be put back into production, if once idled for any period of time.
The ONE oil man I know, personally, owns a dozen or so stripper wells outright,land and all, and if he shuts them in, he won't have to worry about leases at least. But he is only around once in a while, and I haven't had a chance to talk to him recently.
I do know from previous conversations that if he has to make any significant repairs, or do any serious maintenance work, he has to hire it done.
OFM.Fernando Leanme, 12/19/2015 at 4:03 amThe costs vary quite a bit, depending on well depth, how corrosive water is, etc. Also, much would depend on the injection system. How long shut down matters a great deal.
Imagine the difference between idling your tractor, in the elements, for a month or two versus a year or more.
My observation is that each well likely will have to be worked over, rods, tubing and down hole pump replaced on many. Maybe will need to be sand pumped and acidized. Electric motors would be removed from the wells and injection pumps so as not to be stolen when shut down. They would have to be reinstalled. Same with injection pumps. Electrical can be a concern. Mice like to chew on.
If roads and locations are not maintained, that would require expense. Many times pumping units are removed from idle wells and used as replacements on producing wells when $ is tight, so that is also a possible issue.
A large (for our field) operator shut in a large percentage of production (30-40%)I believe in 1998-1999 crash. My understanding they lost money trying to get everything back going again for the next 18 months or so once prices rebounded in 1999.
Shutting down wells is a last resort, especially with a water flood. The few we have shut in thus far are not floods, or maybe a low volume well in a multi well flood.
I'd say on a shallow well like ours, $2-15 thousand to reactivate after a year or more idle, depending on what happened down hole and what equipment is still left. Given at $80 oil well head, your are talking probably a $10-15 thousand annual pre tax profit, it is a big decision to make to shut in.
I would also note some wells can be run intermittently. I hear a lot of that is going on now. Kind of like driving the old work truck every so often to warm the engine, etc.
I will say I hate to see these wells plugged, given the number we reactivated that were just as economic many times as ones continuously produced. As long as they can be safely T'A, I say short term that makes sense. Two of the most efficient leases we operate are ones we reactivated after them being shut in many years. Others had them, went BK, and they went idle. Many times leases are shut in more based on the overall solvency of the operator, than on how economic they are on their own. I just looked and one is running $9 per Bbl OPEX, the other $16 OPEX for 2015. Wish it was all in that ballpark!
I've been involved in operations with lots of marginal wells. We wanted to implement a flood, but economics were marginal, so we pulled the jewelry, put in an old kill string, filled with a light hydrocarbon and a nitrogen cap. These wells were monitored once a month for pressures. And some remained shut in for years. Eventually we had used equipment coming off another field and we restarted with a poboy operation. This needs cooperation from the regulators. But it can be done.
[Dec 19, 2015] This current low price environment for oil looks extremely unhealthy to me from many points
Notable quotes:
"... But this current low price environment for oil looks extremely unhealthy to me from many points. As well as somewhat artificially engineered (please note that Saudi Arabia is a vassal state and cant pursue its own policy in this area despite MSM claims). ..."
"... I suspect that the US government implicitly supports low oil price environment for geopolitical reasons (Russia sanctions might be one) as well as a huge stimulus for the USA economy (to the tune of half trillion in 2015), the economy that after 2008 entered secular stagnation stage despite all efforts (see Summers). ..."
"... One fact that points in this direction is that despite low price it does not buy oil into US strategic reserve (which would support the price) although I do not know what is the upper capacity of this storage. ..."
economistsview.typepad.com
am said... December 18, 2015 at 10:44 PMhttp://www.bbc.com/news/business-35136831
Lifting of the oil export ban was part of the negotiations for budget approval, in the USA. Seemingly the ban was in place for forty years.pgl ->am... December 19, 2015 at 01:27 AM
The export ban was put in place when there was an OPEC driven oil shortage. The real price of oil today is much lower so to me this lifting is no big deal. Some of the tax breaks for the rich are a big and bad deal.likbez ->pgl... December 19, 2015 at 02:09 AMThe USA is the net importer of oil. But there are certain types of oil now produced by shale wells (light oil) for which we do not have enough refineries. Mixing it with heavy oil to get optimal for refineries blend produces mixed results ;-). So exporting such oil is the most logical way out of this situation.pgl ->likbez... December 19, 2015 at 02:18 AMAs for low price of oil this is more a sign of out of control financial system and the level of debt it imposes then a real "supply glut". It is also sign of stupidity of Obama administration or more correctly an attempt to revive economy at any cost (with shale industry as a collateral damage).
Oil is a valuable and irreplaceable resource, an input product for chemical industry (without which many materials are simply impossible to get) and burning it in SUVs and light trucks which now became the most popular type of US cars is extremely stupid at any price.
I tend to agree with this case for free trade but somehow I miss the link to your "stupidity of Obama" tag. But I guess this has been the go to place for the Obama haters - so hey!likbez ->pgl...Stupidity is probably the wrong word. I apologize. It is actually a brilliant strategy ;-) Although there is no real reason to love OBomber and his neocon administration in any case unless you really like Bush II administration. Obama actually is to the right of Teddy Roosevelt, Eisenhower and Nixon, is not he?Ilism can probably add more on that better then me.
But this current low price environment for oil looks extremely unhealthy to me from many points. As well as somewhat artificially engineered (please note that Saudi Arabia is a vassal state and can't pursue its own policy in this area despite MSM claims).
I suspect that the US government implicitly supports low oil price environment for geopolitical reasons (Russia sanctions might be one) as well as a huge stimulus for the USA economy (to the tune of half trillion in 2015), the economy that after 2008 entered "secular stagnation" stage despite all efforts (see Summers).
One fact that points in this direction is that despite low price it does not buy oil into US strategic reserve (which would support the price) although I do not know what is the upper capacity of this storage.
[Dec 19, 2015] Depletion of Earth resources
peakoilbarrel.com
Peter, 12/18/2015 at 2:01 pmIn ten years time I doubt very much most people around the world will care about small changes in shale oil production.The United States uses 19 million barrels of oil per day. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 million.
The United States could reduce it's exorbitant consumption by firstly having the sort of extensive bus services that most European countries have. Ever time a train system can be built up and people would still get to work etc without any real hardship.
http://www.bueker.net/trainspotting/map.php?file=maps/germany/germany.gifThe real problems facing the world are far more difficult to adapt to.
http://www.worldwildlife.org/threats/overfishing
85% of fishing stock is being over fished and many stocks are collapsing, billions of people will be effected.
http://www.theguardian.com/environment/2015/dec/02/arable-land-soil-food-security-shortage
Due to over plowing, over use of fertilizers and not allowing land to lie fallow, vast areas of arable land is being turned into wasteland or lost.
[Dec 18, 2015] How low can oil prices go? Opec and El Niño take a bite out of crudes cost
Oil is a valuable chemical resource that is now wasted because of low prices... "The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers."
Notable quotes:
"... Iran wont flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference. ..."
"... Those who predict very low prices dont understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this years peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place. ..."
"... If oil prices remain very low until 2025 itll either be because you are right or because the world went to hell. ..."
"... But Im with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again. ..."
"... Time to examine the real question: how long can the Saudis maintain their current production rates? Theyre currently producing more than 10 Mbarrels/day, but lets take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day - 47.5 years. @ 20 Mbarrels/day - 35 years. ..."
"... The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers. ..."
"... Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly? ..."
"... Yeah, but I suspect it was *written* incorrectly. Im betting the Saudis real target is the Russians. ..."
"... In 1975 dollars, thats $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal). ..."
"... I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time ..."
Dec 16, 2015 | The Guardian
Fernando Leza -> jah5446 15 Dec 2015 06:12
Iran won't flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference.
Those who predict very low prices don't understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this year's peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place.
Fernando Leza -> SonOfFredTheBadman 15 Dec 2015 06:05
If oil prices remain very low until 2025 it'll either be because you are right or because the world went to hell. I prefer your vision, of course. But I'm afraid most of your talk is wishful thinking. Those of us who do know how to put watts on the table can't figure out any viable solutions. Hopefully something like cheap fusion power will rise. Otherwise you may be eating human flesh in 2060.
Fernando Leza -> p26677 15 Dec 2015 06:00
Keep assuming. I'll keep buying Shell stock.
MatCendana -> UnevenSurface 14 Dec 2015 03:36
Regardless of the breakeven price, producers with the wells already running or about to will keep pumping. Better to have some income, even if the operation is at a loss, than no income. This will go on and on right until the end, which is either prices eventually go up or they run out of oil and can't drill new wells.
But I'm with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again.
Billy Carnes 13 Dec 2015 19:52
Also this hurts the states...Louisiana is now in the hole over 1.5 Billion or more
TomRoche 13 Dec 2015 12:31
@Guardian: Time to examine the real question: how long can the Saudis maintain their current production rates? They're currently producing more than 10 Mbarrels/day, but let's take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day -> 47.5 years. @ 20 Mbarrels/day -> 35 years.
That's just Saudi (allegedly) proven reserves. But it's plenty long enough to push atmospheric GHG levels, and associated radiative forcing, to ridiculously destructive excess.
The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers.
TomRoche -> GueroElEnfermero 13 Dec 2015 12:14
@GueroElEnfermero: 'Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly?'
Yeah, but I suspect it was *written* incorrectly. I'm betting the Saudis' real target is the Russians.
Sieggy 13 Dec 2015 11:49
In 1975 dollars, that's $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal).
Carambaman 13 Dec 2015 10:25
I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time
[Dec 18, 2015] Will Goldman Be Right After All
Never say never and additional drop of oil price is theoretically quite possible. Here is some considerations of plausibility of such a drop: the US oil production is falling approximately 0.5 Mb/d in 2016 , rest of the world production is probably flat; consumption is probably increasing 1.3 or 1.4 Mb/d. So approximately 2 Mb/s will be taken out of the market. Also natural depletion might click in and "the rest of the world" production will decline despite remnants of new projects still coming online (started during "old good times" of above $100 oil). So if we subscribe to the theory of "oil glut" this glut might well will disappear or drastically diminish in 2016. And markets are predictive by nature. Or may be Goldman HFT can dictate the prices Goldman wants ?
BTW you can't pump as much as possible in shale environment without drilling new wells, which now is a very difficult proposition.
Notable quotes:
"... U.S. oil production has only declined moderately thus far, down about 300,000-500,000 barrels per day since peaking at 9.6 million barrels per day (mb/d) in April 2015. ..."
"... But with so many drillers barely hanging on, everyone is still pumping as much oil as possible in order to keep the lights on, delaying the inevitable adjustment in supply. "This rebalancing is far from achieved," Goldman concluded this week. ..."
Dec 18, 2015 | Dec 18, 2015OilPrice.com
Some corners of the energy world dismissed Goldman Sachs' prediction earlier this year that crude oil prices might fall below $30 per barrel. But no longer. The investment bank reiterated its belief that oil prices may need to fall to $20 per barrel in order to force a significant volume of supply off the market, and such a scenario is no longer seen as a remote possibility.
U.S. oil production has only declined moderately thus far, down about 300,000-500,000 barrels per day since peaking at 9.6 million barrels per day (mb/d) in April 2015.
But with so many drillers barely hanging on, everyone is still pumping as much oil as possible in order to keep the lights on, delaying the inevitable adjustment in supply. "This rebalancing is far from achieved," Goldman concluded this week.
[Dec 18, 2015] Write-down of two-thirds of US shale oil explodes fracking myth
This is from May, 2014, but still relevant.
Notable quotes:
"... Despite the mounting evidence that the shale gas boom is heading for a bust, both economically and environmentally, both governments and industry are together pouring their eggs into a rather flimsy basket. ..."
"... Dr. Nafeez Ahmed is an international security journalist and academic. He is the author of A Users Guide to the Crisis of Civilization: And How to Save It , and the forthcoming science fiction thriller, Zero Point. Follow him on Facebook and Twitter @nafeezahmed . ..."
"... and that is the issue- all oil growth has come from 2 areas - deepwater and oil fracking- without the deepwater which is limited oil supply would drop and likewise fracking is the only other resource that is sustaining supply - this is serious. If it is a bubble we are fucked. ..."
"... Take a look at the EIA projections. That agency has an enormous amount of well-level data to crunch. Do you really think some blogger on peakoilchange.com or whatever has anywhere near the capability that EIA has? Or perhaps you think EIA is some sort of lackey of the oil industry, with their entire staff of analysts getting paid under the table to make unrealistic projections? ..."
"... gas fracking has become unprofitable because of a glut caused by a goldrush mentality and economics - the price is rising but not fast enough - cheserpeake has had to sell off chunks of its business to enable itself to be sold off. Shell did get burnt by coming in too late. ..."
"... And no doubt the 1000s of oil and gas wells drilled each year in the US is having a economic impact -- the US has over 2500 rigs in operation where as the whole of Europe has about 200. The US power is the fact it has had abundant and relatively cheap energy. ..."
"... Fracking oil in the US has been the sole reason peak oil has not kicked in -- the past looks promising, the future is another issue. If tight oil shale gas is sustainable then everything will be fine. If it is not then you are fucked. ..."
"... what is clear- and it matters not on your politics- is that after 2006 every agency recognised easy oil from traditional oil fields peaked -- the decline rate is 5%. In fact it is difficult to find national producers who are not in decline -- Russia Saudi are keeping production stable with huge investment in enhanced recovery of old fields -- Nigeria can sustain production only if it develops the many small fields it has -- Iraq is struggling to fill the gap as is Libya. ..."
"... Shale oil fracking in the US along with huge investment in Canadian tarsands [but only addition million barrels a day] is the only growth from about 70 million b/pd in 2006. The investment in deepwater has also slightly helped. Added to this is the inclusion of 1 million bpd of gas liquids [which are not the same as crude oil] from shale gas in the US. So without the growth in shale oil/gas there would be a decline in oil production. So here are the big questions -- is shale oil sustainable? Can the US continue to increase production over the next 2 decades. ..."
"... For production of oil to increase in line with expected economic growth an extra 10 million barrels of oil needs to be discovered by the end of the decade. ..."
"... when peak oil was being discussed decades ago it was considered a 3% decline rate in production was manageable -- 5% would considered extremely difficult to deal with -- old oil fields are showing those kind of decline rates. ..."
"... Shale oil has to deliver -- or we need to come up with an alternative -- one alternative is we pay a lot more for oil to pay the costs of extracting smaller amounts from more difficult areas. This is not a left right conversation. ..."
"... My guess is that by 2035 we will see quite a much smaller number of oil exporting nations. We already saw Indonesia cross the threshold and leave OPEC. Cameroon, Egypt, Romania, Yemen....the list is fairly long....they are all losing production capacity. ..."
"... There is NO typical decline exclusively for frac'd wells. It depends on a lot of factors. Declines are usually measured on an annual basis. In W Texas, typical declines are 6-10% annually and the wells are often Frac'd. Additionally, declines are often mitigated by recovery method- primary, secondary or tertia ry. ..."
"... However the beauty of natural resources is that as they become rarer, the selling price typically goes up, unless the buyer decides he doesn't want it anymore. So as the extraction price increases towards the current crude selling price, you'll find that the selling price will also increase unless the customer no longer wants it. ..."
"... A lot of what we read is sheer baloney. I am concerned there´s a significant amount of methane venting by oil operators in North Dakota and Western Siberia. But that´s a completely different issue, and it can be controlled with the proper regulations. ..."
"... When the selling price is high, certain activities like drilling for and extraction of unconventional oil becomes doable. For North Dakota, the oil price has to be in excess of around $55 per barrel, otherwise you can't 'frack' profitably, If the oil price dropped to $40 per barrel, all 'fracking' in N Dakota would cease. ..."
"... So there we have it perpetually high energy prices, which has a direct impact on the proportion of economic activity dedicated to energy acquisition, (i.e an eventual permanent lowering of GDP globally). ..."
"... Economically speaking, I see bumpy and rapid decline in economic fortunes, made potentially worse, by overstated reserves of crude, (which may suddenly decline), and overly optimistic supplies in alternative sources. ..."
May 22, 2015 | The Guardian
EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.
The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.
... ... ...
The latest revelations follow a spate of bad news for industry reassurances about the fracking boom. New research published this month has found that measured methane leaks from fracking operations were three times larger than forecasted. The US Environment Protection Agency therefore "significantly underestimates" methane emissions from fracking, by as much as a 100 to a 1,000 times according to a new Proceedings of the National Academy of Sciences study published in April.
The Associated Press also reported, citing a Government Accountability Office investigation, that the US Interior Department's Bureau of Land Management had failed to adequately inspect thousands of oil and gas wells that are potentially high risk for water and environmental damage.
Despite the mounting evidence that the shale gas boom is heading for a bust, both economically and environmentally, both governments and industry are together pouring their eggs into a rather flimsy basket.
Dr. Nafeez Ahmed is an international security journalist and academic. He is the author of A User's Guide to the Crisis of Civilization: And How to Save It, and the forthcoming science fiction thriller, Zero Point. Follow him on Facebook and Twitter @nafeezahmed.
JulesBywaterLees -> LiberalAnalyst 29 May 2014 02:49An EIA projection of future oil sources- knock yourself out.
you will notice half of all supply forecast for the next 15 years is 'unidentified projects'
or wishful thinking as it is normally known.
JulesBywaterLees -> LiberalAnalyst 29 May 2014 02:44
There you go - a science paper discussion - the jury is still out, but look and you will find plenty of doubt to counter optimism.
and that is the issue- all oil growth has come from 2 areas - deepwater and oil fracking- without the deepwater which is limited oil supply would drop and likewise fracking is the only other resource that is sustaining supply - this is serious. If it is a bubble we are fucked.
LiberalAnalyst 28 May 2014 15:26
Uh, yeah, take a look at SinoChem. They're spending some $4bn on one project (Fuling).
In general, I see liberals here showing a remarkably similar reluctance to accept the general consensus of scientists (petroleum geologists) as many conservatives do with respect to the science of climate change.
Take a look at the EIA projections. That agency has an enormous amount of well-level data to crunch. Do you really think some blogger on peakoilchange.com or whatever has anywhere near the capability that EIA has? Or perhaps you think EIA is some sort of lackey of the oil industry, with their entire staff of analysts getting paid under the table to make unrealistic projections?
JulesBywaterLees -> mike jones 26 May 2014 11:15
Fracking has been a game changer - but the US is still a net importer of NG and fracking amounts to 40% or so of production
gas fracking has become unprofitable because of a glut caused by a goldrush mentality and economics - the price is rising but not fast enough - cheserpeake has had to sell off chunks of its business to enable itself to be sold off. Shell did get burnt by coming in too late.
Cheap gas did mean a switch from coal -- but that coal was still mined and exported -- causing another glut and decrease in price which is not sustainable.
Germany, despite being a smaller country is still a big league player in global manufacturing- and this despite high energy prices- not bad for a country with little energy resources. Germany still has to import Norway & Russian gas, oil, and Polish [and US] coal. It also had to subsidise its own brown coal industry.
American jobs and manufacturing! a few high profile jobs have come back but iPhones are still made in China.
And no doubt the 1000s of oil and gas wells drilled each year in the US is having a economic impact -- the US has over 2500 rigs in operation where as the whole of Europe has about 200. The US power is the fact it has had abundant and relatively cheap energy.
Fracking oil in the US has been the sole reason peak oil has not kicked in -- the past looks promising, the future is another issue. If tight oil & shale gas is sustainable then everything will be fine. If it is not then you are fucked.
JulesBywaterLees -> Carthusian1 25 May 2014 10:59
Worst climate change green agenda propaganda piece I've seen and I see plenty.
you need to explain yourself- what is wrong with the article, where are the facts wrong.
what is clear- and it matters not on your politics- is that after 2006 every agency recognised 'easy' oil from traditional oil fields peaked -- the decline rate is 5%. In fact it is difficult to find national producers who are not in decline -- Russia & Saudi are keeping production stable with huge investment in enhanced recovery of old fields -- Nigeria can sustain production only if it develops the many small fields it has -- Iraq is struggling to fill the gap as is Libya.
Shale oil fracking in the US along with huge investment in Canadian tarsands [but only addition million barrels a day] is the only growth from about 70 million b/pd in 2006. The investment in deepwater has also slightly helped. Added to this is the inclusion of 1 million bpd of gas liquids [which are not the same as crude oil] from shale gas in the US. So without the growth in shale oil/gas there would be a decline in oil production. So here are the big questions -- is shale oil sustainable? Can the US continue to increase production over the next 2 decades.
Is shale oil exportable to Europe/Asia/ etc? For production of oil to increase in line with expected economic growth an extra 10 million barrels of oil needs to be discovered by the end of the decade.
and are the concerns of those about both issues made by industry insiders valid?
if shale oil is a bubble and we see decline rates that some expect, then everyone is in trouble -- doesn't matter if you are left or right of politics.
when peak oil was being discussed decades ago it was considered a 3% decline rate in production was manageable -- 5% would considered extremely difficult to deal with -- old oil fields are showing those kind of decline rates.
Shale oil has to deliver -- or we need to come up with an alternative -- one alternative is we pay a lot more for oil to pay the costs of extracting smaller amounts from more difficult areas. This is not a left right conversation.
jimmycracorn -> jointheconversation 24 May 2014 05:36I agree with you but without oil there is no medicine or plastics or surgery or space travel. We have the answers to power plants and transportation. At least mostly. It all the things people have no idea that oil is used for that concerns me.
Fernando Leanme -> Watkin M 24 May 2014 05:35
The Europeans and others like Japan are in worse shape than the US when it comes to liquid hydrocarbons.
My guess is that by 2035 we will see quite a much smaller number of oil exporting nations. We already saw Indonesia cross the threshold and leave OPEC. Cameroon, Egypt, Romania, Yemen....the list is fairly long....they are all losing production capacity.
Most oil exporting nations with a significant surplus do need to export oil to earn income for their populations. However, Indonesia has a huge population, and oil wasn´t a key factor in their economy, so when their oil capacity went down they managed to survive.
Other oil exporting nations, such as say Saudi Arabia and Venezuela don´t have much else to live on at this time, and will have to develop something else. Saudi Arabia has a lot of money saved, but Venezuela has enormous debt and a terrible economy, so eventually they will get rid of their dictator Maduro and implement economic reforms.
BubbaGumper -> hopefulcyclist 23 May 2014 12:12There is NO typical decline exclusively for frac'd wells. It depends on a lot of factors. Declines are usually measured on an annual basis. In W Texas, typical declines are 6-10% annually and the wells are often Frac'd. Additionally, declines are often mitigated by recovery method- primary, secondary or tertiary.
BubbaGumper -> Daniel Hood 23 May 2014 11:29Please, supply and demand? How about the speculators/Wall Street? I assume the near exponential rise in oil prices not long after GW Bush settled in was due to a sudden corresponding exponential rise in demand or SUV's (in the US)? The downward revision for the California Shale was due to the fact that the original estimate was totally bogus and irresponsible. I've been an engineer in the business for 30 years and I've never seen nor heard of such an error of this magnitude. Also, your doom and gloom scenario is unlikely.
BubbaGumper 23 May 2014 11:13Once again I feel the need to correct these reporters. Fracturing is NOT new. We've been doing it for decades in well completions and stimulations. Hydraulic/Sand Fracturing is for very tight formations, Acid Fracturing is employed mostly in carbonate formations, as is acidizing.
Other techniques, often used in the Gulf, are Frac and Pack. I started with a major in 1983 and we Acid Frac'd wells in W Texas and SE New Mexico (Permian Basin, carbonate). For Chert formations (silica) we employed Sand Frac's. These were deeper vertical wells in hard-rock country.
Our wells employed 3 casing strings- surface, intermediate, and production string. Each string had cement circulated behind pipe, in the annulus, to surface. The overlying aquifer, the Ogallala, was well protected, as was required by law. The fractures were initiated below 5000 ft and as deep as 9000 ft. The bottom of the Ogallala was 300-400 ft, well above the wellbore work. We don't just pump a fracture and hope for the best. A great deal of input data goes into the design.
The idea is to correctly place a vertical radial fracture, 2 wings, of known radius. Once the fracture is open, acid is used to dissolve/etch the surfaces so once the rock closes it will not seal up, thus leaving a conduit. With Sand Fracturing, the opening is filled/packed with sand and we tail in with a polymer coated sand that seals the opening preventing sand from flowing back into the wellbore. This isn't rocket science and it works very well.
Every formation type requires a different approach. Shale requires Sand Fracturing, simple as that. It's the higher price of oil that has made Shale doable, NOT fracturing.
I would also suggest that some heads roll for those initial estimates in the California Shale. I have never seen nor heard of such an error in my 30 years. The Bakken, Eagle Ford, Barnett and Marcellus shales are different and situated differently than the Monterey shale. To simply use them as an analog/go-by was irresponsible.
Also, geologists, petrophysical engineers and geotechnical engineers are well aware of what lies below the surface and how it's laid out. Core samples allow us to extract the rock characteristics and mechanics. After so many exploratory wells are drilled, logged and produced, a reasonable decision can be made as to go forward or throw in the towel. The more wells, the more information that is available. The engineers also know where the aquifers are and the fault lines. If ground water is indeed being contaminated or if seismic shocks are occurring, it's time to step back and understand what's going on and remedy the situation. I don't understand why this is not occurring. But to just stop mining for oil and gas just puts us back in the import mode.
Alan D Granger -> hopefulcyclist 23 May 2014 11:09Shale gas production has been curtailed due to low prices. Here in the Eagleford we are avoiding the areas that are more gas than liquids. The same is true in other areas. Furthermore, the price is not high enough to drill for conventional gas plays. The price must be above $5 a thousand, with the expectation of it remaining there to encourage more drilling for gas.
Duncan Frame Yetypu 23 May 2014 09:07Fracking is not a short-term stop-gap measure, but rather a new normal.
There aren't enough energy efficient extractable resources to make it the new normal. It is at best a stop gap and at worst a panacea for belief in business as usual, and a destructive delay in a rapid shift to sustainability.
You seem to be in the business as usual camp. Presumably you too never saw 2008 coming....
Scot_in_Texas -> nfnfnf 23 May 2014 08:33
Well, that's true, as with all products produced by mankind. However the beauty of natural resources is that as they become rarer, the selling price typically goes up, unless the buyer decides he doesn't want it anymore. So as the extraction price increases towards the current crude selling price, you'll find that the selling price will also increase unless the customer no longer wants it.
Oil is one of those things where you typically have to spend oil by burning it to power generators to get it out of the ground, unless you are close enough to civilization where you could practically run the engines off the national electricity grid which then might be generated by wind, water, coal, nuclear - or of course oil.
Duncan Frame -> demagogue8 23 May 2014 08:20We could avoid potential future gas price increases by switching to much more expensive renewables now. Makes sense.
Well that depends. What will the gas prices in ten and twenty years be? What are the ACTUAL costs of fracked gas and oil, not the artificially lowered price as experienced in the US through over-estimating of reserves and hiding the cost of land acquisition through toxic debt?
Not to mention any health related lawsuits that emerge over the next few years.
Until you incorporate those costs you can't accurately assess what is more expensive. But essentially the comparison is investment costs now and low ongoing costs (as with wind and solar) and low investment costs and rising ongoing costs.
At some point even you would have to admit that sustainable solutions will be dirt cheap compared to the fossil burning alternative.
Fernando Leanme -> Yetypu 23 May 2014 06:10I guess these guys forget methane is a pretty good explosive when mixed with air. This means a drilling rig has gas detectors, and a rig crew isn´t about to stick around if there´s a significant methane leak.
A lot of what we read is sheer baloney. I am concerned there´s a significant amount of methane venting by oil operators in North Dakota and Western Siberia. But that´s a completely different issue, and it can be controlled with the proper regulations.
A_Scot_in_Texas semyorka 23 May 2014 05:58
That's right, here are the 6 fields: the Permian, the Haynesville, the Eagleford, the Bakken, the Marcellus and the Niobrara.
Unfortunately for the point you're trying to make, this mere' handful' of fields covers an area rather larger than Texas, see P. 3 of this document... http://www.eia.gov/pressroom/presentations/sieminski_01042014.pdf
The reason is of course that with shale oil and gas, you don't have to target a particular reservoir structure, you are targeting the source rock. As a result there is little to no natural permeability to work with - you must create that yourself - but you don't have to search out particular hydrocarbon traps, you 'just' put a horizontal hole through the source rock then hydraulically fracture it.
A_Scot_in_Texas -> semyorka 23 May 2014 04:48Well, the major shale oil play in the USA is currently the Permian Basin. That's what is seen as an enormous bonanza at the moment.
http://oilindependents.org/the-imperishable-permian-basin/
The thing with oil & gas companies in the US is that they're private companies. They're not drilling like m$%#%$#%^^s to prove some kind of political point.
A_Scot_in_Texas -> JulesBywaterLees 23 May 2014 04:44Um, excuse me? As a subject matter expert here - I work in the oil industry, I'd like you to ask yourself this little question - does your average oil company prefer it when the selling price of their product is $15 per barrel, or $100 per barrel?
Yes, that's right, oil companies find that fossil fuels work best when the price is very high indeed.
When the selling price is high, certain activities like drilling for and extraction of unconventional oil becomes doable. For North Dakota, the oil price has to be in excess of around $55 per barrel, otherwise you can't 'frack' profitably, If the oil price dropped to $40 per barrel, all 'fracking' in N Dakota would cease.
To reiterate, oil companies like it when the product they sell goes for the highest price.
CaptCrash -> demagogue8 23 May 2014 04:19This is already happening, oil wells closed on the 1980's are being re-opened for their meagre and/or harder to get deposits, shales, tar-sands, all are driven by high oil prices, in turn driven by a shortage of easily extracted sweet crude oil.
The increased cost of oil, reflects the increased effort to obtain it, and therefore we can conclude that "peak" conventional oil has occurred, and that to maintain high oil production, either ;
a) high prices need to remain in order to keep production viable
b) extraction techniques have to be even more efficient than simply sucking sweet crude out of the ground.As b) is really unlikely to occur ,the energy required makes it less efficient, a) is the only possible outcome for an oil fuelled world.
So there we have it perpetually high energy prices, which has a direct impact on the proportion of economic activity dedicated to energy acquisition, (i.e an eventual permanent lowering of GDP globally).
Economically speaking, I see bumpy and rapid decline in economic fortunes, made potentially worse, by overstated reserves of crude, (which may suddenly decline), and overly optimistic supplies in alternative sources.
Prepare for a rough ride over the next 30 years.
Agir demagogue8 23 May 2014 03:50Methane emissions will be way up - look at the whole picture including damage to road infrastructure, water pollution, loss of agricultural land, air borne pollution, disincentive to invest in renewables and the fracking industry is more of a problem than a solution.
Fernando Leanme -> Federalist10 23 May 2014 03:36Exxon Mobil buys back its shares because it doesn´t see viable investment opportunities which exceed the return of its existing portfolio. This means ExxonMobil is shrinking itself, and thus we can conclude they are running out of oil reserves.
The current trend for large corporations to buy back their stock is one of the signals we can use to conclude we are indeed running out of oil, outside the OPEC nations and Former Soviet Union the situation is acute.
The current move by greenhorns and UN officials like Christiana Figueres (who doesn´t have a working brain when it comes to energy) to advocate divestment and conclude that PRIVATE oil company reserves will be stranded is really funny.
The oil industry is getting desperate and doesn't know where the oil will come 30 years from now, and we got people arguing to hand over more power to a bunch of OPEC dictator and our dear Vladimir Putin.
Take note that oil and gas aren´t in the same shape. Naffez Ahmed makes a serious mistake when he mixes up a discussion about OIL in the Monterrey shale in California with the NATURAL GAS industry shale gas extraction business. Those of us who know a bit about the business always wondered what type of dope the USGS was smoking when they accepted that Monterrey RESOURCE report (those figures were never booked with the SEC as PROVEN Reserves).
Fernando Leanme -> OnthePlains 23 May 2014 03:23
On the Plains, when a commodity has a price dip the supply tends to dry up. This increases the price as demand tightens up supply. The way the Security and Exchange Commission demands reserves be estimated (technically and economically recoverable under existing conditions) means the RESERVES change with prices.
I realize many who depend on the cash flow from natural gas production and lack the staying power do suffer as the price dips. This usually means they either sell or they have to hunker down and wait for better prices. On the other hand, investors with cash and a well placed brain wait for the price to dip and for the other guys to be selling at low prices and at that point they invest.
Remember that for every guy who sells there´s a guy who buys, and this is the reason why capitalism is much more dynamic and efficient than communism. The market will sort itself out, and the "bust" will only be a bust for the virgins who got into this game without the cash reserves to withstand a price dip.
The oil and gas industry is this way, most of us like to focus on the guys driving the Cadillacs, and forget there are quite a few former big shot gas company presidents who are now washing windows at Walmart.
thesnufkin 23 May 2014 02:45Actually Nafeez may even be an optimist
U.S. officials cut estimate of recoverable Monterey Shale oil by 96%
Fernando Leanme -> hopefulcyclist 23 May 2014 02:27Cyclist, the dynamic system is working as it´s supposed to. When the natural gas shale boom developed starting about 10 years ago many engineers (and therefore their companies) weren´t too familiar with shale reservoir performance. This means they UNDERESTIMATED performance, drilled too many wells, the gas price went down, and this led to a shake out. Now prices are rising, they know much better what to expect, and the combination of higher prices and more knowledge means they will gear up to deliver natural gas as required. This is an old story we see in commodities markets, but gas wells producing from shales have hyperbolic decline curves, which means the industry delivers to the market with more efficiency (meaning response to market forces is much faster).
To this we must add two factors: First, the GDP growth rates we see in the USA, and the fact that as prices dropped many companies activated projects to consume natural gas. Second (and this is more speculative on my part), the Obama administration´s move to ban the construction of coal electric power plants means there´s going to be a move to build more gas plants. ANd I suspect producers are now rubbing their hands and waiting for the gas to reach a higher level.
I looked over the recent EPA regulations for coal plants and indeed it seems the energy efficiency they require is unreasonable. This means the options for the industry will be to build more gas driven generators.
litesp33d1 -> roderickspode 23 May 2014 01:23billions being invested in export facilities.
For gas to be sold to Western Europe at the most profit.
The only problem is that Western Europe gets really cheap gas via overland pipelines. So how can we get Western Europe to voluntarily reject these cheap Russian gas supplies. How about we start a massive civil war in Ukraine? That should do it. And now that the EU has no democracy in this regard as all its decision making come from unelected commissioners that should not be too hard. And then we will tie their hands with a Transatlantic Trade agreement in secrecy. Job done.
Or something like that.
And if it turns out there is not enough gas we can use the same facilities to import LNG from the ME. This has win win win written all over it (for some).
Composing -> samiamnotaus 22 May 2014 21:35Electricity generated from shale gas has one half the CO2 emissions of electricity generated from coal. So yes, shale gas is a very good thing. It displaces coal fired generation with lower CO2 emission gas generation.
The Germans certainly know all about higher CO2 emissions from opening new coal fired power stations.
samiamnotaus demagogue8 22 May 2014 20:02Additionally the switch to gas has greatly reduced Co2 emissions in the US. That's no myth
True but it doesn't tell the whole story:
1. Fugitive methane emissions from the extraction process
2. Acknowledge that methane is a fossil fuel and non renewable {leave all fossil fuels in the ground)
3. Acknowledge the environmental damage that occurs during extraction
4. Acknowledge it drives coal prices down which leads to exports of coal, and more polluting energy
5. With no price on that pollution (C)2/CH4) vast amounts of emissions occur.As to 2, you often here some bullsht about it being a bridging fuel. Seems to me a bridge needs supports on both ends, having nothing to transition too aside from a hope and a prayer makes it rhetoric.
JulesBywaterLees Watkin M 22 May 2014 17:22I highly recommend Steven Kopits' lecture on youtube it is an hour well spent.
you mention China driving demand with millions of middle-classes taking to the road. This was a key economic principle expected by the oil companies- as exploration costs for new oil rose from $6 [2006] a barrel to $17 [2013] it was expected these costs would be borne by the consumer. After the 3x price hike for oil in 2008 the slack from reduced OECD nation consumption decline was taken up by China- but the supposed growth and consequence increased demand and therefore price has not materialised.
In fact oil demand in China in the last 6 months has gone down leading to a few pence off the price of forecourt fuel and lower inflation.
Globally we seem to have hit peak oil price- of $110 where as the majors need $120- $140 a barrel to continue to explore and keep supply level. If consumers continue to reduce their demand- or catch the train as they do in China [they built 3500 miles of high speed rail in a decade!] then supply will fall.
Coal is attractive as fuel because it is cheap- but costs for extraction are rising- it now takes 2 tons of coal in the US to producer the same energy as 1 ton did in the 1990s- we always mine the easy and best stuff first. It needs to be just a few $ more to continue to be profitable [Bumi Coal - a Rothschild investment to profit from the Asian market crashed 75% pissing off the investors].
A slight increase is desirable by the producers and could be carried by the consumers but a few $ more for a carbon tax would make renewables equal. Renewables also are smaller units and so are cheaper requiring small investors and don't require the huge infrastructure costs of big grids- ideal for developing new markets in remote areas.
Gas is the interesting one- Qatar can sell its LNG at near cost because it profits from the liquids - but even then it is expensive to transport and reheat- the pipeline network is the key to whether the gas is economical or not as demonstrated with the China-Russian deal with the real business in the infrastructure.
Fossil fuels especially coal are cheap because of the infrastructure- that infrastructure such as new powerstation and grids is in need of renewal- and it is that government commitment to lock us into old fossil rather than diversify which is the main battlefield- [in my opinion] what they are not going to say is all fossil fuels will get more expensive.
Yetypu -> meenaghman 22 May 2014 17:50Not at all. The SEC has rules regarding booking reserves etc.
I am merely pointing out that all stimulated wells experience flush production, & that the tighter the permeability, the longer the supercharge effect.
People who decry shale production because of the drop in flow rate as the supercharge dissipates, perhaps don't know what they are talking or writing about.
A Ponzi scheme is something completely different, no matter how much you wish it.
said Mike Kelly, at Global Hunter Securities in Houston. "If you're not growing production, you're dying."
That would only be true with a very serious caveat - you cannot grow flush production, you can only grow post-flush production. To represent otherwise is a scam. Funnily enough, most of these scammers are the antipathetics, setting up a physical strawman.
ID0667935 -> Watkin M 22 May 2014 16:26Nonsense, Shale gas recovery has seen electricity prices almost halved in many US states. Many large transport compnaies are converting their truck to run on gas - not petrol. Shale gas recovery will provide low cost energy for domestic and industrial use for the next 200 years at least. No doubt the OPEC price fixing criminals will do everything in their power to discredit it. But they will fail.
[Dec 18, 2015] U.S. crude production in November posted the first annual decline in almost five years as falling prices curbed investment
Notable quotes:
"... U.S. crude production in November posted the first annual decline in almost five years as falling prices curbed investment. ..."
"... The U.S. pumped an average 9.11 million barrels of crude a day in November, down 0.8 percent from a year earlier, the American Petroleum Institute said in a monthly report Thursday. ..."
"... My comment: The EIA's preliminary estimate for November is 9.17 mb/d. We will know later the exact number, but it seems that the decline in output is accelerating by the end of the year ..."
peakoilbarrel.com
AlexS, 12/18/2015 at 6:09 pm
U.S. Oil Output has First Year-on-Year Drop Since 2011, API Says
U.S. crude production in November posted the first annual decline in almost five years as falling prices curbed investment.
The U.S. pumped an average 9.11 million barrels of crude a day in November, down 0.8 percent from a year earlier, the American Petroleum Institute said in a monthly report Thursday.
Production of natural gas liquids rose 6.4 percent from November 2014 to 3.32 million barrels a day, a record for the month and 28,000 barrels short of the all-time high reached in August.
Total deliveries of fuel, a measure of demand, rose 1.2 percent from a year earlier to the highest November total since 2007.
Gasoline consumption rose 3.2 percent from a year earlier and jet fuel demand climbed 6.2 percent, while distillate fuel slumped 1 percent and residual fuel use tumbled 46 percent as prices for natural gas declined.
My comment: The EIA's preliminary estimate for November is 9.17 mb/d. We will know later the exact number, but it seems that the decline in output is accelerating by the end of the year
[Dec 18, 2015] Oil Price Forecast 2015-2016
Blast from the past: article from one year ago.
Notable quotes:
"... I agree with your theory that fluctuation in prices are driven by the psychology of the market and not by a straight forward supply/demand. Yet, extrapolating future oil prices based on historical data is a bit naïve in my opinion. ..."
"... This comparison of current prices with past prices is incorrect, as it ignores inflation over the decades. $20 per barrel in 1986 is not the same as $20 today. ..."
Dec 18, 2014 | Forbes
Update: I have written an update regarding oil economics and Shale 2.0 and an update to discuss the role of foreign exchange rates in the oil price drop, but this article is still the best summary of my current forecast.
The sharp drop in oil prices in the past few weeks confirms the oil price forecast that I published back in May 2013, when West Texas crude sold for $94.50:
"
"Oil prices are headed down, and I mean down at least $20 a barrel. The key reason is that prices have been high. It's not a paradox, but a result of the long time lags in oil production."Before going into the forecast, it's worth mentioning that price can change faster than the fundamentals of supply and demand. In a recent 30-day period the price of oil fell by 20 percent. There was no change in the demand or supply over that month to justify such a large change. What happened is that commodity traders look at expected future prices, based on long-term supply and long-term demand. When the traders' expectations change, they buy or sell and the price changes. Traders' expectations can change due to moods, "animal spirits," fear, greed, drugs, family strife or lack of coffee. Or too much coffee. Thus, short-term price changes can happen quickly. My own guess is that hundreds of very influential traders suddenly slapped their foreheads and said, " That Bill Conerly is right." Which triggered a large drop in oil prices.
The fundamentals of demand are straightforward. Demand is moves up or down as the global economy moves up or down, but with a pronounced trend toward less energy use per dollar of economic production. The chart tells the story well.
Economists have been slowly lowering their projections for global economic growth in the coming years, triggering lower expectations for oil demand.
On the supply side, think of three distinct steps involved in getting oil to market: exploration, development, and production.
- Exploration is very sensitive to projected prices of crude oil. The price of oil had seemed stuck at $20 for many years, from roughly 1986 through 1997. Then prices started to rise, breaking through $60 in 2005. The price break, plus maybe talk about peak oil, lead to a surge in exploration around the world. With prices now dropping, new exploration activity will decline.
- Development is the process of sinking more wells in a field that has already been proven by exploratory drilling. Development also includes building the local pipelines and terminals required to get the oil to a transportation facility. Development expenses are often worthwhile even at lower prices. For example, suppose that the all-in cost of oil from a brand new field is $80, of which $30 per barrel constitutes exploration. That means that development and production only costs $50 a barrel extra. If the exploration costs have already been paid, then companies will continue with development even at today's $60 price.
- Production is even cheaper. Traditionally, production costs were very small compared to exploration and development, but wells that are fracked have higher production costs that old-fashioned wells. Nonetheless, once the exploration and development have been paid for, it almost always makes sense to keep the wells pumping.
The supply-side question for the future is not whether it's profitable to find new oil at today's low prices. The question is how long we can enjoy the new oil supply that has been discovered in the past ten years. I believe the answer is somewhere between five and ten years. Wells have a natural decline rate. For a particular well, the engineer might estimate that each year's production would be 15 percent less than the previous year's production, over the life of the well, asymptotically approaching zero. (I've never met a petroleum engineer willing to guess at an average decline rate, but I've seen figures such as ten percent and 15 percent cited as examples.)
Rainmaker
This comparison of current prices with past prices is incorrect, as it ignores inflation over the decades. $20 per barrel in 1986 is not the same as $20 today.
Bill Conerly
Rainmaker, you make a good point about inflation. Let me restate after adjusting oil prices using the consumer price index, stated in 2013 dollars: In 1984, the price was mostly in the $60s, averaging $65.65 for the year. In early 1986, the price fell below $30. Either way, it was a very steep drop.
Thanks for your comment. Bill
rjslarx
I don't see it. Oil will return to its 'comfort level' which was around $80 to $90 per barrel. I think by mid-summer it will be back there. But in all honesty, its' just my wild ass guess.
Bill Conerly
rj, what you think of as a "comfort zone" is heavily colored by recent experience. Oil spent many years comfortably below $40.
Thanks for your comment. Bill
sam hemeda
Bill ConerlyBill, I agree with your theory that fluctuation in prices are driven by the psychology of the market and not by a straight forward supply/demand. Yet, extrapolating future oil prices based on historical data is a bit naïve in my opinion.
- Break even points , past few weeks wall street energy pundits coming up E&P Break-even points all over the place, different plays, different regions, offshore/onshore, major and independent producers etc, each has its own and there is no harmonized cost. Let's not forget, prior to 1997 oil came from shallow waters wells, which all dried out, drilling has moved to deep waters across the globe mainly below 3000 ft below, in the Gulf of Mexico producers are drilling exploratory wells below 15,000 ft, drilling rig can easily cost $500K-1 MUSD daily, avg 30-90 days to drill a single well with a 70% hitting a dry hole.
True, they are applying the latest technologies to ensure safety and regulatory compliance, but no one disagree it is an enormous cost and companies with strained capex will drill less, also production facilities are in excess of few billions to build. Unconventional (shale gas) is privileged to have a lower cost , which explains why most of the small independent into this segment, however, the decline rate is rapid , we have seen some of the wells are maturing after 3 years of production, companies will have to drill to replenish their reserves and able to meet their obligations.
In many cases Exploration and Production cost are amortized over the life of the field.
- You also did not factor in the geopolitics element in pricing oil, what happened when both Russians and Iranians are down on their knees asking for forgiveness and lifting sanctions or signing an unconditional nuclear accord, do you envision an OPEC cutting production slightly to pump some cash into Russians and Iranian coffers ? Again, Oil has always been a complex commodity and has unconventional pricing model that yet someone has to figure it out.
Sam, lots of good facts in your post. Here's my model. For the world as a whole, imagine a exponential-shaped curve, with quantity of oil produced on the horizontal axis and cost (in dollars) on the vertical. That's the cost of supplying different amounts of oil. The curve starts off pretty flat, but then price rises at an accelerating rate. There's some oil that's cheap and easy; after that's been produced, you go to more and more expensive projects.
Technological change is like shifting the whole curve downward. Political control is like shifting the whole curve upward. In the past decade, we've enjoyed the downward shift.
And keep in mind that the real world curve, if we could see it, would have some kinks and corners to it.
Thanks for your comment. Bill
[Dec 18, 2015] Short-Term Energy Outlook
U.S. Energy Information Administration (EIA)
Total U.S. liquid fuels consumption is projected to increase by 290,000 b/d (1.5%) in 2015, higher than the 140,000 b/d (0.8%) increase in 2014. U.S. consumption has been stimulated by continuing employment and economic growth and lower petroleum product prices. Total liquid fuels consumption growth in 2016 is forecast to average 160,000 b/d (0.8%).
U.S. Petroleum and Other Liquids 2013 2014 2015 projected 2016 projected Crude Oil prices (dollars per barrel) WTI Spot Average 97.98 93.17 49.08 50.89 Brent Spot Average 108.56 98.89 52.93 55.78 Imported Average 98.12 89.63 47.28 47.48 Refiner Average Acquisition Cost 100.46 92.05 49.06 49.89
[Dec 18, 2015] Texas RRC data for October shows that the steep decline continues
Notable quotes:
"... I have the impression that everybody – including the central banks – want to destroy shale companies, although I am wondering about the motivations. ..."
peakoilbarrel.com
Heinrich Leopold, 12/18/2015 at 4:29 amTexas RRC data for October are out. Although data are subject to revisions, it looks like the steep decline continues (see below chart). The recent slump in oil well completions – down nearly 40% from October to November – suggests that the decline accelerates in November. Moreover, the recent slump in the bond and equity market for oil companies makes an even steeper decline in December more likely. I have the impression that everybody – including the central banks – want to destroy shale companies, although I am wondering about the motivations.The consequences of a steep reduction in US oil production would be an increased US current account deficit- already at a five year high – a steep dollar drop and a massive US recession. If the motivation is to give way for alternative technologies, it is first necessary to improve efficiency and productivity of alternatives, which clearly cannot compete with fossil fuels.
likbez, 12/18/2015 at 11:44 am
Heinrich,
"I have the impression that everybody – including the central banks – want to destroy shale companies, although I am wondering about the motivations. "
Driving oil prices down brings profits and benefits to important players, including the US government. Frackers and oil companies are collateral damage. Low oil prices in 2015 alone are equivalent to a stimulus the tune of 200 billions for the USA economy. Also a shakeout of frackers means consolidation of good properties by oil majors, who were late in this game.
That's how neoliberalism works. As attributed to former U.S. President George H. W. Bush: New World Order is the consolidation of more power and money into tighter, fewer, righter hands.
Also John Kenneth Galbraith said "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." (The Great Crash of 1929). They live by the next quarter results.
[Dec 18, 2015] Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000
Notable quotes:
"... The real cost is much higher once the dues are paid. In Libya for instance if the regional groups dont get their cut then they start misbehaving which stops oil flow. Everyone gets real upset if they dont get their slice of the pie. ..."
"... Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. "The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. ..."
"... Nearly half of the industry needs more than $120," he said ..."
"... The big question is how high a price can the world economy handle as that descends along with diminishing returns? ..."
"... I'd be much less scared were the price to rise. I don't see the high price of the boom cycle being a problem any more. The world economy is not going to take it to $140 again IMHO. I see the problem of being the engine stalling and unable to restart not throwing a a piston from high RPM any more. ..."
"... most of the lifting factor for shale was enabled-based on junk bond financing structure and free global capital moving into it. A combination of factors which might not be there for the next round. ..."
"... But it could be replaced by some other even directly gov related scheme.. ..."
"... Anyway, it seems very reasonable to have at least one above $100 upswing before 2025, there is so much money and fools sloshing around, it's almost guaranteed ..."
ourfiniteworld.com
Stilgar Wilcox
Øyvind Holmstad, December 16, 2015 at 12:42 pm
– What it costs to produce oil: http://money.cnn.com/interactive/economy/the-cost-to-produce-a-barrel-of-oil/index.html?iid=EL#December 16, 2015 at 3:49 pm
http://www.bloomberg.com/energy
US cost per barrel at 36.20 is higher than today's WTI price of 35.69 after a minus 1.66 due to the .25 interest rate rise that increased value of the USD against other currencies.
aliasees, December 16, 2015 at 7:22 pm
Nice information Thank you. The real cost is much higher once the dues are paid. In Libya for instance if the regional groups dont get their cut then they start misbehaving which stops oil flow. Everyone gets real upset if they dont get their slice of the pie. The general consensus is If I dont get my pie nobody does. At these prices the slices of pie are quite thin to nonexistent so I see MuaDib stopping the flow of spice much to the dismay of all pie eaters, myself included.
Fast Eddy, December 17, 2015 at 12:05 am
Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. "The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes.
Nearly half of the industry needs more than $120," he said
MJ, December 16, 2015 at 6:11 pm
According to this article there will plenty of tight petrol coming from America in the years ahead
The boom was fun. The bust has been painful. But there's nothing like that food coma to get you to stop and appreciate a big meal. So even though its been a tough year for American oil and gas, there's plenty to be thankful for. Cheap gasoline and natural gas. An increasingly secure oil supply. An opportunity to buy shares in big oil companies at fat dividend yields. Lots of new technology. And especially the appreciation that thanks to the ingenuity of thousands of engineers, geologists and roughnecks we have many more years worth of oily leftovers to turn into some fracking good turkey stew
Stilgar Wilcox, December 16, 2015 at 7:28 pm
If high prices proved anything, it's the oil is there. It would have been a whole different event if high prices had not produced an oversupply, but it did and that suggests potentially it can again. The big question is how high a price can the world economy handle as that descends along with diminishing returns? The answer to that determines how much future turkey stew is available. Will we be knee deep in all the fixings or searching for loose change to get some fast food?
aliasees, December 16, 2015 at 7:47 pm
I'd be much less scared were the price to rise. I don't see the high price of the boom cycle being a problem any more. The world economy is not going to take it to $140 again IMHO. I see the problem of being the engine stalling and unable to restart not throwing a a piston from high RPM any more.
worldofhanuman, December 17, 2015 at 4:48 am
Define "high price" as linked recently, most of the lifting factor for shale was enabled-based on junk bond financing structure and free global capital moving into it. A combination of factors which might not be there for the next round.
But it could be replaced by some other even directly gov related scheme..
Anyway, it seems very reasonable to have at least one above $100 upswing before 2025, there is so much money and fools sloshing around, it's almost guaranteed, mind you by that time it would be much smarter to get out way earlier as the system might go off the wheels for real at that point.
[Dec 17, 2015] Finally Some Good News For The U.S. Oil Industry
Notable quotes:
"... In its latest monthly Oil Market Report, the IEA doesn't see oil markets balancing out until late 2016. ..."
Dec 15, 2015 | Dec 17, 2015OilPrice.com
"Chesapeake Energy (NYSE: CHK) is reportedly working with Evercore Partners Inc. on reducing its debt load, as the pressure continues to mount. Its stock is down 80 percent in 2015, and has even dropped by half from just October. Natural gas prices have dipped to 14-year lows, draining revenues from the nation's second largest natural gas producer. "
"North America's three dozen oil-company bankruptcy cases underscores how vulnerable U.S. and Canadian producers are to this year's oil and gas bust. Analysts say it costs around $50 a barrel for the average U.S. driller to extract crude from thick shale plays in Texas and North Dakota. In Canada, large oil sands projects can cost $80 a barrel. U.S. crude traded for around $36 a barrel on Tuesday."
In its latest monthly Oil Market Report, the IEA doesn't see oil markets balancing out until late 2016. The IEA sees demand growth easing from a five-year high of 1.8 million barrels per day (mb/d) in 2015 to just 1.2 mb/d in 2016. Still, the IEA acknowledged that OPEC's decision to scrap its production target does not fundamentally change the current state of oil markets. OPEC producers will continue to try to maximize output, just as before. The IEA sees the market share strategy working, as U.S. oil supply is expected to contract by 0.6 mb/d next year.
[Dec 17, 2015] IEA - OMR Public
www.iea.org
World demand growth of 1.2 mb/d is forecast in 2016, as first signs of a slowdown appear. Early indicators for 4Q15 show growth easing to 1.3 mb/d y-o-y, from a 3Q15 peak of 2.2 mb/d. The resulting annual growth of 1.8 mb/d for 2015 is led by China, the US, India and - somewhat surprisingly - Europe
... ... ...
Lower prices are clearly taking a toll on non-OPEC supply, with annual growth shrinking below 0.3 mb/d in November from 2.2 mb/d at the start of the year. A 0.6 mb/d decline is expected in 2016, as US light tight oil - the driver of non-OPEC growth - shifts into contraction. As companies make further spending cuts in reaction to sub-$50/bbl oil, the impact on supplies - both from non-OPEC and OPEC - will be even more pronounced in the longer term.
[Dec 17, 2015] Low oil price cannot kill shale oil but Saudi Arabia can kill its enemies this way.
Notable quotes:
"... "Their talk about gaining or defending market share is nonsense, because even if Saudi Arabia gets five percent more market share, the value of that five per cent amounts between $6-8 billions," ..."
"... "the global demand for oil this year, 2015 has been increasing by 1.4 per cent translating into 1.3 million barrels a day or 1.4 million barrels a day. That is a good and positive development." ..."
"... "But what is preventing the price from increasing – is that every time the price shows signs of moving up, OPEC and particularly Saudi Arabia introduces more oil thus exacerbating an already existing glut," ..."
"... "will stick to 30 million barrels a day." ..."
"... "If you take that 2.2 out of the market, you stop the glut and a price could rise immediately or within a week to 70 or 80 dollars," ..."
"... "because the minute the oil price starts to go up, shale oil will be back." ..."
"... "true that some shale oil producers have gone out of the market, and the production of US shale oil has declined this year by 600,000 barrels a day." ..."
"... "Efficient producers of shale oil will remain in the market, and they are using technology to reduce the breakeven prices from $70 to $85 – now it is $60," ..."
"... "Maybe in few months it could go to $50." ..."
"... "a fact of life and we have to deal with it." ..."
"... " the shortcoming of shale oil is their depletion rate." ..."
"... "In the first year of production a well of shale oil loses 70 – 90 per cent of its reserves. That means that shale oil producers will have to produce and drill so many thousand, estimated, I think by Bloomberg, to be 9,000 wells every year at a cost of $45 billion that are just to remain where they are to prevent production from declining further. So OPEC cannot kill or slowdown – it can slowdown shale oil, but … the geology will eventually kill shale oil," ..."
"... "geology that "will eventually kill shale oil." ..."
"... The corrupt 'saudi' regime could fix most of its budget problems easily by cutting production and letting the price of oil rise again. The saudi position has been a huge lie all along. ..."
"... Arabia has something everyone wants-oil. It makes more sense to sell less of it at a higher price, than more of it at a much lower price, right? Whatever oil Arabia doesn't sell today, it can always sell tomorrow. That simple logic either eludes the US puppet, or something else is at work here. ..."
"... Only RT seems capable of printing the obvious, the Arabian story about 'market share' is complete BS, and has been all along. Clearly the US realizes that to let the price rise benefits the empires enemies as well, so that is off the table. However the US can always print more toilet paper out of thin air to give to its oil corporations and oily allies in the GCC. The US elite hardly cares if a bunch of hill-billy, redneck 'shale' companies and workers get thrown under the bus in the homeland-collateral damage and all that. ..."
"... The OPEC shale tale is just that, a fairy tale. 'OPEC' hardly cares about shale and never did. Of course, the Saudis could also stop sending billions to 'ISIS' and stop invading its neighbors at the behest of the US, that would help its balance sheets as well. The corrupt saudi regime and its US masters are banking on its 'enemies' being hurt so bad by all this, they will eventually give in. Russia, to its credit, has *not* cut production(not mentioned here), which implies they are not going to allow a repeat of the 1990's again. IoW, Russia is not rolling over and is making sure the US and S.A. economic war policy hurts them as much as anyone else. ..."
"... OPEC cannot kill shale oil, but the financial markets can and are now doing so. They are having to recalculate and reprice their reserves as we speak. Investors are getting burned and will not be reinvesting any time soon. Employees are getting laid off, assets are being sold, rig counts are going down, new debt can't be sold. They are dead, dead, dead! In addition they have the awful initial depletion rates, more environmental oversite and are causing earthquakes. ..."
"... But I watched a lot more "stupid money" (a technical term we really use in the oil patch) pissed away in the late 70's boom. But when/if there's another price inspired boom the greedy stupid money will return. The fed rates certainly helped push capital our way. ..."
"... rockman - Excellent points as usual. Stupid money! A lot of that stupid money has been soaked up by the 0.01% in a process known as "wealth transfer". Investment portfolios, retirement accounts - taking big hits and it is difficult to see at this point how they'll ever get a sufficient quantity of stupid money to reinvest in the next ass-reaming courtesy of the shale/unconventional biz. ..."
"... It is this very lack of understanding of the most fundamental principals, by people in management and control positions, that makes our present situation most dire. The world is not likely to address our coming energy crisis very effectively if it does not even understand what is happening? The world has morphed into a society of techno geeks that fix the third clog on the fourth wheel. When the wheel falls off they are left with no solution to the problem. ..."
"... IOW as long as the MONETARY value of the energy delivered (not the Btu's) is high enough compared to the MONETARY cost of the energy input (and not the Btu's) the process goes forward. Which takes us full circle back to what I keep saying: EROEI never has and never will be used to make investment decisions in the oil patch. It $'s in vs $'s out…not Btu's. ..."
Peak Oil News and Message Boards
"Their talk about gaining or defending market share is nonsense, because even if Saudi Arabia gets five percent more market share, the value of that five per cent amounts between $6-8 billions," he told RT. He suggests that Saudi Arabia alone is losing $140 billion.Salameh cited the International Energy Agency in Paris that said that "the global demand for oil this year, 2015 has been increasing by 1.4 per cent translating into 1.3 million barrels a day or 1.4 million barrels a day. That is a good and positive development."
"But what is preventing the price from increasing – is that every time the price shows signs of moving up, OPEC and particularly Saudi Arabia introduces more oil thus exacerbating an already existing glut," he continued.
Salameh argues the Saudis claim that they "will stick to 30 million barrels a day." However, they are producing 32.2 million. "If you take that 2.2 out of the market, you stop the glut and a price could rise immediately or within a week to 70 or 80 dollars," he added.
He does not think that Saudi Arabia is driving down oil prices to squeeze out the American shale producers, "because the minute the oil price starts to go up, shale oil will be back."
He said that it is "true that some shale oil producers have gone out of the market, and the production of US shale oil has declined this year by 600,000 barrels a day." He went on to say that "it is projected to decline by almost 900,000 barrels next year" if the prices continue to be that low.
"Efficient producers of shale oil will remain in the market, and they are using technology to reduce the breakeven prices from $70 to $85 – now it is $60," Salameh told RT. "Maybe in few months it could go to $50."
According to Salameh, we have to accept that shale oil is "a fact of life and we have to deal with it." But, he added," the shortcoming of shale oil is their depletion rate."
"In the first year of production a well of shale oil loses 70 – 90 per cent of its reserves. That means that shale oil producers will have to produce and drill so many thousand, estimated, I think by Bloomberg, to be 9,000 wells every year at a cost of $45 billion that are just to remain where they are to prevent production from declining further. So OPEC cannot kill or slowdown – it can slowdown shale oil, but … the geology will eventually kill shale oil," the expert said.
OPEC, he noted, cannot kill shale oil production, but can slow it down. However, it is "geology that "will eventually kill shale oil."
Anonymous on Fri, 11th Dec 2015 4:25 pm
The corrupt 'saudi' regime could fix most of its budget problems easily by cutting production and letting the price of oil rise again. The saudi position has been a huge lie all along.
Arabia has something everyone wants-oil. It makes more sense to sell less of it at a higher price, than more of it at a much lower price, right? Whatever oil Arabia doesn't sell today, it can always sell tomorrow. That simple logic either eludes the US puppet, or something else is at work here.
If the price rises, it rises for everyone, including the empires sworn enemies, Russia, Iran, and Venezuela?(the CIA backed 'opposition' won so are they still the enemy?). Only RT seems capable of printing the obvious, the Arabian story about 'market share' is complete BS, and has been all along. Clearly the US realizes that to let the price rise benefits the empires enemies as well, so that is off the table. However the US can always print more toilet paper out of thin air to give to its oil corporations and oily allies in the GCC. The US elite hardly cares if a bunch of hill-billy, redneck 'shale' companies and workers get thrown under the bus in the homeland-collateral damage and all that.
The OPEC shale tale is just that, a fairy tale. 'OPEC' hardly cares about shale and never did. Of course, the Saudis could also stop sending billions to 'ISIS' and stop invading its neighbors at the behest of the US, that would help its balance sheets as well. The corrupt saudi regime and its US masters are banking on its 'enemies' being hurt so bad by all this, they will eventually give in. Russia, to its credit, has *not* cut production(not mentioned here), which implies they are not going to allow a repeat of the 1990's again. IoW, Russia is not rolling over and is making sure the US and S.A. economic war policy hurts them as much as anyone else.
Now if Iran were not under illegal US embargo, if Iraq and Iraq and Libya were whole and stable (and not playgrounds for the CIA\Mossad\'ISIS' types) oil prices would (or could be) lower still. Imagine what that would look like.
Bob Owens on Fri, 11th Dec 2015 8:18 pm
OPEC cannot kill shale oil, but the financial markets can and are now doing so. They are having to recalculate and reprice their reserves as we speak. Investors are getting burned and will not be reinvesting any time soon. Employees are getting laid off, assets are being sold, rig counts are going down, new debt can't be sold. They are dead, dead, dead! In addition they have the awful initial depletion rates, more environmental oversite and are causing earthquakes. Investors are starting to do the sane thing and invest in solar/wind farms. They don't have problems shale has.
Truth Has A Liberal Bias on Fri, 11th Dec 2015 9:40 pm
Oil with API gravity of 40 and less peaked in 2005. What we have today is a condensate glut.
GregT on Fri, 11th Dec 2015 10:11 pm
"What we have today is a condensate glut."
And a glut of the oily stuff that will not allow our economies to continue to grow at the rates that they need to, in order to service a system based entirely on infinite exponential growth, which is in of itself, a physical, and mathematical impossibility.
Should be common sense, but obviously in this day and age, sense is not common. Neither is smart, never mind intelligent.
Boat on Fri, 11th Dec 2015 10:56 pm
Truth Has A Liberal Bias
Oil with API gravity of 40 and less peaked in 2005. What we have today is a condensate glut.
All oil gets priced at the refinery. All kinds and types of oil is used. Oil from any source is successful if it makes money. This 2005 API at 40 peak is very questionable. There could be another peak of that type of oil in the next few years. Geopolitics has gotten in the way of production in Libya, Nigeria, Iraq and Iran etc. If and when their resources come online fracking oil could be replaced. But this is not a lack of oil in the ground. Just conflict zones that make it to dangerous.
makati1 on Fri, 11th Dec 2015 11:11 pm
You cannot 'kill' something that is already dying. You can only 'finish it off. Fraked oil was just another bubble supported by zero interest borrowing. If you own shale stock, dump it now.
Northwest Resident on Sat, 12th Dec 2015 10:31 am
Sorry, ennui2, depletion has already taken over. You just don't see it. For shale to return to its glory days of massive debt accumulation, somebody is going to have to give them billion$ of fresh cash to burn. That would require another massive propaganda blitz designed to reel in the suckers, the exact same suckers who are currently losing their asses on plunging shale investments, or who have already cashed out at pennies on the dollar. Granted, there are plenty of greed-driven suckers out there, but even those aren't stupid enough to get screwed by the same Big Lie twice in a row - well, most aren't. The FED would have to keep interest rates near zero and the banks would have to print up another few trillion$ - ain't gonna happen. And last but not least, there just isn't enough good oil to power another ramp-up in shale crap production, keeping in mind that the unconventional oil extracted is NOT sufficient to drive its own extraction, much less power the rest of the economy. No, ennui2, so sorry, your POV is in the realm of fantasy, a fact you shall soon be forced to recognize.
rockman on Sat, 12th Dec 2015 10:42 am
Davy on Sat, 12th Dec 2015 10:53 amNR – Some valid points. But I watched a lot more "stupid money" (a technical term we really use in the oil patch) pissed away in the late 70's boom. But when/if there's another price inspired boom the greedy stupid money will return. The fed rates certainly helped push capital our way.
And sorry to preach about it again but the EROEI will never kill any play. Never has..never will. Poor economics will first. There were many Eagle Ford wells that didn't produce enough oil to recover half the money spent to drill and complete them. But the vast majority still produced more energy then used to drill them.
Northwest Resident on Sat, 12th Dec 2015Rock/NR, we are seeing a little of both. The oil patch and Wall Street are not the same but they need each other and operate together when oil is being exploited. They both suffer from the others mistakes. We are seeing that now with the end of the shale boom.
It is my opinion we will likely never see those conditions again allowing another boom. We will not see virgin QE again. When bubbles burst they don't reflate the same. The best spots have been exploited. The economy is not what it was. We are in new waters and adrift. I imagine another stab at it will be made if prices elevate but with the condition of the global economy poor how long will any elevation of prices last before demand is again damaged. Remember we will not see virgin QE. We may see the slut version but sluts can't compare to sweet innocence of virginity.
rockman - Excellent points as usual. Stupid money! A lot of that stupid money has been soaked up by the 0.01% in a process known as "wealth transfer". Investment portfolios, retirement accounts - taking big hits and it is difficult to see at this point how they'll ever get a sufficient quantity of stupid money to reinvest in the next ass-reaming courtesy of the shale/unconventional biz.
I also do not doubt your assertion that the vast majority of Eagle Ford wells produced more energy than was used to drill them. BUT… When you take into account the entire process - exploration, drilling, extraction, delivery to refineries, refinement, storage, distribution - what we end up with is an industry as a whole that has flat out lost its ass and piled up an astronomical amount of unpayable debt. That FACT speaks for itself.
IF at the end of all that full-cycle production there had been net energy remaining, then the industry as a whole would have turned a profit. Excess net energy = profit, or am I wrong. Again, the fact that the whole shebang ended up in a trillion dollar pit of debt tells me that as a whole, the shale/unconventional business was a net energy sink. And that's without doing all the PHD level math - just looking at the obvious.
Or not?
Apneaman on Sat, 12th Dec 2015 1:01 pm
Northwest Resident on Sat, 12th Dec 2015 1:09 pmThe drillers do not pay for the externalities, but someone or some tax payers do. What's the energy content when you add those up? Earthquake damage, torn up roads that need repaving, polluted water sources and the fixes. Workers at the "man camps" causing havoc in town, spills into streams and rivers and farmers fields, oil trains blowing entire towns up, etc, etc. The rockman don't give a fuck he just rolls into town, does his deed, gets paid and it's on to the next one. How many disasters are left after? How many sick kids and pregnant woman? What's the EROEI cost of all the unfortunate human externalities? I'm not sure, but the people profiting do not give a fuck – you can be sure of that. Donate a toy to a laid off oil patch workers kid and you are self exonerated. Now go do it again.
Northwest Resident on Sat, 12th Dec 2015 1:15 pm"If this system breaks down enough it could unravel the exchange of goods around the world."
Already happening. International trade tanking. Container freight plumbing the depths of severe recession. Inventories piled high with no buyers in sight. Commodities producers standing in line to file for bankruptcy. Middle class shrinking.
Unraveling is an excellent word to describe just exactly what is happening right here and now.
Hey GregT - thanks. I found a moment of free time, a rarity for me these days. Been travelling a lot. The whole world is burning but in the financial sector things are still in overdrive, for the time being…
ennui2 on Sat, 12th Dec 2015 1:48 pmAnother thought before heading out for the day. Like I said above, I have been travelling a lot.
Recently returned from a 3-day biz trip to a major U.S. city. They flew us out there, put us up in a high class hotel, wined and dined us. We had two solid days of meetings - nothing that couldn't have been done via remote connections, but they wanted the "face to face".
Flying back, all I could think was what a godawful waste of good fuel this whole trip was. Multiply my trip by what? One hundred thousand similar trips per day worldwide, something like that? And we wonder why everything is going down the tubes. Isn't it obvious?
shortonoil on Sat, 12th Dec 2015 2:10 pm"Prices are not going up (at least very far) because what remains of the world's petroleum reserve is just not very valuable"
Sure it is. Matt Simmons explained the value of oil. It's so valuable that even at $10/gallon it would be a steal for the amount of work it does as an energy slave.
"EROEI could be negative in a sense, but just converting human energy"rockman on Sat, 12th Dec 2015 5:08 pmNot to pick on twocats, but ERoEI is a ratio. Energy returned over energy invested. The only way it could be negative would be if there where such a thing as "negative energy". In our area of the universe there is not much of it, at least as far as we know.
It is this very lack of understanding of the most fundamental principals, by people in management and control positions, that makes our present situation most dire. The world is not likely to address our coming energy crisis very effectively if it does not even understand what is happening? The world has morphed into a society of techno geeks that fix the third clog on the fourth wheel. When the wheel falls off they are left with no solution to the problem.
shortonoil on Sat, 12th Dec 2015 6:42 pmGreg – "Is it not EROEI that is killing 'poor economics'?" There is a relationship between rate of return and the amount of oil used/produced. But folks greatly overestimate the amount of fossil fuels we use in exploration and production.
The amount of capital spent to drill with those fossil fuels is typically less than 10% of the total well cost…often much less.
- The well I often speak of that's been making 400 bopd for several years cost about $8 million to dill and complete.
- But the diesel cost less than $600,000. IOW it took a lot less production to recover the fuel budget then the total cost of the well.
IOW I had to net only 15,000 bo to pay for the diesel at $40/bbl and net 200,000 bbls to pay for the entire well (made 360,000 bbls so far and still going strong). So an EROEI of 6 would mean netting 90,000 bo (15,000 bbls X 6). But if the well only netted me 90,000 bbls I would have made only $3.6 million…IOW I would have lost over $4 million. So if I knew it would have an EROEI of 6 I would never had drilled it.
Now to get to NR's point about total energy input for the entire process. Basically that has no bearing on what I decide to drill. It doesn't effect my drilling decisions if the entire dynamic produces a negative EROEI. For instance maybe the refining process is very low EROEI…doesn't make any difference to me. Likewise the refiner doesn't care if my drilling effort has a low EROEI. In fact he doesn't care if I also lost my ass on a well: hi sole concern is his profit margin. If he can use as much energy as his products produce he doesn't care if he's receiving a lot more revenue for his product the oil and cracking costs him. IOW a bbl of oil is currently selling for $0.90/gallon and gasoline for about twice that. BTW a lot of the energy used in refining comes from much cheaper NG then from oil.
Which explains why the EROEI of every phase (drilling, refining, marketing, etc) is not relevant to the DECISIONS made in the process. So even if the EROIE of the entire system is very low it doesn't have bearing on what happens IN EACH PHASE.
IOW as long as the MONETARY value of the energy delivered (not the Btu's) is high enough compared to the MONETARY cost of the energy input (and not the Btu's) the process goes forward. Which takes us full circle back to what I keep saying: EROEI never has and never will be used to make investment decisions in the oil patch. It $'s in vs $'s out…not Btu's.
Or let's put it in your lap: when you fill your car up with gasoline do you make that decision on the basis of its EROEI or on the price per gallon? IOW if you knew the EROEI of that gallon of ExxonMobil was much better then that at the Chevron station would you be willing to pay $0.40 more per gallon for it?
"Comparing fake debt money to joules is retarded. When money=joules peak oil date can be predicted."
The petroleum industry still relies heavily on the British Engineering System of measures, so we use BTU in place of joules, 1 BTU = 1.0551 kJ. But basically that is what we do (did). We convert BTU to $s with a fairly good margin of error. Yes, the peak date can be predicted. It will be recorded as no latter than when the central banks had to stop printing huge amounts of currencies. Petroleum went through a critical thermodynamic point in 2012 so it is just a matter of how long the financial system can absorb the losses.
Stop by and check it out.
- rockman on Sun, 13th Dec 2015 8:52 am
looker
"So in fact peak oil will really bite when it is not so economically viable to find and produce oil for the market."
Good point and there's a great visual to emphasize that point: look at the US oil production curve. We peaked about 35 years ago. And during those decades the inflation adjusted price of oil was less the current prices…and considerably less then during the height of the shale boom.
And the shales boomed when oil price boomed. And not due to technology: horizontal drilling for unconventional reservoirs, like the Austin Chalk in Texas, was well established 15 years earlier. And frac'ng has changed very little for decades.
IOW US oil production peaked because oil prices essentially peaked decades ago. Yes: up and down but no great movement like we saw when the shales boomed. And US oil production almost reached a new peak because oil prices reached near peak levels once again. Which means that we may not only be at global PO but the longer it takes for oil prices to significantly increase we may never again approach current production levels as depletion continues to take its toll. The recent increase in global oil production actually is the result of low oil prices…not higher. The oil price collapse has forced some producers, like the KSA, to bring their reserve capacity into play so as to increase the revenue stream. Which also means the lower oil prices are also increasing the depletion rate of existing proven reserves as well as hampering the development of new reserves.
The recent oil price collapse may eventually be viewed as the ultimate "Oh sh*t" moment in the global energy dynamics.
- GregT on Sun, 13th Dec 2015 1:35 pm
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Why 2015 Is a Make-or-Break Year for the Global Economy
WASHINGTON - As 2015 begins, policymakers around the world are faced with three fundamental choices: to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone. The stakes could not be higher; 2015 promises to be a make-or-break year for the global community.
For starters, growth and jobs are needed to support prosperity and social cohesion in the wake of the Great Recession that began in 2008. Six years after the eruption of the financial crisis, the recovery remains weak and uneven. Global growth is projected at just 3.3 percent in 2014 and 3.8 percent in 2015.
Christine Lagarde
Managing Director, IMF
01/20/2015 11:24 am ESThttp://www.huffingtonpost.com/christine-lagarde/2015-global-economy_b_6502146.html
According to Scotiabank's Global Forecast Update on Dec 3/2015, global growth is expected to weigh in at 3.1%, not even meeting the mediocre projections of 3.8% by the IMF. The make or break period has been broken.
- GregT on Sun, 13th Dec 2015 1:56 pm
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"Oil consumption world wide is growing. Nat gas consumption is growing. Solar and wind is growing. Energy is growing. Coal use is growing. Energy is the base of all economies and there isn't any contraction in any of them. World GDP is growing. You doomers think you can fight facts but ya'll live in a false reality."
Infinite exponential growth in a finite environment is a physical and mathematical impossibility. That is our reality Boat, and that is a fact. Whether you believe that you can fight it or not, is irrelevant. There has been a contraction in growth, and there will continue to be a further contraction in growth. The fact that you are unable to comprehend what that means, once again, exposes your level of intelligence. (or lack thereof)
- Apneaman on Sun, 13th Dec 2015 2:34 pm
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Boat, all that growth in energy does not seem to be translating into any real wealth or opportunity. Where is it all going boat? Energy is supposed to be the driver of the economy – not the economy. Of course you continue to completely ignore mounting debt. Also ignore going into the 8th year of ZIRP. How much of the economy is finalization? 30% – 40%? That's not real wealth and you along with many others seem to forget that the whole criminal finalization enterprise had to be bailed out just a handful of years ago. What's changed on that front? How about nothing except they are doing more of it and added QE and ZIRP yet people are expecting different results. Hows that work? Why would anyone expect things to improve knowing that? It's why many ignore it and hope instead. But not all and a growing number in America no longer believe the propaganda like you. Probably because they are hurting.
The "American Dream" is Over–and Voters Know It
"If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over.
Despite a ceaseless propaganda campaign declaring all is well with the U.S. economy, the Status Quo is fragile–and voters know it. Not only do they know the economy–and their financial security–is one crisis away from meltdown, they're also fed up with all the official gerrymandering of data to make the economy appear healthy.Many econo-gurus lay the blame for the Great Depression on the Federal Reserve tightening too soon, or not loosening credit enough, but this is nonsense: The Great Depression was the result of credit/borrowing (i.e. debt) outrunning the foundation that supports debt: productivity and income.
Piling more debt on a base that isn't expanding fast enough to support skyrocketing debt leads to a collapse of the feebly supported debt: borrowers default, asset prices crash as buyers vanish and lenders go bankrupt as the assets held as collateral are repriced."more
http://charleshughsmith.blogspot.jp/2015/12/the-american-dream-is-over-and-voters.html
[Dec 17, 2015] Drop of US shale oil production in 2016 can 1 Million barrel per day in the US and 1 Mb elsewhere
Notable quotes:
"... Jeffrey. I am thinking maybe when we hit new year we will see a dramatic oil rig drop, maybe below 300? They can't even pretend it makes sense to drill at sub $30 oil. ..."
"... I think output will drop by at least 1 Mb/d in the US if Euan is correct, possibly 1.5 Mb/d from Sept 2015 levels, for the rest of the World we would probably see at least another 1 Mb/d drop, so my wag is 2-3 Mb/d, combine this with the likely increase in demand for oil and I just don't see how this price forecast can be correct. ..."
peakoilbarrel.com
shallow sand, 12/17/2015 at 1:31 pmHalcon Resources, which has significant Bakken production and per NDIC has 2 rigs running, stock price is indicating a BK announcement is coming. 18 cents per share, dropped 40% today.A couple other noteworthy quotes.
- Whiting fell below $10.
- California Resources Corporation (OXY spinoff) fell below $2.
- I suspicion much of CA oil and gas production has joined several other states in having overall production underwater on an operating basis.
Euan Mearns predicting Brent will finish 2016 at $37 and will breach $20 in 1H 2016. If Euan is correct, a large percentage of US conventional will be shut in.
Dennis, where do you see US production headed if Euan is correct and WTI average price in 2016 is $30. If he is correct, we will either shut down and or lose a lot of $$. There is nothing more to cut here.
shallow sand, 12/17/2015 at 2:40 pm
Dennis Coyne, 12/17/2015 at 3:53 pmJeffrey. I am thinking maybe when we hit new year we will see a dramatic oil rig drop, maybe below 300? They can't even pretend it makes sense to drill at sub $30 oil.
As for gas, I know little about it, other than $1 gas surely will cause further rig loss. Again, the price has dropped past the level where any E &P will be able to BS anyone. Glad I don't have any ND sour crude to sell. Flint Hills might pay you $6 for it?
Hi Shallow sands,
I think output will drop by at least 1 Mb/d in the US if Euan is correct, possibly 1.5 Mb/d from Sept 2015 levels, for the rest of the World we would probably see at least another 1 Mb/d drop, so my wag is 2-3 Mb/d, combine this with the likely increase in demand for oil and I just don't see how this price forecast can be correct.
Keep in mind that I consistently get prices wrong, so perhaps Euan is correct, if he disagrees with me that increases his odds. ;-)
[Dec 17, 2015] Fossil fuels are we on the edge of the Seneca cliff
Notable quotes:
"... This question can be described in terms of the Seneca Cliff , a concept that I proposed a few years ago to describe how the production of a non renewable resource may show a rapid decline after passing its production peak. ..."
"... I guess the system really is on its last legs when oil is produced non-profitably to keep the system running simply via central banks magically printing money by fiat. Obviously such slight of hand is not sustainable. ..."
"... ..."
December 7, 2014 | Cassandra's Legacy
It is a well known tenet of people working in system dynamics that there exist plenty of cases of solutions worsening the problem. Often, people appear to be perfectly able to understand what the problem is, but, just as often, they tend to act on it in the wrong way. It is a concept also expressed as "pushing the lever in the wrong direction."With fossil fuels, we all understand that we have a depletion problem, but the solution, so far, has been to drill more, to drill deeper, and to keep drilling. Squeezing out some fuel by all possible sources, no matter how difficult and expensive, could offset the decline of conventional fields and keep production growing for the past few years. But is it a real solution? That is, won't we pay the present growth with a faster decline in the future?
This question can be described in terms of the "Seneca Cliff", a concept that I proposed a few years ago to describe how the production of a non renewable resource may show a rapid decline after passing its production peak. A behavior that can be shown graphically as follows:
It is not just a theoretical model: there are several historical cases where the production of a resource collapsed after having reached a peak. For instance, here are the data for the Caspian sturgeon, a case that I termed "peak caviar".Lukas Rezny, December 7, 2014 at 2:16 PM
Kopits presented some interesting data about capex values and oil production for the listed oil majors (pages 40-42) - http://energypolicy.columbia.edu/sites/default/files/energy/Kopits%20-%20Oil%20and%20Economic%20Growth%20%28SIPA%2C%202014%29%20-%20Presentation%20Version%5B1%5D.pdf
That might be useful for the model, but not quite enough to quantify k3...if that is necessary after all.Burgundy, December 9, 2014 at 2:25 AM
Regarding the oil shale plays, it would seem the capex is driven by external finance rather than reinvestment of profits. I guess this also extends the peak beyond what would be capable using only reinvestment of profits.
I guess the system really is on its last legs when oil is produced non-profitably to keep the system running simply via central banks magically printing money by fiat. Obviously such slight of hand is not sustainable.
AnonymousDecember 16, 2014 at 3:21 PM
This might explain why, recently, oil prices have fallen even though production costs are high. I was going to ask Prof. Bardi if he can explain the recent price declines so near the presumed Seneca Peak. Looks like it may be from something external to the simple models he presented.
AnonymousAugust 27, 2015 at 2:37 PM
I suspect a combination of ongoing demand destruction (aka economic stagnation) and good old-fashioned market manipulation (by OPEC, mainly, mebby others).
Not to put words in Prof. Bardi's mouth, but the models presented here are doubtless intended to be illustrative, not definitive. In any case, of course, "definitive" modeling is only possible after (usually long after) the modeled event(s) have run to completion and all significant factors have been (retrospectively) identified. This is the core difficulty with, for example, the global climate-change models; unforeseen-but-necessary consequences, both as to type and rate of event, keep arising. Thus the ever-moving target of "probable consequence and schedule."
Mikkel, December 10, 2014 at 2:50 PM
"Often, people appear to be perfectly able to understand what the problem is, but, just as often, they tend to act on it in the wrong way. "
Whenever I complain to my grandmother about something in society that doesn't make sense, she tells me, "Everything makes sense to the people doing it, you just have to ask who and when does it help?"
From that perspective, I have come to accept that market failures on finite resources are what us programmers call a feature, not a bug. In the sturgeon example (and bluefin tuna is another good one) the collective industry gets richer and richer as the price rises, since profits rise faster than expenses, but even on the down slope it causes superior outcomes for some players. At first, these are the legacy players that happen to be able to hold out the longest and find a high price, lower competition environment; but eventually a lot of resources are spent even when total output is low because it becomes a lottery.
If the goal of producers was to contribute to society then you are right they are doing the wrong thing, but if it is the hope of getting rich then they are doing the absolutely correct thing. After all, the producers are able to get external financing and can restructure debt when things go wrong, so it is a heads we win, tails you lose situation with their investors.
Traditional fishing villages in Japan rarely catch bluefin these days, but any ship that does catch a few is a ticket to retirement, so a myriad of boats still set out, backed by small investor pools playing a physical equivalent of the lotto.
Random positive reinforcement is *the* strongest operant conditioner. The only factor that seems to break the cycle is complete and sustained demand destruction. As long as demand remains, even if it is just among the luxury class, these dynamics seem to hold.
This seems to make the Seneca Cliff not only plausible, but inevitable.
AnonymousAugust 27, 2015 at 2:47 PM
Mikkel's astute comments (for which thanks!) resonate perfectly with Garrett Hardin's observations on the "tragedy of the commons" so many years ago. Hence the necessity and inevitability of "demand destruction" aka collapse/depopulation so eloquently posited by the "doom-sayers."
The only way forward/out of this morass, so far as I can see, is a truly massive (and highly improbable) change/elevation of collective human consciousness. Ironically, such an event seems most likely as a late (likely too late) consequence of that "demand-destruction."
[Dec 17, 2015] The ongoing collapse of oil prices leads to running out of the capital resources necessary to keep developing new fields and Seneca cliff in production of oil
Notable quotes:
"... The world's motor vehicle numbers are up 50% in the last 10 years ..."
"... When you take oil out of the ground you deplete the resource asset and when you burn it you deplete the clean air. ..."
"... Entire countries sell the family silver by way of their resources, yet their governments record economic growth as if it were just general revenue. ..."
"... Peak oil now or peak oil a little later, it seems that a Seneca Cliff is heading our way. ..."
"... Depletion of natural resources is stalking us like a cat stalking a bird, and the cat already close enough to pounce. If the bird doesn't get moving FAST, it is all over for the bird. ..."
"... We have a shot at avoiding the very worst consequences of the depleting resources Seneca Cliff, and we ought to make the most of it. ..."
"... Are we going to move fast, or is the DEPLETION CAT going to have us for lunch? ..."
"... Population for the World is not growing exponentially, from 1968 to 2010 World population growth was linear, about 81.6 million people per year were added to the World's population from 1968 to 2010. ..."
"... The only way the World will transition away from fossil fuels is if the prices of fossil fuels are higher and remain high. Whether we can transition quickly enough to alternatives as fossil fuel output declines depends on too many factors to predict. ..."
"... I have heard there is a worldwide abundance of the heavy sour oil but not enough of the light sweet oil… is that correct? ..."
"... When it comes to light sweet oil, the United States has a dearth of refining capacity. And since the new production coming on line from the shale plays is light sweet oil, the U.S. refineries are not able to handle it all. ..."
"... DEPA claims there are a number of refineries around the world that face closure due to a lack of supply of light sweet crude. ..."
"... I think this was an excellent move on the part of the dim rats. It won't cost us anything so far as I can see, or at least not much, and that out of the pockets of the owners of refineries making windfall profits because of the ban on exports. ..."
"... It will probably help lower the cost of diesel a little, compared to gasoline. That would be good for everybody, because business runs almost exclusively on diesel. Gasoline is a consumer good, diesel in this country is an industrial commodity. ..."
Sydney Mike, 12/17/2015 at 4:21 am
The climate conference brought as usual no important advances. The world's motor vehicle numbers are up 50% in the last 10 years. We think a doubling or so every 20 years is normal. The air in much of Asia is toxic. Living in places like India, China and surrounds is a constant health hazard. Yet these clowns see progress and development (=more burning of fossil fuels) as their way forward. Let's add another 50 million stinking and gas guzzling cars to our fleet each year and another coal power plant or two each week in China.oldfarmermac, 12/17/2015 at 9:22 amThe great failure of economists is to keep environmental factors out of their calculations. When you take oil out of the ground you deplete the resource asset and when you burn it you deplete the clean air. It is amazing that we let them get away with it.
Entire countries sell the family silver by way of their resources, yet their governments record economic growth as if it were just general revenue.
Peak oil now or peak oil a little later, it seems that a Seneca Cliff is heading our way.
Dennis Coyne, 12/17/2015 at 10:41 am"Peak oil now or peak oil a little later, it seems that a Seneca Cliff is heading our way."Dead on, any body who is scientifically literate and has taken the time to acquaint himself with the depletion of one time thru resources is compelled to agree, we are headed into very dangerous waters. A miracle or two a long about now would be great, but I am not holding my breath.
Depletion of natural resources is stalking us like a cat stalking a bird, and the cat already close enough to pounce. If the bird doesn't get moving FAST, it is all over for the bird.
We have a shot at avoiding the very worst consequences of the depleting resources Seneca Cliff, and we ought to make the most of it.
Scaling up renewables is going to take a hell of a long time, and we are ninety nine point nine nine percent damned sure to be VERY short of oil and gas before we get even a quarter enough wind and solar farms built to enable us to cut back very much on coal, and save the gas for other essential purposes such as manufacturing fertilizers and other commodities.
Of course nothing would suit our hard core defenders of the fossil fuel status quo better than an oil and gas supply crisis.
Such a crisis will make the nickel and dime players who own production assets RICH, and the ones who are rich already will become several times as rich.
If I were younger and had more money, I would be looking at doing a little bottom feeding in the oil industry myself. It seems to me the odds are EXCELLENT that oil will spike just as sharply, within the next few years, as it crashed a year or so ago. Depletion never sleeps.
Are we going to move fast, or is the DEPLETION CAT going to have us for lunch?
Population and consumption per capita of resources are both growing exponentially.
This is not going to end well.
Hi Old Farmer Mac,oldfarmermac , 12/17/2015 at 12:36 pmPopulation for the World is not growing exponentially, from 1968 to 2010 World population growth was linear, about 81.6 million people per year were added to the World's population from 1968 to 2010.
especially Figure II on page 5
Chart below with UN medium and low fertility variants, hopefully the World will follow the low fertility path.
Hi Dennis, ya caught me having a senior moment when I said "exponentially".Dennis Coyne, 12/17/2015 at 10:48 amYou are not the first person to catch me in that mistake. It seems to be a habit, like forgetting where I put my glasses.
I generally point out that population growth has been flattening, and with birth rates falling fast in most countries.
Personally I am hopeful that between cheap birth control tech and the spread of cheap electronic communications, people almost everywhere will get the idea the way women in Brazil got the idea.
The odds imo are good that the low case UN scenario is still a little on the high side.
Birth control is incredibly cheap compared to supporting children, and the old "gotta have kids to work the farm and support us in our old age " paradigm is pretty well smashed to bits any place where people are giving up rural life for the city and the city job.
Hi Old Farmer Mac,islandboy, 12/17/2015 at 5:25 amThe only way the World will transition away from fossil fuels is if the prices of fossil fuels are higher and remain high. Whether we can transition quickly enough to alternatives as fossil fuel output declines depends on too many factors to predict.
I agree with those who think it will not be smooth sailing, whether the boat sinks or not is unknown. The main question is whether we can we bail the water as fast as the ship takes on water.
Ban on US crude oil exports to be lifted!Arceus, 12/17/2015 at 5:40 amThe actual headline from my favorite EV news site was:
Solar 30% Tax Credit To Be Renewed For 5 More Years, PV Stocks Soar
The "solar cliff" looks to have just been avoided.
The 30% federal credit for solar energy was set to expire in 2017 to be replaced with a 10% credit for businesses and eliminated entirely for residential solar consumers; basically signalling a huge roadblock for widespread PV adoption in about~13 months time.
However, late last night House Republicans took the wraps off of new legislation which had provisions for five year extensions of tax credits for solar and wind.
And if that action seemed a bit odd for the Republications…or at least a bit out of character, well, there are trade-offs. The cost was the end of protracted negotiations with the Democrats over the ban on exports of U.S. crude oil.
The extension of the Investment Tax Credit (ITC) for solar and the Production Tax Credit (PTC) for wind is widely expected to now be approved shortly (Thursday or Friday) as Democratic leaders said yesterday they would support new Republican proposals, provided those renewable energy credit extensions were attached.
Does anyone have an idea who actually benefits from the removal of the crude export ban?Glenn Stehle, 12/17/2015 at 6:30 amI have heard there is a worldwide abundance of the heavy sour oil but not enough of the light sweet oil… is that correct?
Arceus,Glenn Stehle, 12/17/2015 at 6:35 amWhen it comes to light sweet oil, the United States has a dearth of refining capacity. And since the new production coming on line from the shale plays is light sweet oil, the U.S. refineries are not able to handle it all.
Outside the U.S., however, the majority of refining capacity is for light sweet oil.
DEPA claims there are a number of refineries around the world that face closure due to a lack of supply of light sweet crude.https://www.eia.gov/conference/2015/pdf/presentations/hamm.pdf
Dennis Coyne, 12/17/2015 at 8:17 am
Hi Islandboy,oldfarmermac, 12/17/2015 at 10:39 amThis seems like a win for those who would prefer an eventual transition to alternative energy, not as good as a carbon tax, but better than nothing. Rockman has long said the export ban makes little difference because the excess light sweet crude can be swapped for imported heavy oil and the export ban was pretty meaningless. So getting these tax credits extended (because a carbon tax will only be passed in the US when the Greenland ice sheet has returned to the ocean, around 2499 give or take a 100 years) is a win for the planet.
Hi Dennis,Dennis Coyne, 12/17/2015 at 11:41 amI think this was an excellent move on the part of the dim rats. It won't cost us anything so far as I can see, or at least not much, and that out of the pockets of the owners of refineries making windfall profits because of the ban on exports.
It will probably help lower the cost of diesel a little, compared to gasoline. That would be good for everybody, because business runs almost exclusively on diesel. Gasoline is a consumer good, diesel in this country is an industrial commodity.
The dim rats ought to have put one over on the repugnathans the same way with the Keystone. Building it would not have resulted in any significant environmental harm, in terms of the BIG picture, and they could have extracted all sorts of environmental concessions out of the repugnathans by cutting a deal.
The pipeline pushers would gladly have spent megabucks for that permit. The money could have been usefully spent on anything from expanding protected lands to medical research.
As a practical matter, all is fair in love war and politics.
Hi Old Farmer Mac,John S, 12/17/2015 at 6:27 amI agree on the Keystone pipeline. Perhaps Obama should reverse his decision in return for a carbon tax, he could throw in elimination of the Wind and Solar subsidies as long as the carbon tax was high enough and the legislation was for a 20 year period.
Maybe start at some lower level with an increase in the tax each year at the rate of inflation plus 2% (roughly a 4 to 5% increase each year), start at $20/ton of carbon (the tax would be based on carbon emissions from burning the fuel, this is equivalent to about a 5 cent per gallon tax increase on one gallon of gasoline).
If we assume an average increase of 4.5% per year, the tax gradually rises from $20/ tonne of carbon to $48/tonne in 20 years time.
If Obama could accomplish that it would be huge, as I said before, probably not until Greenland is green again (around 2525).
Post Carbon Institute: Eagle Ford Reality Check by David Hughes at this link:shallow sand, 12/17/2015 at 7:54 amhttp://www.chk.com/investor/presentationsAlexS, 12/17/2015 at 8:28 amThe most recent presentation shows Chesapeake "break evens" in all of their major plays.
shallow sand ,Dennis Coyne, 12/17/2015 at 9:06 amHere are direct links to this and a newer presentation:
http://www.chk.com/Documents/investors/Bank_of_America_Final_11_9_15.pdf
http://www.chk.com/Documents/investors/Citibank_FINAL_12_16_15.pdf
Thanks JohnS,Dennis Coyne, 12/17/2015 at 9:20 amI was interested in checking David Hughes work as the 242 wells needed to keep output flat seemed a bit too high. I have a slightly different peak at 1580 kb/d on March 2015, Hughes may have used all production from the Eagle Ford region, or my estimate may be incorrect.
I do not have access to drilling info data. In any case I used a model based on Rune Likvern's Red Queen model and a well profile I developed using Eagle Ford RRC lease data. Errors are my responsibility, Mr. Likvern has not checked my work, I want to give credit to his original work on this idea as applied to the North Dakota Bakken/Three Forks.
Model below has 242 new wells added each month from Oct 2015 to Jan 2017, output increases to 1700 kb/d by Dec 2016, so my suspicion seems to be correct.
A second scenario with the only change being 185 new wells per month from Oct 2015 to Jan 2017,Dennis Coyne, 12/17/2015 at 9:46 am
output was about 1435 kb/d in Sept 2015, output falls to an average of 1420 kb/d from Oct 2015 to Dec 2016 in this scenario. It is doubtful that this many wells will be completed if the current low oil prices continue for the period covered by this scenario.
Ok lets assume Bloomberg's estimate of 1250 DUCs in the Eagle Ford(EF) at the end of April 2015 is correct and that this count has decreased by 50 each month for 5 months so that presently the DUCs are 1000 in the EF. Lets also assume a rig count going forward that will average 75 rigs from now until Jan 2017 and that 1.4 wells per rig can be drilled, that is 105 new wells drilled and let's assume 50 wells completed from the fracklog over the next 15 months (until Dec 2016), that would correspond with 155 new wells per month. Scenario below has 155 new wells added each month from Oct 2015 to Jan 2017, output falls from 1435 kb/d in Sept 2015 to 1286 kb/d in Dec 2016, a drop of 149 kb/d and 291 kb/d below the March 2015 peak of 1577 kb/d.
[Dec 17, 2015] No fear Banks bet on energy comeback
Notable quotes:
"... In the end, most lenders were relatively generous in setting credit lines, while also insisting on more protections, including holding more collateral against the loans, according to bankers and others familiar with the process. ..."
"... Banks were also optimistic in their projections for future oil prices, forecasting that the U.S. oil benchmark WTI would average $47.36 in 2016, according to a late-October survey of 32 banks from Macquarie Capital Inc. The banks predicted the price would continue rising in the following years. ..."
"... A November regulatory report said that the number of loans rated as "substandard, doubtful or loss" among oil and gas borrowers almost quintupled to $34.2 billion of total classified commitments, versus $6.9 billion in 2014. ..."
"... energy consultancy IHS data shows more than a fifth of U.S. oil production comes from thousands of small, mostly private companies that do not file public disclosures about their finances-and rely heavily on bank credit for financing. ..."
December 16, 2015 | Yahoo/WSJ
Banks are betting that pain in the oil patch is short-lived.
Even after a steady drop in energy prices through the second half of the year, banks in the U.S. are being lenient with cash-strapped companies rather than set tougher lending constraints that could make survival more difficult. The strategy is helping energy borrowers, but could result in higher losses for lenders if prices don't rebound.
The twice-yearly process in which lenders assess certain energy exposures was unusually intense this fall. In the end, most lenders were relatively generous in setting credit lines, while also insisting on more protections, including holding more collateral against the loans, according to bankers and others familiar with the process.
... ... ...
Banks were also optimistic in their projections for future oil prices, forecasting that the U.S. oil benchmark WTI would average $47.36 in 2016, according to a late-October survey of 32 banks from Macquarie Capital Inc. The banks predicted the price would continue rising in the following years.
... ... ...
Still, projections for losses on energy loans keep rising broadly-and some banks have started to increase their own forecasts for such losses. A November regulatory report said that the number of loans rated as "substandard, doubtful or loss" among oil and gas borrowers almost quintupled to $34.2 billion of total classified commitments, versus $6.9 billion in 2014.
Much of the risk to the financial system remains hidden for now, and may not be known until problems become severe. While larger producers have been able to withstand the pressure so far, energy consultancy IHS data shows more than a fifth of U.S. oil production comes from thousands of small, mostly private companies that do not file public disclosures about their finances-and rely heavily on bank credit for financing.
[Dec 17, 2015] This year car sales in China will be a staggering 23 million
The world's motor vehicle numbers are up 50% in the last 10 years
peakoilbarrel.com
Peter, 12/17/2015 at 3:19 amChina car sales have been increasing year on year regardless of oil price.http://www.statista.com/statistics/233743/vehicle-sales-in-china/
They want the things they see people in America using, this year car sales in China will be a staggering 23 million.
http://www.caam.org.cn/AutomotivesStatistics/20151216/0905181419.html
I know this is a couple of years old but China has a long way to go to get to the ownership levels of Europe, let alone the United States.
http://www.planetizen.com/node/58169
What will fuel these vehicles? Is China worried about peak oil like Ron is?
China knows how much oil Iraq can produce and most of it will end up in China
[Dec 17, 2015] I see no effort to stabilize world oil markets
Notable quotes:
"... I see no effort to stabilize this world markets. ..."
"... Thats b/c commodity prices are not based solely on Supply and Demand but also political manipulation by exporting state(s) as well as large corporate and private buyers who can and do horde a commodity or dump a commodity while playing the Commodity Options markets. ..."
"... Fundamentals do set the price of commodities however it must be understood that with commodities fundamentals can and are manipulated by Big Players, eg. the Kochs and energy in the USA; ..."
"... The point is commodity markets are gamed by the players if at all possible. There is very little actual hedging despite what you may believe b/c commodity contracts in the Options pits are unlimited, that is not limited to actual physical commodity available. ..."
"... Yes, core indexes are primarily a proxy for a tacit wage index ..."
"... I think as long as the price of Oil is below $40 a barrel inflation will remain nonexistent Ceteris paribus. ..."
"... If the FedRes had waited until oil went back above $40 a barrel given the other factors of our GDP remaining strong as they are today they would have been on sound basis for raising Interest rates. ..."
economistsview.typepad.com
Peter K. -> Paine, December 16, 2015 at 01:27 PMLike what's going on with oil prices? I see them like speculative bubbles. They can go up and down and sometimes move because of speculators or unusual events involving producer nations' economies. They are tenuously related to the real economy and wages and core inflation.Paine -> Peter K....Like with the housing bubble, if demand is artificially pumped up for too long, it will eventually come back down to a more relation to the real economy and incomes.
The crackpot conspiracy theorists and Austrians obsess over central banks and the "carry trade", but the reality is much less exotic.
Interestingly the post WWII [period] was filled with discussions of commodity markets and state stabilization mechanisms. I note this would hit economic rents not wages unlike core controlslikbez -> Peter K....I see no effort to stabilize this world markets. Fuel or Cereals or ores or metals by global inter state organizations. I note the great inelasticity of demand
anne -> Paine ..."I see them like speculative bubbles. They can go up and down and sometimes move because of speculators or unusual events involving producer nations' economies."
I respectfully disagree. Oil is a strategic commodity with huge geo-polical implications. Iraq war, Libya war and Syria war are all "wars for oil."
In other words low oil prices are critical for survival of neoliberalism as a social system. An the USA elite understands this perfectly well.
High oil prices essentially mean secular stagnation. Sooner or later you might have "USSR story" with neoliberalism in this case.
Current low oil prices mean approximately one half to one trillion dollar transfer from oil producing nations to G7 nations. So it is in the best interest of the USA and G7 to prolong this period as long as possible.
And I think today's FED raise would be completely impossible without low oil prices either.
I think people who organized and financed the current shale boom via junk bond debt are very bright people. Like chess players they say three moves ahead: the collapse of shale industry can be beneficial for the USA if this is the price to pay for several years of low oil prices.
And please note that number of bankruptcies so far has been very low. Somebody still refinances the fraction of total shale industry junk debt that comes due.
Of the 97 USA energy exploration and production companies rated by S&P, 75 are below investment grade ( http://www.bloomberg.com/news/articles/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill )
https://research.stlouisfed.org/fred2/graph/?g=2VZuim1dc -> Paine ...January 15, 2015
Producer & Import Commodities and Consumer Price Indexes, 2007-2015
(Percent change)
im1dc -> im1dc...That's b/c commodity prices are not based solely on Supply and Demand but also political manipulation by exporting state(s) as well as large corporate and private buyers who can and do horde a commodity or dump a commodity while playing the Commodity Options markets.
Fundamentals do set the price of commodities however it must be understood that with commodities "fundamentals" can and are manipulated by Big Players, eg. the Kochs and energy in the USA; a few years back pork bellies were secretly hanging in cold storage by the multiple tons by some midwestern concerns waiting for the day to sell (might have worked out for them given today's price of bacon); cotton is routinely horded and dumped according to the weather reports in cotton country globally; and, oil once there was an organization called OPEC.
anne -> Paine ...The point is commodity markets are gamed by the players if at all possible. There is very little actual hedging despite what you may believe b/c commodity contracts in the Options pits are unlimited, that is not limited to actual physical commodity available.
Why don't we see much on a commodity price index and an exploration of it here ?Paine -> anne...And an import price index ?
Yes, core indexes are primarily a proxy for a tacit wage index
And commodity prices tend to bob up and down around the core index
But why !
[What does it mean, that core indexes are a proxy for a wage index? ]
anne -> anne...The bundle of products in the core index are industrial complex products
Where dynamic and cyclical rents play very little part in price formationRents here might as well be wind falls except when they're contrived by policy
Even if inadvertently or collaterallyim1dc said...Yes, core indexes are primarily a proxy for a tacit wage index
The bundle of products in the core index are industrial complex products
Where dynamic and cyclical rents play very little part in price formationRents here might as well be windfalls except when they're contrived by policy
Even if inadvertently or collaterally[ Really interesting. ]
Paine -> im1dc...This I take to be the price of crude oil below $40. But she doesn't mention when she believes this "softness" might "abate" and that could in 2017 which makes raising interest rates today highly questionable, imo.
United States - 2h ago
"Federal Reserve's Yellen: Recent softness in US inflation data is attributed to 'transitory' factors that are expected to abate - @WSJ"
Read more on blogs.wsj.com
Syaloch -> im1dc...Core rates look pretty anemic to me. How about u all ? 2 % core as a ceiling is looking more and more like studied policy !
im1dc -> im1dc...This part has me scratching my head. Just wait until oil prices take off. Inflation target met! Economy saved! Uh, but that's the bad cholesterol, not the good cholesterol...
In her press conference after the rate hike announcement today Chairperson Yellen said the FedRes interest rate hike by .25% was "preemptive."
That means there is no inflation at present and the FedRes doesn't want there to be behind the curve if and when Inflation returns.
However as either Duy or Becker wrote Monday the FedRes has a very poor record of predicting Inflation b/c they've seen it coming and warning us about it for 3 years with no inflation in sight.
I think as long as the price of Oil is below $40 a barrel inflation will remain nonexistent Ceteris paribus.
If the FedRes had waited until oil went back above $40 a barrel given the other factors of our GDP remaining strong as they are today they would have been on sound basis for raising Interest rates.
That's my story and I'm sticking with it.
[Dec 17, 2015] Very few shale companies were cash flow positive even when oil price was at $90-100
peakoilbarrel.com
AlexS, 12/16/2015 at 11:25 amshallow sandIn fact, very few shale companies were cash flow positive even when oil price was at $90-100.
This article by Art Berman shows that, among 18 largest oil-weighted US independents, only 3 companies had years with positive cashflows in 2011-14:
Conoco (in 2013); Marathon Oil (in 2011, 2013 and 2014) and OXY (in 2012-14).
Note that all these companies are not pure shale players.http://www.artberman.com/the-oil-price-collapse-is-because-of-expensive-tight-oil/
[Dec 17, 2015] A Republican provision would lift the 40-year ban on exports of crude oil from the United States
www.nytimes.com
Fred C. Dobbs said...
'a Republican provision ... would lift the 40-yearilsm said in reply to Fred C. Dobbs...
ban on exports of crude oil from the United States.'House Reaches Accord on Spending
and Tax Cuts http://nyti.ms/1SZKkH2
NYT - DAVID M. HERSZENHORN and ROBERT PEAR - DEC. 15WASHINGTON - Republican and Democratic negotiators in the House clinched a deal late Tuesday on a $1.1 trillion spending bill and a huge package of tax breaks.
Legislative drafters, racing a midnight deadline, met the time limit for issuing the tax package but apparently missed it for the spending bill. That could push back a vote on the House floor by one day, until Friday.
The late-hour tension emphasized the deep disagreements over an array of policy provisions that have left weeks of negotiations tinged with acrimony. Since the Republicans took back control of the House in 2011, a majority in the party has routinely opposed compromise budget and spending measures, forcing party leaders to rely on Democrats for votes to clear the bills. All signs indicate that the same dynamic is playing out now.
But the House Democratic leader, Representative Nancy Pelosi of California, has voiced angry opposition to the huge package of tax breaks, saying it would unfairly benefit big business. And even Tuesday night, some Democrats in the House leadership said Ms. Pelosi was on the verge of turning against the omnibus spending measure because of her opposition to a Republican provision that would lift the 40-year ban on exports of crude oil from the United States.
Republican congressional leaders and the White House reached a budget accord in late October that set top-line spending levels for 2016 and 2017. Throughout Tuesday, major components of the spending legislation appeared to be falling into place, including a tentative agreement to alter major provisions of the Affordable Care Act, delaying a planned tax on high-cost health insurance plans and suspending a tax on medical devices for two years.
Lawmakers also said the package would include the reauthorization and expansion of aid for emergency workers suffering from ailments related to the Sept. 11, 2001, terrorist attacks in New York.
Paul D. Ryan has gained momentum in his early weeks as speaker, clearing a major highway bill and an important education measure. But the omnibus spending bill, needed to keep the government functioning, presented a particular challenge given the Obama administration's opposition to numerous policy prescriptions that Republicans wanted to attach to the must-pass bill.
There were indications late Tuesday that Mr. Ryan and Republicans had been forced to give substantial ground, and that the spending measure would not include provisions tightening restrictions on Syrian and Iraqi refugees. A stand-alone measure to tighten those restrictions passed overwhelmingly in the House, but the White House and Senate Democrats said they would block it.
And while Mr. Ryan has won plaudits from his rank and file for running a more inclusive House, the late rush to finish the spending deal seemed likely to test him on that front.
The question of delaying important provisions of the Affordable Care Act provided a surprising area of common ground - among Republicans who have sought to dismantle President Obama's signature health care law, and Democrats who had reservations about a tax on generous health plans. The White House and many economists have defended the "Cadillac tax" on high-cost employer-sponsored health plans as a way to reduce health costs and make the health care system more efficient.
But lawmakers said they had tentatively agreed to delay the tax, originally scheduled to take effect in 2018, by two years. Labor unions strenuously opposed the tax, saying it could lead to reductions in health benefits prized by their members. ...
Before exporting US oil the imports run 10 million bbl per day.To export .5 mbbl/day US imports will go to 10.5M..........
[Dec 17, 2015] OPEC production excluding Saudi and Iraq is down, this is totally due to 2 countries that have disintegrated into civil war
Notable quotes:
"... Looking at all the countries that have increased and declined in production over the last few years. It is quite clear that if peak oil is in 2015, then it is nothing to do with geological peak. ..."
"... OPEC production excluding Saudi and Iraq is down, this is totally due to 2 countries that have disintegrated into civil war. They are Syria and Libya which combined were producing 2.3 million barrels a day. The only way for these two countries to go is up and when that happens another 2 million barrels of oil will come on to the market. ..."
"... Iran will bring on an extra 500,000 to a million barrels per day in the next few years. ..."
"... Peter, Yogi Berra is supposed to have said: "Predictions are very hard, especially about the future."But Yogi never said that, it was Niels Bohr, the quantum physicists. Which makes it even more pertinent. ..."
"... Now you are getting your rocks off because a few people who predicted peak oil back a few years ago were wrong. And, you apparently believe, that because they were wrong back then that they will be wrong forever. ..."
peakoilbarrel.com
Peter, 12/16/2015 at 8:05 am2015 Peak oil.Ron Patterson, 12/16/2015 at 12:42 pmLooking at all the countries that have increased and declined in production over the last few years. It is quite clear that if peak oil is in 2015, then it is nothing to do with geological peak.
Those who try and pretend that above ground factors are a part of peak oil no not know what M. King Hubbert was talking about.
OPEC production excluding Saudi and Iraq is down, this is totally due to 2 countries that have disintegrated into civil war. They are Syria and Libya which combined were producing 2.3 million barrels a day. The only way for these two countries to go is up and when that happens another 2 million barrels of oil will come on to the market.
The naysayers on the Oildrum were so sure that Iraq would never produce 4 million barrels per day, it has surpassed that already. Optimistic and pessimistic forecasts put Iraq production at between 6 and 8 million barrels per day by 2020.
Iran will bring on an extra 500,000 to a million barrels per day in the next few years.
Claiming peak oil now is like someone claiming peak food during World War Two because lots of farmers were killed and millions of livestock killed and fields burned or left untended.
Peter, Yogi Berra is supposed to have said: "Predictions are very hard, especially about the future."But Yogi never said that, it was Niels Bohr, the quantum physicists. Which makes it even more pertinent.No one that I have ever read predicted the oil price increase post 2005. No one I know predicted the price collapse in 2008, or the long plateau of high prices that followed a couple of years later. I know of no one that predicted the shale revolution, or the oil price collapse of 2014-2015.
Hardly anyone predicted the dot com bust, I know of no one that predicted the mini computer revolution that did in my old mainframe company, Digital Equipment Corp. A very few predicted the housing bubble collapse. No one predicted that interest rates would stay near zero since 2008, seven years now.
Now you are getting your rocks off because a few people who predicted peak oil back a few years ago were wrong. And, you apparently believe, that because they were wrong back then that they will be wrong forever.
Well, I could expect no better logic from someone who has no idea what peak oil really is, a person who thinks it has nothing to do with above ground economics.
[Dec 16, 2015] Moody's in sharp cut to 2016 oil price forecasts
www.cnbc.com
Moody's lowered its price assumption in 2016 for Brent crude oil, the international benchmark, to $43 from $53 per barrel and for West Texas Intermediate (WTI) crude, the North American benchmark, to $40 from $48 per barrel.
[Dec 16, 2015] What Blows Up First Part 5 Shale Oil Junk Bonds
dollarcollapse.com
As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads.
The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. This will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around.
Bruce C
The whole "shale oil" theme is a "scam". The original investors fell for the very same thing that continues to be rehashed, so they engineered a way to unload it onto the "relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers realized that projected resources were not the same as extractable ones (at certain price levels) and that current production rates were subject to (downward) change (because the whole process is basically insane and extreme) it only makes sense that more funding could only be obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered, etc.)But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full of shit President, a desperate national central bank, and "TBTF" philosophy in general, this construct may well be supported way beyond its "natural" life.
History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the lows or the highs, and especially the durations of effort and "pragmatism" to advance certain agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in real time.
[Dec 16, 2015] Fossil fuels are here to stay
peakoilbarrel.com
Stavros H, 12/16/2015 at 9:36 pmParis Accord!It's just propaganda. Fossil fuels are here to stay. That's why we have a slow-motion WW3 in the Middle East right now.
If any major power on the planet believed that there was any alternative to fossil fuels, then there would be no wars in the Middle East.
[Dec 16, 2015] US shale oil industry will recover US Energy Sec
Notable quotes:
"... Oil production in the U.S. has not dramatically dropped, it has gone down a little bit but it's up by four million barrels a day from a few years ago ..."
"... I think this low price will remain for one or a couple of years. I think we will have some peaks and some spikes and some down trends, but it will be in the range of $50–$60, I cannot tell you exactly, but it will be very low, and that is affecting outside investment. ..."
www.cnbc.com
"Oil production in the U.S. has not dramatically dropped, it has gone down a little bit but it's up by four million barrels a day from a few years ago," U.S. Energy Secretary Ernest Moniz told CNBC.
"Our Energy Information Administration (EIA) expects that the average production this year will still be above 9 million barrels a day so the drop-off is not viewed as precipitous. Presumably, the expectations are over time that we'll see a slow reversal of that drop-off and that production will be restored."
... ... ...
"We are pursuing all the directions for reducing oil dependence," he added.
... ... ...
"I think this low price will remain for one or a couple of years. I think we will have some peaks and some spikes and some down trends, but it will be in the range of $50–$60, I cannot tell you exactly, but it will be very low, and that is affecting outside investment."
[Dec 16, 2015] Shale Drillers Feast on Junk Debt to Stay on Treadmill
Notable quotes:
"... "There's a lot of Kool-Aid that's being drunk now by investors," Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. "People lose their discipline. They stop doing the math. They stop doing the accounting. They're just dreaming the dream, and that's what's happening with the shale boom." ..."
"... "This is a melting ice cube business," said Mike Kelly, an energy analyst at Global Hunter Securities in Houston. "If you're not growing production, you're dying." ..."
"... Of the 97 energy exploration and production companies rated by S P, 75 are below investment grade, according to the credit-rating company. The average yield for energy exploration and production companies rated junk has declined to 5.4 percent from 8.1 percent at the end of 2009, compared with a drop to 5.21 percent from 9.06 percent for all companies rated below investment grade, according to Barclays. ..."
"... Still, the U.S. central bank has kept borrowing rates near zero since December 2008. An increase, expected in 2015, could cause investors to flee shale-drilling debt in search of safer returns. ..."
"... "It's a perfect set-up for investors to lose a lot of money," Gramatovich said. "The model is unsustainable." ..."
April 30, 2014 | Bloomberg Business
Rice Energy Inc., a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.Not bad for the Canonsburg, Pennsylvania-based company's first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells -- most named after superheroes and monster trucks -- and said it will spend $4.09 for every $1 it earns in 2014.
The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that's been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That's what keeps the shale revolution going even as companies spend money faster than they make it.
"There's a lot of Kool-Aid that's being drunk now by investors," Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. "People lose their discipline. They stop doing the math. They stop doing the accounting. They're just dreaming the dream, and that's what's happening with the shale boom."
... ... ...
Some companies have been able to drill themselves to better credit ratings. In December, Oklahoma City-based Continental Resources Inc., the most active driller in the Bakken, had its rating boosted from junk to Baa3, the lowest tier of investment grade, by Moody's Investors Service. Others, such as Chesapeake Energy Corp., have made changes that improved their standing with credit-rating companies. Chesapeake, based in Oklahoma City, has sold off $16 billion in assets in the past two years, cut spending and refinanced debt, and S&P said it's considering a higher rating for the company.
... ... ...
"This is a melting ice cube business," said Mike Kelly, an energy analyst at Global Hunter Securities in Houston. "If you're not growing production, you're dying."
Cheap Debt
Of the 97 energy exploration and production companies rated by S&P, 75 are below investment grade, according to the credit-rating company. The average yield for energy exploration and production companies rated junk has declined to 5.4 percent from 8.1 percent at the end of 2009, compared with a drop to 5.21 percent from 9.06 percent for all companies rated below investment grade, according to Barclays.
Cheap debt, along with advances in horizontal drilling and hydraulic fracturing, or fracking, have propelled U.S. oil output to a 26-year high. Last year, the country produced 87 percent of its own energy, putting it closer to independence from foreign sources than it has been since 1985, according to the Energy Information Administration.
It's an expensive boom. About $156 billion will be spent on exploration and production in the U.S. this year, according to a December report by Barclays analysts led by James West. That's 8.5 percent more than last year and outpaces this year's expected 6.1 percent growth in global expenditures, the analysts said.
Spending Treadmill
"Who can, or will want to, fund the drilling of millions of acres and hundreds of thousands of wells at an ongoing loss?" Ivan Sandrea, a research associate at the Oxford Institute for Energy Studies in England, wrote in a report last month. "The benevolence of the U.S. capital markets cannot last forever."
The spending never stops, said Virendra Chauhan, an oil analyst with Energy Aspects in London. Since output from shale wells drops sharply in the first year, producers have to keep drilling more and more wells to maintain production. That means selling off assets and borrowing more money.
"The whole boom in shale is really a treadmill of capital spending and debt," Chauhan said.
Access to the high-yield bond market has enabled shale drillers to spend more money than they bring in. Junk-rated exploration and production companies spent $2.11 for every $1 earned last year, according to a Barclays analysis of 37 firms.
... ... ...
Still, the U.S. central bank has kept borrowing rates near zero since December 2008. An increase, expected in 2015, could cause investors to flee shale-drilling debt in search of safer returns.
"It's a perfect set-up for investors to lose a lot of money," Gramatovich said. "The model is unsustainable."
[Dec 16, 2015] Cornering Russia, Risking World War III
Notable quotes:
"... "The chance for a durable Washington-Moscow strategic partnership was lost in the 1990 after the Soviet Union ended. Actually it began to be lost earlier, because it was [President Ronald] Reagan and [Soviet leader Mikhail] Gorbachev who gave us the opportunity for a strategic partnership between 1985-89. ..."
"... "And it certainly ended under the Clinton Administration, and it didn't end in Moscow. It ended in Washington - it was squandered and lost in Washington. And it was lost so badly that today, and for at least the last several years (and I would argue since the Georgian war in 2008), we have literally been in a new Cold War with Russia. ..."
"... "TODAY THERE ARE NO RED LINES. One of the things that Putin and his predecessor President Medvedev keep saying to Washington is: You are crossing our Red Lines! And Washington said, and continues to say, 'You don't have any red lines. We have red lines and we can have all the bases we want around your borders, but you can't have bases in Canada or Mexico. Your red lines don't exist.' This clearly illustrates that today there are no mutual rules of conduct. ..."
"... "Another important point: Today there is absolutely no organized anti-Cold War or Pro-Detente political force or movement in the United States at all –– not in our political parties, not in the White House, not in the State Department, not in the mainstream media, not in the universities or the think tanks. … None of this exists today. … ..."
"... In practice, President Assad's imposed ouster precisely will empower ISIS, rather than implode it, and the consequences will ripple across the Middle East – and beyond. ..."
"... Indeed, ISIS and the other Caliphate forces have very clear human motivations and clearly articulated political objectives, and none of these is in any way consistent with the type of Syrian State that America says it wants for Syria. This precisely reflects the danger of becoming hostage to a certain narrative, rather than being willing to examine the prevailing conceptual framework more critically. ..."
"... unfortunately, today's reports seem to indicate that the White House and State Department are thinking primarily how to counter Russia's actions in Syria. They are worried, it was reported, that Russia is diminishing America's leadership in the world. ..."
"... Washington's disinclination to permit Russia any enhancement to its standing in Europe, or in the non-West, through its initiative strategically to defeat Wahhabist jihadism in Syria, is not only to play with fire in the Middle East. It is playing with a fire of even greater danger: to do both at the same time seems extraordinarily reckless. ..."
"... As Europe becomes accomplice in raising the various pressures on Russia in Syria – economically through sanctions and other financial measures , in Ukraine and Crimea, and in beckoning Montenegro, Georgia and the Baltic towards NATO – we should perhaps contemplate the paradox that Russia's determination to try to avoid war is leading to war. ..."
"... Russia's call to co-operate with Western states against the scourge of ISIS; its low-key and carefully crafted responses to such provocations as the ambush of its SU-24 bomber in Syria; and President Putin's calm rhetoric, are all being used by Washington and London to paint Russia as a "paper tiger," whom no one needs fear. ..."
"... In short, Russia is being offered only the binary choice: to acquiesce to the "benevolent" hegemon, or to prepare for war. ..."
Consortiumnews
Official Washington is awash with tough talk about Russia and the need to punish President Putin for his role in Ukraine and Syria. But this bravado ignores Russia's genuine national interests, its "red lines," and the risk that "tough-guy-ism" can lead to nuclear war, as Alastair Crooke explains.We all know the narrative in which we (the West) are seized. It is the narrative of the Cold War: America versus the "Evil Empire." And, as Professor Ira Chernus has written, since we are "human" and somehow they (the USSR or, now, ISIS) plainly are not, we must be their polar opposite in every way.
"If they are absolute evil, we must be the absolute opposite. It's the old apocalyptic tale: God's people versus Satan's. It ensures that we never have to admit to any meaningful connection with the enemy." It is the basis to America's and Europe's claim to exceptionalism and leadership.
And "buried in the assumption that the enemy is not in any sense human like us, is [an] absolution for whatever hand we may have had in sparking or contributing to evil's rise and spread. How could we have fertilized the soil of absolute evil or bear any responsibility for its successes? It's a basic postulate of wars against evil: God's people must be innocent," (and that the evil cannot be mediated, for how can one mediate with evil).
Westerners may generally think ourselves to be rationalist and (mostly) secular, but Christian modes of conceptualizing the world still permeate contemporary foreign policy.
It is this Cold War narrative of the Reagan era, with its correlates that America simply stared down the Soviet Empire through military and – as importantly – financial "pressures," whilst making no concessions to the enemy.
What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy."
Moreover, apart from being agents of socialism, these states opposed Israel, too. So, on the principle that if these were the enemy, then my enemy's enemy (the kings, Emirs and monarchs of the Middle East) became the Bush neo-cons friends. And they remain such today – however much their interests now diverge from those of the U.S.
The problem, as Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).
What is more, the "Cold War narrative" simply does not reflect history, but rather the narrative effaces history: It looses for us the ability to really understand the demonized "calous tyrant" – be it (Russian) President Vladimir Putin or (Ba'athist) President Bashar al-Assad – because we simply ignore the actual history of how that state came to be what it is, and, our part in it becoming what it is.
Indeed the state, or its leaders, often are not what we think they are – at all. Cohen explains: "The chance for a durable Washington-Moscow strategic partnership was lost in the 1990 after the Soviet Union ended. Actually it began to be lost earlier, because it was [President Ronald] Reagan and [Soviet leader Mikhail] Gorbachev who gave us the opportunity for a strategic partnership between 1985-89.
"And it certainly ended under the Clinton Administration, and it didn't end in Moscow. It ended in Washington - it was squandered and lost in Washington. And it was lost so badly that today, and for at least the last several years (and I would argue since the Georgian war in 2008), we have literally been in a new Cold War with Russia.
"Many people in politics and in the media don't want to call it this, because if they admit, 'Yes, we are in a Cold War,' they would have to explain what they were doing during the past 20 years. So they instead say, 'No, it is not a Cold War.'
"Here is my next point. This new Cold War has all of the potential to be even more dangerous than the preceding 40-year Cold War, for several reasons. First of all, think about it. The epicentre of the earlier Cold War was in Berlin, not close to Russia. There was a vast buffer zone between Russia and the West in Eastern Europe.
"Today, the epicentre is in Ukraine, literally on Russia's borders. It was the Ukrainian conflict that set this off, and politically Ukraine remains a ticking time bomb. Today's confrontation is not only on Russia's borders, but it's in the heart of Russian-Ukrainian 'Slavic civilization.' This is a civil war as profound in some ways as was America's Civil War."
Cohen continued: "My next point: and still worse – You will remember that after the Cuban Missile Crisis, Washington and Moscow developed certain rules-of-mutual conduct. They saw how dangerously close they had come to a nuclear war, so they adopted "No-Nos,' whether they were encoded in treaties or in unofficial understandings. Each side knew where the other's red line was. Both sides tripped over them on occasion but immediately pulled back because there was a mutual understanding that there were red lines.
"TODAY THERE ARE NO RED LINES. One of the things that Putin and his predecessor President Medvedev keep saying to Washington is: You are crossing our Red Lines! And Washington said, and continues to say, 'You don't have any red lines. We have red lines and we can have all the bases we want around your borders, but you can't have bases in Canada or Mexico. Your red lines don't exist.' This clearly illustrates that today there are no mutual rules of conduct.
"Another important point: Today there is absolutely no organized anti-Cold War or Pro-Detente political force or movement in the United States at all –– not in our political parties, not in the White House, not in the State Department, not in the mainstream media, not in the universities or the think tanks. … None of this exists today. …
"My next point is a question: Who is responsible for this new Cold War? I don't ask this question because I want to point a finger at anyone. The position of the current American political media establishment is that this new Cold War is all Putin's fault – all of it, everything. We in America didn't do anything wrong. At every stage, we were virtuous and wise and Putin was aggressive and a bad man. And therefore, what's to rethink? Putin has to do all of the rethinking, not us."
These two narratives, the Cold War narrative, and the neocons' subsequent "spin" on it: i.e. Bill Kristol's formulation (in 2002) that precisely because of its Cold War "victory," America could, and must, become the "benevolent global hegemon," guaranteeing and sustaining the new American-authored global order – an "omelette that cannot be made without breaking eggs" – converge and conflate in Syria, in the persons of President Assad and President Putin.
President Obama is no neocon, but he is constrained by the global hegemon legacy, which he must either sustain, or be labeled as the arch facilitator of America's decline. And the President is also surrounded by R2P ("responsibility-to-protect") proselytizers, such as Samantha Power, who seem to have convinced the President that "the tyrant" Assad's ouster would puncture and collapse the Wahhabist jihadist balloon, allowing "moderate" jihadists such as Ahrar al-Sham to finish off the deflated fragments of the punctured ISIS balloon.
In practice, President Assad's imposed ouster precisely will empower ISIS, rather than implode it, and the consequences will ripple across the Middle East – and beyond. President Obama privately may understand the nature and dangers of the Wahhabist cultural revolution, but seems to adhere to the conviction that everything will change if only President Assad steps down. The Gulf States said the same about Prime Minister Nouri al-Maliki in Iraq. He has gone (for now), but what changed? ISIS got stronger.
Of course if we think of ISIS as evil, for evil's sake, bent on mindless, whimsical slaughter, "what a foolish task it obviously [would be] to think about the enemy's actual motives. After all, to do so would be to treat them as humans, with human purposes arising out of history. It would smack of sympathy for the devil. Of course," Professor Chernus continues, "this means that, whatever we might think of their actions, we generally ignore a wealth of evidence that the Islamic State's fighters couldn't be more human or have more comprehensible motivations."
Indeed, ISIS and the other Caliphate forces have very clear human motivations and clearly articulated political objectives, and none of these is in any way consistent with the type of Syrian State that America says it wants for Syria. This precisely reflects the danger of becoming hostage to a certain narrative, rather than being willing to examine the prevailing conceptual framework more critically.
America lies far away from Syria and the Middle East, and as Professor Stephen Cohen notes, "unfortunately, today's reports seem to indicate that the White House and State Department are thinking primarily how to counter Russia's actions in Syria. They are worried, it was reported, that Russia is diminishing America's leadership in the world."
It is a meme of perpetual national insecurity, of perpetual fears about America's standing and of challenges to its standing, Professor Chernus suggests.
But Europe is not "far away"; it lies on Syria's doorstep. It is also neighbor to Russia. And in this connection, it is worth pondering Professor Cohen's last point: Washington's disinclination to permit Russia any enhancement to its standing in Europe, or in the non-West, through its initiative strategically to defeat Wahhabist jihadism in Syria, is not only to play with fire in the Middle East. It is playing with a fire of even greater danger: to do both at the same time seems extraordinarily reckless.
Cohen again:
"The false idea [has taken root] that the nuclear threat ended with the Soviet Union: In fact, the threat became more diverse and difficult. This is something the political elite forgot. It was another disservice of the Clinton Administration (and to a certain extent the first President Bush in his re-election campaign) saying that the nuclear dangers of the preceding Cold War era no longer existed after 1991. The reality is that the threat grew, whether by inattention or accident, and is now more dangerous than ever."
As Europe becomes accomplice in raising the various pressures on Russia in Syria – economically through sanctions and other financial measures, in Ukraine and Crimea, and in beckoning Montenegro, Georgia and the Baltic towards NATO – we should perhaps contemplate the paradox that Russia's determination to try to avoid war is leading to war.
Russia's call to co-operate with Western states against the scourge of ISIS; its low-key and carefully crafted responses to such provocations as the ambush of its SU-24 bomber in Syria; and President Putin's calm rhetoric, are all being used by Washington and London to paint Russia as a "paper tiger," whom no one needs fear.
In short, Russia is being offered only the binary choice: to acquiesce to the "benevolent" hegemon, or to prepare for war.
Alastair Crooke is a British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West. [This article also appeared at the Conflicts Forum's Web site and is republished with permission.]
[Dec 16, 2015] Suicide Rate Soars In Alberta As Job Losses Mount
Notable quotes:
"... ...the province's energy industry reports having laid off more than 40,000 employees so far this year. ..."
"... For me it says something really about the horrible human impact of what's happening in the economy with the recession and the real felt effect, the real suffering and the real struggle that people are experiencing ..."
Dec 16, 2015 | OilPrice.com
...In the first six months of 2014, Alberta had 252 suicides, the Centre reports. In the same period this year, the latest for which such statistics are available, there were 327 suicides.
...the province's energy industry reports having laid off more than 40,000 employees so far this year. David Kirby, a counselor at the Calgary Distress Centre, tells the Canadian Broadcasting Corp. that this has led to a change in tone and frequency of calls to his office's distress line. He says callers' problems are more complex than usual and requests for counseling services is up by 80 percent.
"There might be substance abuse issues. There might be imminent financial collapse," Kirby said. "Anxiety, depression. Relationship conflict, maybe concurrent domestic violence. So there are many more things that people are trying to juggle, I think, at the same time."
Kirby added, "For me it says something really about the horrible human impact of what's happening in the economy with the recession and the real felt effect, the real suffering and the real struggle that people are experiencing."
[Dec 16, 2015] $30 Oil Will Accelerate Much Needed Rebound
Notable quotes:
"... Evercore ISI told The Houston Chronicle that the average breakeven cost for North American shale used to be $65 per barrel. Efficiency gains brought that threshold down to $50 per barrel. ..."
"... With a deeper contraction in rig counts and drilling levels, new production will slow to a trickle. ..."
"... depletion from wells drilled months and years ago will continue to mount, dragging down overall production. ..."
Dec 16, 2015 | OilPrice.com
...Hedges continue to roll off, removing the last bit of protection that some drillers have had up until now.
... ... ...
At $35 per barrel, even some of the most efficient shale drillers will struggle to turn a profit. "Nothing is economic at today's prices," James West, an analyst with Evercore ISI, told The Houston Chronicle. Drillers have gone to extraordinary lengths to reduce costs since mid-2014 when prices started to fall. That included focusing on the sweet spots, drilling more and longer laterals from a given wellpad, and even squeezing suppliers. Evercore ISI says that a third of the companies in the oilfield services sector may not survive 2016.
... ... ...
Evercore ISI told The Houston Chronicle that the average breakeven cost for North American shale used to be $65 per barrel. Efficiency gains brought that threshold down to $50 per barrel. That is an impressive achievement over the course of just 12 to 18 months, but it is still higher than current prices. With drilling services unable to discount their offerings any further, upstream producers will have to cut deeper.
As a result, sharper cutbacks in spending are just around the corner. Cowen & Co. expects the oil industry to slash spending by $115 billion next year compared to 2015 levels.
... ... ...
The fall in the rig count has accelerated in recent weeks after several months of remaining level. Baker Hughes says that the rig count fell by 28 last week, the sharpest decline in three months. That trend should continue with oil prices now at such low levels. With a deeper contraction in rig counts and drilling levels, new production will slow to a trickle. At the same time, depletion from wells drilled months and years ago will continue to mount, dragging down overall production.
In recent months, the Permian Basin has been dubbed one of the last shale regions where companies can still turn a profit. But it will be difficult for production to keep growing even in the Permian with oil prices in the mid-$30s.
[Dec 16, 2015] Saxo Bank predicted oil could return to $100 in 2016
yahoo.com
Oil at $100 'Outrageous' forecasts for 2016
The Danish investment bank's 10 "unlikely, yet perhaps underappreciated" events that could have significant consequences on the financial landscape also include the Russian ruble rising 20 percent versus the US dollar/euro basket.
... ... ...
Saxo Bank predicted oil could return to $100 in 2016 as "unease among weaker as well as wealthier members of the cartel over the supply-and-rule strategy continues to grow. The long-awaited sign of an accelerated slowdown in non-OPEC production finally begins to flicker. Suitably buoyed, OPEC catches the market on the hop with a downward adjustment in output. The price mounts a quick recovery with investors scrambling to re-enter the market to the long side - once again bringing $100/barrel prices onto the horizon."
[Dec 16, 2015] It is especially dark just before the sunrise
Notable quotes:
"... the market forces point to weakness for oil for at least until summer 2016. Depending on how fast US production will fall, oil prices will recover. What I can see now oil will find a bottom over the next three months. ..."
peakoilbarrel.com
oldfarmermac, 12/16/2015 at 7:14 amIt is obvious enough that a lack of access to capital is already a huge problem and apt to get worse, maybe even for big conventional oil companies- if they are privately owned.shallow sand, 12/15/2015 at 5:53 pmBut it is my understanding that around ninety percent of the worlds oil is owned by various governments.
I am wondering how lack of credit will affect state owned and operated producers, and how big their total or combined market share is.
In a country such as Saudi Arabia, my guess would be not at all. But in Mexico, well, the Mexican government is not exactly rolling in dough.
Any comments from people who know more about the finances of national oil companies will be appreciated, and thanks in advance.
Heinrich. HH natural gas closed today at the lowest level since 1999.shallow sand, 12/15/2015 at 5:58 pmI have to believe these gas prices are destroying future supply in the US, at least for the time being. Would be like oil dropping to $12 now. I guess I shouldn't feel sorry for myself. At least I own no working interests in conventional gas.
Also note CHK fell below $4. Range and Cabot are at multi year lows.Heinrich Leopold, 12/16/2015 at 3:08 amLooks like CHK per BOE in Q4 will be under $10. I wonder if they are still having to pay others to take their NGLs?
shallow sand,shallow sand, 12/16/2015 at 5:04 amIn my view it is the same situation as in 1998, when many people assumed that oil and gas will be phased out due to the internet. The forces are grinding for some time, yet eventually they are building the base for an huge increase in prices. Just yesterday, there were rumors that a major energy fund has closed redemptions. This will limit new investments from the retail side abruptly. Working in the commodity business is the art to survive the cycles. It is not a buy and hold business. The lower prices go now, the higher they will be later. It is a complete shake out.
Heinrich. I agree with you. I tend to agree with the saying, "History usually repeats itself.". I also tend to agree with the sayings, "The bigger they are, the harder they fall," and Timing is everything."Heinrich Leopold, 12/16/2015 at 8:46 amMy view is that the above very much apply to commodities, particularly oil and gas.
Meanwhile, there are no signs that demand for either is decreasing.
Question to me is not if, but when there will be a turnaround in both. Look for signs of that turnaround when investors look at energy producers in an extremely unfavorable light. Many more defaults in 2016 will speed up the process.
shallow sand,Long term I am a strong bull of oil and gas. Yet the market forces point to weakness for oil for at least until summer 2016. Depending on how fast US production will fall, oil prices will recover. What I can see now oil will find a bottom over the next three months. The oil bull is just shaking out the weak hands.
[Dec 16, 2015] Are Low Crude Oil Prices a 'Boom Or A Curse' For The World Economy
Notable quotes:
"... according to various reports, most of the shale oil wells are profitable only when priced above $60/barrel. ..."
"... A failure of the companies with heavy loans is likely to strain US Banks, which have loaned the monies to said companies. Along with the crude oil producers, the associate industries ie: the equipment suppliers, the hotel industry, the truck companies, etc. are also struggling, due to a decline in prices. ..."
"... With many drillers cutting costs, unemployment within this sector is on the rise, and wages are either stagnant or being reduced. New investments are being postponed. Associate companies, which supply to the oil producers, are slowly going out of business . ..."
Safehaven.com
Shale oil drilling is unprofitable at these levels:
The boom in oil prices, and an improvement in fracking technology, has led to a rapid growth in the number of shale oil wells. However, according to various reports, most of the shale oil wells are profitable only when priced above $60/barrel. Some of these companies have taken large loans, in order, to expand their production, and with prices remaining low, these loans are likely to become unserviceable. A failure of the companies with heavy loans is likely to strain US Banks, which have loaned the monies to said companies. Along with the crude oil producers, the associate industries ie: the equipment suppliers, the hotel industry, the truck companies, etc. are also struggling, due to a decline in prices.
With many drillers cutting costs, unemployment within this sector is on the rise, and wages are either stagnant or being reduced. New investments are being postponed. Associate companies, which supply to the oil producers, are slowly going "out of business".
As the US economy is very diverse, the overall impact is not alarming, however, US States that are dependent on the shale oil drilling, will almost certainly take a hit.
[Dec 15, 2015] FOMC Tomorrow, Cargo Cult Economics
Notable quotes:
"... So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. ..."
Jesse's Café Américain
...There is a heavy lean towards believing that the Fed will raise rates 25 basis points.
Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next year. Let's see if they can pull that one off. It seems aspirational, if one wishes to have room to cut when their latest folly falls back upon them.The idea that since recoveries are often accompanied by inflation, if we can only use monetary policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.
Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the organic form of growth in the economy that will provide all the inflation that one might expect.
But to pursue this effete, top down stimulus focused primary on the still unreformed Banking system and the wealthiest top few percent is beyond policy error, and more policy malpractice. And of course, if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore Toto.
So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. The miners have been beaten bloody.
[Dec 15, 2015] What it costs to produce oil
Looks like a fact free reporting. Prices probably in 2015 dollars. US shale breakeven prices is assumed to be over $50. Gulf oil prices are close to that as cost of drilling is much higher, up to million a day. The article also has slide with brake between capital cost and recurrent costs.
Peak Oil News and Message Boards
Adapted from What it costs to produce oil - CNNMoney
Overall cost to produce one barrel of oil
United Kingdom $52.50 Brazil $48.80 Canada $41.00 United States $36.20 Norway $36.10 Angola $35.40 Colombia $35.30 Nigeria $31.60 China $29.90 Mexico $29.10 Kazakhstan $27.80 Libya $23.80 Venezuela $23.50 Algeria $20.40 Russia $17.20 Iran $12.60 UAE $12.30 Iraq $10.70 Saudi Arabia $9.90 Kuwait $8.50 Source: UCube by Rystad Energy; Interactive published Nov. 23, 2015
Notes/Methodology
This chart was compiled using data from more than 15,000 oil fields across 20 nations. The production costs were calculated by including a mix of capital expenditures and operational expenditures. Capital expenditures included the costs involved with building oil facilities, pipelines and new wells. Operational expenditures included the costs of lifting oil out of the ground, paying employee salaries and general administrative duties.
Torsion, Nov 28, 2015
Do these figures include taxes? Are the criteria standardized or as self-reported by the different countries using their own definitions? Data as presented is of limited value.
[Dec 15, 2015] OPEC says low oil price won't continue, may rise within a year
Notable quotes:
"... I've been in the oil business all my life. I saw six cycles - I saw very high price, I saw low price, and this is one of them. This will not continue, ..."
"... a planned $130 billion in investment being cut this year, ..."
"... non-OPEC supplies are set to decline by about 400,000 bpd next year ..."
www.cnbc.com
"I've been in the oil business all my life. I saw six cycles - I saw very high price, I saw low price, and this is one of them. This will not continue," Badri said at the first OPEC-India Energy dialogue in New Delhi.
...a planned $130 billion in investment being cut this year, Badri said, adding that non-OPEC supplies are set to decline by about 400,000 bpd next year.
[Dec 15, 2015] Oil output declines significant in 2016 Petrie
Notable quotes:
"... Iran's leaders have said they plan to bring 500,000 bpd to markets as soon as possible, and they anticipate reaching 1 million bpd. Iran is Saudi Arabia's primary regional adversary. ..."
Dec 15, 2015 | cnbc.com
... Petrie, who has advised top oil exporter Saudi Arabia, said he believes the Saudi-spearheaded OPEC policy is meant to exert pressure on U.S. shale oil producers, address high crude output in Russia, and respond to the United States cooperation with Iran to reach a deal on the Persian country's nuclear program that would lift long-running international sanctions.
Iran's leaders have said they plan to bring 500,000 bpd to markets as soon as possible, and they anticipate reaching 1 million bpd. Iran is Saudi Arabia's primary regional adversary.
...The nation has burned through about $91.5 billion of its assets, reducing total foreign reserves from a peak of $746 billion last August to a still-healthy $654.5 billion in September, according to the IMF.
[Dec 15, 2015] Magnum Hunter latest oil producer to seek bankruptcy
Magnum Hunter ranks among the biggest energy producers to file for bankruptcy this year, joining Samson Resources, Sabine Oil & Gas, Quicksilver Resources and Energy & Exploration Partners.
Notable quotes:
"... ...The company entered into a restructuring agreement that will convert its funded debt into equity, substantially reducing its more than $1 billion in debt. ..."
"... Magnum Hunter had about $1.1 billion in assets and $1.5 billion in debts, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware. ..."
www.cnbc.com
Magnum Hunter ranks among the biggest energy producers to file for bankruptcy this year, joining Samson Resources, Sabine Oil & Gas, Quicksilver Resources and Energy & Exploration Partners.
...The company entered into a restructuring agreement that will convert its funded debt into equity, substantially reducing its more than $1 billion in debt.
...To fund its operations during its bankruptcy, the company's lenders agreed to provide up to $200 million in financing, which will also convert into equity when Magnum Hunter emerges from bankruptcy, according to the statement.
...Irving, Texas-based Magnum Hunter had about $1.1 billion in assets and $1.5 billion in debts, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware.
[Dec 15, 2015] Government Influence Over Asset Prices Growing
Notable quotes:
"... Submitted by Leonard Brecken via OilPrice.com, ..."
"... The facts are OECD stocks have fell in October, not increased. That runs against the generally accepted belief that storage capacity is full and we are oversupplied by around 2 million barrels per day (mb/d). That suggests that the IEA is underestimating demand and grossly exaggerating inventory levels. ..."
"... Further, the EIA has consistently overstated supply in its weekly data release, adjusting inventory up by seemingly arbitrary amounts. Now, according to Cornerstone Analytics, last week we find that the EIA is under-sampling small producers whose production is rapidly declining. Also, monthly production figures continue to be inflated. This conclusion from Cornerstone Analytics is noteworthy: ..."
"... Our sense is that the monthly survey numbers for production have 'undersampled' output from small independent producers whose output has been more negatively impacted from the activity fall-off as compared with the larger producers ..."
"... Between these imprudent trading practices and the fact that assets are being controlled by mad central banks pursuing a political agenda –makes it extremely difficult for those who do real fundamental research. In the end it lengthens the time horizon when fundamentals become accurately reflected in prices. It also begs the question of whether markets are actually free or not, as all rational thinking goes out the window. ..."
Zero Hedge
Submitted by Leonard Brecken via OilPrice.com,
Where most analysis on oil markets tends to fall short is on the depth of analysis vs. reading headlines and group think, the latter of which is heavily shaped by misinformed media and government propaganda.
The facts are OECD stocks have fell in October, not increased. That runs against the generally accepted belief that storage capacity is full and we are oversupplied by around 2 million barrels per day (mb/d). That suggests that the IEA is underestimating demand and grossly exaggerating inventory levels.
Further, the EIA has consistently overstated supply in its weekly data release, "adjusting" inventory up by seemingly arbitrary amounts. Now, according to Cornerstone Analytics, last week we find that the EIA is under-sampling small producers whose production is rapidly declining. Also, monthly production figures continue to be inflated. This conclusion from Cornerstone Analytics is noteworthy:
"On the USA, one point we will leave you with is that there appears to be some scope for the DOE to revise down American oil production figures for the past few months. Our sense is that the monthly survey numbers for production have 'undersampled' output from small independent producers whose output has been more negatively impacted from the activity fall-off as compared with the larger producers."
The problem these days is that markets are controlled by people who don't take care to delve deep into numbers and simply don't question numbers being fed to them by media or government agencies. Instead they trade off headlines and care less about their validity because it suits their agenda, ideology or, even more likely, unconscious bias, reinforced by propaganda.
Between these imprudent trading practices and the fact that assets are being controlled by mad central banks pursuing a political agenda –makes it extremely difficult for those who do real fundamental research. In the end it lengthens the time horizon when fundamentals become accurately reflected in prices. It also begs the question of whether markets are actually free or not, as all rational thinking goes out the window.
What is more worrisome is the question of how deep governments are directly or indirectly influencing asset prices. As we stated in our last piece, it is clear that the Federal Reserve is doing both, and on a historic scale. The media's role in moving markets has increased enormously over the past two decades. In the past the media was more subtle, but now so many outlets do not even hide their agenda or ideology.
Governments too morphed from influencing assets and corporate investments indirectly through tax policies or regulatory agencies such as the EPA, to what is now occurring through the Fed. However, we may have taken things one step further as now the Secretary of State is referencing influencing markets through the recent climate change agreement that passed. I first came upon this quote below via a Yahoo! Article, which struck me as odd given the direct reference to investors to liquidate investments in fossil-based energy, particularly at a time they are already being liquidated. On December 11 several high-yield bond funds announced restricted redemptions tied to plunging illiquidity and prices in high-yield energy. I believe this and concern over interest rates sparked a sell off in almost every asset class on Friday.
... ... ...
order66
Just now it's growing? Dude, they've controlled asset prices for nearly a decade now.
LawsofPhysics
LOL!!! Try 40+ years, some might argue over 100 years.
MalteseFalcon
The government is manipulating the facts about oil prices and oil reserves?
No way, man!
[Dec 15, 2015] Oil's Rout Ripples Beyond Energy ETFs
Notable quotes:
"... Paying less at the pump might seem like a good thing, but the drop in crude has reinforced fears over slow economic growth and deflation ..."
Investors.com
But oil's collapse to levels last seen in 2008-09 is smelling more acrid.
"Paying less at the pump might seem like a good thing, but the drop in crude has reinforced fears over slow economic growth and deflation," Koesterich wrote Monday.
United States Oil (ARCA:USO), the most popular oil commodity ETF, has given up 20% in the past month as WTI crude, the U.S. benchmark, fell briefly below $35 a barrel. Year to date, it's down roughly 45% after falling an almost equal amount in 2014.
[Dec 15, 2015] Even if the RRC report for October is still resilient, the November and December reports will show a massive decline
Rig count crash suggest a year of flat or declining global oil production
Notable quotes:
"... But for rather a lot of months now we've seen production funded by . . . loans that won't be repaid. That is what default is, after all. And thus you can get uneconomical oil to flow. ..."
"... I'm inclined to suspect now that a lesson is being learned and that is if you HAVE to have it, you'll get it. If loans and a history of default prevent production and you HAVE to have it, then the next loan can be backstopped by a central bank. Or a central govt can dictate price. ..."
"... There is an interesting post http://www.highyieldbond.com/high-yield-bond-issuance-shuts-down-as-withdrawals-oil-worries-roil-markets/ . The bond market is now shut for oil companies. ..."
"... In my view it will be even difficult for big oil to issue bonds. It remains to be seen how long companies can continue capital spending without bond market and future markets. In Texas, well completions went down by 40% from October to November alone. ..."
"... Even if the RRC report for October is still resilient, the November and December reports will show a massive decline. In my view it is very unwise at this point to increase interest rates as this makes the situation even worse. ..."
peakoilbarrel.com
RSAldeen, 04/29/2015 at 1:50 pmOil is very precious raw material, our demand for oil increases day after day, year after year and century after another. The search and use other sources such as atomic, wind, tide, solar, geothermal and others will continue but the prospects / trend to keep on using oil as a main source of energy still quite high and will continue with time due to the following reasons:
- Worldwide population trend is going up drastically. (Main factor).
- Oil as a source of energy still quite cheap in comparison with other sources.
- It may be easy to apply the new technology in certain fields but not for all fields.
- Oil proofs to be available all over the world and at different levels, hence oil production cost will suit all the times and condition worldwide but not for all the countries.
- Oil is quite important as a raw material for petrochemical products, and our needs for plastic, paints and other products increases day after day drastically.
- Oil age will continue for more than few decades to come if not for a century and prices are subject to market condition, political matters, and other technical issues.
Watcher says: 12/14/2015 at 7:40 pm
I was in the camp of defaults (which appear to be arriving) raising the breakeven price for the future.Heinrich Leopold, 12/15/2015 at 4:25 amBut for rather a lot of months now we've seen production funded by . . . loans that won't be repaid. That is what default is, after all. And thus you can get uneconomical oil to flow.
I'm inclined to suspect now that a lesson is being learned and that is if you HAVE to have it, you'll get it. If loans and a history of default prevent production and you HAVE to have it, then the next loan can be backstopped by a central bank. Or a central govt can dictate price.
This will affect peak. Anything that raises production affects peak.
shallow sand,Heinrich Leopold, 12/15/2015 at 9:55 amYour comment meets exactly my point. Oil production and oil reserves are a different pair of shoes. High oil production does not necessarily mean high oil reserves – and vice versus.
Even if worldwide reserves are lower, production could be very high for a very long time – depending on operating costs and liquid capital markets. The recent stunning high shale oil production increase reflected mainly the combination of highly liquid capital markets and high oil prices.
Historically this has been quite unique as high oil prices always meant high inflation and tight capital markets. However, the situation has changed and we have now the unique scenario of low oil prices and tight capital markets. This is very unusual as low oil prices suggest low inflation and thus in theory capital markets should be very liquid. This unique combination of low oil prices and tight capital markets is now the basis for my estimate of much lower oil and gas production.
There is an interesting post http://www.highyieldbond.com/high-yield-bond-issuance-shuts-down-as-withdrawals-oil-worries-roil-markets/. The bond market is now shut for oil companies.
In my view it will be even difficult for big oil to issue bonds. It remains to be seen how long companies can continue capital spending without bond market and future markets. In Texas, well completions went down by 40% from October to November alone.
Even if the RRC report for October is still resilient, the November and December reports will show a massive decline. In my view it is very unwise at this point to increase interest rates as this makes the situation even worse. Much lower natgas and oil production will trigger also a price spike of natgas as well as a dollar slump and lead to extreme high inflation. So, a rise in interest rates is counter-productive.
Here is a chart demonstrating my comment above.
[Dec 15, 2015] OPEC predicts rivals' supply to contract in 2016
Non-OPEC production is forecast to fall by the end of 2016 and then set to rebound into 2017.
Notable quotes:
"... For 2016, non-OPEC oil supply is now expected to contract by 380,000 barrels a day to average ..."
"... OPEC raised its forecast for world oil demand growth in 2015, predicting it will rise by 1.53 million barrels ..."
"... The organization predicted oil demand would increase by around 1.25 mb/d to average 94.14 million barrels a day next year ..."
"... U.S. tight oil production – the main driver of non-OPEC supply growth – has been declining since April 2015. This downward trend should accelerate in coming months, given various factors, mainly low oil prices and lower drilling activities. ..."
www.cnbc.com
"For 2016, non-OPEC oil supply is now expected to contract by 380,000 barrels a day to average 57.14 mb/d, following a downward revision of 0.25 mb/d," from last month's report.
Just as the supply from non-members was forecast to dwindle, OPEC raised its forecast for world oil demand growth in 2015, predicting it will rise by 1.53 million barrels per day (mb/d) to average around 92.88 mb/d – up 30,000 barrels from the previous month's forecast – and for 2016.
The organization predicted oil demand would increase by around 1.25 mb/d to average 94.14 million barrels a day next year, upping its forecast mainly as a result of "better-than-expected consumption in Europe and Other Asia," an area including India, Indonesia and Thailand among other Asian economies but not China.
"Persistently low oil price levels in 2015 have caused the U.S. shale oil sector to shrink," OPEC noted. "Shale drillers in the U.S. have slashed spending and cut the number of workers this year as prices have fallen. U.S. tight oil production – the main driver of non-OPEC supply growth – has been declining since April 2015. This downward trend should accelerate in coming months, given various factors, mainly low oil prices and lower drilling activities."
[Dec 15, 2015] The declining performance of all Bakken wells
Notable quotes:
"... So about 7% of the ND Bakken wells were refracked since 2008, and that had a very significant impact on the plays' total output. ..."
"... Refracks are very efficient in terms of maintaining production, although, as shallow sand pointed out, the economics are an issue ..."
"... Without refracks, Bakken wells declines rates are much higher ..."
"... Posted oil prices are about $25. Gas about $1.60. Each needs to at least triple for activity to be economic (i.e. my view- chance of payout in five years or less). ..."
peakoilbarrel.com
Enno Peters, 12/14/2015 at 1:37 am
I belief I found a way to determine which wells have been refracked, using some simple rules (related to the size and duration of the production increase). I found about 750 Bakken wells since 2008 that have been refracked, which is of a similar magnitude as I have read from several sources. It may not be completely accurate, but I belief it to be roughly so.Enno Peters, 12/14/2015 at 1:38 amBelow you can see the performance of all Bakken wells (about 9850) since 2008 (graph 1), and of the same wells but then excluding those refracked wells (about 9100, graph 2).
Graph 2. The effect is much more severe than I expected: Take out the wells that appear to have been refracked, and the performance of the remaining wells after 7 years drops by about 40%.coffeeguyzz, 12/14/2015 at 4:53 am
Ennoshallow sand, 12/14/2015 at 6:54 amI wrote an original comment that is not getting posted … The significance of what you show in those two charts cannot be overstate. HUGE! I suspect the halo effect, rather than actual reentering/refrac'ing plays a role as the 750 figure seems high. Data from the ND subscription service should provide clarity.
On another site, an industry professional indicated that his company is very secretive about this stuff as they are still trying to understand what is actually happening.
Good stuff, Enno, as always.
Enno. Again, thank you for this the information. To me it confirms the expensive nature of the Williston Basin. Rune indicates refracks are generally not economic.Fernando Leanme, 12/14/2015 at 7:27 amFurther, it would seem to me that more recent mega frack practices would limit the viability of going back in again on newer wells?
And the wells supposedly refracked have higher cumulative recovery than the others?Glenn Stehle, 12/14/2015 at 7:55 amWow! What a difference. When you revealed the first graph on a thread a few posts back, I was singing and dancing, "We're in the money!" But now it looks like those flat decline curves only come as a result of a lot of very expensive workovers.AlexS, 12/14/2015 at 8:28 amNot good.
Enno, thanks a lot for your information.shallow sand, 12/14/2015 at 9:44 amVery interesting!
So about 7% of the ND Bakken wells were refracked since 2008, and that had a very significant impact on the plays' total output.
My conclusions:
1) Refracks are very efficient in terms of maintaining production, although, as shallow sand pointed out, the economics are an issue
2) Without refracks, Bakken wells declines rates are much highercoffee. It appears there is no "fat tail" unless wells are worked over after a few years.One good thing about this is that companies do not have to do these work overs when prices are low. As long as they keep producing some amounts of oil from the wells, they can hold off on work over until prices are better.
Seems like this is not any different than what we do. We do not refrack many wells, but we do sand pump and acidize them, which brings up production. A lot less expensive and less regulatory work to do these kinds of jobs, as opposed to drilling a new well.
Wonder if these costs are figured into the PV10 calculations? How many refracks to we need to expect to get to EUR 800K?
The Williston Basin has always been an expensive place to operate. Posted oil prices are about $25. Gas about $1.60. Each needs to at least triple for activity to be economic (i.e. my view- chance of payout in five years or less).
[Dec 15, 2015] This Is How The Credit Crisis Spreads To Stocks
Notable quotes:
"... Yeah but its junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong? ..."
"... The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational. ..."
"... Charts: Bloomberg ..."
"... And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations. ..."
"... Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia? ..."
"... ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves. ..."
"... What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy." ..."
"... Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber. ..."
"... if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia. ..."
"... Our DC Beltway and NYC elites are wildly delusional about their ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated. ..."
"... The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat. ..."
"... Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population ..."
"... The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that Americans from all walks of life are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake. ..."
"... Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a fight against Islam ; TPTB certainly seem to be giving this angle their best shot these days. ..."
"... What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity. ..."
"... Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you. ..."
Dec 14, 2015 | zerohedge.com
"Yeah but it's junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong?"
The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational.
Here is Goldman's David Kostin explaining who the biggest buyer of stocks is (and will be) - as a reminder, it's not "mom(o) and pop".
We expect corporations will continue to be the largest source of demand for stocks, with net purchases by US companies totaling $450 billion, equal to about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($225 billion), equity mutual funds ($200 billion), life insurance ($50 billion), and foreign investors ($25 billion). We forecast net outflows from households ($25 billion) and pensions ($150 billion).
Well, the cost of funding that carnival of financial engineering and artifice (just ask Nordstrom, Macy's, IBM and so on) is soaring, as high-yield decompression pukes over into investment grade markets, spiking the cost of funding and crushing the 'economic feasibility' of debt-funded shareholder-friendliness:
Charts: Bloomberg
And, in case you thought "well, cost of funding has only gone up 30-40bps in IG, they can handle that," you are wrong! To all those who claim US corporate balance sheets are in great shape - they are not! Leverage is at record highs and interest coverage near record lows for the IG universe. And judging by today's collapse in Investment Grade bond prices, the market just woke up to this reality.
Simply put, the Fed's policies enabled massive releveraging and now corporations are stuck with few options to escape a vicious circle - which by the way, is why it's called the credit 'cycle'.
And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations.
Selected Skeptical Commentsstrannick
Wow, the foremost scholar on Russia is one dumb motherfucker. Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia?Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).
sam i am
The Western nations underestimated the horrible trauma that the Russian society experienced in 1990s when the Russians peacefully surrendered their society, their lands, their economy to the West, hoping to be accepted and treated as equals by the "world" community. Instead, the West dealt with the Russian skillfully, decisively, and mercilessly, just like the American Indians were dealt with by the colonizers. The Russia was gutted, scalped, and hanged on a cross to die slow and painful death. Some say that Russia like a cat has nine lives. Others say that Russia died and resurrected like Phoenix or Jesus. Open wounds have not healed yet, when after the February 22nd 2014 putsch in Kiev, and publication of the US Department of Defense tenders on the constructions of facilities in Sevastopol for the US fleet and NAVY everyone in Russia, including its government, understood that it was a declaration of war, and stood up in arms.
http://thesaker.is/ukraine-sitrep-december-13th-2015-by-scott/
Global Observer
...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves.
Ghordius
"It is the basis to America's and Europe's claim to exceptionalism and leadership". seriously?
"What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy.""
so? yes, King Hussein is right, in the very beginning it was mainly the Soviet Union that fostered Ba'athism. and again, so? the Soviet Union is no more
junction
Obama is stark raving mad, and his female neocons - Nuland, Powers and assorted other power hungry bitches - are too busy following orders from Israel to realize they are on a treasonous path to World War III. Putin will vaporize Raqqa with one of his new nuclear weapons that works like a neutron bomb. In all likelihood, when the first Kalibr cruise missiles hit ISIS/Bush's Captagon meth plant in Raqqa, the U.S. National Reconnaissance Office couldn't even detect them to warn CIA black ops spies in the drug facility to run. Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber.
Global Observer
NOBODY WINS A NUCLEAR WAR.
I hope that Putin and his Military Advisors are smart enough to figure that out.
They are. But what the Americans don't seem to be aware of is that for some there are worse things than being dead and in order to avoid these worse things, people are prepared to die and nations willing to risk annihilation.
Russia is willing to risk annihilation in order to be able to live peacefully and with dignity. Is the USA willing to risk annihilation in order to be able to continue to insult Russia and bully the world? If the USA is indeed willing to risk annihilation to continue to do that, it would be silly for Russia not to attack the USA while she still can, because if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia.
monk27
If the US will be stupid enough to start a war with Russia or/and China, it will lose such a fight big time. That will be the end of America as we know it, and also the end of the contemporary Western "elite" whether they believe it or not. Their move...
MrPalladium
"and also the end of the contemporary Western "elite"
Our DC Beltway and NYC elites are wildly delusional about "their" ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated.
No intelligent power like Russia is likely to waste a perfectly good nuke on Paducah Kentucky, but it is certain that the entire population of Manhattan Island, and the DC beltway will be vaporized along with West Los Angeles (propaganda production central) and Silly Valley. The effluvia of the silos in Iowa and Nebraska can be intercepted. Remarkably, our elites and their supporting substrata still believe that the main combatants will be rural boys from Texas and Tennessee which in a strange turn of justice will be the safest places to hide. Our 400 or so billionaire oligarchs who control this country are concentrated in about 20 zip codes. Do you really think that Russia hasn't already targeted them? The whole point of nuclear war is to decapitate the regime but spare the resources and general population for future use, and the real regime, the oligarchs, occupy a very modest and easily cleared amount of territory.
The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat.
August
I do like the way you think, Mr. P, and it's entertaining to speculate about war, TEOTWAWKI etc.
Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population (which is also rather dumbed-down, infantile and irresponsible). The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that "Americans from all walks of life" are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake.
Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a "fight against Islam"; TPTB certainly seem to be giving this angle their best shot these days.monk27
"They" (i.e. the Russians) stand a better chance to survive than us. Ours is a much more complex AND violent society than theirs. The Mad Max way of living works only in movie...
Tall Tom
NO. THEY DO NOT. NUCLEAR WINTER, PAL.
You will either freeze to death or succumb to suffocation due to LACK OF OXYGEN.
The ash will blot out most sunlight. Plants require sunlight to photosynthesize Carbon, from CO2, into complex sugars and starches.
They transpire OXYGEN. Without the plants...YOU ARE DEAD.
Watch this video. Even the former Soviet Academy of Sciences concur with this modeling. NOBODY WILL SURVIVE. It is GLOBAL EXTINCTION. It is a God Damned Extinction Level Event.
https://www.youtube.com/watch?v=WCTKcd2Ko98
I am a physicist. This is valid science. My warning is not without a solid foundation.
Volkodav
Soviet did not so much invade. Soviet was already, support moderate government, building infrastructure, schools and other. Girls attended school in dresses.
Search for photos Kabul in 60's 70's
Moderate leader was murdered in coup by extremist backed from outsiders. Russians, moderates and monorities were slaughtered. That is when Soviet, after much concern debate, sent additional forces. Soviet was not defeated, but withdrew orderly result of collapse of funds, problems.
Soviet controlled more of country than west coalition ever did and alone, against outside interferences aiding radicals there was some beginning of what is today, some nasty creations. You never understood there was other side, moderate and civil
ebworthen
What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity.
Insurrexion
Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you.
[Dec 15, 2015] There is good reason to believe that the race between depletion and production growth is basically over and that depletion has won
Notable quotes:
"... If you believe that peak is not yet but will soon be, then the current low price, plus consumption over the next few years,, plus the current and probable low level of investment for the next few years, plus the declining quality of the remaining endowment of oil in the ground, all add up to a pretty good argument that oil has or soon will peak, and for good. ..."
The Wet One, 12/14/2015 at 11:06 am
So with WTI oil under $35 this a.m., I wonder what this entails for peak oi?oldfarmermac, 12/14/2015 at 11:54 amA couple of questions.
1. Has oil production declined from some peak this year? I should know this, but I have been a bit lax on my reading in here, so I don't know.
2. I know Ron expected peak to be this year, does that still seem tenable with only 17 days left in 2015?
3. Is there good reason to believe that the race between depletion and production growth is basically over and that depletion has won? Is there no reason to believe that production growth will ever catch up again? Of course, this is the kind of prediction that is real hard. Who saw shale oil / the fracking boom 6 or 7 years ago when I first became aware of peak oil and my work changed to permanent gloom?
4. Regardless of the gyrations in the oil markets, does anyone care or think about what is, in my view, some of the more important news that came out this year? Namely that about 1/2 of all life has disappeared since I was born 4 decades ago? Anybody? Or is all gas and oil all the time and nary a thought or care (except what I bring up now and again) on other matters? When will the tipping point be reached beyond which ecological collapse occurs and life has hard go here on Earth (human life included)? How few other species can exists and humanity continue to flourish? Or are these just questions which occupy the especially neurotic among us?
Merry Christmas everyone!
A good many of the regulars here are profoundly concerned with the state of the biosphere, as is our gracious host Ron.Ron Patterson, 12/14/2015 at 12:22 pmYou will see plenty of commentary on climate, resources other than oil if you look back over the last few months archives- sometimes more than about oil.
If you believe that peak is not yet but will soon be, then the current low price, plus consumption over the next few years,, plus the current and probable low level of investment for the next few years, plus the declining quality of the remaining endowment of oil in the ground, all add up to a pretty good argument that oil has or soon will peak, and for good.
But I am not betting MY farm on it. ;-)
I would bet as much as I can afford to lose though.
So with WTI oil under $35 this a.m., I wonder what this entails for peak oi?Nothing! The peak was brought about by $100+ oil, not $35 oil.
1. Has oil production declined from some peak this year?
Some but not enough to get excited about. C+C peaked, so far, in July. It is down just over half a million barrels per day since then, through September.
2. I know Ron expected peak to be this year, does that still seem tenable with only 17 days left in 2015?
Yes, that is already settled, 2015 will definitely be the peak, or the highest peak so far. The question is will it go higher from here. Well definitely not in 2016. But after that it is open for debate. I believe 2015 will be the final peak but of course others have a different idea.
3. Is there good reason to believe that the race between depletion and production growth is basically over and that depletion has won? Is there no reason to believe that production growth will ever catch up again?
If I believe that 2015 is the peak then I obviously believe that depletion will overtake production from this point on. However I am sure others have a different opinion.
4. Regardless of the gyrations in the oil markets, does anyone care or think about what is, in my view, some of the more important news that came out this year? Namely that about 1/2 of all life has disappeared since I was born 4 decades ago?
Of course that is very important but it is not really news. Animal life was disappearing long before you were born. The destruction has speeded up considerably in the last 40 to 50 years. But I have been thrashing that straw for half a century and it is not news to me. And the tragic news will only get worse. On the way to the bottom we will eat the songbirds out of the trees.
The new JODI data, October, will be out Sunday, December 20th. I will have another post on the probable peak then. The data below is through September.
likbez , 12/14/2015 at 12:36 pm
"So with WTI oil under $35 this a.m., I wonder what this entails for peak oi?"That's a very interesting question ;-) Here are some relevant considerations:
Each oil price level (30-40, 40-50, 50-60 and so on) has its own "peak oil" with the sustainable production volume and duration of the plato before the decline. And this volume is definitely much higher at $100 then at, say, $35 that we have now.
But when oil price abruptly drops the production level does not reacts immediately: there is a lag of at least 18 months as hedges need to expire and projects which are under way completed. During this period the production can even increase despite the price drop. Like a huge tanker oil industry has tremendous inertia.
Double this period and you will see the "The Wile E. Coyote Moment" if consumption did not drop for some reason. If we assume that December of the last year is the start of this period, then there are still 8 months to wait before oil price start feeling upward pressure. If you assume that July of 2014 is the start, then March-April of 2016.
My impression is that at this price level the current production levels for most of the countries on the globe are not sustainable and I think this is the nature of OPEC gambit, if such exists.
So I would answer your question: Yes at this price level ($30-$40) the current level of production is the peak oil and will probably not repeat. Although never say never and some tremendous economic crash or world economic depression might change this.
Also you do not need to equate "paper oil" in futures for WTI and all the financial machination of short sellers in the USA with the situation on the ground. Now tail wags the dog - financial markets drive the price of oil. So it might well be that a short squeeze is coming. As John Kenneth Galbraith noted "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil." ( The Great Crash of 1929.)
So in the situation when we need to conserve this valuable product to provide for future generations Wall Street traders behave like drunks dancing on the deck of Titanic. That might not end well.
Note how car sales are affected by low oil prices. Most of the efforts in fuel economy now went into the window as people buy SUVs and trucks instead of hybrids and electrical cars.
If we believe Saudi oil minister at this price level we can expect up to 1 million a day barrels world production drop starting with Q1 2016. The only country that can add substantial amount of oil to the market is Iran, but who will finance this expansion in the current circumstances? And are Iranian that stupid to waist a valuable commodity at the time when world prices are rock bottom? They are more like Saudi then like Russia in this respect and can regulate their output at will.
Please note that world consumption is still growing and probably will grow at least 1% in 2016.
In the USA the drop of oil production might already started. If not wait for April.
[Dec 15, 2015] 4 to 8% for the natural decline rates for Saudi Arabia fields means almost a million barrel per day drop
Something is deeply wrong with "oil glut" story. At around 12K barrel per day 6% drop of KSA production means 720 thousand barrels. At the same time Indian consumption growth at 10% (from very low current level of 0.003 barrel per capita) means 370 thousand barrels. And the shales boomed when oil price boomed. And not due to technology: horizontal drilling for unconventional reservoirs, like the Austin Chalk in Texas, was well established 15 years earlier. And frac'ng has changed very little for decades. The oil price collapse has forced some producers, like the KSA, to bring their reserve capacity into play so as to increase the revenue stream. Which also means the lower oil prices are also increasing the depletion rate of existing proven reserves as well as hampering the development of new reserves. The recent oil price collapse may eventually be viewed as the ultimate "Oh sh*t" moment in the global energy dynamics. ( http://peakoil.com/production/opec-cannot-kill-shale-oil/comment-page-3#comment-228331 )
Notable quotes:
"... Might be a coincidence but KSA production is starting to look a lot like exponential decay with about a 6% per year decline rate ..."
"... Kuwait may also be in the post plateau decline. ..."
"... US pop 320 million US consumption 20 mbpd 0.063 per capita ..."
"... India pop 1.25 billion India consumption 3.7 mbpd 0.003 per capita ..."
"... Indonesia pop 255 million growth rate 1.5%. Indonesia consumption 1.72 mbpd 0.006 per capita ..."
peakoilbarrel.com
Anonymous, 12/13/2015 at 5:52 amMight be a coincidence but KSA production is starting to look a lot like exponential decay with about a 6% per year decline rate (i.e. implying all chokes open, nothing new coming on line, maintenance periods being balanced out). Different sources have given 4 to 8% for the natural decline rates for their fields so 6% would agree. If water starts hitting the horizontal infill wells in their major fields this could rise though.dclonghorn, 12/13/2015 at 4:24 pmKuwait may also be in the post plateau decline.Watche, 12/13/2015 at 2:48 pmSome consumption tidbits:
- Saudi Arabia population 27 million (18.5 m nationals 8.5m non nationals) KSA consumption about 3 mbpd. 0.111 per capita
- US pop 320 million US consumption 20 mbpd 0.063 per capita
- Germany population 81 million Germany consumption 2.4 mbpd 0.03 per capita
- France population 66 million France consumption 1.7 mbpd 0.026 per capita
- China pop 1.38 billion China consumption 10.48 mbpd 0.007 per capita
- India pop 1.25 billion India consumption 3.7 mbpd 0.003 per capita
consumption numbers from nifty map here, just mouseover
http://www.eia.gov/beta/international/?fips=FROh and btw China wiki says pop growth rate = 0.47%
India 1.25%
Since back in the news:
- Indonesia pop 255 million growth rate 1.5%. Indonesia consumption 1.72 mbpd 0.006 per capita
These countries MUST get their per capita consumption up if they are to spare their populace an eternity of inferiority to those consuming more. If there isn't enough to go around, then competing consumption must be destroyed.
[Dec 14, 2015] The long-cherished neocon dream of "regime change" in Syria is blocking a possible route out of the crisis
ilsm -> anne...consortiumnews.com
anne,https://consortiumnews.com/2015/12/12/blocking-democracy-as-syrias-solution/December 12, 2015
Blocking Democracy as Syria's Solution By Robert Parry
The long-cherished neocon dream of "regime change" in Syria is blocking a possible route out of the crisis – a ceasefire followed by elections in which President Assad could compete. The problem is there's no guarantee that Assad would lose and thus the dream might go unfulfilled.
By Robert ParryThe solution to the crisis in Syria could be democracy – letting the people of Syria decide who they want as their leaders – but it is the Obama administration and its regional Sunni "allies," including U.S.-armed militants and jihadists, that don't want to risk a democratic solution because it might not achieve the long-held goal of "regime change."
Some Syrian opposition forces, which were brought together under the auspices of the Saudi monarchy in Riyadh this past week, didn't even want the word "democracy" included in their joint statement. The New York Times reported on Friday, "Islamist delegates objected to using the word 'democracy' in the final statement, so the term 'democratic mechanism' was used instead, according to a member of one such group who attended the meeting."
Even that was too much for Ahrar al-Sham, one of the principal jihadist groups fighting side-by-side with Al Qaeda's Nusra Front, the two key elements inside the Saudi-created Army of Conquest, which uses sophisticated U.S.-supplied TOW missiles to kill Syrian government troops.
Ahrar al-Sham announced its withdrawal from the Riyadh conference because the meeting didn't "confirm the Muslim identity of our people." Syrian President Bashar al-Assad has sought to maintain a secular government that protects the rights of Christians, Alawites, Shiites and other religious minorities, but Sunni militants have been fighting to overthrow him since 2011.
Despite Ahrar al-Sham's rejection of the Saudi-organized conference, all the opposition participants, including one from Ahrar al-Sham who apparently wasn't aware of his group's announcement, signed the agreement, the Times reported.
"All parties signed a final statement that called for maintaining the unity of Syria and building a civil, representative government that would take charge after a transitional period, at the start of which Mr. Assad and his associates would step down," wrote Times' correspondent Ben Hubbard.
But the prospects of Assad and his government just agreeing to cede power to the opposition remains highly unlikely. An obvious alternative – favored by Assad and Russian President Vladimir Putin – is to achieve a ceasefire and then have internationally supervised elections in which the Syrian people could choose their own leaders.
Although President Barack Obama insists Assad is hated by most Syrians – and if that's true, he would presumably lose any fair election – the U.S. position is to bar Assad from the ballot, thus ensuring "regime change" in Syria, a long-held goal of Official Washington's neoconservatives.
In other words, to fulfill the neocons' dream of Syrian "regime change," the Obama administration is continuing the bloody Syrian conflict which has killed a quarter million people, has created an opening for Islamic State and Al Qaeda terrorists, and has driven millions of refugees into and through nearby countries, now destabilizing Europe and feeding xenophobia in the United States.
For his part, Assad called participants in the Saudi conference "terrorists" and rejected the idea of negotiating with them. "They want the Syrian government to negotiate with the terrorists, something I don't think anyone would accept in any country," Assad told Spanish journalists, as he repeated his position that many of the terrorists were backed by foreign governments and that he would only "deal with the real, patriotic national opposition."
Kinks in the Process
Secretary of State John Kerry told reporters on Friday that he was in contact with senior Saudi officials and noted, "there are some questions and obviously a couple of – in our judgment – kinks to be worked out" though expressing confidence that the problems could be resolved.
A key problem appears to be that the Obama administration has so demonized Assad and so bought into the neocon goal of "regime change" that Obama doesn't feel that he can back down on his "Assad must go!" mantra. Yet, to force Assad out and bar him from running in an election means escalating the war by either further arming the Sunni jihadists or mounting a larger-scale invasion of Syria with the U.S. military confronting Syrian and now Russian forces to establish what is euphemistically called "a safe zone" inside Syria. A related "no-fly zone" would require destroying Syrian air defenses, now supplied by the Russians.
Obama has largely followed the first course of action, allowing Saudi Arabia, Qatar, Turkey and other Sunni "allies" to funnel U.S. weapons to jihadists, including Ahrar al-Sham which fights alongside Al Qaeda's Nusra Front as the two seek to transform Syria into a Islamic fundamentalist state, a goal shared by Al Qaeda's spinoff (and now rival), the Islamic State.
Retired U.S. Army Lieutenant General Michael Flynn, the former head of the Defense Intelligence Agency, has termed Obama's choice of aiding the jihadists a "willful decision," even in the face of DIA warnings about the likely rise of the Islamic State and other extremists.
In August 2012, DIA described the danger in a classified report, which noted that "The salafist, the Muslim Brotherhood, and AQI [Al Qaeda in Iraq, later ISI or ISIS and then the Islamic State] are the major forces driving the insurgency in Syria." The report also said that "If the situation unravels there is the possibility of establishing a declared or undeclared salafist principality in eastern Syria" and that "ISI could also declare an Islamic State through its union with other terrorist organizations in Iraq and Syria."
Despite these risks, Obama continued to insist that "Assad must go!" and let his administration whip up a propaganda campaign around claims that Assad's forces launched a sarin gas attack outside Damascus on Aug. 21, 2013. Though many of the U.S. claims about that attack have since been discredited – and later evidence implicated radical jihadists (possibly collaborating with Turkish intelligence) trying to trick the U.S. military into intervening on their side – the Obama administration did not retract or clarify its initial claims.
By demonizing Assad – much like the demonization of Russian President Putin – Obama may feel that he is deploying "soft power" propaganda to put foreign adversaries on the defensive while also solidifying his political support inside hawkish U.S. opinion circles, but false narratives can take on a life of their own and make rational settlements difficult if not impossible....
The Syria terror consortium was in Riyadh checking in with their bankers. To the Sunni democracy is apostate anathema.anne -> ilsm...I understand the frustration and beyond, after all I read about Yemen being bombed with American bombs and target sightings and I cannot imagine the policy incentives driving us.anne -> ilsm...Nonetheless, the Yemen bombings go on day on day on day.
Iraq, Libya, Syria, Yemen? Who could possibly ever understand, but our policy makers act as though they do.
[Dec 14, 2015] The recent increase in global oil production actually is the result of low oil prices
Notable quotes:
"... The recent increase in global oil production actually is the result of low oil prices…not higher. The oil price collapse has forced some producers, like the KSA, to bring their reserve capacity into play so as to increase the revenue stream. Which also means the lower oil prices are also increasing the depletion rate of existing proven reserves as well as hampering the development of new reserves. ..."
"... For starters, growth and jobs are needed to support prosperity and social cohesion in the wake of the Great Recession that began in 2008. Six years after the eruption of the financial crisis, the recovery remains weak and uneven. Global growth is projected at just 3.3 percent in 2014 and 3.8 percent in 2015. ..."
peakoil.com
onlooker, 13th Dec 2015 8:02 amrockman, 13th Dec 2015 8:52 amI would have to say that is a stupendous post Davy. I would add that oil as the foundational energy source is as you said irreplaceable even as some substitution can take place. Therefore, both out of desire but also out of need societies will still try and attain oil for its myriad of uses. I would like to cover a bit the pananorma of how this relates with regions of the planet and respective countries.
As we are aware Northern countries are richer in may ways while Southern countries are more overpopulated relative to resources. On the other hand the reliance of Northern countries completely on a modern oil based infrastructre makes them particularly vulnerable to price fluctuations and both perceived instabilities as well as material/physical shortages and instabilities.
On the other hand Asia with its vast population will find it very difficult to avoid the most drastic of effects of overshoot, meaning die-off. What is happening in the Midde East is so apparent a child can discern it. They are there first and foremost for the oil. The War on Terrror is but a smokescreen. Middle East is simply blessed with much oil and gas as well.
The trajectory of powerdown is a composite of as you stated human rationality and irrationality along with physical realities that cannot be negotiated or changed. Thus, it will be both voluntary and forced. Oil will continue to play a role in human affairs for some time to come. The proof is how the Climate conferences including the latest in Paris are not really intent on substantial fossil fuel reduction and also because recent polls clearly show that people by and large are still not overly concerned with climate change.
I think clearly humanity will have to endure massive die-off in a both gradual and at times abrupt manner. Industrial modern civilization cannot be maintained that much longer in so much as resource shortages of many kinds especially of course fossil fuels will not allow it. So modern civilization will wither away in fits and starts while humanity tries to adapt and mitigate.
All the while climate change threatens ever more massive disruptions and discontinuities. At the other side of the bottleneck of overshoot perhaps remaining humans that probably will number less than a billion will try and maintain some level of functioning society and modernity but certainly at a much less complex level than now and beholden to the whims of Mother nature and what she has in store for us.
GregT, 13th Dec 2015 1:35 pmlooker – "So in fact peak oil will really bite when it is not so economically viable to find and produce oil for the market." Good point and there's a great visual to emphasize that point: look at the US oil production curve. We peaked about 35 years ago. And during those decades the inflation adjusted price of oil was less the current prices…and considerably less then during the height of the shale boom.
And the shales boomed when oil price boomed. And not due to technology: horizontal drilling for unconventional reservoirs, like the Austin Chalk in Texas, was well established 15 years earlier. And frac'ng has changed very little for decades.
IOW US oil production peaked because oil prices essentially peaked decades ago. Yes: up and down but no great movement like we saw when the shales boomed. And US oil production almost reached a new peak because oil prices reached near peak levels once again. Which means that we may not only be at global PO but the longer it takes for oil prices to significantly increase we may never again approach current production levels as depletion continues to take its toll.
The recent increase in global oil production actually is the result of low oil prices…not higher. The oil price collapse has forced some producers, like the KSA, to bring their reserve capacity into play so as to increase the revenue stream. Which also means the lower oil prices are also increasing the depletion rate of existing proven reserves as well as hampering the development of new reserves.
The recent oil price collapse may eventually be viewed as the ultimate "Oh sh*t" moment in the global energy dynamics.
GregT, 13th Dec 2015 1:56 pmWhy 2015 Is a Make-or-Break Year for the Global Economy
WASHINGTON - As 2015 begins, policymakers around the world are faced with three fundamental choices: to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone. The stakes could not be higher; 2015 promises to be a make-or-break year for the global community.
For starters, growth and jobs are needed to support prosperity and social cohesion in the wake of the Great Recession that began in 2008. Six years after the eruption of the financial crisis, the recovery remains weak and uneven. Global growth is projected at just 3.3 percent in 2014 and 3.8 percent in 2015.
Christine Lagarde
Managing Director, IMF
01/20/2015 11:24 am ESThttp://www.huffingtonpost.com/christine-lagarde/2015-global-economy_b_6502146.html
According to Scotiabank's Global Forecast Update on Dec 3/2015, global growth is expected to weigh in at 3.1%, not even meeting the mediocre projections of 3.8% by the IMF. The make or break period has been broken.
"Oil consumption world wide is growing. Nat gas consumption is growing. Solar and wind is growing. Energy is growing. Coal use is growing. Energy is the base of all economies and there isn't any contraction in any of them. World GDP is growing. You doomers think you can fight facts but ya'll live in a false reality."
Infinite exponential growth in a finite environment is a physical and mathematical impossibility. That is our reality Boat, and that is a fact. Whether you believe that you can fight it or not, is irrelevant. There has been a contraction in growth, and there will continue to be a further contraction in growth. The fact that you are unable to comprehend what that means, once again, exposes your level of intelligence. (or lack thereof)
[Dec 14, 2015] Who benefits from lower oil prices
Notable quotes:
"... gold rush bonanza days ended in June 2014. The price fall in crude oil did not squeeze frackers out of business, they caused them to be a lot more careful with their money. ..."
"... oil service companies make fewer sales, and also require fewer employees to maintain their reduced output. Employment in the oil industry has suffered as plans get put off and exploration is cut back. As examples of this phenomenon, consider Schlumberger , which is the largest oilfield service company in the world. Schlumberger has cut its workforce by 9,000 this year. Weatherford International cut their payroll from 60,000 staff to 46,000 in 2014 and then made a further 5,000 employees redundant in 2015. ..."
"... Unemployment reduces the wages of employed oil workers, because there are plenty of other who would fill the shoes of specialists who walk off site rather than reducing their fees. Thus, the oil industrys workforce has become a major loser in the low crude price era. ..."
oil-price.net
The LosersHigh prices for crude oil from 2010 to 2014 gave great incentives to US explorers to invest in locating new sources of oil and gas. The practice of hydraulic fracturing rapidly expanded the USA's oil production and contributed to the current glut. High sales prices meant that fracking companies could bowl into town, rich with easy money. They sprayed money around the communities they moved into and offered high prices for mineral rights and site access. Those gold rush bonanza days ended in June 2014. The price fall in crude oil did not squeeze frackers out of business, they caused them to be a lot more careful with their money.
Frackers learned to extract more oil from each rig, thus reducing the start up overhead costs of each well. The increased tightness of financing meant the idea of spending millions to get access and buy friends was off the table. A lot of the largesse of fracking has been wiped off the books and so local communities in the vicinity of fracking plays benefit a lot less from a new well, than those lucky citizens reaped back in 2012 and 2013.
Fewer rigs mean fewer workers. It also means that less equipment needs to be sold. Thus, oil service companies make fewer sales, and also require fewer employees to maintain their reduced output. Employment in the oil industry has suffered as plans get put off and exploration is cut back. As examples of this phenomenon, consider Schlumberger, which is the largest oilfield service company in the world. Schlumberger has cut its workforce by 9,000 this year. Weatherford International cut their payroll from 60,000 staff to 46,000 in 2014 and then made a further 5,000 employees redundant in 2015.
By squeezing margins and employing new technology, US frackers have been able to stay in the game. Their success at maintaining profitability at lower market prices has put pressure on conventional producers around the world to reduce profits and slash costs. So, although no producers have gone bust yet, their drive to survive has returned a lot of oil workers to the employment lines.
Unemployment reduces the wages of employed oil workers, because there are plenty of other who would fill the shoes of specialists who walk off site rather than reducing their fees. Thus, the oil industry's workforce has become a major loser in the low crude price era.
Middle Eastern OPEC members are said to be driving the price fall in order to squeeze out their fracking rivals. This strategy has lost those governments the income they need to keep their economies running with very little alternative sources of income. They must now subsidize their governments with their foreign currency reserves. Drawing down bank deposits means there is less money available for banks to lend, thus squeezing credit and reducing global economic expansion further.
As Arabian governments start to draw down their savings, they will be forced to cut government spending. Oil producers in the Middle East buy off their citizens' ambitions for democracy with petrodollars. Of course when the money runs out, instability will increase even further in those countries.
[Dec 14, 2015] North Dakota sees further declines in oil production ahead as prices hit seven-year low
Notable quotes:
"... Helms said the current estimated North Dakota wellhead price - $27 per barrel - is the lowest since December 2008. ..."
"... That price, which is calculated from a Minnesota refinery's posted data, is nearly $10 less than the benchmark West Texas Intermediate price set at a major oil terminal in Cushing, Okla. ..."
"... Just 65 drilling rigs are operating in North Dakota, down two-thirds from a year ago, and near a seven-year low, according to data released Wednesday. ..."
"... The top five oil producers in North Dakota all reported net losses for the third quarter. In another sign of troubles, 15 operators have sold 662 producing wells to new investors, according to data released Wednesday by North Dakota regulators. ..."
December 10, 2015 | bakken.com
North Dakota's oil price has dropped to a seven-year low, and operators are drilling fewer new wells, portending future declines in production, the state's Mineral Resources Department reported Wednesday.
"We are looking at a lot of belt tightening and we are looking at it to continue through the entire first half of 2016," Lynn Helms, director of the regulatory agency said on his monthly Director's Cut conference call with reporters.
In October, however, oil production in North Dakota rose 0.6 percent to nearly 1.17 million barrels per day compared with September, but that's down from the peak of 1.23 million barrels last December.
Helms said that upward blip partly resulted from North Dakota producers selling oil in advance of last Friday's meeting of Organization of the Petroleum Exporting Countries (OPEC). The decision at that meeting to maintain production levels further sank oil prices.
"They were trying to move and sell as much as they could ahead of the OPEC meeting," said Helms, who expects prices won't recover for months.
North Dakota producers get less than the domestic benchmark price for crude oil because they lack sufficient pipeline capacity to economically ship out of state, and rely on more-expensive rail to export nearly half their output.
Related: North Dakota budget writer: New revenue forecast likely
Helms said the current estimated North Dakota wellhead price - $27 per barrel - is the lowest since December 2008.
That price, which is calculated from a Minnesota refinery's posted data, is nearly $10 less than the benchmark West Texas Intermediate price set at a major oil terminal in Cushing, Okla.
Just 65 drilling rigs are operating in North Dakota, down two-thirds from a year ago, and near a seven-year low, according to data released Wednesday.
Another 10 drilling rigs are expected to stop operating sometime in 2016 in the face of persistent low oil prices, Helms said.
Further declines
That pace of drilling likely will result in further declines in North Dakota oil production, Helms said. But he doesn't expect output to drop below 1 million barrels per day - a symbolic threshold that North Dakota achieved in April 2014.
The top five oil producers in North Dakota all reported net losses for the third quarter. In another sign of troubles, 15 operators have sold 662 producing wells to new investors, according to data released Wednesday by North Dakota regulators.
In the largest of the deals, 392 wells were sold by Occidental Petroleum Corp. which is exiting the state, to Lime Rock Resources III-A L.P., a private equity firm. Both are based in Houston.
In other major deals, Whiting Oil & Gas Corp. of Denver sold 122 wells to investor groups; Corinthian Exploration, based in Calgary, sold 92 wells; and American Eagle Energy Corp., a Littleton, Colo.,-based operator that filed for Chapter 11 bankruptcy in May, sold 87 wells.
[Dec 14, 2015] The cost of domestic oil
Notable quotes:
"... Shale oil takes an estimated $60-80 per barrel to break even on cost for domestic production, depending on the area being drilled, the extent of drilling and the ability to get it to market. In Iraq, each barrel costs about $20 to extract. If the price of oil dropped to $80, drilling companies would have little incentive to continue drilling new wells and funding exploration ventures. ..."
"... Horizontal drilling has transformed the industry from drilling straight down into a formation to drilling a curved well that can follow a shale formation and access it throughout. The technique called multi-stage fracturing also boosts oil output. Traditionally, wells would be drilled, the rock would be fractured, and production would be static from that point. Multi-stage fracking fractures the rock at several different points along the well bore. ..."
"... Independent oil producers in the U.S. spend approximately $1.50 for every dollar they earn in revenues. They also carry a sizable amount of debt. With oil prices at sustained, elevated levels, investors are content with current levels of debt. If the price of oil fell and investors saw their potential for profit falling in lockstep, they would likely chose to invest elsewhere. Having high debt and slim profits makes for a poor investment. A sustained drop in oil price would cause companies to slow or even halt drilling, which would result in a decline in production. ..."
February 27, 2014 | bakken.com
The past decade has seen an explosion of drilling into the United States' shale oil reserves. Many people feel as though the shale boom will make life easier for everyone involved with an added bonus of cheap oil. Although we have transitioned from importing the majority of our oil from countries in the Middle East and Venezuela, domestic oil costs much more to produce on US soil.
In the Bakken formation in North Dakota, oil is coming out of the ground at the feverish rate of one million barrels per day. The initial flow rate from shale rock formation is usually very high, however the rate of production declines quickly and steadies off. In the first year of drilling alone, shale well production will drop about 60-70%. According to the International Energy Agency, it would take 2,500 new wells per year just to keep Bakken oil production at current levels. Iraq would only need 60 to do the same.
The price of oil has remained around $100 per barrel in recent years, which makes shale oil production profitable. Shale oil takes an estimated $60-80 per barrel to break even on cost for domestic production, depending on the area being drilled, the extent of drilling and the ability to get it to market. In Iraq, each barrel costs about $20 to extract. If the price of oil dropped to $80, drilling companies would have little incentive to continue drilling new wells and funding exploration ventures.
If technological advances, new techniques and speed of drilling continue improving, this will drive down the costs of producing from shale. This will in turn put downward pressure on the price of oil. Horizontal drilling has transformed the industry from drilling straight down into a formation to drilling a curved well that can follow a shale formation and access it throughout. The technique called multi-stage fracturing also boosts oil output. Traditionally, wells would be drilled, the rock would be fractured, and production would be static from that point. Multi-stage fracking fractures the rock at several different points along the well bore.
Independent oil producers in the U.S. spend approximately $1.50 for every dollar they earn in revenues. They also carry a sizable amount of debt. With oil prices at sustained, elevated levels, investors are content with current levels of debt. If the price of oil fell and investors saw their potential for profit falling in lockstep, they would likely chose to invest elsewhere. Having high debt and slim profits makes for a poor investment. A sustained drop in oil price would cause companies to slow or even halt drilling, which would result in a decline in production.
With all the headwinds confronting oil companies, the shale oil boom does not seem like it will be ending any time soon. U.S. oil production is projected to rise to 9.2 million barrels per day in 2015 from 7.4 million in 2014.
Recent shale exploration has revealed that the Permian Basin in western Texas contains approximately 30 billion barrels of oil. To put it in perspective, the nearby Eagle Ford formation is estimated at 7-10 million barrels, and the Bakken formation at 4.3 billion barrels. With many companies rushing to greener pastures to produce in the Permian and other domestic hot-spots, the conversation on shale oil is far from over.
[Dec 14, 2015] Oil producers prepare for prices to halve to $20 a barrel
Notable quotes:
"... There's nothing new in shale gas that the oil industry itself hasn't done before. Hydrofracturing as a technique for enhancing oil recovery was developed over 50 years ago, and most of the North Sea was fracked (as are oil wells all over the world). The big technological breakthrough that allowed exploitation of shale gas was horizontal drilling, which allowed long pipes to be installed in the (usually narrow) shale gas strata. ..."
"... Saudi Arabia trying to kill the shale oil industry in USA, limit Iran rise and as a bonus undermine Russian military activities. ..."
"... The falling price of oil has initiated a historic wealth transfer effect of about $1 trillion a year between net oil importers and oil exporters reversing decades of historical trend. The US consumer alone gets $200 billion, and Europe and Asia (especially India and China) are even bigger beneficiaries of this massive wealth transfer of wealth by cheap oil. ..."
"... This is what's called an economic stimulus - but from cheaper oil prices. As Bloomberg noted recently: OPEC Provides Economic Stimulus Central Bankers Can't or Won't ..."
"... A non-economists understanding of macro is almost always politics masquerading as science. ..."
"... The theory that Saudi has engineered this oil price drop is nonsense. If they wanted to do this they would have increased production. The price fall is mostly due to the vast amount of speculation in US shale oil that completely ignored the effect of a massive increase in supply on price. These speculators are now paying for this mistake by leading the world in corporate defaults. Shale oil production will eventually slow down due to lack of finance and the price will start to increase. I don't think anyone can predict future price due to the complexity. ..."
"... Did you miss the bit where Russia will need to make cuts all the way through its services in line with the money they are losing via weak experts? Do you understand the knock-on effect this has through the rest of her economy - the recession it generates? Macroeconomics is a very interesting subject, and Creekwhore seems to have a good grasp on it. ..."
"... Hard to know which makes them happier, really. I was doing some work in Saudi in 2012 and there was a lot of concern there that not only were they losing the supply monopoly, but that as the US was becoming not just self-sufficient but an exporter it would make KSA less strategically relevant to the US and others in the west and therefore lose them influence on world events. They know they need the realpolitik power of the being the swing-producer in the oil cartel as without it no-one in the west is queuing up to be the natural ally of a quasi-medieval despotism with a lousy human rights record and a deal with some very suspect religious extremists. ..."
"... My take on this is that the Russian economy is also a target - even perhaps the real target. ..."
"... The Saudi's tactics are supposedly designed to hit the US shale producers, but, from what I understand, if these do go under they can quite easily start up again when the oil price recovers, then we're back to where we started. What is the point of all this market manipulation? ..."
"... US shale producers are much better placed than anyone expected them to be. Saudi Arabia has maybe another 18 months to play at this before they start to really rack up the debts. You've got a young, angry, largely unemployed population there that's basically pacified by the largesse of public spending. ..."
www.theguardian.com
The consultancy Capital Economics said: "Brent's [short-lived] dip today below $40 per barrel is a further damning verdict on Opec's bungled communications after its meeting last Friday. However, it was never likely that the group would agree to cut output to boost prices. Instead, any recovery next year will depend on reductions in non-Opec supply and on stronger demand. On this basis, while we are lowering our end-2016 forecast for Brent from $60 to $55, we continue to expect oil prices to stage a partial recovery next year."
Hugh Easton -> woldsgardener 11 Dec 2015 13:57
TheinfamousmrFox -> sportinlifesport 11 Dec 2015 08:44There's nothing new in shale gas that the oil industry itself hasn't done before. Hydrofracturing as a technique for enhancing oil recovery was developed over 50 years ago, and most of the North Sea was fracked (as are oil wells all over the world). The big technological breakthrough that allowed exploitation of shale gas was horizontal drilling, which allowed long pipes to be installed in the (usually narrow) shale gas strata.
So why do environmentalists make a big deal of hydrofracking at all? As with so much else green, there's no science behind it. They've just seized on a scarysounding something and are using it to bamboozle the public into thinking that a technology they oppose is dangerous.
Actually, they're losing money. Even those with the lowest production costs (Saudi A) are burning through their currency reserves at a fantastic rate.
Essentially, OPEC are betting they can crush the US and Russian oil industries before they go broke themselves. However they didn't count on the growing green momentum starting to replace a lot of fossil fuel technology;- and that's not going to get slower.
Boutros Gladius ID6232853 11 Dec 2015 03:56
Check your numbers before you call nonsense. Demand was up 1.4m barrels/day in 2014, and is projected to be up by over a million for 2015 and 2016. In fact, it's up a similar amount every year for the last decade, with the single exception of the year of the financial crash. Demand increases will inexorably eat up any oversupply -- this price reduction is a mere blip.
ncaplan88 9 Dec 2015 18:40
It's great for us in America. Almost all retail is pegging to the price of shipping. Shipping is deisel fueled. Better to let OPEC run down their stocks than pump out the last of our reserves. King Salman is a good ally to help weaken our traditional enemies.
zacmcd -> zoggo 9 Dec 2015 17:43Conspiracy theory rubbish. The low interest rate environment has led money to chase bad high yield investments, while the oil price was high this included shale. China's economic slow down has meant oil consumption growth hasn't risen as expected so supply now exceeds demand.
Russia along with Norway, Brazil, Canada etc are being punished for not having diversified economies not because Uncle Sam does or doesn't like them.
BlueMazda 9 Dec 2015 12:24Forget the two big players, Russian and Saudis. What is the impact on the smaller producers in the ME, UAE, Kuwait, Bahrain, Qatar, Jordan et. al.? Are they selling at below extraction costs per barrel? Will we see a ME recession? Social turmoil?
Timothy Underwood -> Chris Johnson 9 Dec 2015 10:52Its not sad at all. The reason low oil prices is bad for 'the markets' is because the oil price drop basically means that consumers spend less on gas, and then instead buy more TVs, cars and eat out more often.
The margins on hundred dollar oil are really, really good for companies. The majority of that money isn't spent pumping and refining the oil. Most of the money when Exxon sells a barrel at $100 goes to Exxon shareholders (and whatever country the oil is pumped in).
TVs and cars are very competitive markets. When you buy a car or TV generally 90-95% of the money goes to making the car, which leaves only a little left over for the shareholders of Ford or Samsung. So low oil prices are hurt the share price of oil companies far more than they help the share prices of non oil companies.
In other words low oil prices move money from rich people to ordinary people. Non oil things are just less profitable to sell on average.
The value of the market is a rough proxy for how much money rich people expect to get for owning companies over the next 15 years. Oil being low means rich people get less money for owning companies, money which gas buyers instead have to spend on whatever they want.
AdamMps -> creekwhore 9 Dec 2015 06:41
this move may well drive the global economy off a cliff
Cheap oil is both good and bad for the global economy. Bad for oil investment, good because consumers and business will save money on fuel and presumably spend it elsewhere instead.
There's been a few articles which suggest that it's bad outweighs the good this time around, but it certainly doesn't drive the global economy off a cliff.
ID6232853 -> gottliebvera 9 Dec 2015 06:06
Saudi Arabia trying to kill the shale oil industry in USA, limit Iran rise and as a bonus undermine Russian military activities.
psygone 9 Dec 2015 05:22
SenseCir -> mrolius 9 Dec 2015 04:35This is all good news.
The falling price of oil has initiated a historic wealth transfer effect of about $1 trillion a year between net oil importers and oil exporters reversing decades of historical trend. The US consumer alone gets $200 billion, and Europe and Asia (especially India and China) are even bigger beneficiaries of this massive wealth transfer of wealth by cheap oil.
This is what's called an economic stimulus - but from cheaper oil prices. As Bloomberg noted recently: OPEC Provides Economic Stimulus Central Bankers Can't or Won't
The Middle East and Russia with diminishing and constrained sovereign funds are the ones getting stuck with the bill. Oil producers with diversified economies like Canada and Norway will do well.
Thank you cheap oil and carry on ......... "drill baby drill"
bjamesr 9 Dec 2015 04:31Did you miss the bit where Russia will need to make cuts all the way through its services in line with the money they are losing via weak experts?
Yes countries that foolishly turned their blessing with a natural resource into a dependency of exporting it suffer, and their suffering propagates to an extent. That doesn't drive the global economy of a cliff, nor even is the net effect negative. Once again, when those blessed with oil decide to charge less for it, surplus is shifted.
Macroeconomics is a very interesting subject, and Creekwhore seems to have a good grasp on it.
I doubt it. A non-economists understanding of macro is almost always politics masquerading as science.
mrolius -> SenseCir 9 Dec 2015 04:09The theory that Saudi has engineered this oil price drop is nonsense. If they wanted to do this they would have increased production. The price fall is mostly due to the vast amount of speculation in US shale oil that completely ignored the effect of a massive increase in supply on price. These speculators are now paying for this mistake by leading the world in corporate defaults. Shale oil production will eventually slow down due to lack of finance and the price will start to increase. I don't think anyone can predict future price due to the complexity.
Did you miss the bit where Russia will need to make cuts all the way through its services in line with the money they are losing via weak experts? Do you understand the knock-on effect this has through the rest of her economy - the recession it generates? Macroeconomics is a very interesting subject, and Creekwhore seems to have a good grasp on it.
JemWallis -> SenseCir 9 Dec 2015 04:04
But given the oversupply of oil, you will be forced to pay a substantial premium for the storage of your commodity since you will be competing for long term storage space. That factor alone will add to your costs and therefore the price you will accept to make the 'huge profit' will get ever larger. What if prices rise more slowly than your on-going costs?
TheHighRoad -> WaldorfTBeagle 9 Dec 2015 03:57
Hard to know which makes them happier, really. I was doing some work in Saudi in 2012 and there was a lot of concern there that not only were they losing the supply monopoly, but that as the US was becoming not just self-sufficient but an exporter it would make KSA less strategically relevant to the US and others in the west and therefore lose them influence on world events. They know they need the realpolitik power of the being the swing-producer in the oil cartel as without it no-one in the west is queuing up to be the "natural ally" of a quasi-medieval despotism with a lousy human rights record and a deal with some very suspect religious extremists.
SenseCir -> creekwhore 9 Dec 2015 03:51
The fact this move may well drive the global economy off a cliff
How so, because a fundamental good everyone needs is cheap? Because, assuming Opec cannot defeat the frackers, their price schedule does not maximise their profit, shifting some of the surplus to consumers and non-oil producing countries? What the fuck are you talking about?
SenseCir rjb04tony 9 Dec 2015 03:48
What is the point of all this market manipulation?
Why do you call it 'market manipulation' when they lower prices through shipping a lot, and not when they raise prices through restricting output? The latter is what they would ideally like to do, because it maximises profit. Opec are a cartel. The consumers, and countries that don't export oil, lose when they exercise their monopoly power.
SA clearly think that a Standard Oilish strategy will work. If they deem to have damaged other oil producers sufficiently, you can rest assured that the price of oil will go up again, ensuring billions of economic profit going to SA and others, extracted from everyone else.
zoggo -> rjb04tony 9 Dec 2015 03:46
WaldorfTBeagle 9 Dec 2015 03:07My take on this is that the Russian economy is also a target - even perhaps the real target.
rjb04tony 9 Dec 2015 02:53I doubt Saudi's strategy has much to do with US frackers personally and lots to do with hurting Iran.
The Saudi's tactics are supposedly designed to hit the US shale producers, but, from what I understand, if these do go under they can quite easily start up again when the oil price recovers, then we're back to where we started. What is the point of all this market manipulation?
graz 9 Dec 2015 02:36
US shale producers are much better placed than anyone expected them to be. Saudi Arabia has maybe another 18 months to play at this before they start to really rack up the debts. You've got a young, angry, largely unemployed population there that's basically pacified by the largesse of public spending.
The problem with the House of Saud. They've got some of the best economists money can buy but you've got the egos of some 'limited' princes overruling them.
Never mind the oil price, if these fools miscalculate on this, on their Yemeni adventures, it could spell chaos for the Middle East and the wider world. >
[Dec 14, 2015] Predicting demand growth in 2016
3% demand growth is approximately 3 million barrels a day increase. There is no sources of production that can compensate such an crease. In best case Iran might increase production by 0.5 million barrel a days. Other countries are iether stable or declining. Saudi oil minister predicted that total world production will be declining 1 million barrel a quarter.
peakoilbarrel.com
shallow sand, 12/12/2015 at 9:40 pm
We are at 2004 prices. Look at demand growth in 2004-2005. Prices plunged to around this level late 2008, early 2009. Look at the demand response that resulted.Per EIA.
World wide Demand growth
- 2004 3.75%
- 2005. 1.79%
- 2010. 3.40%
Again, just looking at what happened previously.
[Dec 14, 2015] Real oil vs condensate controversy
Notable quotes:
"... I frequently cite the Reuters article earlier this year that discussed case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper limit for WTI crude (42 API gravity), but that are deficient in distillates. Of course, what the refiners are rejecting is the condensate component, i.e., they are in effect saying that "We don't want any more stinkin' condensate." ..."
"... My premise is that US (and probably global) refiners hit the upper limit last year of the volume of condensate that they could process, if they wanted to maintain their distillate and heavier output–resulting in a build in condensate inventories, reflected as a build in C+C inventories. ..."
peakoilbarrel.com
Jeffrey J. Brown , 12/13/2015 at 7:27 amBut what percentage of the increase in US and global C+C inventories consists of condensate?AlexS, 12/13/2015 at 8:31 amLooking at early December data, US C+C inventories were up by 105 million barrels, year over year, while four week running average data showed the US net crude oil imports were flat year over year, at 7.1 million bpd. Why would refiners continue to import large volumes of actual crude oil, if they didn't have to?
I frequently cite the Reuters article earlier this year that discussed case histories of refiners increasingly rejecting blends of heavy crude and condensate that technically meet the upper limit for WTI crude (42 API gravity), but that are deficient in distillates. Of course, what the refiners are rejecting is the condensate component, i.e., they are in effect saying that "We don't want any more stinkin' condensate."
My premise is that US (and probably global) refiners hit the upper limit last year of the volume of condensate that they could process, if they wanted to maintain their distillate and heavier output–resulting in a build in condensate inventories, reflected as a build in C+C inventories.
Jeffrey,AlexS, 12/13/2015 at 8:46 amEIA statistics show that despite a significant increase in absolute volumes, the share of condensate in total U.S. C+C production increased only marginally since 2000. In 2014 this share was 10.3% vs. 10.2% in 2001
Do you have any data confirming the increasing share of condensate outside the U.S.?U.S. lease condensate production (kb/d) and condensate share in C+C output
Source: http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm
In Russia, condensate production in 1Q15 was 637 kb/d, or 6% of total C+C production.Jeffrey J. Brown, 12/13/2015 at 8:52 amOf course, what counts is the volumetric increase in US condensate production, which has been huge (I believe up to around two million bpd in 2015, which would be a Condensate* to C+C Ratio of about 22%), combined with documented case histories of US refiners rejecting additional volumes of condensate.Reportedly, the bulk of Iranian offshore storage consists of condensate. ...
*45+ API
[Dec 14, 2015] Oil, gas downturn claims local service company
Dec 2, 2015 | bakken.com
According to Haynes and Boone, a global law firm that produces the Oil Patch Bankruptcy Monitor, as of Nov. 8, 36 oil and gas companies across the nation have filed for Chapter 11 bankruptcy protection this year, three in Colorado, and one in Colorado that was filed against Sefton Resources involuntarily but that was dismissed in bankruptcy court Nov. 13.
Chapter 11 is different from Chapter 7, which allows debtors to liquidate their debt. Chapter 11 allows companies to restructure to allow filers to pay off their bills.
Of all the filings, there was more than $13 billion in debt, according to Haynes and Boon. Texas leads the country with 16 filings or $1.15 billion in debt.
The Colorado companies that filed for Chapter 11 this year are, according to Haynes and Boone's report: American Eagle Energy Company, with operations in North Dakota, in May with $193.6 million in debt; Sun River Energy, also filed in May with $11.6 million in debt; and Escalara Resources, which has operations in Wyoming, filed in November with $42.8 million in debt.
[Dec 13, 2015] Senators Close in on Oil-Export Deal Amid Tax-Break Talks
Notable quotes:
"... Senate negotiators are nearing a deal to allow unfettered U.S. crude oil exports for the first time in 40 years . I never got the point of restricting US companies from exporting their oil. Id rather tax the mess out of the imports. ..."
"... US imports about 50% of its crude. ..."
economistsview.typepad.com
im1dc said... December 13, 2015 at 02:31 PMGotta keep an eye on the Senate, GOPers are trying to sell our oil overseas and DEMs may let them in a bad dealpgl -> im1dc..."Senators Close in on Oil-Export Deal Amid Tax-Break Talks"
by Brian Wingfield & Billy House...December 12, 2015
- * Most U.S. crude oil exports have been banned since 1970s
- * House Democrats want Child Tax Credit indexation part of deal
"Senate negotiators are nearing a deal to allow unfettered U.S. crude oil exports for the first time in 40 years, though differences remain on renewable-energy tax credits that Democrats are demanding in return, according to people close to the discussions.
While any agreement could still collapse in the coming days -- the deal faces opposition in the House -- lawmakers are weighing the extension of solar and wind tax credits for as long as five years in exchange for lifting the crude-export restrictions, which were established to counter the energy shortages of the 1970s.
Tax breaks are part of the discussion, though lawmakers are still negotiating the length of wind- and solar-energy tax extensions and whether they should be phased out, said a Senate Democratic leadership aide, who wasn't authorized to speak on the record.
If agreed to and approved by Congress, repeal of the nation's ban on most crude oil exports would mark the most significant shift in U.S. oil policy in more than a generation. Repeal, benefiting oil producers including ConocoPhillips, Hess Corp. and Continental Resources Inc., would come at a time when the industry is cutting jobs to deal with a global glut in crude oil and the lowest prices in seven years. Talks for a deal are under way as envoys from 195 nations reached an agreement to limit fossil-fuel pollution and curb the effects of climate change..."
"Senate negotiators are nearing a deal to allow unfettered U.S. crude oil exports for the first time in 40 years". I never got the point of restricting US companies from exporting their oil. I'd rather tax the mess out of the imports.pgl -> im1dc...Let's separate the two items here:ilsm -> pgl..."While any agreement could still collapse in the coming days -- the deal faces opposition in the House -- lawmakers are weighing the extension of solar and wind tax credits for as long as five years in exchange for lifting the crude-export restrictions, which were established to counter the energy shortages of the 1970s."
We are not facing an energy shortage right now. These restrictions were based on questionable economics in the 1970's and are mute now.
But extending the tax credits for solar and wind energy strike me as good policy.
US imports about 50% of its crude.im1dc -> im1dc...I don't care if oil companies export 10% of their crude oil or even 20% but please lets do it only after the DEMS extract some quid pro quo from the GOPsters pushing it not this minor league stuff they've settled for in the article.pgl said..."Repeal, benefiting oil producers including ConocoPhillips, Hess Corp. and Continental Resources Inc."pgl -> pgl...Who wrote this? Like I checked - Hess did not produce oil. They purchased oil to refine and distribute it.
Times change. From the Hess 10-K:likbez -> pgl..."In the first quarter of 2013, the Corporation announced several initiatives to continue its transformation into a more focused pure play E&P company. These initiatives represented the culmination of a multi-year strategic transformation designed to deliver long-term, cash generative growth and increase returns to stockholders by focusing on lower risk, higher growth unconventional assets, exploiting existing discoveries by leveraging offshore drilling and project development capabilities, and executing a smaller, more targeted exploratory program….the transformation plan included fully exiting the Corporation's Marketing and Refining (M&R) business"
Hess was a pure play M&R entity but now they want to be all E&P. Just when E&P margins tanked with lower oil prices!
pgl:"Hess was a pure play M&R entity but now they want to be all E&P. Just when E&P margins tanked with lower oil prices!"
A very good point !
Unless they got great plays in the Gulf for peanuts this is an extremely bad timing. At current prices even 400 barrels of oil a day shale well that costs $8M to drill is not profitable (assuming 20% per year depletion rate and $600K per year cost of fuel and $400K for manpower and other costs).
And depletion rate can be higher (http://www.oil-price.net/en/articles/shale-high-depletion-rates-in-bakken.php)
=== quote ===
Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down? The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.
=== end of quote ===Many shale wells produce less. For example, in October Bakken wells produced 100 barrels per day on average (of course many of them are more then a year old)
https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf
[Dec 13, 2015] EIA track record of predictions shows that they are absolutely worthless
"... A quick look at EIA track record of predictions shows that all those models and studies about reserves and production to predict future oil production are absolutely worthless. ..."
peakoilbarrel.com
Javier, 12/13/2015 at 7:52 pmOil postThey say an image is worth a thousand words.
A quick look at EIA track record of predictions shows that all those models and studies about reserves and production to predict future oil production are absolutely worthless.
We have listened to a lot of bullshit since the price crisis of 2014 started. In the end Ron, and I, and others that predicted that oil price situation was conductive to produce Peak Oil in about a year are going to be right.
EIA will no doubt predict that it is a temporary peak. You can choose to believe them if you want. Transition out of oil starts this year without any need for any treaty.
[Dec 13, 2015] Chaos in Libya It's the oil, stupid
Peak Oil News and Message Boards
...The Islamic State is growing by the day in the Gulf of Sirte in the center of the country, imposing its cruel dictates and making inroads elsewhere in the country. Criminal gangs – often the same militias that have had the run of the country since Gaddafi's fall – are doing a brisk trade in people smuggling, sending off desperate migrants and refugees on rickety boats across the Mediterranean.
Oh, and by the way, Libya is also going broke.
That last tidbit should be surprising. Libya has Africa's largest oil reserves and has long been an important supplier of light sweet crude, the kind made into gasoline and kerosene. It also had tons of money in both hoards of cash reserves and investments across the globe.
But the oil, which used to bring in 96 percent of the country's income, is not flowing anymore. From a high of at least 1.6 million barrels per day at the beginning of 2011, Libya is lucky to export a fourth of that today. Militias have taken control of oil fields, pipelines and export facilities across the country. At first, they sought to extort the central government to keep the oil flowing. But since the country was divided into two rival governments, they are simply fighting to keep oil revenue from each other: you take over my oilfield, I block your pipeline. Since earlier this year, IS has jumped into the fray, simply destroying facilities to keep any government from getting its revenues - although, in the longer term, it may very well want to control the oil itself.
The little oil that still flows out of the country is worth a lot less than it was a year ago, due to falling international prices. Much less revenue is flowing into state coffers, which have been ransacked by profligate spending, corruption and outright theft over the past three years. From over $110 billion in 2013, hard-currency reserves have gone down to an estimated $60 billion – not that anybody seems to know for sure. The assets of the Libyan Investment Authority, the sovereign wealth fund that owns shares in businesses (including the Italian football club Juventus) and real estate across Europe, are being fought over in courts by the rival governments.
Those two governments – one in Tripoli, Islamist-leaning and supported by Qatar and Turkey; another in Tobruk, backed by Egypt and the United Arab Emirates – are also fighting for control of the remaining cash cows: the Central Bank of Libya, which holds the reserves, and the National Oil Company, which sells the oil and gas that is still being produced. Inasmuch as Libya still has a state, these two institutions are among the few remaining centers of technocratic know-how, and they are being torn apart. They have only survived thus far because they continue to finance both governments - including the salaries of the militiamen holding them hostage - but time is not on their side. Attempts to sell oil outside these official channels have been foiled so far, but the more messy the situation in Libya gets, the more likely these will one day succeed.
GregT, 13th Dec 2015 6:23 pm
Apneaman, 13th Dec 2015 6:48 pmLibya,
Another "Mission Accomplished".
Plantagenet, 13th Dec 2015 7:06 pmIt's America, stupid. Everywhere there is American "interests" there is turmoil, strife, murder and mayhem.
The following is a partial list of U.S. military interventions from 1890 to 2014.
This guide does not include:
mobilizations of the National Guard
offshore shows of naval strength
reinforcements of embassy personnel
the use of non-Defense Department personnel (such as the Drug Enforcement Administration)
military exercises
non-combat mobilizations (such as replacing postal strikers)
the permanent stationing of armed forces
covert actions where the U.S. did not play a command and control role
the use of small hostage rescue units
most uses of proxy troops
U.S. piloting of foreign warplanes
foreign or domestic disaster assistance
military training and advisory programs not involving direct combat
civic action programs
and many other military activities.
Among sources used, beside news reports, are the Congressional Record (23 June 1969), 180 Landings by the U.S. Marine Corp History Division, Ege & Makhijani in Counterspy (July-Aug, 1982), "Instances of Use of United States Forces Abroad, 1798-1993" by Ellen C. Collier of the Library of Congress Congressional Research Service, and Ellsberg in Protest & Survive.Versions of this list have been published on Zmag.org, Neravt.com, and numerous other websites.
Translations of list: Spanish French Turkish Italian Chinese Greek Russian Czech Tamil Portuguese
Quotes in Christian Science Monitor and The Independent
Turkish newspaper urges that the United States be listed in Guinness Book of World Records as the Country with the Most Foreign Interventions.
COUNTRY OR STATE Dates of intervention Forces Comments
SOUTH DAKOTA 1890 (-?) Troops 300 Lakota Indians massacred at Wounded Knee.
ARGENTINA 1890 Troops Buenos Aires interests protected.
CHILE 1891 Troops Marines clash with nationalist rebels.
HAITI 1891 Troops Black revolt on Navassa defeated.
IDAHO 1892 Troops Army suppresses silver miners' strike.
HAWAII 1893 (-?) Naval, troops Independent kingdom overthrown, annexed.
CHICAGO 1894 Troops Breaking of rail strike, 34 killed.
NICARAGUA 1894 Troops Month-long occupation of Bluefields.
CHINA 1894-95 Naval, troops Marines land in Sino-Japanese War
KOREA 1894-96 Troops Marines kept in Seoul during war.
PANAMA 1895 Troops, naval Marines land in Colombian province.
NICARAGUA 1896 Troops Marines land in port of Corinto.
CHINA 1898-1900 Troops Boxer Rebellion fought by foreign armies.
PHILIPPINES 1898-1910 (-?) Naval, troops Seized from Spain, killed 600,000 Filipinos
CUBA 1898-1902 (-?) Naval, troops Seized from Spain, still hold Navy base.
PUERTO RICO 1898 (-?) Naval, troops Seized from Spain, occupation continues.
GUAM 1898 (-?) Naval, troops Seized from Spain, still use as base.
MINNESOTA 1898 (-?) Troops Army battles Chippewa at Leech Lake.
NICARAGUA 1898 Troops Marines land at port of San Juan del Sur.
SAMOA 1899 (-?) Troops Battle over succession to throne.
NICARAGUA 1899 Troops Marines land at port of Bluefields.
IDAHO 1899-1901 Troops Army occupies Coeur d'Alene mining region.
OKLAHOMA 1901 Troops Army battles Creek Indian revolt.
PANAMA 1901-14 Naval, troops Broke off from Colombia 1903, annexed Canal Zone; Opened canal 1914.
HONDURAS 1903 Troops Marines intervene in revolution.
DOMINICAN REPUBLIC 1903-04 Troops U.S. interests protected in Revolution.
KOREA 1904-05 Troops Marines land in Russo-Japanese War.
CUBA 1906-09 Troops Marines land in democratic election.
NICARAGUA 1907 Troops "Dollar Diplomacy" protectorate set up.
HONDURAS 1907 Troops Marines land during war with Nicaragua
PANAMA 1908 Troops Marines intervene in election contest.
NICARAGUA 1910 Troops Marines land in Bluefields and Corinto.
HONDURAS 1911 Troops U.S. interests protected in civil war.
CHINA 1911-41 Naval, troops Continuous occupation with flare-ups.
CUBA 1912 Troops U.S. interests protected in civil war.
PANAMA 1912 Troops Marines land during heated election.
HONDURAS 1912 Troops Marines protect U.S. economic interests.
NICARAGUA 1912-33 Troops, bombing 10-year occupation, fought guerillas
MEXICO 1913 Naval Americans evacuated during revolution.
DOMINICAN REPUBLIC 1914 Naval Fight with rebels over Santo Domingo.
COLORADO 1914 Troops Breaking of miners' strike by Army.
MEXICO 1914-18 Naval, troops Series of interventions against nationalists.
HAITI 1914-34 Troops, bombing 19-year occupation after revolts.
TEXAS 1915 Troops Federal soldiers crush "Plan of San Diego" Mexican-American rebellion
DOMINICAN REPUBLIC 1916-24 Troops 8-year Marine occupation.
CUBA 1917-33 Troops Military occupation, economic protectorate.
WORLD WAR I 1917-18 Naval, troops Ships sunk, fought Germany for 1 1/2 years.
RUSSIA 1918-22 Naval, troops Five landings to fight Bolsheviks
PANAMA 1918-20 Troops "Police duty" during unrest after elections.
HONDURAS 1919 Troops Marines land during election campaign.
YUGOSLAVIA 1919 Troops/Marines intervene for Italy against Serbs in Dalmatia.
GUATEMALA 1920 Troops 2-week intervention against unionists.
WEST VIRGINIA 1920-21 Troops, bombing Army intervenes against mineworkers.
TURKEY 1922 Troops Fought nationalists in Smyrna.
CHINA 1922-27 Naval, troops Deployment during nationalist revolt.
MEXICOHONDURAS
1923
1924-25
Bombing
Troops
Airpower defends Calles from rebellion
Landed twice during election strife.
PANAMA 1925 Troops Marines suppress general strike.
CHINA 1927-34 Troops Marines stationed throughout the country.
EL SALVADOR 1932 Naval Warships send during Marti revolt.
WASHINGTON DC 1932 Troops Army stops WWI vet bonus protest.
WORLD WAR II 1941-45 Naval, troops, bombing, nuclear Hawaii bombed, fought Japan, Italy and Germay for 3 years; first nuclear war.
DETROIT 1943 Troops Army put down Black rebellion.
IRAN 1946 Nuclear threat Soviet troops told to leave north.
YUGOSLAVIA 1946 Nuclear threat, naval Response to shoot-down of US plane.
URUGUAY 1947 Nuclear threat Bombers deployed as show of strength.
GREECE 1947-49 Command operation U.S. directs extreme-right in civil war.
GERMANY 1948 Nuclear Threat Atomic-capable bombers guard Berlin Airlift.
CHINA 1948-49 Troops/Marines evacuate Americans before Communist victory.
PHILIPPINES 1948-54 Command operation CIA directs war against Huk Rebellion.
PUERTO RICO 1950 Command operation Independence rebellion crushed in Ponce.
KOREA 1951-53 (-?) Troops, naval, bombing , nuclear threats U.S./So. Korea fights China/No. Korea to stalemate; A-bomb threat in 1950, and against China in 1953. Still have bases.
IRAN 1953 Command Operation CIA overthrows democracy, installs Shah.
VIETNAM 1954 Nuclear threat French offered bombs to use against seige.
GUATEMALA 1954 Command operation, bombing, nuclear threat CIA directs exile invasion after new gov't nationalized U.S. company lands; bombers based in Nicaragua.
EGYPT 1956 Nuclear threat, troops Soviets told to keep out of Suez crisis; Marines evacuate foreigners.
LEBANON l958 Troops, naval Army & Marine occupation against rebels.
IRAQ 1958 Nuclear threat Iraq warned against invading Kuwait.
CHINA l958 Nuclear threat China told not to move on Taiwan isles.
PANAMA 1958 Troops Flag protests erupt into confrontation.
VIETNAM l960-75 Troops, naval, bombing, nuclear threats Fought South Vietnam revolt & North Vietnam; one million killed in longest U.S. war; atomic bomb threats in l968 and l969.
CUBA l961 Command operation CIA-directed exile invasion fails.
GERMANY l961 Nuclear threat Alert during Berlin Wall crisis.
LAOS 1962 Command operation Military buildup during guerrilla war.
CUBA l962 Nuclear threat, naval Blockade during missile crisis; near-war with Soviet Union.
IRAQ 1963 Command operation CIA organizes coup that killed president, brings Ba'ath Party to power, and Saddam Hussein back from exile to be head of the secret service.
PANAMA l964 Troops Panamanians shot for urging canal's return.
INDONESIA l965 Command operation Million killed in CIA-assisted army coup.
DOMINICAN REPUBLIC 1965-66 Troops, bombing Army & Marines land during election campaign.
GUATEMALA l966-67 Command operation Green Berets intervene against rebels.
DETROIT l967 Troops Army battles African Americans, 43 killed.
UNITED STATES l968 Troops After King is shot; over 21,000 soldiers in cities.
CAMBODIA l969-75 Bombing, troops, naval Up to 2 million killed in decade of bombing, starvation, and political chaos.
OMAN l970 Command operation U.S. directs Iranian marine invasion.
LAOS l971-73 Command operation, bombing U.S. directs South Vietnamese invasion; "carpet-bombs" countryside.
SOUTH DAKOTA l973 Command operation Army directs Wounded Knee siege of Lakotas.
MIDEAST 1973 Nuclear threat World-wide alert during Mideast War.
CHILE 1973 Command operation CIA-backed coup ousts elected marxist president.
CAMBODIA l975 Troops, bombing Gassing of captured ship Mayagüez, 28 troops die when copter shot down.
ANGOLA l976-92 Command operation CIA assists South African-backed rebels.
IRAN l980 Troops, nuclear threat, aborted bombing Raid to rescue Embassy hostages; 8 troops die in copter-plane crash. Soviets warned not to get involved in revolution.
LIBYA l981 Naval jets Two Libyan jets shot down in maneuvers.
EL SALVADOR l981-92 Command operation, troops Advisors, overflights aid anti-rebel war, soldiers briefly involved in hostage clash.
NICARAGUA l981-90 Command operation, naval CIA directs exile (Contra) invasions, plants harbor mines against revolution.
LEBANON l982-84 Naval, bombing, troops Marines expel PLO and back Phalangists, Navy bombs and shells Muslim positions. 241 Marines killed when Shi'a rebel bombs barracks.
GRENADA l983-84 Troops, bombing Invasion four years after revolution.
HONDURAS l983-89 Troops Maneuvers help build bases near borders.
IRAN l984 Jets Two Iranian jets shot down over Persian Gulf.
LIBYA l986 Bombing, naval Air strikes to topple Qaddafi gov't.
BOLIVIA 1986 Troops Army assists raids on cocaine region.
IRAN l987-88 Naval, bombing US intervenes on side of Iraq in war, defending reflagged tankers and shooting down civilian jet.
LIBYA 1989 Naval jets Two Libyan jets shot down.
VIRGIN ISLANDS 1989 Troops St. Croix Black unrest after storm.
PHILIPPINES 1989 Jets Air cover provided for government against coup.
PANAMA 1989 (-?) Troops, bombing Nationalist government ousted by 27,000 soldiers, leaders arrested, 2000+ killed.
LIBERIA 1990 Troops Foreigners evacuated during civil war.
SAUDI ARABIA 1990-91 Troops, jets Iraq countered after invading Kuwait. 540,000 troops also stationed in Oman, Qatar, Bahrain, UAE, Israel.
IRAQ 1990-91 Bombing, troops, naval Blockade of Iraqi and Jordanian ports, air strikes; 200,000+ killed in invasion of Iraq and Kuwait; large-scale destruction of Iraqi military.
KUWAIT 1991 Naval, bombing, troops Kuwait royal family returned to throne.
IRAQ 1991-2003 Bombing, naval No-fly zone over Kurdish north, Shiite south; constant air strikes and naval-enforced economic sanctions
LOS ANGELES 1992 Troops Army, Marines deployed against anti-police uprising.
SOMALIA 1992-94 Troops, naval, bombing U.S.-led United Nations occupation during civil war; raids against one Mogadishu faction.
YUGOSLAVIA 1992-94 Naval NATO blockade of Serbia and Montenegro.
BOSNIA 1993-? Jets, bombing No-fly zone patrolled in civil war; downed jets, bombed Serbs.
HAITI 1994 Troops, naval Blockade against military government; troops restore President Aristide to office three years after coup.
ZAIRE (CONGO) 1996-97 Troops Troops at Rwandan Hutu refugee camps, in area where Congo revolution begins.
LIBERIA 1997 Troops Soldiers under fire during evacuation of foreigners.
ALBANIA 1997 Troops Soldiers under fire during evacuation of foreigners.
SUDAN 1998 Missiles Attack on pharmaceutical plant alleged to be "terrorist" nerve gas plant.
AFGHANISTAN 1998 Missiles Attack on former CIA training camps used by Islamic fundamentalist groups alleged to have attacked embassies.
IRAQ 1998 Bombing, Missiles Four days of intensive air strikes after weapons inspectors allege Iraqi obstructions.
YUGOSLAVIA 1999 Bombing, Missiles Heavy NATO air strikes after Serbia declines to withdraw from Kosovo. NATO occupation of Kosovo.
YEMEN 2000 Naval USS Cole, docked in Aden, bombed.
MACEDONIA 2001 Troops NATO forces deployed to move and disarm Albanian rebels.
UNITED STATES 2001 Jets, naval Reaction to hijacker attacks on New York, DC
AFGHANISTAN 2001-? Troops, bombing, missiles Massive U.S. mobilization to overthrow Taliban, hunt Al Qaeda fighters, install Karzai regime, and battle Taliban insurgency. More than 30,000 U.S. troops and numerous private security contractors carry our occupation.
YEMEN 2002 Missiles Predator drone missile attack on Al Qaeda, including a US citizen.
PHILIPPINES 2002-? Troops, naval Training mission for Philippine military fighting Abu Sayyaf rebels evolves into combat missions in Sulu Archipelago, west of Mindanao.
COLOMBIA 2003-? Troops US special forces sent to rebel zone to back up Colombian military protecting oil pipeline.
IRAQ 2003-11 Troops, naval, bombing, missiles Saddam regime toppled in Baghdad. More than 250,000 U.S. personnel participate in invasion. US and UK forces occupy country and battle Sunni and Shi'ite insurgencies. More than 160,000 troops and numerous private contractors carry out occupation and build large permanent bases.
LIBERIA 2003 Troops Brief involvement in peacekeeping force as rebels drove out leader.
HAITI 2004-05 Troops, naval Marines & Army land after right-wing rebels oust elected President Aristide, who was advised to leave by Washington.
PAKISTAN 2005-? Missiles, bombing, covert operation CIA missile and air strikes and Special Forces raids on alleged Al Qaeda and Taliban refuge villages kill multiple civilians. Drone attacks also on Pakistani Mehsud network.
SOMALIA 2006-? Missiles, naval, troops, command operation Special Forces advise Ethiopian invasion that topples Islamist government; AC-130 strikes, Cruise missile attacks and helicopter raids against Islamist rebels; naval blockade against "pirates" and insurgents.
SYRIA 2008 Troops Special Forces in helicopter raid 5 miles from Iraq kill 8 Syrian civilians
YEMEN 2009-? Missiles, command operation Cruise missile attack on Al Qaeda kills 49 civilians; Yemeni military assaults on rebels
LIBYA 2011-? Bombing, missiles, troops, command operation NATO coordinates air strikes and missile attacks against Qaddafi government during uprising by rebel army. Periodic Special Forces raids against Islamist insurgents.
IRAQ 2014-? Bombing, missiles, troops, command operation
Air strikes and Special Forces intervene against Islamic State insurgents; training Iraqi and Kurdish troops.SYRIA 2014-? Bombing, missiles, troops, command operation
Air strikes and Special Forces intervene against Islamic State insurgents; training other Syrian insurgents.You'd think Obama would've learned from Bush's mistake in Iraq and not toppled the Libyan government without having a plan to stabilize the country afterward.
But no.
Obama = stupid = Bush
Cheers!
[Dec 13, 2015] Producers countries fiscal breakeven
Notable quotes:
"... "Nevertheless, there are reasons why $60 is, for now, a sensible assumption. Although higher than the current spot price of $48, it is the price where investors believe oil will be in two years from now. Futures markets point not to a fall, but to a slow, drawn out recovery for Brent crude. ..."
"... And $60 is the price at which analysts believe much remaining US shale oil and gas – up to 10m barrels a day of peak production, according to Goldman Sachs – could be economic." ..."
peakoil.com
...in October, an excerpt from the Wall Street Journal touts the breakeven level of Brent crude to be $60 a barrel:"Nevertheless, there are reasons why $60 is, for now, a sensible assumption. Although higher than the current spot price of $48, it is the price where investors believe oil will be in two years from now. Futures markets point not to a fall, but to a slow, drawn out recovery for Brent crude.
And $60 is the price at which analysts believe much remaining US shale oil and gas – up to 10m barrels a day of peak production, according to Goldman Sachs – could be economic."
Yes, we are trading below supposed breakeven levels for oil producers, and even sovereigns, and the reiteration of these breakeven levels by the media and analysts from investment banks has made oil seem like a steal at current levels. However, do not be distracted, oil is currently a falling knife and currently has the momentum to test or take out December 2008 levels. With OPEC out of the way and a potentially much stronger USD in 2016, there could easily be more downside for oil.
...
[Dec 12, 2015] Whether or not shale oil was ever economically feasible even with oil at $100/barrel
Notable quotes:
"... At this stage of the game I was wondering if anyone has any input as to whether or not shale oil on this scale was ever economically feasible even with oil at $100/barrel or if perhaps it wasnt a phenomena generated by an audacious group of oilmen who understood the technology and the extent of the resource in conjunction with the same financial wizards who brought us the housing bubble. Something of a Ponzi scheme that backfired when SA refused to cede market share? ..."
"... Thats an accurate description of the hallowed Shale Revolution. However, its incomplete. Whats missing is the fact that a very similar phenomenon occurred with renewables. For not only did the Saudi royal family take a wrecking ball to the hallowed Shale Revolution, but also to the hallowed Renewables Revolution. ..."
"... World oil demand is anticipated to increase by 1.53 mb/d in 2015, averaging around 92.88 mb/d. ..."
"... Projections is off nearly 50%. ..."
"... China's demand growth in in 2015+ India's demand growth in 2015+ Saudi Demand growth every year for the last 5 would total 1.5 Million barrels per day. I think demand growth is far higher than EIA and IEA are saying. And will be another 2 million next year. ..."
peakoilbarrel.com
At this stage of the game I was wondering if anyone has any input as to whether or not shale oil on this scale was ever economically feasible even with oil at $100/barrel or if perhaps it wasn't a phenomena generated by an audacious group of oilmen who understood the technology and the extent of the resource in conjunction with the same financial wizards who brought us the housing bubble. Something of a Ponzi scheme that backfired when SA refused to cede market share?Glenn Stehle, 12/12/2015 at 11:38 amWe kept hearing all these crazy low 'breakeven' numbers that were bandied about for sales pitches. Does anyone believe that they were anywhere near the mark?
SW,
That's an accurate description of the hallowed "Shale Revolution." However, it's incomplete. What's missing is the fact that a very similar phenomenon occurred with renewables. For not only did the Saudi royal family take a wrecking ball to the hallowed Shale Revolution, but also to the hallowed Renewables Revolution.
shallow sand, 12/12/2015 at 12:41 pm
Something interesting to note.ChiefEngineer, 12/12/2015 at 4:00 pmPer EIA, world wide oil demand increases during the last oil price crash driven primarily by over supply:
1986-2.81%
1987-2.36%
1988-3.12%Apparently this time will be different?
Anecdotal. Live near a few auto parts manufacturing plants. They have been running full bore and hiring anyone, multiple felony convictions no longer an issue. Working 5-6 12 hour shifts per week, making $13-17 per hour. Not Bakken wages, but not bad for someone without a GED who may have had some scrapes with the law.
US products supplied up 3% YTD for 2015 over 2014Start, 12/12/2015 at 4:10 pmhttp://www.eia.gov/petroleum/supply/weekly/
Gasoline up 3.7%
Jet fuel up 5.4%
Distillate up 1.9%Apparently you didn't do your homework
December 2014:Huckleberry Finn , 12/12/2015 at 7:21 pmThe producer group expects global demand to rise by 1.15m b/d next year, or 30,000 b/d more than previously thought, reaching reaching 92.3m b/d as result of upward revisions to data for the US and Asia.
http://www.ft.com/fastft/2015/01/15/production-from-non-opec-countries/December 2015:
World oil demand is anticipated to increase by 1.53 mb/d in 2015, averaging around 92.88 mb/d.
http://www.cnbc.com/2015/12/10/opec-predicts-rivals-supply-to-contract-in-2016.html
Projections is off nearly 50%.
China's demand growth in in 2015+ India's demand growth in 2015+ Saudi Demand growth every year for the last 5 would total 1.5 Million barrels per day. I think demand growth is far higher than EIA and IEA are saying. And will be another 2 million next year.Huckleberry Finn, 12/12/2015 at 8:07 pm
Ron. The current market perception is of an oversupply of 2 Million barrels. And there is inventory drawdown.
But until price rises to prevent it, demand "could" grow by even 3 Million barrels per day.
BTW, since following this on the oildrum from 2004, it has been 11 years continuous that I have seen disbelief that supply could increase the next year. And they have all been wrong for 11.
I am hardly a cornucopian, and I think supply will be lucky to be down only 1 Million barrels next December, but at the right price we have 5-7 Million barrels per day more.
[Dec 12, 2015] Robert Reich to the Fed: this is not the time to raise rates
Notable quotes:
"... Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you. ..."
www.facebook.com
Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you.Dwight McCabe
According to Paul Krugman the banks desperately need rates higher so they make more profits. With these very low rates they are stuck in low profit. The Fed lives in the financial culture and all the learned people around them, bankers, are convinced that the economy needs higher rates. The economy will not benefit but the financial community sure will.
David Van Dyne
...By the way, how about the negative returns on money market funds invested through a 401(k) plan?
[Dec 12, 2015] Inflated EIA Data Could Keep Oil Prices Subdued Next Year
Notable quotes:
"... It is indisputable that central bank mandates have morphed from just employment/inflation managers to all out asset class manipulators. ..."
"... Production is poised to plunge regardless of near term noise from OPEC or any other conjured up media hype to depress commodities. The fact is beyond the day-to-day noise it's the dollar that is driving things and will continue to regardless of fundamentals in 2016. ..."
"... In fact today the EIA raised its demand growth for oil in U.S. to 160,000 barrels per day in 2016 from 120,000 barrels per day despite 2015 being 300,000 barrels per day. Unless there is a recession why would demand wane by that much when larger cars are being sold I ask? ..."
"... On top of this they cut their projection for production levels in 2016 by 570,000 barrels per day, a larger decrease from the previous 520,000 barrels per day. But these figures could still be understating the case. ..."
"... Central banks are manipulating equity prices by 20 to 30 percent on the upside, and the same amount for commodities on the downside. But they can't have it both ways. Sooner or later the house of cards will come tumbling down. ..."
Dec 12, 2015 | OilPrice.com
It is indisputable that central bank mandates have morphed from just employment/inflation managers to all out asset class manipulators.One may argue what assets classes those are but it's pretty clear that anything is up for grabs. The whims of central bank policies are directly affecting equity and bond markets. The trend has been underway for some time – the Fed has increased its hand in the economy over the past decade so it is no wonder that the Fed seems to have a mandate to prop up certain asset classes while depressing others.
The fact that we have come to this in U.S. after two bubbles isn't surprising.
What is surprising is the extent to which investors not only adhere to this mentality but assist in it. We all know the adage "don't fight the Fed," which has been a longstanding unwritten Wall Street law so to speak. But what is now occurring is that Wall Street is following the Fed with disregard to underlying fundamentals.
Yes, there are some investors showing caution, but there are too many investors running with the Fed, which cause enormous swings in the price of different assets. We witness this daily as either prices crash on shorting or jump on short covering. Again the measure of the distortion level is the disparity and inverse relationship of commodities and NASDAQ, which continues despite record low valuations and short interest in one and very high valuations on the other. Money managers have not hid the fact that they are long on beta and short on energy, nor are they shy in piling in the most crowded trade in history: being long on the dollar knowing the U.S. economy is weakening, solely driven by the Fed's desire to end ZIRP (zero interest rate policy) and because the EU is printing money like mad. They are doing this knowing full well the oil supply story will end as hedges roll off in 2016 and oil remains far below the free cash flow break-even point.
Production is poised to plunge regardless of near term noise from OPEC or any other conjured up media hype to depress commodities. The fact is beyond the day-to-day noise it's the dollar that is driving things and will continue to regardless of fundamentals in 2016.
I suspect that despite the high probability of U.S. production declines imminently and the restatement of supply and demand by EIA/IEA to more accurately reflect a much smaller oil imbalance than perceived, it will be the dollar that drives prices. In fact today the EIA raised its demand growth for oil in U.S. to 160,000 barrels per day in 2016 from 120,000 barrels per day despite 2015 being 300,000 barrels per day. Unless there is a recession why would demand wane by that much when larger cars are being sold I ask?
On top of this they cut their projection for production levels in 2016 by 570,000 barrels per day, a larger decrease from the previous 520,000 barrels per day. But these figures could still be understating the case.
... ... ...
Still, there is a chance that none of this matters because something else could crop up in 2016 that will mask this upward pressure on prices, whether it be the dollar or Iran or something else to depress oil. Until OPEC forces prices higher or the Fed changes policy, prices probably won't recover.
By 2017 the same bearish media will reverse course as the dollar bubble bursts. Plenty of reasons will be invented to justify these events but no one will admit that the entire asset class distortion that is ongoing is tied to central bankers broadening their mandates and using any means to manipulate assets prices to prop up economies that are now swimming in debt.
Central banks are manipulating equity prices by 20 to 30 percent on the upside, and the same amount for commodities on the downside. But they can't have it both ways. Sooner or later the house of cards will come tumbling down.
See also:
[Dec 12, 2015] Wood Mackenzie expects the decline in horizontal oil rigs to continue through June 2016
Notable quotes:
"... They expect Lower 48 states ex-GoM C+C production to decline until the end of next year, with a moderate rebound in 2017. ..."
"... Expected decline in 2016 is not as steep as projected by the EIA (more than 1 mb/d from March 2015 to September 2016). ..."
"... I find the rig count a useful indicator for the drilling activity. However, as we have seen in the Bakken, the number of wells drilled per rig is up by about 20-40% since the mid of last year. ..."
"... This causes the rig count drop to be somewhat less severe, and is in my mind a better indication of what is going to happen near term. ..."
peakoilbarrel.com
AlexS, 12/11/2015 at 8:58 pm
Wood Mackenzie expects the decline in horizontal oil rigs to continue through June 2016.Enno Peters, 12/12/2015 at 5:02 amThey expect Lower 48 states ex-GoM C+C production to decline until the end of next year, with a moderate rebound in 2017.
Expected decline in 2016 is not as steep as projected by the EIA (more than 1 mb/d from March 2015 to September 2016).
Thanks Alex,
I find the rig count a useful indicator for the drilling activity. However, as we have seen in the Bakken, the number of wells drilled per rig is up by about 20-40% since the mid of last year. This is of course due to the fact that better rigs & crews are being kept, better practices, and other factors. Therefore, in order to better relate the rig count to the capacity to drill wells, a correction factor should be applied. This causes the rig count drop to be somewhat less severe, and is in my mind a better indication of what is going to happen near term.
Helms mentioned in the webcast that, based on operator input, he expected the rig count in ND to drop from 65 to about 55 in the coming 6 months, as rig contracts expire. A drop of this order of magnitude (15%) may be seen elsewhere as well.
To put the fraclog in perspective: if we estimate that the fraclog is about 540 wells in ND, and that rigs drill nowadays about 1.4 wells/month/rig in ND, the fraclog is equal to about 32 rig-years of capacity (32 rigs would drill the fraclog in 1 year).
[Dec 12, 2015] KUNA Saudi economy resilient, able to stand oil price slump
Notable quotes:
"... Saudi Arabia could, through a combination of debt issuance and reserve drawdown, weather a period of low oil prices (in the USD50-55/bbl range) for at least two years before even half of the kingdom's foreign reserves are depleted. ..."
"... By September 2015, the funds in the central government's deposit accounts at SAMA had fallen by -28.0 percent y/y, or USD112 billion. ..."
Economics - 12-12-2015
KUWAIT, Dec 12 (KUNA) -- The National Bank of Kuwait (NBK) said in a report on Saturday that the Saudi economy is resilient and able to stand challenges caused by falling oil prices.
The Kingdom seems to have ample fiscal space with central government gross domestic debt a very low 1.6 percent of GDP (USD11.6 billion) in 2014, the report added.
Saudi Arabia could, through a combination of debt issuance and reserve drawdown, weather a period of low oil prices (in the USD50-55/bbl range) for at least two years before even half of the kingdom's foreign reserves are depleted.According to the NBK report, the Saudi economy has begun to feel the effects of the decline in oil prices: non-oil activity has moderated, the fiscal account has fallen into deficit and the flow of deposits into the banking system, especially government-sourced, has slowed.
Faced with a sizeable fiscal deficit, a consequence of lower oil revenues and record high spending, and the prospect of increased drawdowns of the kingdom's foreign reserves, the authorities in 2015 started issuing sovereign bonds for the first time since 2007.
While banks' interest margins should improve through participation in the bond issuance program, banking sector liquidity will need to be monitored Issuing debt of up to USD 45 billion over the course of a year or two, or even several years, would nevertheless have implications for the domestic banking system.
On the positive side, banks' net interest margins and revenues should improve as banks shift from lower-yielding, short-term liquid assets to higher-yielding, longer term government securities.The NBK report noted that a spate of negative outlook; assessments and a one notch downgrade (AA- to A+) by the ratings agency Standard and Poor's (S&P), compounded the market'ss anxieties, weighing heavily on the index.
Government deposits at Saudi Arabian Monetary Agency (SAMA) drawn down; falling foreign reserves spurred the issuance of Saudi Arabia's first sovereign bonds since 2007. By September 2015, the funds in the central government's deposit accounts at SAMA had fallen by -28.0 percent y/y, or USD112 billion.
Thus, the kingdom has ample resources to help it negotiate the economic downturn, at least over the medium term. Clearly, however, prudent fiscal policies will need to be the way forward for Saudi Arabia.
The non-oil activity is likely to remain relatively buoyant, supported by government spending, the NBK said. However, there are signs that the economy is cooling: GDP growth in 2Q15 slowed for the third successive quarter and key metrics of consumer and business activity such as point of sale (POS) and ATM transactions, business confidence and private sector credit growth, have all been slipping.
Also, the annual non-oil growth is projected to slow, from 5.0 percent in 2014 to an average of 3.7 percent during 2015-2017. Headline GDP growth is, therefore, forecast to expand by 3.5 percent in 2015 before slowing to 2.5 percent and 2.3 percent in 2016 and 2017, respectively. (end) osj.amj.msa
[Dec 12, 2015] Another gloom and doom forecast of oil prices for the next year
Notable quotes:
"... The situation has surprised even seasoned oil traders. "It was anticipated that U.S. shale producers, the source of the explosive growth in supply in recent years, would be the first to fold," Andrew Hall, chief executive of the commodities hedge fund Astenbeck Capital Management LLC, wrote in a letter to investors. "But this hasn't happened, at least not at the rate initially expected." ..."
"... For the past year, U.S. oil companies have been kept afloat by hedges–financial contracts that locked in higher prices for their crude–as well as an infusion of capital from Wall Street in the first half of the year that helped them keep pumping even as oil prices continued to fall. The companies also slashed costs and developed better techniques to produce more crude and natural gas per well. ..."
"... some analysts to predict that 2016 production could decline as much as 10%. ..."
"... But others predict rising oil output, in part because crude production is growing in the Gulf, where companies spent billions of dollars developing megaprojects that are now starting to produce oil. … companies are on track to pump about 10% more crude than they did in 2014. ..."
"... Since most of the money to tap this oil and gas was spent before crude prices cratered, and since pipelines and other infrastructure to bring it to market are already in place, it makes economic sense for the companies to go ahead with the projects despite the glut, they say. ..."
"... Anadarko Petroleum says it expects its operations to expand in the Gulf, where it currently holds 2 million net acres. The company plans to bring a production platform online in the first half of 2016, which will be capable of producing as much as 80,000 barrels a day. ..."
"... Like Anadarko, Shell has decided to continue investing in deep water despite low oil prices. Overall, its production in the region is up about 10% for the year, to 250,000 barrels a day–a "big jump for us," said Wael Sawan, an executive vice president. ..."
"... Small or financially strapped producers, which must keep drilling to get the cash to pay interest on billions of dollars of debt, will probably begin tapping those wells soon, according to Rystad Energy, the Norwegian energy consultancy. It forecasts that these wells could help push up U.S. production in 2016 by about 200,000 barrels a day from the 2015 average. ..."
"... These wells "will be one of the main drivers for 2016 shale production," said Bielenis Villanueva-Triana, a senior analyst at Rystad. ..."
peakoilbarrel.com
AlexS, 12/10/2015 at 8:56 pm
As for the forecast for the next year, I have serious doubts that we will see a significant drop in LTO output and, generally, in U.S. C+C production next year.Here is an article confirming this view:
As Oil Keeps Falling, Nobody Is Blinking
The standoff between major global energy producers that has created an oil glut is set to continue next year in full force, as much because of the U.S. as of OPEC.
American shale drillers have only trimmed their pumping a little, and rising oil flows from the Gulf of Mexico are propping up U.S. production. The overall output of U.S. crude fell just 0.2% in September, the most recent monthly federal data available, and is down less than 3%, to 9.3 million barrels a day, from the peak in April.Some analysts see the potential for U.S. oil output to rise next year.
The situation has surprised even seasoned oil traders. "It was anticipated that U.S. shale producers, the source of the explosive growth in supply in recent years, would be the first to fold," Andrew Hall, chief executive of the commodities hedge fund Astenbeck Capital Management LLC, wrote in a letter to investors. "But this hasn't happened, at least not at the rate initially expected."
For the past year, U.S. oil companies have been kept afloat by hedges–financial contracts that locked in higher prices for their crude–as well as an infusion of capital from Wall Street in the first half of the year that helped them keep pumping even as oil prices continued to fall. The companies also slashed costs and developed better techniques to produce more crude and natural gas per well.
The opportunity for further productivity gains is waning, experts say, capital markets are closing and hedging contracts for most producers expire this year. These factors have led some analysts to predict that 2016 production could decline as much as 10%.
But others predict rising oil output, in part because crude production is growing in the Gulf, where companies spent billions of dollars developing megaprojects that are now starting to produce oil. … companies are on track to pump about 10% more crude than they did in 2014. In September, they produced almost 1.7 million barrels a day, according to the latest federal data.
Since most of the money to tap this oil and gas was spent before crude prices cratered, and since pipelines and other infrastructure to bring it to market are already in place, it makes economic sense for the companies to go ahead with the projects despite the glut, they say.
Anadarko Petroleum says it expects its operations to expand in the Gulf, where it currently holds 2 million net acres. The company plans to bring a production platform online in the first half of 2016, which will be capable of producing as much as 80,000 barrels a day.
"It's either free or very little marginal cost," said Anadarko CEO Al Walker. "For some of us, the Gulf of Mexico is still a very viable place for us to make investments."
Like Anadarko, Shell has decided to continue investing in deep water despite low oil prices. Overall, its production in the region is up about 10% for the year, to 250,000 barrels a day–a "big jump for us," said Wael Sawan, an executive vice president.
Also likely to slow the decline of U.S. oil production: more than 1,200 wells that companies drilled but left untapped in the hopes of higher prices.
Small or financially strapped producers, which must keep drilling to get the cash to pay interest on billions of dollars of debt, will probably begin tapping those wells soon, according to Rystad Energy, the Norwegian energy consultancy. It forecasts that these wells could help push up U.S. production in 2016 by about 200,000 barrels a day from the 2015 average.
These wells "will be one of the main drivers for 2016 shale production," said Bielenis Villanueva-Triana, a senior analyst at Rystad.
Some producers with low debt will opt to wait to produce more oil, but others won't have that option. "In the U.S., they have a desperate need for cash flow," said Gary Ross, head of global oil at consulting firm PIRA Energy Group. "It looks like this could carry on until at least the first quarter."
shallow sand, 12/10/2015 at 9:10 pm
Maybe the only hope is explosive demand.
Gasoline here is $1.67 and I have heard as low as $1.39 in a low tax state. The US is, or will soon be below $2.00. It will take awhile, but maybe 2016 will have greater production growth than forecast if gasoline price remain this low.
shallow sand, 12/10/2015 at 9:44 pm
Is there an oil price/duration that will force OPEC's hand with a cut? How about Russia? I think we will see sub $30 WTI now, with sub $20 not out of the question.
jjhman, 12/10/2015 at 11:08 pm
Ron:
Thanks to you for what, in my opinion, is now the best site on line for solid analysis of the oil industry supported by credible data. Bravo!
However I get really tired having to skip through the bickering about AGW. It really isn't the subject of this theatre and it seems neither side of the debate can control their emotions. It's an out of context distraction I would rather do without.
[Dec 11, 2015] Dangers of reaching for yield
The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. Add to this fake earnings and share repurchases that weaken many companies including such stalwart as IBM and you get the message.
Notable quotes:
"... A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street. ..."
"... All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk. ..."
"... "Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap." ..."
"... Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500. ..."
economistsview.typepad.com
BenIsNotYoda said... Friday, December 11, 2015 at 03:42 AM
Another leg of the reach-for-yield/carry trade crumbling. Emerging markets, commodities and now corporate high yield. No bubbles here. Carry on.BenIsNotYoda said in reply to BenIsNotYoda...Junk Fund's Demise Fuels Concern Over Bond Rout
Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond market swoons
A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street.
The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more.
of course, biotech has to be added to this list; down 20%.pgl said in reply to BenIsNotYoda...Amgen shares trading at $145 and Gilead shares trading at $102. Not feeling sorry for these dudes.pgl said in reply to BenIsNotYoda...Talk about burying the lead:Peter K. said in reply to pgl..."The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low in mid-2014, reflecting investors' confidence in companies' business prospects. But spreads have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated companies' ability to repay debts. All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk.
"Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap."
The Securities and Exchange Commission has been warning mutual-fund managers who purchase illiquid securities-those that may be difficult to buy or sell at stated prices because of a lack of willing investors-to prepare better for potential redemptions and is drawing up new rules requiring such measures."
Simply put - people who go into the junk bond market get a very high return but they also take the risk. No feeling sorry for these guys especially given that the SEC gave them fair warning.
pgl said in reply to Peter K...."All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk."Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield.
The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data.
http://cepr.net/blogs/beat-the-press/matt-o-brien-takes-obama-to-task-on-fed-appointees
Dean Baker again:
"Preventing the rebirth of housing bubbles in these markets was a very good thing in my book. I will add the qualification that high interest rates is not my preferred way of bursting bubbles. The first recourse should be talk, as in using the Fed's bully pulpit, coupled with its research, to warn the markets of rising bubbles. Janet Yellen did this successfully in the summer of 2014 when she used congressional testimony to warn of bubbles in social media companies, biotech stocks, and junk bonds. She did not follow through with subsequent warnings, but all three markets did take a hit in the weeks following her testimony.
For some reason most economists reject the idea of having the Fed talk down bubbles. I guess it is considered impolite. This seems more than a bit bizarre given the enormous damage done by bursting bubbles compared with the virtually costless effort to talk them down.
Of course the Fed also has substantial regulatory powers which can be used to curb bank lending to support bubbles. This is also a policy option that should be pursued before deliberately slowing the economy with higher interest rates.
Anyhow, I was not happy to see the economy slowed by the Taper Tantrum, but I was very happy to see that it prevented the growth of another bubble. It is unfortunate that almost no one knows this story - I guess it is difficult for reporters to get access to the Case-Shiller data on the web."
"The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data."likbez said in reply to Peter K....Yep! And the lack of QE of late has driven up both government bond rates and credit spreads. Now wonder these vulture investors lost money. I'm not feeling for them a bit. And yes - BenIsNotYoda was being a drama queen.
"Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield."Yes, very true.
Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500.
Conservative investments like TIPS suffered.
[Dec 11, 2015] OPEC's monthly report
www.businessinsider.com
...On Thursday, crude slumped after OPEC's monthly report showed that the oil cartel pumped the most oil in three years in November.
[Dec 11, 2015] Fortune says that a third of frackers could be out of business in a year
peakoilbarrel.com
Javier, 12/11/2015 at 5:56 amA very important issue that adds to the pains of oil companies at a really bad time.shallow sand, 12/10/2015 at 5:03 pmFortune says that a third of frackers could be out of business in a year.
http://fortune.com/2015/09/26/frackers-could-soon-face-mass-extinction/
dclonghorn. I have absolutely way of knowing how many "DUC" LTO wells are out there in the Bakken or elsewhere. However, I absolutely cannot fathom, at the price of oil since July, 2015, how anyone could financially justify drilling mult-million dollar wells, that will not be completed for at least six months, or even more than a year. There is absolutely no income being produced, yet a major expense to drill same was incurred, and furthermore, I assume there is some small ongoing cost to monitor these wells awaiting completion. Yes, I understand holding off, but why in the heck drill these in the first place? I understand things do not stop on a dime, but we really have not had a suitable price for onshore oil and/or gas well drilling since the fall of 2014.Nick G, 12/10/2015 at 5:05 pmThe oil price and gas price collapse is simply incredible to me. Almost all well head barrels are in the low 30s or below, today, and it looks very real that the 20s are near. Gas almost everywhere is below $1.75 at the well.
An LTO company with a 60% oil and 40% gas mix is realizing somewhere between $15 and $21 per BOE.
A Bakken LTO company with 75% oil and 25% gas mix is realizing $21-23.
So in the Bakken, lets assume $22 per BOE.
Subtract $2.20 per BOE for severance and extraction taxes, subtract $6-9 per BOE for operating and subtract $2-4 for G & A. Clearing $6.80 to $11.80 per BOE. Most companies have at least $5 per BOE in interest obligations. So that takes us to $1.80 to $6.80 per BOE.
If we go to $25 WTI, say $18 Bakken. So around $14 per BOE. Guess what, we are losing money on an operating basis and I will bet there will still be wells drilling and being completed in all shale basins.
Most companies have at least $5 per BOE in interest obligations. So that takes us to $1.80 to $6.80 per BOE.shallow sand, 12/10/2015 at 5:57 pmDon't they have to pay those interest obligations either way? In other words, aren't they a sunk cost?
Yes. I suppose the more they produce the less per BOE they are paying. But to produce more they have to borrow more or use the cash from existing production to pay for the new wells which will increase production.AlexS, 12/10/2015 at 6:44 pmBut apparently some are spending money to drill, but not complete the wells, which adds to interest expense and cash burn, without producing any cash flow.
But all e & p share prices went up today. Go figure.
OPEC estimates of U.S. liquids production by sourceAlexS, 12/10/2015 at 6:54 pm
(Source: OPEC MOMR Dec. 2015)
U.S. oil production estimates: Rystad Energy vs. EIA STEOAlexS, 12/10/2015 at 7:15 pm
Interesting trend: the EIA has been increasing its estimates of U.S. C+C production for 2015 – early 2016, but decreasing estimates for the second half of next year.AlexS, 12/10/2015 at 7:32 pm
The biggest revision (of 280 kb/d) was for the GoM oil production in September 2015.AlexS , 12/10/2015 at 7:56 pm
Apparently the EIA expected a sharp drop due to the hurricane season.Total U.S. C+C output estimate for September was increased by 420 kb/d in the December STEO compared to the October STEO
C+C production in the Gulf of Mexico
EIA's estimates for the Lower 48 states ex-GoM were revised up for 2005-early 2016
(by more than 100 kb/d for October and November). However the outlook for the second half of next year has been significantly reduced (by more than 300 kb/d for December 2016).
AlexS, 12/10/2015 at 8:29 pm
shallow sand,
This trend was apparent since the beginning of the shale boom. U.S. oil companies were reallocating capital from overseas projects and domestic conventional operations towards shale gas and LTO. Interestingly, the divested assets were generating free cashflow, while shale operations were cash-negative. And nothing really changed with the sharp drop in oil prices.
I am not sure that oil and gas production in other parts of the world is now less economic compared to the shale. Probably international projects are perceived as more politically risky
[Dec 11, 2015] How Far Can The Syria Conflict Spiral Out Of Control
Notable quotes:
"... By James Stafford, Editor in Chief of OilPrice. Originally published at OilPrice ..."
"... • How far the Russia-Turkey spat can go economically ..."
"... • The fallout effects for countries caught in between ..."
"... • What Russia wants ..."
"... • What Turkey wants ..."
"... • What other geopolitical purposes ISIS serves ..."
"... • Why ISIS can't be controlled ..."
"... • How Shi'ite radical groups differ ..."
"... • Why we're looking at a possible remapping of a significant part of the energy arena ..."
"... • Why we shouldn't listen to billionaire buffoons ..."
"... Larger picture of what's really going on with Turkey's intentions driven by Ergodan, Bensh's correct description of Ergo's character and flaws, and less explicitly stated US (he says "west") 1/2 ass efforts to defeat IS despite US leaders (from WH to Congress) emphatic claims otherwise… ..."
"... "Coupled with unparalleled levels of socioeconomic insecurity, Sunni marginalization produced a real social base whose attraction to ISIS goes beyond religious or ideological factors." ..."
"... ISIS may project a utopic promise of stability and prosperity, but this is far from the reality on the ground. We can be absolutely certain that it will experience its own internal revolts, as similarly declarative examples of Islamic "states" have faced in the past. ..."
"... Yet, from the point of view of Washington, a geostrategic problem lingered: how to break the Tehran-Damascus alliance. And ultimately, how to break the Tehran-Moscow alliance. ..."
"... The "Assad must go" obsession in Washington is a multi-headed hydra. It includes breaking a Russia-Iran-Iraq-Syria alliance (now very much in effect as the "4+1" alliance, including Hezbollah, actively fighting all strands of Salafi Jihadism in Syria). But it also includes isolating energy coordination among them, to the benefit of the Gulf petrodollar clients/vassals linked to US energy giants. ..."
"... Thus Washington's strategy so far of injecting the proverbial Empire of Chaos logic into Syria; feeding the flames of internal chaos, a pre-planed op by the CIA, Saudi Arabia and Qatar, with the endgame being regime change in Damascus. ..."
"... Of course Turkey is the wild card – Erdogan is increasingly looking like he might be the spark that sets off a much larger conflict. To answer the question, I think there are a lot of really bad scenarios that could happen here, and they are a lot closer than people think (Turkey shutting down the Bosphorus, for starters.) ..."
"... It is way past time for the arrogant stupidity of Washington's neoconservatives to be exposed and for them to at a minimum be removed from the levers of power – if not tried for crimes against humanity. And that includes Obama if he is really one of them, i.e. if he believes in anything but the politics of power. ..."
"... Specifically with respect to Syria, it looks like about the best the 'West' (i.e. the US and its vassals) can hope for is some pipeline arrangement providing Europe with an alternative, a competing supplier for its energy needs. In exchange, the 'West' can agree to end its economic war against Russia, Iran et.al and get back to the business of business, i.e. exporting something other than debt and bombs. ..."
"... I remember reading years ago that the rise of the AKP, and the rising standard of living with it, was fueled directly by a large stream of cash that was funneled from the House of Saud. ..."
"... The interest must be paid… ..."
"... I think the waffling on ISIS is due to their location among Sunnis. The US would like to win Sunnis over, so they're cautious about bombing, which of course is to ISIS' advantage. ..."
"... From where I sit, the Syria conflict is an important part of a much larger one – between the 'West' and Russia. Things have been heating up again in the Ukraine. Biden gave a speech there just a couple of days ago in which he insisted that 'NATO would not rest until Crimea was returned to the Ukraine.' That's not going to happen without a war. ..."
naked capitalism
By James Stafford, Editor in Chief of OilPrice. Originally published at OilPrice
...No one can fight a war without oil, according to Robert Bensh, partner and managing director of Pelicourt LLC oil and gas company. But while the politically unhinged are coming out the woodwork, the more important aspects of this story remain elusive to the public. Is the dangerously unspoken theory that ISIS is a bulwark against Iran what's keeping the West from tackling the Islamic State wholeheartedly on its territory?
... ... ...
In an exclusive interview with James Stafford of Oilprice.com, Bensh discusses:• How far the Russia-Turkey spat can go economically
• The fallout effects for countries caught in between
• What Russia wants
• What Turkey wants
• What other geopolitical purposes ISIS serves
• Why ISIS can't be controlled
• How Shi'ite radical groups differ
• Why we're looking at a possible remapping of a significant part of the energy arena
• Why we shouldn't listen to billionaire buffoons... ... ...
Robert Bensh: Russia and Turkey have a great deal of economic interdependence, and nowhere more than in the energy sector. There has been no talk of cutting Russian gas to Turkey, and I don't see how Russia can afford this right now. Turkey is not only a significant customer for Russia, but it's also a key gas-transit point.James Stafford: So what does Turkey want?
Robert Bensh: The better question is: "What does Erdogan want?" You know, Putin's probably not too far off in his statement referring to Erdogan's loss of "mind and reason". Erdogan has been going down this path little by little for some time and it's no secret that he has some megalomaniacal tendencies that grow more and more out of control every year. It would seem that he has dreams of a return of the Ottoman Empire-and that ISIS could be a logical ally to that end. Of course, ISIS is not likely looking to be beholden to another Ottoman Empire controlling a greater Sunni-Arab dominion. Many, many Turks fail to share this dream with their leader, and his ambitions will also be his eventual downfall unfortunately.
For the Turkish regime, there is also the idea that ISIS will ostensibly give them more power against the rise of the Kurds, both in southeastern Turkey and in northern Syria. It will even raise the Turks' status in the face of the Saudis whose oil wealth has make them more powerful than the Turks in many ways.
Jim McKay
Yves: I think your "quibble" is… indeed minor.
Larger picture of what's really going on with Turkey's intentions driven by Ergodan, Bensh's correct description of Ergo's character and flaws, and less explicitly stated US (he says "west") 1/2 ass efforts to defeat IS despite US leaders (from WH to Congress) emphatic claims otherwise…
These are realities. Whatever small portion of US electorate reads here, at least a few are being introduced to this. We are heading into another election with… in my view, more deeply entrenched public opinions on this based on lies, then maybe any time I recall my entire life. It's just, the game is bigger now with more potential for longer lasting catastrophe if we don't find a way to right our ship.
I appreciate this article… it's on the right track. Only other thing I'd mention: amidst all this, we've had recent international climate meetings with little progress. Clearly, this is bigger problem for entire planet that nobody will escape. I'm stuck by Bensh's comments on protecting their investments (oil) and how the various players he mentions all make decisions based on… oil. It over rides, it seems…everything else that matters.
The planet needs to get behind renewables, and develop them… fast. It's not so hard to see how doing so would change these other geo-political games forever.
I think taking the 'businessman' look at this is not a bad way to look at it. As Adam Hanieh has pointed out
https://www.jacobinmag.com/2015/12/isis-syria-iraq-war-al-qaeda-arab-spring/
"Coupled with unparalleled levels of socioeconomic insecurity, Sunni marginalization produced a real social base whose attraction to ISIS goes beyond religious or ideological factors."
and also
"ISIS may project a utopic promise of stability and prosperity, but this is far from the reality on the ground. We can be absolutely certain that it will experience its own internal revolts, as similarly declarative examples of Islamic "states" have faced in the past.
Despite all the setbacks of the last few years, the potential growth of a genuinely left alternative has not been extinguished and, most importantly, has never been more necessary."
--
William Polk echoes this idea of the importance of a non-military and non-police response.
https://consortiumnews.com/2015/11/17/falling-into-the-isis-trap/
"–The results of insurgency are described in my book Violent Politics. There I have shown that in a variety of societies over the last two centuries in various parts of Africa, Asia and Europe, guerrillas have nearly always accomplished their objectives despite even the most draconian counterinsurgency tactics."
His point being that dealing with the fundamental socioeconomic imbalances/repression can be more effective.
cassandraInteresting to me as much for what is not considered by oil businessmen.
A few quick points:
- No mention of human suffering, not even in cost/opportunity terms.
- No mention of rule of law.
- No mention of what happens to the earths climate/ecosystem if all the oil and gas at stake is unleashed.
- No mention of who many of the business players are, certainly not in detail. No mention of Erdogans family, Tony Hayward, trafficking / selling this stolen oil…
- Nor mention of Israel being the major end buyer.
- When mentioning Assad buys oil from IS (U.S Turk Israel Saudi Qatari Qaeda Nusra) no mention of the point Assad is buying his countries own oil at the point of a gun from the thieves who stole it.
- No mention that this uncertainty/chaos is both deliberate and a constant feature of big oil and MIC's business model.
- No concern that more tyrants of the head chopping variety are bound to achieve or maintain power.
…and
- No mention of strategic significance of naval base at Tartus
- No mention of "legal" Saudi arms purchasing and trafficking, and extremist support in Syria, Yemen and about the globe.
This is a good interview. Along with other posts on the subject, this is bringing a little clarity to why there is no clarity.
Hmmm. No mention of Saudi and others in the dynamic…
for more details, read above with Escobar's Pipelineistan,
here c/o Tom Dispatch.Thanks for that link. Escobar always has some good insights. I also suggest Juan Cole. He recently had a good piece on President Erdogan.
participant-observer-observedPepe Escobar has been all over the back story of what he calls pipelineistan– http://counterpunch.org/2015/12/08/syria-ultimate-pipelineistan-war /
"Yet, from the point of view of Washington, a geostrategic problem lingered: how to break the Tehran-Damascus alliance. And ultimately, how to break the Tehran-Moscow alliance.
The "Assad must go" obsession in Washington is a multi-headed hydra. It includes breaking a Russia-Iran-Iraq-Syria alliance (now very much in effect as the "4+1" alliance, including Hezbollah, actively fighting all strands of Salafi Jihadism in Syria). But it also includes isolating energy coordination among them, to the benefit of the Gulf petrodollar clients/vassals linked to US energy giants.
Thus Washington's strategy so far of injecting the proverbial Empire of Chaos logic into Syria; feeding the flames of internal chaos, a pre-planed op by the CIA, Saudi Arabia and Qatar, with the endgame being regime change in Damascus."
Yes, thanks for that most recent Escobar piece at Counterpunch; the one i linked above is already old but still interesting.
The regime change recipe of DC has already been tried and has failed in Iraq, Libya, etc., no one can fathom any improvements replacing Assad + Isis with Isis alone, aka rag tag coalitions of jihadis! Even Saudis can hardly wish for it.
Based on reported facts on the ground (well, reported by non-US media that is) the SAA is making slow but steady progress in retaking key towns and the highway between Aleppo and Damascus. No doubt Russian air and logistical support has made a difference.
If things keep going this way, Assad will likely regain the upper hand and the Saudi/US sponsored jihadis will be confined to the eastern part of the country. It's looking like Washington will have to make a choice – accept Assad as the legitimate ruler (for now) or continue to provoke the situation with guerrilla tactics. We know from history that there is precedent for long wars against legitimate governments that displease Washington (see Daniel Ortega, Sandanistas.) My guess is they go this route and hope to eventually install a stooge.
Of course Turkey is the wild card – Erdogan is increasingly looking like he might be the spark that sets off a much larger conflict. To answer the question, I think there are a lot of really bad scenarios that could happen here, and they are a lot closer than people think (Turkey shutting down the Bosphorus, for starters.)
It is way past time for the arrogant stupidity of Washington's neoconservatives to be exposed and for them to at a minimum be removed from the levers of power – if not tried for crimes against humanity. And that includes Obama if he is really one of them, i.e. if he believes in anything but the politics of power.
This 'Arrogance of Power' has characterized US foreign policy making since the end of WWII. The U.N. was sold to the public as an arrangement for collective security so the U.S. would not have to 'make the world safe for democracy' (sic) a third time. It has been in reality nothing more than a tool for the pursuit of (perceived) US interests, promptly discarded when the principles in its charter became inconvenient.
Short of initiating the world's Mutually Assured Destruction, the U.S. is running out of options – in Syria and around the world. It may be too late for the U.S. to get serious about collective security, to tell the world 'this time we really mean it'. Having squandered economic and "too good to waste" military power in a successive string of needless wars, it may no longer be possible to convince especially those who hold the levers of power in Russia and China that we are serious about collective security and willing to accept a multi-polar world.
Specifically with respect to Syria, it looks like about the best the 'West' (i.e. the US and its vassals) can hope for is some pipeline arrangement providing Europe with an alternative, a competing supplier for its energy needs. In exchange, the 'West' can agree to end its economic war against Russia, Iran et.al and get back to the business of business, i.e. exporting something other than debt and bombs.
I remember reading years ago that the rise of the AKP, and the rising standard of living with it, was fueled directly by a large stream of cash that was funneled from the House of Saud.
The interest must be paid…
This was really to the point, without actually making it. One thing is becoming clear – the oil wars are distilling down to natural advantage. It currently belongs to SA – but the future looks like it prefers to use Levant & east Mediterranean oil because it will be easier to pipe to southern Europe. And maybe cleaner? So everybody and their dog is fighting for access to it.
It explains Netanyahu's trip to Moscow & the French clearly in league with Russia for achieving access to this resource (why else?). And it is partly being driven by decisions to leave current oil reserves in the ground. As Palast said it is a "war for no oil."
Which in turn makes sense of Kerry's admonishing the Senate about the Iran deal – that if they want to continue to be oil brokers (petrodollar brokers) they have to come to terms with Iran because there are plenty of other nations who can step up; and of course we want our EU cousins to get a cut of Levant oil, and etc. And Russia is clearly protecting its oil interests. I wonder how long this feeding frenzy will continue.
I think the waffling on ISIS is due to their location among Sunnis. The US would like to win Sunnis over, so they're cautious about bombing, which of course is to ISIS' advantage.
From where I sit, the Syria conflict is an important part of a much larger one – between the 'West' and Russia. Things have been heating up again in the Ukraine. Biden gave a speech there just a couple of days ago in which he insisted that 'NATO would not rest until Crimea was returned to the Ukraine.' That's not going to happen without a war.
[Dec 10, 2015] The Feds Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The Casino
As long as oil stay low I think there will be no recession...
Notable quotes:
"... Submitted by David Stockman via Contra Corner blog, ..."
Zero Hedge
Submitted by David Stockman via Contra Corner blog,
Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.
So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino - the very outcome that has filled them with fear and dread all these years.
... ... ...
But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.
... ... ...
According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain't going to happen this time.Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.
Katherine Schock, 1 year agoHistorical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.
Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.
Just spent the major part of my day putting together the records to file the old man's tax this year. We have contributed mightily to the insurance industry, the pharmaceutical industry, the medical industry and yes, a major part of our income that makes up our yearly retirement amount has ended up in the pockets of these Wall Street bums! Therefore, I am posting this song as a tribute to Wall Street...thanks to you guys we barely have a dime left over! Hope you choke on your fucking bonus!Gene Burnett - Jump You F#kers (A Song For Wall Street) - YouTube
[Dec 10, 2015] Regarding the Future is Bright
Notable quotes:
"... We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time. ..."
"... the crucial indicator being real wage growth. ..."
"... Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be bright for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes. ..."
"... Clintons tech stock bubble popped and morphed into Bushs housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didnt help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existenc ..."
"... The simple tool for reining in our excessively top-heavy financial sector is deflation! ..."
"... Its generally useful to talk about macroeconomic factors in terms of cyclical and structural factors. Its a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous core problem that leads to recessions, I am very suspicious. Usually, such claims are about someones hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions. ..."
Economist's View
bakho said...Regarding the "The Future is Bright ".cawley said in reply to bakho...We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time.
Agreed. Also with the crucial indicator being real wage growth.ken melvin said in reply to bakho...
Yup, housing is the effect, not the cause.RC AKA Darryl, Ron said in reply to ken melvin...
Exactly!New Deal democrat said in reply to bakho...
Thanks.My post at Bonddad was an elaboration on a comment I made here two days ago. I had been meaning to reply to CR last year when he made the same argument, but never got around to it.
In fairness, I think Bill makes an excellent case that we won't have another recession brought about by a housing bubble, and/or too much consumer leverage any time soon. But there are plenty of other reasons why the economy might tip back into recession, as comments here have already mentioned.
Dan Kervick said in reply to New Deal democrat...
Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be "bright" for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes.Dan Kervick said in reply to JF...
Well I said the prospects are bleak only absent major structural political and economic changes. And they are. American society is killing off whole classes of people. The prisons are full; there are epidemics of substance abuse going on, and rising suicide rates. The Financial Times reported today Even if there is no recession, that just means that these people are not also laid off, and can trudge back and forth every day from their Wal-Jobs to their hardscrabble communities, slums and trailer parks and afford more booze to drink themselves to death or buy lottery tickets to win imaginary pots of gold that will never come, and to have a functioning TV so they can watch people scream at each other all night. Oh, and the prices of hookers and drugs are down. Bright times!Why should any of these people care what the "Bonddad" thinks about how bright the future is for people who ... well, own bonds; or who party in Manhattan and Silicon Valley with their fortunes; or who make use of their abundant low-anxiety leisure to talk to their college chums all day in the establishment punditariat?
The up and down cyclical motions of the pretty horsies going up and down mean little to the people who sleep in the dark machinery underneath the merry-go-round.
If US society keeps its basic overall shape, the future isn't bright. But it does contain just enough glare to make sure that the party boys with their ever-evolving fashion lines of fancy sunglasses will continue not to see half of the world.
Dan Kervick said in reply to Dan Kervick...
Incomplete sentence. I meant to say, "The Financial Times reported today on the further hollowing out of the US middle class and growing income stratification."Dan Kervick said in reply to Dan Kervick...
America, 2015:http://www.theguardian.com/us-news/2015/may/14/homan-square-detainee-police-abuse
JF said in reply to Dan Kervick...
Yes, we absolutely have the opportunity to do better. We ought to try.Julio said in reply to JF...
We are rich beyond belief. We just have to get used to the idea. Then, new vistas open up.JF said in reply to Julio...
Yes. Net Wealth of US residents is nearly $85 T with an annual flow of economic activity over $17 T.We have a rising population, not a declining one.
We produce more food than we can eat and have access to immense energy sources.
And we have one of the better judicial systems and at least historically a governing set of institutions that brings up to the pragmatic middle that has made sound currency and nationwide payment systems, lots of supportive infrastructure including some good literacy levels from the educational system part of it.
We can do better, but I'd take the US over any other place (we even have a moderate climate).
This election might change my thinking on this last point about taking the US over say Canada - but I think I'll be happy to remain.
Julio said in reply to JF...
Yes, I went through some of the same thoughts when we reelected Bush-Cheney. But here I am.Dan Kervick said in reply to JF...
JF, I agree that the aggregates and net numbers are great. But our cruel, stratified, inegalitarian social system is the problem. The way those aggregate quantities are spread out over the population is a global scandal.America is good for me too, personally. My wife and I live in a well-off upper middle class community in New Hampshire. Very good schools, no crime to speak of, a town full of healthy and advantaged kids 95% bound for colleges. We had and still do have various recession-related anxieties, but they are the anxieties most people in the world only dream of.
But my life isn't America. It's a privileged and charmed part of it. If I get pulled over by a policeman for driving a bit too fast, I just get a courteous and smiling warning from Officer Friendly. Many others run a good chance of getting tasered, shot or sodomized in a police station. And that's just the tip of the iceberg of the savage inequalities.
anne said in reply to New Deal democrat...
http://bonddad.blogspot.com/2015/12/the-future-is-bright-or-perhaps-not.htmlDecember 9, 2015
The Future is Bright . . . or perhaps not
By New Deal democrat[ Really nicely done. ]
Peter K. said in reply to bakho...
Clinton's tech stock bubble popped and morphed into Bush's housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didn't help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existence.The solution is not to raise interest rates in a depressed economy.
As DeLong has written the housing bubble was deflating and housing jobs were being replaced by export jobs.
Then the whole thing short-circuited with the financial crisis.
At the time the Fed was passively tightening over inflation concerns.
Peter K. said in reply to Peter K....
Another solution is more fiscal policy so that monetary policy doesn't carry all of the burden.Tax cuts for the rich isn't good fiscal policy.
pgl said in reply to Peter K....
Greg Mankiw links to some report on the effects of the Jeb! tax cuts but does not comment (Krugman did comment in this report). I followed the link and read the abstract. It is not exactly what Mankiw usually says about the wonders of tax cuts for rich people.Peter K. said in reply to pgl...
I avoid Mankiw's website. No comments.:D
Interesting though. Didn't Krugman blog that the report backs up his (everyone's) claims?
pgl said in reply to Peter K....
Krugman did. Abstract of the report and Krugman's comment below. I just found it funny that Mankiw gave a hat tip to something that I doubt he even read first. I guess Greg is getting a lot like JohnH in that way.Peter K. said in reply to pgl...
"I guess Greg is getting a lot like JohnH in that way."So much trolling to do, so little time. It's hard to keep up with all the misinformation.
PPaine said in reply to Peter K....
Pay roll tax cuts and increased retirement paymentsPlus a greatly expanded earned income subsidy aka tax credit
These are job class macro moves
Bernie gets this
Hillary ???
PPaine said in reply to PPaine ...
The fed needs to be captured first before we can rely on. It to operate in sync with a pro job class macro policyilsm said in reply to PPaine ...
ARAMCO and the pentagon need the cash!Norovirus said in reply to Peter K....
"tax the financial industry to prevent"~~Peter K~
When you need less of something, tax it. This will shift the supply/price/demand curve of financial "services". We need more of sawmills but less of banks, brokers and quants. Production we need. Casino we don't need. Hell!
If you want casino then go to Vegas -- more bells and whistles for you money!
Guten
fahrt
!Laundry Bank & Trust said in reply to Norovirus...
Most efficient way to tax financial services is a simple tool."simplicity is the meaning of life.
"
~~Ockham's axiom~"
Simplicity is more sustainable than complexity.
"
~~Ockham's first theorem~The simple tool for reining in our excessively top-heavy financial sector is deflation!
sanjait said in reply to bakho...
It's generally useful to talk about macroeconomic factors in terms of "cyclical" and "structural" factors. It's a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous "core problem" that leads to recessions, I am very suspicious. Usually, such claims are about someone's hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions.PPaine said in reply to sanjait...
Well a chronic trade deficit And. Spontaneous over accumulation are clearly structural problems that may well require significant if varying full employment budget deficits over the whole cycleThe inter action of structural and cyclical requires composite macro policy programs using multiple instruments
The dollar should stay at the assumed long run balanced trade forex thru out the cycle
Over accumulation suggests a ceiling of zero real for the policy rateEtc etc
Sanjait said in reply to PPaine ...
Rich developed countries are supposed to have a chronic trade deficit.But sure, let's humor that concern for a sec:
What then, do you claim, is the structural factor that causes chronic trade deficits? This should be interesting.
RC AKA Darryl, Ron said...
RE: The Evolution of Work[This piece is sort of like the David Warsh broad brush economic history short form pieces except that it is focused purely on the plight of the proletariat instead of elites.]
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...
Dani Rodrik seems to be on the side of the weebles.ken melvin said in reply to RC AKA Darryl, Ron...
Are we still evolving?RC AKA Darryl, Ron said in reply to ken melvin...
Yep. Evolution never seems to be happening when most of what one sees is within their own generation, sort of by definition. What the millennials are evolving into is something I want to learn, but have not had the chance to duly observe for myself yet. Jealousy between my current wife and the mother of my children created an atmosphere too tedious for my current wife to be subjected to. You should know though that I am not the father of my children either. I just raised them from 4, 6, and 12. Husbands number one and two of the mother of my children were the biological fathers. She had no children with husbands number three (me) nor four. She is still hunting for number five but her powder is too wet now to fire.So, what have you learned from your grandchildren?
From our three girls I learned that progress is mighty slow.
PPaine said in reply to RC AKA Darryl, Ron...
YesI love his strong advocacy for cross border labor mobility. Control the borders but increase the OECD inflow
We should set a huge quota for middle easterners
But let them in very slowly
Meanwhile those that apply
Get to stay in a safe area provided by lady libertyInside the us !
RC AKA Darryl, Ron said in reply to PPaine ...
That would trump Trump.ilsm said in reply to PPaine ...
Wll st banks already get a cut on banking al Qaeda!bakho said in reply to RC AKA Darryl, Ron...
Dani does not address hours worked or time off.
The US has one of the worst leave policies in the developed world.
When was the last reduction in the work week?
There are a lot of services that are not being provided due to lack of money. Some of the underemployed could move into low level service jobs if other workers moved up to a higher level.It is a failure when large numbers of people do not have productive work. They have too little money to sustain potential output, leaving employment far below potential. It is a vicious downward spiral. The spiral is fixed by intervention that reverses the spiral. We have a failure of fiscal policy to address the root problem.
Dan Kervick said in reply to bakho...
He's a development economist and his article is about work in the developing world.RC AKA Darryl, Ron said in reply to bakho...
We have a lot of failures and I don't have time enough to make a full list. Changing stuff requires political action on behalf of and usually orchestrated by those that have the needs that require addressing. We need massive working class majority electoral solidarity. Until then the political establishment is safe to treat us as second rate constituents and focus on the desires of the elite.JF said in reply to bakho...
The Tim Taylor piece is helping to remind people to focus more attention on economic policies related to work practices being seen in society. More talk about this the better.My two cents, is that society is better when people are hired for stable, full-time jobs. All kinds of definitional matters attend to just saying this, but I still think it needs to be a predominating focus. Society wants more people to have full-time jobs, however you define full-time. So we need to watch developments in the gig economy carefully.
By predominating full-time employment as a policy-making factor, I'd say this view means that in serious downturns, for instance, we do not want govts eliminating full time, stable jobs if we can somehow do fiscal sharing to avoid this as much as can be done.
The largest employer segment in the US (well at least it used to be bigger than retail, last time I studied this) is state and local govt employment. These employers don't pay out of whack high-salaries and for the most part the hiring has had a stable and proportional growth rate (political bosses in the US don't hand out jobs to create voters much anymore). These employers create floors in the labor marketplace and this forces other employers to compete on stability factors and on the notion of being full-time. I think we want this type of competition.
The right-wing Machiavelli ones understand this dynamic and that is why they are very happy to undermine govt employment (cut it, they are lazy anyway, ugh-bureaucrats don't do real things, etc.) - they don't want the competition as it raises the costs of their decades long control over wages.
But any employer offering stability and full-time jobs - this is good, and economic policies for our society ought to take this into account as a predominating factor.
sanjait said in reply to JF...
Hey JF.I didn't have time to write up a solid reply the other day, but I did want to eventually respond to your question and comments about whether the central bank has control of long term interest rates ("it's own instruments...") through purchases.
My quick answer:
It influences their prices, but not through inducing scarcity. That is because, unlike commodities, securities are not priced based on their scarcity, they are priced based on their expected returns.
So when the Fed buys $40b in bonds per month, in a $500+b per month liquid market, it's hardly going to move the price.
But, the Fed does influence long term bond rates both by modulating the entire money supply and by setting expectations for how it will modulate the money supply in the future (aka., the reaction function.)
One very huge observation apropos of all this: every time the Fed announced a new round of QE, longer term bond rates went UP rather than DOWN. Why? Because it showed the Fed's reaction function was looser than previously thought, and also they were more committed to staving off disinflation.Though I will concede, not everyone sees it this way. Even inside the Fed many of them had a simple model that says: buying more bonds = pushing down the price. But I get the impression they generally abandoned that model after operation twist utterly failed to work in that way.
JF said in reply to sanjait...
OK. Yield, price, cost to the govt - not always the same thing, but each has a perspective.Assuming you are correct that the later QE, and I don't know myself, just assumed that the cost to the govt of a new 10 year moderated a bit in a later QE, I think this evidence points to why they don't use new-QEing now.
It dawned on them that its initial cost-to-govt effects, lowering interest rates, was just not happening. So why subsidize the dealer networks and stuff more assets on to their books using electronic entries into reserve accounts as payment when we (the FRB) have no idea what to do with assets of this magnitude.
But off the thread's topic.
[Dec 10, 2015] Fear grips market as oil leads commodity crash
Notable quotes:
"... We think they will continue to take barrels off the market quietly until they have pushed Brent back to $50 ..."
"... ...Short positions on the crude market have been rising to fresh highs for the past three weeks, reaching a record 360m barrels. This prepares the ground for an explosive short squeeze if anything goes wrong in the geostrategic cauldron of the Middle East. ..."
"... ...The open question is how long the oil states can withstand the political effects of crumbling income and forced austerity. Opec revenues are heading for $400bn from a peak of $1.2 trillion in 2012. Indonesia said there may have to be an emergency meeting if prices fall to $30. ..."
Dec 10, 2015 | Telegraph
The slump is chiefly due to excess production, and amounts to a "positive supply shock" that should boost global recovery. Bank of America said oil demand has risen by 1.8m barrels a day (b/d) over the past year, the second strongest in a decade.
...Yet the evidence so far – despite the bluster from Riyadh – is that they have are already trimmed output by 250,000 b/d and are wary of letting the glut build so much that the world runs out of storage, an inflection point that could set off a further crash. "We think they will continue to take barrels off the market quietly until they have pushed Brent back to $50," she said.
...Short positions on the crude market have been rising to fresh highs for the past three weeks, reaching a record 360m barrels. This prepares the ground for an explosive short squeeze if anything goes wrong in the geostrategic cauldron of the Middle East.
...The latest import data from China were relatively strong as the country takes advantage of cheap crude to fill up its strategic petroleum reserve. Chi Zhang, from Barclays, said Chinese oil demand rose by 500,000 to 6.7m b/d in October
...The open question is how long the oil states can withstand the political effects of crumbling income and forced austerity. Opec revenues are heading for $400bn from a peak of $1.2 trillion in 2012. Indonesia said there may have to be an emergency meeting if prices fall to $30.
[Dec 10, 2015] Billions of oil barrels vanish in a puff of accounting smoke
Notable quotes:
"... Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel. ..."
"... But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years. Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers' reserves. The reckoning is coming in the next few months, when the companies report 2015 figures. ..."
"... The rule change will cut Chesapeake's inventory by 45 percent, regulatory filings show. Chesapeake's additional discoveries and expansions will offset some of its revisions, the company said in a third-quarter regulatory filing. Gordon Pennoyer, a spokesman for Oklahoma City-based Chesapeake, declined to comment further. ..."
"... he U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel -- last year's price as calculated by the SEC's formula -- simply don't pay at today's prices, and the revolution has stalled. ..."
www.msn.com
In an instant, Chesapeake Energy Corp. will erase the equivalent of 1.1 billion barrels of oil from its books.Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.
Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn't be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.
But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years. Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers' reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.
"There was too much optimism built into their forecasts," said David Hughes, a fellow at the Post Carbon Institute and formerly a scientist with the Geological Survey of Canada. "It was a great game while it lasted."
The rule change will cut Chesapeake's inventory by 45 percent, regulatory filings show. Chesapeake's additional discoveries and expansions will offset some of its revisions, the company said in a third-quarter regulatory filing. Gordon Pennoyer, a spokesman for Oklahoma City-based Chesapeake, declined to comment further.
... ... ...
The U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel -- last year's price as calculated by the SEC's formula -- simply don't pay at today's prices, and the revolution has stalled.
[Dec 10, 2015] Oil below $40 forces Texas driller into bankruptcy
Notable quotes:
"... A Fort Worth oil company became the 18th driller in Texas to succumb to the oil slump. ..."
"... The company said capital markets have closed to producers in the wake of $40 oil, leaving it unable to raise funds that could have prevented bankruptcy. ..."
peakoilbarrel.com
AlexS, 12/10/2015 at 9:10 am
Another victim of low oil prices:"Oil below $40 forces Texas driller into bankruptcy
December 8, 2015
http://bakken.com/news/id/249291/oil-below-40-forces-texas-driller-to-file-for-bankruptcy/A Fort Worth oil company became the 18th driller in Texas to succumb to the oil slump.
Energy & Exploration Partners announced that it filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in order to deleverage its balance sheet and achieve a viable capital structure for building long-term value.
The company said capital markets have closed to producers in the wake of $40 oil, leaving it unable to raise funds that could have prevented bankruptcy."
[Dec 10, 2015] Zombies appear in U.S. oilfields as crude plumbs new lows
Dec 10, 2015 | Reuters
The slump has created dozens of oil and gas "zombies," a term lawyers and restructuring advisers use to describe companies that have just enough money to pay interest on mountains of debt, but not enough to drill enough new wells to replace older ones that are drying out.
...As long as oil prices stay below the estimated break-even level of $50 a barrel, the zombie group is set to grow.
... Some companies that have halted nearly all drilling and fracking are now warning in regulatory filings their output could drop, which could make cash even tighter and hasten an expected decline in U.S. crude output.
Stopping new drilling is risky because shale wells decline much faster - up to 90 percent in their first year - than conventional wells.
...Credit rating agency Fitch says defaults for oil and gas companies are already at the highest since 1999. Since the start of the third quarter, at least 12 oil and gas companies have defaulted on their debt.
... The "zombies" bet that by shifting into survival mode they can hang on until oil prices recover, but the outlook is grim.
With oil prices near new seven year lows below $37 a barrel, crude futures now forecast prices will not return above $50 until early 2018
[Dec 10, 2015] Oil prices plunge is strictly an artifact of the monetary system, and can not be fixed without replacing the system
Notable quotes:
"... Even though the consumer section of the economy is getting less energy from petroleum than it ever has, per BTU it is now paying less for what it is getting than it has since 1973. That effect is moving money from the the production side of the economy to the consumer side. ..."
"... This is strictly an artifact of the monetary system, and can not be fixed without replacing the system. It has been that system that has made the likes of Goldman Sachs fabulously rich. ..."
"... Even though everyone is getting poorer, the production side is getting poorer faster than the consumer side. ..."
ourfiniteworld.com
Don Stewart , December 10, 2015 at 12:46 pm
Dear Finite Worlders
Here is a comment by BW Hill on Peak Oil. I don't think I have heard anything expressed exactly this way before…Don Stewart'Goldman is probably pessimistic because money is moving in the wrong direction as far as they are concerned. The recent price plunge has some interesting ramifications that unless they were looking at an energy model of petroleum production they completely missed. Even though the consumer section of the economy is getting less energy from petroleum than it ever has, per BTU it is now paying less for what it is getting than it has since 1973. That effect is moving money from the the production side of the economy to the consumer side.
This is strictly an artifact of the monetary system, and can not be fixed without replacing the system. It has been that system that has made the likes of Goldman Sachs fabulously rich. Beginning in 2012 when petroleum passed through the energy half way point the rules of applied economics got turned around. Instead of money moving up the economic ladder, it started moving down. Even though everyone is getting poorer, the production side is getting poorer faster than the consumer side. That probably does not sit well with investment banks.
We would like to inform you that this trend will continue; and there is not one single thing you can do about it!'
[Dec 10, 2015] Bakken and OPEC Production Data
Dec 10, 2015 | Peak Oil Barrel
Bakken production was up 7,520 barrels per day to 1,113,930 bpd while all North Dakota was up 6,787 bpd to 1,168,950 bpd.
This chart shows the change in the average production from 2014 to 2015. Of course we are only averaging the first 11 months of 2015 versus all 12 months of 2014. The data is in thousand barrels per day.
[Dec 10, 2015] $100 never again; there's a new normal for oil
Notable quotes:
"... "Oil prices could fall lower in 2016," Gheit said. "I'm talking $2 to $3 dollars per barrel. I don't see it dropping below $30 per barrel." ..."
finance.yahoo.com
Fadel Gheit, managing director and senior analyst at Oppenheimer, told Yahoo Finance's Alexis Christoforous in the video above that $100-per-barrel oil is a thing of the past-$60 to $70 per barrel is the new normal.
...The massive boom of U.S. shale oil that has flooded the market has sent prices plummeting 65% over the past 18 months. OPEC did not anticipate the shale revolution and is now struggling to find a strategic response.
While Gheit warns of some downside risk to prices, he does not anticipate a major drop in the short term.
"Oil prices could fall lower in 2016," Gheit said. "I'm talking $2 to $3 dollars per barrel. I don't see it dropping below $30 per barrel."
..."Producers have already seen a collapse in earnings, and we expect weakness to continue into next year," Gheit said. "Most independent oil and gas producers in the U.S. are in the red. They're losing money."
[Dec 09, 2015] Short Term Energy Outlook
Notable quotes:
"... EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. ..."
www.eia.gov
- EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. The current values of futures and options contracts for March 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $30/b to $63/b (at the 95% confidence interval). ...
- The monthly average price of U.S. regular retail gasoline was $2.16/gallon (gal) in November, a decrease of 13 cents/gal from October and 75 cents/gal lower than in November 2014. EIA forecasts U.S. regular gasoline retail prices to average $2.04/gal in December 2015 and $2.36/gal for 2016.
[Dec 09, 2015] JPMorgan Fed could trigger 'massive stop loss order' in the S P 500 if liftoff goes awry
finance.yahoo.com
This important event falls at a peculiar time–less than 48 hours before the largest option expiry in many years," wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor's 500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.
"Clients are net long these puts and will likely hold onto them through the event and until expiry," the strategist wrote. "At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market."
When a put is close to expiry, the writer of the option becomes a seller of the underlying security as it hits the strike price in order to mitigate the exposure. Thus, a negative reaction in the S&P 500 index to the Fed decision could trigger a wave of forced selling, potentially agitating markets.
No one knows better than Kolanovic how systematic selling can amplify price changes in financial markets.
However, it's fair to quibble with the premise: Is Janet Yellen really monitoring open interest in options linked to the S&P 500?
[Dec 09, 2015] Something Did Blow Up In Junk
Junk is really goes down. But with low oil price how really probably is the recession?
Zero Hedge
Thought Processor
...Seriously though, aren't HYG's always the canary in the coal mine...... No better buzzer for an incomming slowdown.
anti Oligarchy
I work right in the thick of the real economy... construction / utility / etc. It is happening right now on the ground floor, sales are drying up, inventories going up. It is as serious as you are projecting in these articles.
Paint By Number
My experience exactly. The industrial market (except for the flash in the pan oil boom) has been struggling since 2008. But something changed in September/October of this year. I can't tell you how many times I've heard "it's like someone flipped a switch."
Most people have no idea of how many highly technical and specialized products (valves, cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water going to their homes. Many of these manufacturers are teetering on the edge. If this situation does not change for the better in the next few months we will begin to see major and spectacular failures in our infrastructure.
I can't overstate the potential devastating social and environmental chaos. It's all great fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go out and don't come back on, there won't be much laughing.
kelley805
J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.
Here are some signs of a coming recession.
1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.
2. Factory orders continue to drop
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Iron ore prices tumble
6. Baltic dry shipping index tumbles
[Dec 09, 2015] The Endless Parade of Recession Calls
Notable quotes:
"... We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. Weve also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians. ..."
"... .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi. ..."
Dec 06, 2015 | Calculated Risk
Note: I've made one recession call since starting this blog. One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month - the recession started in December 2007). That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a "recession is no longer a serious concern". Ouch.For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.
... ... ...
Also on Friday I posted an excerpt from a Citi's research piece also suggesting a 65% chance of a recession in 2016.
Here is the Citi research piece.
[A] statistical approach is shown in Figure 46 and highlights the cumulative probability of a recession based on data from 1970-14 across US, UK, Germany and Japan. As the U.S. economy enters year seven, the cumulative probability of a recession in the next year rises to 65%.This is just an historical statistical approach based on elapsed time.Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.
Rob_Dawg
We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. We've also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians.
sum_luk
Rob_Dawg:
all the old metrics are useless.
.... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi.
sum_luk
Rajesh:
I don't expect the U.S. economy to boom except on a relative basis.
... of course, Janet's theory is domestic US will carry on despite the fact that a strong dollar makes for cheap imports.
Rob_Dawg
Eventually China will have a shadow banking crisis that will leave the rest of the world with the problem of deciding how much to contain it. Very dangerous. 2016? No way of telling.
sm_landlord
Rajesh
I'm with you on that, Rajesh. To the extent that I'm doomy about the macro economy, it's mostly about the rest of the world. The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.
On the middle/micro level, I see a lot of government spending on things like street/road maintenance, which should prop some things up. Also, auto traffic seems to be back to pre-GR levels. Based on my recent visit to SM, anyway, most of the downtown area is approaching gridlock for much of the day again...
Can't say the risk is zero, though, because I still see a lot of fragility and testing of limits.
Cinco-X
Rajesh:
My no recession call for 2015 is looking good. I'm making a no recession in 2016 call now.
I was in Walmart on Friday evening picking up a prescription, and the place was a ghost town. Drove by Best Buy the previous evening and the parking lot was about 25% full
yuan
curioussm_landlord:
The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.
Umm...so pretty much business as usual since 2008 (and the republican plan to sabotage obummers by opposing anything that might benefit working class 'merkins).
CitizenAllenMHHNW_GDP.jpg 1920x1080 105 KB
Early on in the housing bubble, Bill made a number of comments about bubbles using a plot of Household Net Worth to GDP ratio. Early on, he wrote that the ratio had been stable for nearly 50 years. He then changed his tune and started talking about a gradual increase since the 70's.
Here's the raw data series.
Funny how the Boomer generation peak is going to change the economics of so much, just like I predicted.
I also predict a stunning comeback for Wal-Mart as the cost of living cuts really get going, and the Social Security Day Sales and Foodstamp sales kick off the monthly sales.
The America of limited everything, as free riders are eliminated.
Now, have you written off your skybox for 2015?
LoL- business has so much fat they will need to cut to survive the increase in poverty that will be the boomer retirement.
Already planning to shed vehicles as fast as Google Cars become available in 10 years
Someday this war's gonna end...
CitizenAllenM
LoL- you have paid more to store that organ than any value it has--- http://phoenix.craigslist.org/wvl/msg/5329410176.html3
Yup, $250 bucks for the middle class 1950s fantasy item!
Can't really give them away- Upright Pianos are the worst- worth more as parts for creative reuse than as instruments.
Grand Pianos still have some marginal value- unless a decent name brand and in excellent condition.
One of my friends was talking about how valuable the family Steinway was, and I told them to contact the local piano dealer to get an idea of the value, and then see how much it was going to cost to have shipped down from Minnesota- after she made the calls she decided it was no prize and stopped negotiating for it in the estate settlement :wink:
Technology is ruthlessly destroying mass books next, along with vinyl records, dvds, cds, etc. 8 tracks are worthless, cassette tapes even more worthless.
Printers and scanners are the junk of America.
Someday this war's gonna end...
[Dec 09, 2015] EIA U.S. crude production slows again in November
Notable quotes:
"... ... EIA upped its forecast for total production in 2015 to 9.33 million bpd, 40,000 bpd more than its previous prediction. The feds also revised their forecast for 2016 down by 10,000 bpd to 8.76 million bpd. ..."
Dec 08, 2015 | Fuel Fix
...The latest release of federal data now puts total U.S. crude production at 9.17 million barrels per day, a fall of 410,000 bpd since peaking in April.
...The most recent projection from the EIA is that the Eagle Ford will lose at least 436,000 bpd by December from the field's 2015 peak. More than half of the active rigs in the Eagle Ford have fallen in that time as well, with just 62 rigs left drilling as of Dec. 4.
... EIA upped its forecast for total production in 2015 to 9.33 million bpd, 40,000 bpd more than its previous prediction. The feds also revised their forecast for 2016 down by 10,000 bpd to 8.76 million bpd.
[Dec 09, 2015] 2016 spells more gloom for oil producers
Notable quotes:
"... Low oil prices for much longer will once again put the spotlight back on U.S. shale production, which has lost only about 300,000 barrels per day since peaking in April at 9.6 mb/d. The latest EIA data shows that output fell by just 20,000 barrels per day in September, a stubbornly small decline given how low oil prices are trading nowadays. ..."
"... A few months ago Mexico was only able to lock in 2016 oil at $49 per barrel. ..."
"... Wall Street Journal ..."
"... Offshore production in the Gulf of Mexico nearly hit 1.7 mb/d in September, a jump of about 300,000 barrels per day from a year earlier. More gains are expected in the coming year. ..."
www.usatoday.com
Low oil prices for much longer will once again put the spotlight back on U.S. shale production, which has lost only about 300,000 barrels per day since peaking in April at 9.6 mb/d. The latest EIA data shows that output fell by just 20,000 barrels per day in September, a stubbornly small decline given how low oil prices are trading nowadays.
... So, just as before, the contraction in supply will have to come from higher-cost production, notably U.S. shale. The financial pressure should increase on shale producers for a few reasons, all of which point to a sharper contraction in the months ahead.
... hedges will continue to expire, exposing oil producers to the cruel realities of the bear market. Somewhere around one-fifth of U.S. oil production was hedged at $80 to $85 per barrel in 2015. Half of those hedges will expire in 2016, and the hedge price will fall much lower. In one illustrative example of the power of hedging, Bloomberg highlighted in November the
Mexican government 's astute decision last year to hedge 228 million barrels at $76.40 per barrel for 2015, bringing it a windfall of nearly $6 billion this year because market prices traded at almost half that price. But it won't be able to do that again in 2016. A few months ago Mexico was only able to lock in 2016 oil at $49 per barrel.... access to finance will only become tighter. Lenders to the energy sector are getting burned - the value of high-yield energy debt has collapsed amid speculation that a wave of defaults could be coming. Lenders were lenient in the most recent round of credit redeterminations, but as the Wall Street Journal notes, the "deep losses on bonds from junk-rated U.S. energy and mining firms are rattling even seasoned investors."
...
the "fracklog" - the backlog of drilled but uncompleted wells – will begin to be worked through. Companies deferring completions with the hope of an oil price rebound have been disappointed. Whether due to regulatory rules that have time limits on completions, or the financial vice of low oil prices squeezing indebted drillers, many companies will have no other choice but to finish their unfinished wells. ...
The fracklog could add an additional 200,000 barrels per daynext year. ...
decline in overall U.S. oil production is masked by the fact that several offshore projects that were planned years ago are coming online. Offshore production in the Gulf of Mexico nearly hit 1.7 mb/d in September, a jump of about 300,000 barrels per day from a year earlier. More gains are expected in the coming year. The output increases from offshore cloud the closely-watched production numbers coming out of the EIA, but the fact is that onshore, just about every oil-producing region has flat-lined or is in decline... Although 2015 is shaping up to be one of the worst years for the energy sector in recent history, the outlook for next year, at this point, does not look much better.
[Dec 09, 2015] When Oil Turns 40, the Aches Turn Into Real Pain
Notable quotes:
"... The psychological and financial impact of the continuing slump to multiyear lows is curtailing even more private projects that would have produced for years. That will make the rebound stronger for companies that can emerge from the wilderness. ..."
finance.yahoo.com
Guessing when oil prices will recover is even more complicated than it used to be when OPEC mattered. But an equally important question is now coming into focus: How sharply will prices rebound when they eventually do?
The psychological and financial impact of the continuing slump to multiyear lows is curtailing even more private projects that would have produced for years. That will make the rebound stronger for companies that can emerge from the wilderness.
The promised land isn't in sight yet, but it's looking better and better.
PaterNo
This is what happens when marketing writes the commodities articles. How did we get from talking about the ridiculous significance of the number "40" to "The promised land isn't in sight yet, but it's looking better and better."
Some of the major oil companies may never see "better" ever again if they don't take care. Oil may not go much lower but it isn't going to go much higher then it is now for another year or two, barring some major change.
cynic al
Do you really think that OPEC producers did not foresee the impact on prices. Do you not think they possess the sophistication to load up on futures to further exploit wall street greed. We might be in for another crisis.
Mark Levin
This is definitely a painful downturn. My oil investments are off over 50% and dividends are being slashed. I look forward to higher oil prices soon!
Zellhoefer
I'm still missing something. When oil prices are high, the word is energy costs are holding back the economy. Now oil prices are low, and that's hold back the economy. It would seem lower costs would be beneficial. Right?
john
The problem I see is world politics. United States government wants low oil price to drive Russia and Issis out of business, problem is it somewhat backfired. The Opec Nations keeps pumping while our shale producer and oil companies are going out of business.
There needs to a balance of interest between the Opec Nations and our government. Don't get me wrong. Low gas prices is good for the average Joe in america.
[Dec 09, 2015] OPEC Isn't Dead. It's Shifting Strategies
finance.yahoo.com
One massive problem that OPEC has had for years has been the allocation of the overall quota amongst its members. Some countries claim this capacity or that capacity, or this reserve base or that reserve base, and when Iraq is rebuilding its productive capacity and Iran is claiming it will increase production by 500,000 bbls/day as soon as sanctions are lifted, the whole problem gets more and more intractable.
You might wonder why they argue about the numbers but the great bonus of having OPEC recognize a productive capacity larger than one's actual capacity is that then a cut to that limit might not actually require a reduction in production at all, and all without the appearance of cheating – which is a tad harder now that satellites can track tanker movements at will.
So what I suspect may be going on is a recognition that, for good or ill, the Saudi strategy has become OPEC's strategy and that OPEC will pump (or is pumping) all it can; and given that, the organization has no better opportunity for calibrating each member's potential oil production capacity than by measuring what everyone can actually produce when everyone is flat out.
Most OPEC production cuts in the past were really Saudi production cuts. To bring the market into balance a cut of 1.5 million barrels per day would do the trick. If every member were honest and really did cut production that would only require a 5 percent reduction in production, and that could easily generate a 30 percent uplift in the oil price. But if the past is a guide to the future that would really be a 15 percent cut for Saudi Arabia and no cut at all for anyone else.
Whilst everyone thinks OPEC is in disarray and that it can no longer function as an effective cartel, the abandonment of the quota level for the organization could end up being a pre-cursor to the establishment of a new reality based set of quotas for everyone. Another six months of low prices may just be enough to convince the serial cheaters (I'm looking at you Venezuela and Nigeria) and the less disciplined members of the group that when Saudi relents and says, "it's time for a new set of quotas," all members may play fair for a while.
So I suspect that rather than giving up being a cartel, OPEC is actually preparing itself for a new and perhaps more effective phase of its existence.
[Dec 09, 2015] Chevron CEO Oil prices will be higher in a year
www.cnbc.com
Oil prices will likely climb in the next year as supply and demand in the market begin to even, Chevron CEO John Watson said Tuesday.
"We've got a slight imbalance in demand and it's going to take some time to work that off," he told CNBC's "Power Lunch."
Watson did not give a specific price projection for crude, but he noted the oil giant has prepared to "live with whatever prices the market gives." He cited Chevron's plan to cut capital spending by 25 percent in 2016, with further reductions expected in the following years.
[Dec 09, 2015] Oil prices may go even lower in 2016 IEA's Birol
Notable quotes:
"... 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector ..."
"... Birol said that IEA estimates indicated that investment in the oil industry fell by more by 20 percent in 2015 – the steepest decline in history. A further decline is seen in 2016. ..."
"... We have never seen in the last 30 years, oil investment declining for two years in a row and this will have consequences for the markets in the next few years to come ..."
"... Prices this low will drive weaker shale producers out of business We will see shale oil production drop significantly. It looks like Iran already broke the deal they signed so i would not count on production from them. I think oil will settle around 50 next year. ..."
finance.yahoo.com
"When we look at 2016, I don't see many reasons why we can see upward pressure on the prices… Demand is weaker and we may well see Iran come back (to the market) and there will be a lot of oil," Birol said, talking from the sidelines of the COP21 climate conference in Paris..
"So 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector."
... ... ....
Birol said that IEA estimates indicated that investment in the oil industry fell by more by 20 percent in 2015 – the steepest decline in history. A further decline is seen in 2016.
"We have never seen in the last 30 years, oil investment declining for two years in a row and this will have consequences for the markets in the next few years to come," he told CNBC.
Prescott
What he's missing: American oil production will decline more than publicized. What he got right (at least partly): Iran and Iraq (Kurdistan) will both increase production...
HELLO GOODBYE
I think that he is wrong. We are at the tipping point. Shale oil wells that are already built are still turning a profit at around 35-40's dollars a barrel. Prices this low will drive weaker shale producers out of business We will see shale oil production drop significantly. It looks like Iran already broke the deal they signed so i would not count on production from them. I think oil will settle around 50 next year.
[Dec 09, 2015] Given the global economic growth and prospects for 2016, I would be worried about demand
Notable quotes:
"... IEA estimates that demand growth for 2015 will be 1.8 mmbpd compared with 2014, the strongest YOY growth of the new century except for 2010 (compared with the financial collapse year of 2009) and 2004 (compared with the U.S. recession year of 2003). ..."
www.artberman.com
A Glimmer of Hope Amid the Oil Glut Gloom Art Berman
D, December 9th, 2015 at 4:48 amHammer December 9th, 2015 at 7:49 amThink it's difficult to say what's really going on right now with demand. China's product exports are at historic highs and inventory is building. In US demand for gasoline flat-lined compared to the great H1. Europe is probably OK and could take up some slack as the inland river transportation problem is resolved. EMs (Brazil, Russia etc) are an outright disaster and even India's import figures weren't great. You have a shift to energy efficiency in the MEA.
Given the global economic growth and prospects for 2016, I would be worried about demand.
On supply, sure, you got Iran coming back, but also projects that analysts think are write-offs are actually not. Kashagan is coming back onstream Dec 16. Heck, even Venezuela has been increasing number of rigs.
Arthur Berman, December 9th, 2015 at 9:05 amThe only site I use for staying on top of the oil/gas markets. All other are speculation, hype and a general waste of time. Art sticks to staight forward, and reletively simple concepts. The work done here is appreciated.
Arthur Berman December 9th, 2015 at 9:20 amD,
I said that I worry about demand in the post. The fact that we have a few months of YOY encouragement does not indicate that demand is strong.
IEA estimates that demand growth for 2015 will be 1.8 mmbpd compared with 2014, the strongest YOY growth of the new century except for 2010 (compared with the financial collapse year of 2009) and 2004 (compared with the U.S. recession year of 2003).
That said, I see great weakness in the global economy and am concerned about the contraction in U.S. manufacturing reported last week.
All the best,
Art
Daniel,
I assume that you mean supertanker when you use the VLCC acronym. And, yes, it is a fitting analogy.
World opinion is focused on U.S. production that declined 170 kbpd in October but the biggest non-OPEC M-O-M liquids production increases were Canada (270 kbpd, Brazil (110 kbpd), Norway (50 kbpd), Russia (40 kbpd), Mexico (20 kbpd) and Indonesia (20 kbpd). These increases add up to 510 kbpd and over-shadow U.S. declines. Within OPEC, Libya (60 kbpd), Saudi Arabia (50 kbpd), Nigeria (40 kbpd) and Angola (20 kbpd) all increased crude oil production in October. See IEA's November OMR for the details.
So, I agree with you that there are lots of moving parts to the market balance problem.
All the best,
Art
[Dec 09, 2015] World total liquids production up 240,000 bpd to 97.09 Mbpd, a new record high
Notable quotes:
"... We have God knows how much oil in storage and the prospect of Iran coming back with full exports. I find it hard to see short term hope. ..."
"... As to when either supply falls (or consumption rises) so that storage levels decrease, I would think first or second quarter of 2016 with oil prices starting to rise in the 3rd or 4th quarter of 2016. My guesses are usually not very good on oil prices. ..."
peakoilbarrel.com
Euan Mearns, 12/08/2015 at 11:43 amOil Production Vital Statistics November 2015Ron Patterson, 12/08/2015 at 5:40 pmRon, this post already plastered all over the internet. "World total liquids production up 240,000 bpd to 97.09 Mbpd, a new record high."
I note Permian still rising.
Euan, the EIA's Short Term Energy Outlook, and Art Berman, seems to disagree with what I assume is IEA data.Euan Mearns, 12/09/2015 at 5:23 am
Ron, correct, I am reporting IEA data. I stopped following the EIA since they fell so far behind. But my last month for IEA is October and so I'm surprised to see EIA bang up to date with November data. The pattern of IEA data revisions also complicates matters.Dennis Coyne, 12/09/2015 at 8:35 amThe bottom line is that after a year of oil price crash, total liquids production is still up there at 96 / 97 Mbpd.
From Art's chart I note there is a 5 month lag from supply surplus to price collapse. Can we expect same when the supply / demand lines cross? We have God knows how much oil in storage and the prospect of Iran coming back with full exports. I find it hard to see short term hope. And when the market does rebalance, which it will do, I'm unsure how the price will react. I'm unsure if the rules of the past will apply. This comes down to understanding elasticity. 1000 idle rigs…..
Hi Euan,I would think it would be 5 to 10 months after consumption rises above supply that we will see oil prices start to move. To make things simple if we assume consumption is 1 Mb/d higher than supply and storage levels are 300 Mb above normal. it would take 10 months foe supply to fall back to normal levels. I think when storage levels fall to 150 Mb above "normal" levels we might see prices start to rise, but somewhere between 5 to 10 months after consumption rises to 1 Mb/d above supply seems reasonable.
As to when either supply falls (or consumption rises) so that storage levels decrease, I would think first or second quarter of 2016 with oil prices starting to rise in the 3rd or 4th quarter of 2016. My guesses are usually not very good on oil prices.
[Dec 09, 2015] The NATO-GCC alliance sees fit to exclude Russia, Iran, Iraq, Kazakhstan and Venezuela from fully participating in the global market-place on equal terms
Notable quotes:
"... I have said the exact same thing on this blog several times before. But let me expand on this issue some more. The oil production capacity of at least these five countries is artificially suppressed by the still dominant NATO-GCC alliance: a) Russia, b) Iran, c) Iraq, d) Kazakhstan and e) Venezuela. ..."
"... To be clear, I am not moralizing here, but I am merely saying that the NATO-GCC alliance sees fit to exclude those countries from fully participating in the global market-place on equal terms. It's good old Real-politik. ..."
peakoilbarrel.com
Stavros H, 12/09/2015 at 8:31 amI have said the exact same thing on this blog several times before. But let me expand on this issue some more. The oil production capacity of at least these five countries is artificially suppressed by the still dominant NATO-GCC alliance: a) Russia, b) Iran, c) Iraq, d) Kazakhstan and e) Venezuela.To be clear, I am not moralizing here, but I am merely saying that the NATO-GCC alliance sees fit to exclude those countries from fully participating in the global market-place on equal terms. It's good old Real-politik.
The suppressed oil production from these regions, has allowed western oil majors, as well as much more numerous but smaller US shale drillers to increase their own production of quite marginal oil & gas deposits in the US shale patch, the Canadian tar sands, in several deep-offshore sites around the globe etc…
This is at least 50% why the above countries are allied with each other and against the NATO-GCC Empire.
[Dec 08, 2015] Biggest cash issue for Saudi Arabia goes beyond oil
www.cnbc.com
Saudi Arabia is expected to run a deficit of more than 20 percent of GDP in 2015, according to the IMF.
...Saudi Arabia budgeted at the beginning of the year for expenditures of $229 billion
...Saudi reserves were approximately $736 billion coming into the year.
...The kingdom supported roughly 4 million people in 1960, and since then, its population has grown rapidly, to the 30 million population level it's at today. Although far-off population boom highs hit in the 1980s, Saudi Arabia's population growth rate is still positive, with the overall population increasing at around 2 percent per annum.
...According to the IMF, Saudi Arabia's fiscal breakeven - the price per barrel of oil that it needs to balance its budget - was about $106 in 2014, and it is estimated to remain at about that level for this year as well.
..."Saudi Arabia hasn't said they won't cut, but that doesn't mean they are going to increase production either," SEB analyst Bjarne Schieldrop recently told CNBC.
[Dec 08, 2015] Commodity slump should give Yellen pause, Eichengreen says
Notable quotes:
"... Weak commodity prices make for deflation and make for balance-sheet problems for commodity exporting countries. Some experts say lower commodity prices were a key spark of the Great Depression, Eichengreen noted. Central banks can keep commodity prices from becoming destabilizing if they are prepared to do "whatever it takes" to counteract the falling prices, he said. ..."
"... For the U.S. economy in particular, low commodity prices can dampen exports and set up a negative feedback loop with the already-weak manufacturing sector. "Manufacturing is already doing poorly and it can do even more poorly if this news from the rest of the world continues to be negative," Eichengreen said. ..."
"... Despite his outlook, Eichengreen said he still expects the Fed to raise interest rates after their two-day meeting on Dec. 15-16. "I think the FOMC as a group is committed to their course of action...they have succeeded in painting themselves in a corner," he said. ..."
economistsview.typepad.com
im1dc said... Tuesday, December 08, 2015 at 11:03 AM
"Commodity slump should give Yellen pause, Eichengreen says"I hope Chairwoman Yellen listens to him especially since this article is 3 hours old and Crude Oil is now even lower at $37.57 and showing no signs of stopping its descent.
"Commodity slump should give Yellen pause, Eichengreen says"
By Greg Robb...Senior economics reporter...Dec 8, 2015...10:31 a.m. ET
"Federal Reserve Chairwoman Janet Yellen and her colleagues should seriously think about delaying an interest rate hike given falling commodity prices, said noted economic historian Barry Eichengreen of the University of California at Berkeley.
"If I were in her shoes, I would be having second thoughts," Eichengreen said in an interview on Bloomberg Radio.
Weak commodity prices make for deflation and make for balance-sheet problems for commodity exporting countries. Some experts say lower commodity prices were a key spark of the Great Depression, Eichengreen noted. Central banks can keep commodity prices from becoming destabilizing if they are prepared to do "whatever it takes" to counteract the falling prices, he said.
For the U.S. economy in particular, low commodity prices can dampen exports and set up a negative feedback loop with the already-weak manufacturing sector. "Manufacturing is already doing poorly and it can do even more poorly if this news from the rest of the world continues to be negative," Eichengreen said.
The Berkeley professor said he was also worried about a scenario whether the Fed begins to normalize but then has to quickly reverse course on the back of a troubled external environment.
If the U.S. economy stumbles, the Fed doesn't have much room to ease and that puts the U.S. central bank "back in the game of having to invent unconventional monetary policies, which is somewhere no one wants to go," he said.
Despite his outlook, Eichengreen said he still expects the Fed to raise interest rates after their two-day meeting on Dec. 15-16. "I think the FOMC as a group is committed to their course of action...they have succeeded in painting themselves in a corner," he said.
And at the moment, Fed officials can point to strong retail spending, and relatively-strong construction activity to justify a rate hike. "They can still tell the story that the economy is doing better and not immediately at risk," he said."
[Dec 08, 2015] Oil Producer's Currencies Are Collapsing As Brent Breaks Below $40
Zero Hedge
explosivo
The ruble is at 70 now and it is one of the only decent currencies on earth.
The Greek horse
This is obviously by design to crush Russia. The elites are manufacturing an economic war!! Now I see clearly why Syria is so important to Mr. Putin.. Saudi Arabia won't stop production and ISIS OIL is in the black market?!?= Low Prices. UK, USSA and Israel axis of EVIL!
dot_bust
Crude oil futures are traded through the super-corrupt CME Group.
Central banks get discounts for trading EVERYTHING through CME Group and Comex
http://www.gata.org/node/14385
[Dec 08, 2015] Capex cuts the road to rebalance or rebound - Fuel for Thought
Dec 08, 2015 | The Barrel Blog
...Industry wide upstream spending is down 20% this year, according to the IEA and spending by the supermajors alone in 2015 is down by $22 billion, BP calculates.
...Since the oil price dive, the industry has become - understandably - fixated on capital efficiency and technology gains. Companies are doing more with less so the read across from outright spending to future production is not a straight line.
... According energy investment bank Tudor Pickering Holt, some 150 oil and gas projects have been delayed or cancelled globally over the last 18 months, jeopardizing a combined 13 million b/d of future oil production. The bank believes the deferred projects - which exclude US shale - hold some 125 billion barrels of oil equivalent of resources, of which 60% are liquids and the rest gas.
Given average lead times and production lives of non-shale projects, the timing of the production impact would likely be felt from around 2020 for a period of 10 to 20 years, according to TPH's Anish Kapadia.
...The IEA last month predicted that Russia, Brazil and Canada would bear the brunt of the medium-term supply hit, revising downwards it estimate of non-OPEC output in 2020 by 1.1 million b/d.
...The IEA's new long term energy outlook predicts a tipping point from 2020 when years of stellar non-OPEC oil supply growth is effectively thrown into reverse. Non-OPEC supply is expected to top out at 55 million b/d in 2020 before shrinking by 2.1 million b/d over the following decade.
[Dec 08, 2015] Yergin Why oil prices cannot stay this low
"... "The oil market "can't stay low like this because you're not going to have the investment you need," he said." "By 2020, the world oil market is going to need another 7 million barrels a day of production." ..."
"... Multinational energy companies and U.S. shale oil producers have slashed capital spending in order to protect their balance sheets as their revenues plummet and cash flow dries up. Crude prices began to sink from historic highs last fall, and the downturn accelerated after OPEC announced it would not cut supply to balance oil markets. ..."
finance.yahoo.com
Yergin told CNBC's "Squawk Box" he expects oil markets to begin to balance next year or in 2017.
"The oil market "can't stay low like this because you're not going to have the investment you need," he said." "By 2020, the world oil market is going to need another 7 million barrels a day of production."
"Right now, the whole mantra is slow down, postpone, cancel projects," he added.
Multinational energy companies and U.S. shale oil producers have slashed capital spending in order to protect their balance sheets as their revenues plummet and cash flow dries up. Crude prices began to sink from historic highs last fall, and the downturn accelerated after OPEC announced it would not cut supply to balance oil markets.
[Dec 08, 2015] What is going on at the moment is not only destroying the US oil and gas industry, but causing considerable damage worldwide
Notable quotes:
"... The latest drilling report has confirmed the recent trend of sharply declining US shale production. Legacy decline rates are still very high and are very likely declining even faster as drilling declines further. ..."
"... As I can understand the motivation of Saudi Arabia to squeeze out competition, I am flabbergasted how the US public and policy makers including the FED are destroying its own oil gas industry. What is the strategy behind the destruction of first the coal and then the oil and gas industry? There will be no flood of natgas and an undulating plateau of oil production, if the base of financing new projects implodes. ..."
"... Thanks for your answer. I work in the oil industry in Norway and what is going on at the moment is not only destroying the US oil and gas industry, but causing considerable damage worldwide – some of the stuff going on over here is insane (good experienced people being fired, cutting corners to save costs, etc.). ..."
"... Crazy part is, that we have been there before. I am still in my 30ies and this is now the third downturn I see -- starting to look for jobs outside this circus. Every time we fire the good people, only to get promised afterwards that the operators had learned their lessons. Last time the market picked up I had the pleasure to work under a 72 year old drilling engineer, who had been in retirement for 10 years … he was not quite up to speed with some of the technology ..."
"... I keep reading here in the USA about how all of the companies are setting records on how fast they are drilling wells. They do so in order to tout cost savings, IMO trying to perpetuate the myth that it makes sense to drill these wells at $30 oil and $2 gas. ..."
"... I am all for technological improvement, but I get the feeling this is not safe. I wish they would describe how they cut drilling times so much. ..."
"... As I am working in the commodity business as well, the steep downturn is on the other side a good sign of a steep recovery very soon as a lot of production is coming out of the market. I am wondering, however, if this could not have been done with a little less damage to all people involved. ..."
peakoilbarrel.com
Toolpush, 12/08/2015 at 1:41 am
http://oilpro.com/gallery/590/8041/samsons-filing-one-largest-ep-bankruptcies-nam-yearToolpush, 12/08/2015 at 1:57 amThe tip of the iceberg, with more definitely to come!
Good background on Iraq's chances for production growth.Daniel, 12/08/2015 at 2:49 amUS production down by ±100,000 bpd (unless I miss-read the EIA drilling productivity report),Heinrich Leopold, 12/08/2015 at 6:14 am
China Imports up 7.6% from last year and 7.1% from last month with commercial crude stock level showing the biggest fall in years (-4.4%), but crude tanks 6%.
I know some are making a killing out there by talking oil down, but this is getting insane.http://www.reuters.com/article/china-economy-trade-crude-idUSL3N13W3I620151208#TgFW81tlEfs2jW4f.97
Daniel,Daniel, 12/08/2015 at 6:49 amThe latest drilling report has confirmed the recent trend of sharply declining US shale production. Legacy decline rates are still very high and are very likely declining even faster as drilling declines further.
As I can understand the motivation of Saudi Arabia to squeeze out competition, I am flabbergasted how the US public and policy makers including the FED are destroying its own oil&gas industry. What is the strategy behind the destruction of first the coal and then the oil and gas industry? There will be no flood of natgas and an undulating plateau of oil production, if the base of financing new projects implodes.
If there are no companies left anymore, who will actually produce oil and gas? Wind and solar can just provide a minimal share of US energy needs and there is by far no alternative left to replace oil and gas. Do authorities know what damage is done to its own economy and the dollar if US oil and gas production collapses? Obviously not. As always policy makers will only react if the damage is done.
As we can see from Venezuela and France, policy makers go as far as to its own extinction. I thought the US would be a little more advanced in this respect. However, the recent events will only speed up my predictions of much higher natgas prices over the next months.
Hi HeinrichToolpush, 12/08/2015 at 7:01 amThanks for your answer. I work in the oil industry in Norway and what is going on at the moment is not only destroying the US oil and gas industry, but causing considerable damage worldwide – some of the stuff going on over here is insane (good experienced people being fired, cutting corners to save costs, etc.).
It is strange that I cannot seem to find the same indications as anybody else about the world "swimming in oil". I guess we will be in for a rough ride, once the world finds out production is too low and we lack the resources to rectify the same …. but I guess this is what Ron is on about for quite a while now.
Daniel,Daniel, 12/08/2015 at 7:08 amYep, destruction all over. Either the doomers are correct and their will not be any demand, or there is going to be a mad scramble in a few years. With all the boomers reaching retirement, there will be a real need for training new people or hiring geriatrics.
Crazy part is, that we have been there before. I am still in my 30ies and this is now the third downturn I see -- starting to look for jobs outside this circus. Every time we fire the good people, only to get promised afterwards that the operators had learned their lessons. Last time the market picked up I had the pleasure to work under a 72 year old drilling engineer, who had been in retirement for 10 years … he was not quite up to speed with some of the technologyToolpush, 12/08/2015 at 7:21 amYeah,shallow sand, 12/08/2015 at 7:54 amI bet that god damn cyberbase drilling must have been a head spin for him, let alone rotary steerable directional drilling.
While public companies are only focused on the next quarterly report (12 weeks), nobody will ever think of what will happen in the "next" doom cycle. History has shown, when the next boom comes, there is always plenty of money to do what ever it takes to get things going again.
As for people, we stopped being people along time ago. Haven't you had your bar code or chip yet?
Daniel. I note your comment about cutting corners to save on costs.Fernando Leanme, 12/08/2015 at 9:00 amI keep reading here in the USA about how all of the companies are setting records on how fast they are drilling wells. They do so in order to tout cost savings, IMO trying to perpetuate the myth that it makes sense to drill these wells at $30 oil and $2 gas.
I am all for technological improvement, but I get the feeling this is not safe. I wish they would describe how they cut drilling times so much.
My experience is with 700′-2500′ holes, so apples and oranges. However, I would not want anyone rushing things that are most importantly unsafe, and secondarily could damage the well.
Would appreciate to read what you, Toolpush and others think of these "records".
about 14 years ago i was transferred to supervise a team of people that survived a really harsh set of cut backs. The overall performance level was very high, plus they were very motivated not to lose their jobs.Heinrich Leopold, 12/08/2015 at 8:03 amDrilling a well involves a lot of lost time, some of which can be avoided by a more experienced supervisor and crew. It's also likely the well plan will be smarter and easier to execute when prepared by an experienced engineer. So indeed going faster is possible. But I wouldn't expect more than say a 10 % time reduction. The other savings comes from lower charges per unit.
Daniel,As I am working in the commodity business as well, the steep downturn is on the other side a good sign of a steep recovery very soon as a lot of production is coming out of the market. I am wondering, however, if this could not have been done with a little less damage to all people involved.
[Dec 08, 2015] What is the strategy behind the destruction of first the coal and then the oil and gas industry
Notable quotes:
"... I watched and wondered the same thing back in the 80s as Reagan and Volcker took a wrecking ball to the domestic oil and gas industry. ..."
"... The best explanation I've come across is from Andrew J. Bacevich in The Limits of Power . He postulates that Jimmy Carter, recoiling from the public backlash that came after his disastrous crisis-of-confidence speech, began the militarization of U.S. energy policy. Reagan then took this ball and ran it through the goal posts. ..."
"... The strategic reorientation that Reagan orchestrated encouraged the belief that military power could extend indefinitely America's profligate expenditure of energy. Simply put, the United States would rely on military might to keep order in the Gulf and maintain the flow of oil, thereby mitigating the implications of American energy dependence. ..."
"... The unspoken assumption has been that profligate spending on what politicians euphemistically refer to as "defense" can sustain profligate domestic consumption of energy and imported manufactures. Unprecedented military might could defer the day of reckoning indefinitely - so at least the hope went. ..."
"... Reagan - and Reagan's successors - mimicked Carter in bemoaning the nation's growing energy dependence. In practice, however, they did next to nothing to curtail the dependence. Instead, they wielded U.S. military power to ensure access to oil, hoping thereby to prolong the empire of consumption's lease on life…. ..."
peakoilbarrel.com
Glenn Stehle, 12/08/2015 at 7:35 am
Henrich Leopold said:I am flabbergasted how the US public and policy makers including the FED are destroying its own oil&gas industry. What is the strategy behind the destruction of first the coal and then the oil and gas industry?
I watched and wondered the same thing back in the 80s as Reagan and Volcker took a wrecking ball to the domestic oil and gas industry.
The best explanation I've come across is from Andrew J. Bacevich in The Limits of Power. He postulates that Jimmy Carter, recoiling from the public backlash that came after his disastrous crisis-of-confidence speech, began the militarization of U.S. energy policy. Reagan then took this ball and ran it through the goal posts. Here's how Bacevich put it:
The strategic reorientation that Reagan orchestrated encouraged the belief that military power could extend indefinitely America's profligate expenditure of energy. Simply put, the United States would rely on military might to keep order in the Gulf and maintain the flow of oil, thereby mitigating the implications of American energy dependence.
and
The unspoken assumption has been that profligate spending on what politicians euphemistically refer to as "defense" can sustain profligate domestic consumption of energy and imported manufactures. Unprecedented military might could defer the day of reckoning indefinitely - so at least the hope went.
And once Reagan had militarized U.S. energy policy, there seemed to be no turning back. As Bacevich goes on to explain:
Reagan - and Reagan's successors - mimicked Carter in bemoaning the nation's growing energy dependence. In practice, however, they did next to nothing to curtail the dependence. Instead, they wielded U.S. military power to ensure access to oil, hoping thereby to prolong the empire of consumption's lease on life….
A new national security consensus emerged based on the conviction that the United States military could dominate the planet as Reagan had proposed to dominate outer space. In Washington, confidence that a high-quality military establishment, dexterously employed, could enable the United States, always with high-minded intentions, to organize the world to its liking had essentially become a self-evident truth. In this malignant expectation - not in any of the conservative ideals for which he is retrospectively venerated - lies the essence of the Reagan legacy
[Dec 08, 2015] Asian markets fall on lower oil prices
Notable quotes:
"... Analysts warned investors to steer clear of shares related to the oil and gas sector. With conditions expected to remain volatile, investors would be wise to avoid the sector altogether and focus on other opportunities instead, said the Motley Fool's Ryan Newman. ..."
www.bbc.com
Fresh data from China showed the country's exports fell 3.7% in yuan-denominated terms in November from a year earlier, while imports fell 5.6%.
... ... ....
Analysts warned investors to steer clear of shares related to the oil and gas sector. "With conditions expected to remain volatile, investors would be wise to avoid the sector altogether and focus on other opportunities instead," said the Motley Fool's Ryan Newman.
am said... December 07, 2015 at 09:54 PM
http://www.bbc.com/news/business-35035827
Shares drop on the drop of oil prices.
The oil price drop if it continues significantly to the time of the rates up FOMC meeting should give them pause for thought. The wash out of the last year's decline in inflation from the current inflation stats will not happen.
The new oil price decline will be disinflationary. So it will add to the point of an unjustified rate rise. All that will be left is that they are ignoring inflation, one of the two key points in their mandate, so they will need to start explaining what is their mandate for if one of the key elements can just be ignored.
[Dec 08, 2015] It is very likely that production from Eagle Ford alone will decline by over 1 mill b/d by summer 2016
peakoilbarrel.com
Heinrich Leopold, 12/08/2015 at 9:23 amDrilling Report Dec 15 published:The latest drilling report shows that the dramatic decline of US oil production continues. Eagle Ford production alone declined by – 28% year over year (see chart below). The current decline rate stands at -6% per month and makes it very likely that production has declined over -50% (or below 0.8 mill b/d) by spring. Given the recent decline in oil prices, it is very likely that production from Eagle Ford alone has declined by over 1 mill b/d by summer 2016.
[Dec 08, 2015] Technical trading mubo-jumbo
Notable quotes:
"... Mike, as Ive shared here several times in the past few weeks or month or more, there is a potential WTI target (stop) from a bearish technical pattern of $29 IF the critical support of $37 is taken out. ..."
"... Hey, at this point, almost all US E P's are worthless at the current oil and natural gas futures prices. I'm not just talking privately owned, nor just shale. Look at Marathon Oil, Anadarko, Apache, ConocoPhillips, etc. They are all out of business if futures hold. But then all of the OPEC nations are too. ..."
"... So either we will have the great collapse many here discuss, or the futures prices wont hold. ..."
"... How the heck would any of us know what will happen. We have sold from $8-$140 since 1999. Pretty wide range. Wonder how close to $8 the traders can push it. They are in full control. ..."
peakoilbarrel.com
BC, 12/07/2015 at 7:11 pmMike, as I've shared here several times in the past few weeks or month or more, there is a potential WTI target (stop) from a bearish technical pattern of $29 IF the critical support of $37 is taken out.There is no major technical support below $29 until the mid-$20s.
IF $37 is taken out, that implies NYMEX gasoline at, or breaking, a buck this winter.
That's recession territory, brother. ... ... ...
shallow sand says:
... ... ...
Hey, at this point, almost all US E&P's are worthless at the current oil and natural gas futures prices. I'm not just talking privately owned, nor just shale. Look at Marathon Oil, Anadarko, Apache, ConocoPhillips, etc. They are all out of business if futures hold. But then all of the OPEC nations are too.
So either we will have the great collapse many here discuss, or the futures prices wont hold.
How the heck would any of us know what will happen. We have sold from $8-$140 since 1999. Pretty wide range. Wonder how close to $8 the traders can push it. They are in full control.
[Dec 08, 2015] The service companies began to cannibalize their stacked equipment in order to save money. With rig count down this should accelerate
Notable quotes:
"... A question for the hands -on people like shallow: some months ago, some contributors wrote that the service companies in their respective area were beginning to cannibalize their stacked equipment in order to save money. With rig count down even more today, this should accelerate. Any more anecdotal evidence? ..."
"... One point to keep in mind is that the Shale Oil boom was built on the foundation of the personnel infrastructure of the multiyear Shale Gas boom, and now that personnel and infrastructure base is fading away very fast. ..."
"... IMO, it's going to take a very long time to get back anywhere remotely close to the 2014 level of activity, even with a strong sustained oil price signal. A lot of people have left the industry never to return, or have retired, passed away or become unable to work. And even those that want to return will need a lot of retraining. And lots of equipment is rusting away, and as you noted, being cannibalized. ..."
peakoilbarrel.com
Florian Schoepp, 12/07/2015 at 11:40 amA question for the hands -on people like shallow: some months ago, some contributors wrote that the service companies in their respective area were beginning to cannibalize their stacked equipment in order to save money. With rig count down even more today, this should accelerate. Any more anecdotal evidence?shallow sand, 12/07/2015 at 1:43 pmRigs here are all stacked except for a few work over rigs. Most work over rigs stacked too.Jeffrey J. Brown , 12/07/2015 at 2:11 pmJust rod and tubing jobs at this point. Skeleton crews.
One point to keep in mind is that the Shale Oil boom was built on the foundation of the personnel & infrastructure of the multiyear Shale Gas boom, and now that personnel and infrastructure base is fading away very fast.IMO, it's going to take a very long time to get back anywhere remotely close to the 2014 level of activity, even with a strong sustained oil price signal. A lot of people have left the industry never to return, or have retired, passed away or become unable to work. And even those that want to return will need a lot of retraining. And lots of equipment is rusting away, and as you noted, being cannibalized.
Meanwhile, for Xmas gifts this year, I'm handing out bags of pinto beans with my favorite bean and rice recipe.
[Dec 08, 2015] Shale oil creditors may be now valuing assets at "mark to fantasy" like they did in the subprime mortgage crisis
Notable quotes:
"... A comment on Ron Patterson's site got me thinking…I believe it was Watcher who brought up the idea that creditors may be now valuing assets at "mark to fantasy" like they did in the subprime mortgage crisis. ..."
"... The oilcos could then extend lines of credit to keep operating as long as they had enough cash flow to pay the interest on the debt. It would be both beneficial for the oilco and the bank to avoid bankruptcy and write downs. ..."
ourfiniteworld.com
anonymous, December 7, 2015 at 2:14 pmI would have thought there would be turmoil in the junk bonds and a raft of oilco bankruptcies by now. After all asset values had to take a hit when they were revalued at this lower crude price and hedges expired.A comment on Ron Patterson's site got me thinking…I believe it was Watcher who brought up the idea that creditors may be now valuing assets at "mark to fantasy" like they did in the subprime mortgage crisis.
The oilcos could then extend lines of credit to keep operating as long as they had enough cash flow to pay the interest on the debt. It would be both beneficial for the oilco and the bank to avoid bankruptcy and write downs.
[Dec 08, 2015] Higher cost of oil is bearable for society only with increased energy efficiency of the economy
Notable quotes:
"... The world has a gigantic resource base of liquid hydrocarbons remaining. Perhaps as much as 4,200 Gb, or several centuries worth at present consumption rates. The possibility of shortages is obviously an oxymoron. The world will not be producing less petroleum in the future because it is unavailable. It will be producing less because what is being produced at present is not giving an adequate return for its costs to the economy. The industry is not investing too little into the future, it has invested too much into the present. Like Shale, money was spent on production that had insufficient market to justify the expenditures. ..."
ourfiniteworld.com
Don Stewart , December 7, 2015 at 12:38 pm
Ed
Pertinent to your previous comment about BW Hill's model. Here is a current quote from him on Peak Oil:'As a result of the inevitable depletion cycle that occurs to all finite natural resources the capacity of petroleum to power the economy is declining. There comes a point where petroleum is no longer a value adding commodity. The economy is not going to spend $2 for petroleum to produce a $1's worth of goods, and services. Its called affordability and it is a calculable quantity:
http://www.thehillsgroup.org/depletion2_022.htm
As the process cost of producing petroleum, and its products increases its affordability for the remaining sectors of the economy declines. Presently the return on petroleum products is 1:1.03; the economy as a whole is getting less out of petroleum than it is putting into it. Consequently, the highest petroleum cost products will be phased out, and as they do demand will fall. Supply must also disappear with that fall in demand. This will be seen as a slowing of the economy; punctuated with periodic monetary, and financial crises.
The world has a gigantic resource base of liquid hydrocarbons remaining. Perhaps as much as 4,200 Gb, or several centuries worth at present consumption rates. The possibility of shortages is obviously an oxymoron. The world will not be producing less petroleum in the future because it is unavailable. It will be producing less because what is being produced at present is not giving an adequate return for its costs to the economy. The industry is not investing too little into the future, it has invested too much into the present. Like Shale, money was spent on production that had insufficient market to justify the expenditures.
The future of any producer today depends on reducing investments, cutting cost, and preparing for the further decline in prices that is coming.'
Note particularly the 1 to 1.03 ratio statement. How can that be if the EROEI he quotes is around 10 to 1?
As I understand it, it's because the rest of the economy can't produce enough to justify the cost of extraction of the oil IF the rest of the economy suddenly became much more efficient, then I would think the ratio would improve radically. Which would permit higher cost extraction to proceed.
As you can see, he's not in Kansas anymore….Don Stewart
[Dec 07, 2015] Oil Prices OPEC Stands its Ground
Notable quotes:
"... The balancing of worldwide crude oil markets is well under way as evidenced by the continued sharp decline in U.S. production during the third quarter of 2015. Further, the International Energy Agency estimates that worldwide demand will increase in 2015 by as much as 1,800,000 bopd and a further 1,200,000 bopd in 2016 in response to low commodity prices. Tighter crude markets will prevail which in turn will lead to increased demand for Cores unique technology-related services and products. ..."
"... It appears that U.S. crude oil production peaked in April 2015, and Core now believes that production could fall from that peak by over 700,000 bopd, more than prior estimates of 500,000 bopd, by year-end 2015. Adding support to this view, Bakken production has now peaked, while Eagle Ford production began to decline earlier in 2015. Currently, the estimated net decline curve rate for U.S. production is 7.8% due to the concentration of U.S. production coming from high-decline-rate unconventional reservoirs, more than doubling Cores new estimated net worldwide crude oil production decline curve rate of 3.1%. In addition to second-half 2015 production declines in North America, including Mexico, international production declines are likely in Europe, Russia, South America, and Africa. ..."
"... In 2016, at current activity levels in North America, year-over-year production declines of over 900,000 bopd are expected in Canada and the U.S., while international production levels are expected to continue to decline modestly. The Company believes that recent downward production revisions in Mexico and offshore eastern South America confirm these views, which should precipitate higher commodity prices and the following recovery in Cores business in 2016. ..."
The Motley Fool
What this means is that the oil market is on its own to get supply and demand back into balance, which is a process that's well under way. Oil reservoir specialist Core Labs (NYSE:CLB) eloquently detailed how the market was repairing itself in the company's third-quarter report pointing out that,The balancing of worldwide crude oil markets is well under way as evidenced by the continued sharp decline in U.S. production during the third quarter of 2015. Further, the International Energy Agency estimates that worldwide demand will increase in 2015 by as much as 1,800,000 bopd and a further 1,200,000 bopd in 2016 in response to low commodity prices. Tighter crude markets will prevail which in turn will lead to increased demand for Core's unique technology-related services and products.
It has been said that the cure for low oil prices is low oil prices and that certainly has been the case. With sub-$50 oil for much of the past year, two key trends have begun to emerge according to Core: Oil production is starting to slide while new demand has emerged.
Core went into even more detail on the production decline to come by saying,
It appears that U.S. crude oil production peaked in April 2015, and Core now believes that production could fall from that peak by over 700,000 bopd, more than prior estimates of 500,000 bopd, by year-end 2015. Adding support to this view, Bakken production has now peaked, while Eagle Ford production began to decline earlier in 2015. Currently, the estimated net decline curve rate for U.S. production is 7.8% due to the concentration of U.S. production coming from high-decline-rate unconventional reservoirs, more than doubling Core's new estimated net worldwide crude oil production decline curve rate of 3.1%. In addition to second-half 2015 production declines in North America, including Mexico, international production declines are likely in Europe, Russia, South America, and Africa.
The chart below clearly shows the impact low oil prices have had on U.S. production:
US Crude Oil Field Production data by YCharts
However, the U.S. isn't the only place where production is slipping. Underinvestment in non-OPEC nations like Mexico and Russia is causing production in these nations to roll over as well. Looking ahead, Core noted that,
In 2016, at current activity levels in North America, year-over-year production declines of over 900,000 bopd are expected in Canada and the U.S., while international production levels are expected to continue to decline modestly. The Company believes that recent downward production revisions in Mexico and offshore eastern South America confirm these views, which should precipitate higher commodity prices and the following recovery in Core's business in 2016.
In other words, even without OPEC's help, the oil market is well on its way to fixing the glut. With nearly 3 million barrels of new demand projected by the end of next year and a near 1 million barrel production decline in North America alone, the market is starting to wipe out the nearly 2 million barrel a day surplus.
Investor takeaway
OPEC's decision to not just hold production flat, but to actually pump at full capacity has hurt the oil market in the short-term. That said, it weakened its rivals and spurred new demand, which suggests higher future oil prices. It's a scenario that could actually prove to be very lucrative for the oil countries and companies that come out of the downturn in one piece.
[Dec 07, 2015] Major oil companies are structured for big, long lead time projects and needs time to change course
Notable quotes:
"... few realize how severe this low oil price will be for near future oil supplies (offset depletion induced declines and possibly grow total production). ..."
"... Major oil companies are structured for big, long lead time projects and needs time to change course (like a fully loaded tanker changing direction). ..."
"... Further oil companies rely on predictable prices before they sanction developments involving heavy investments requiring $60+/b to yield a return. The longer this low price remains, the deeper the decline will become and the harder to bring supplies back to previous highs. ..."
peakoilbarrel.com
Rune Likvern, 12/07/2015 at 11:23 am
To me the dynamics described in the articleis right.
I am also of the opinion that few realize how severe this low oil price will be for near future oil supplies (offset depletion induced declines and possibly grow total production).
Oil companies are in the business for a return and several of them have now a lot more debt on their books and need time to strengthen their balance sheets. Many oil companies made a bet that the oil price would remain high ($100/b) and therefore assumed more debt in a bid to grow supplies.
Major oil companies are structured for big, long lead time projects and needs time to change course (like a fully loaded tanker changing direction).
Further oil companies rely on predictable prices before they sanction developments involving heavy investments requiring $60+/b to yield a return.
The longer this low price remains, the deeper the decline will become and the harder to bring supplies back to previous highs.
[Dec 07, 2015] It doesn't look too good for Team Humanity
peakoilbarrel.com
Javier said:
Ron Patterson, 12/07/2015 at 12:09 pmPeople should be told that we are facing a civilization threatening energy crisis and that sacrifices have to be done to attempt a transition like none done before.
Jimmy Carter tried that in his infamous crisis-of-confidence speech, and look what happened to him!
Ronald Reagan - the "modern prophet of profligacy, the politican who gave moral sanction to the empire of consumption," as Andrew Bacevich called him - ate his lunch come election time.
It's "morning in America," Reagan proclaimed, as he militarized US energy policy to a degree never seen before.
If you ask me, it doesn't look too good for Team Humanity.
Otherwise humanity returns to 18th century…That is an absolute best case scenario. Worst case, humanity returns to the stone age.
[Dec 07, 2015] US Exports Manufacturing Debacle Covered up by Oil
Notable quotes:
"... In fact, the US is pumping so much oil that exports ..."
"... Credit must be given to the shale oil revolution – and to the many billions of investor dollars that have been drilled into the ground where they have now disappeared without trace! ..."
"... the massive US auto manufacturing sector that has been flying high, pumped up by cheap credit, loose underwriting standards, extended loan terms, loan-to-value ratios that exceed 100%, the rising proportion of subprime loans, and of course, securitization of these loans ..."
"... auto manufacturing is still hot, fired up by US auto sales that might soon set an all-time record in units and have already set all-time records in dollars due to higher vehicle prices. ..."
Zero Hedge
Imports of goods fell 6.6% year-over-year to $186.8 billion – despite the strong dollar, though a strong dollar, in theory, should have caused imports to rise. This testifies to tepid demand in the US. Imports of petroleum products were blamed. The US is – despite the oil bust – pumping so much oil for domestic consumption that imports of petroleum products have been falling for years. And in October, the value of petroleum imports hit the lowest level since 2003!In fact, the US is pumping so much oil that exports of petroleum products have been booming, and the net petroleum trade deficit – the difference in value between imports and exports of petroleum products – dropped to a minuscule $4.47 billion, the lowest since April 1999.
Credit must be given to the shale oil revolution – and to the many billions of investor dollars that have been drilled into the ground where they have now disappeared without trace!
But this flourishing oil trade covers up the terrible deterioration in the non-petroleum trade deficit. It's volatile from month to month, but the trend is clear: in October, it worsened by 25% year-over-year, to $56.8 billion, after an all-time worst of $59.3 billion in August. Before this year, the worst had been $47.8 billion – in December 2014!
This chart shows just how fast and how far the non-petroleum trade balance (blue line) has plunged, while the net petroleum deficit (black line) is on the way, if this trend continues, to a surplus:
... ... ...
Bad as it is, it has been propped up by the massive US auto manufacturing sector that has been flying high, pumped up by cheap credit, loose underwriting standards, extended loan terms, loan-to-value ratios that exceed 100%, the rising proportion of subprime loans, and of course, securitization of these loans [read… What Happens When the Auto-Loan Boom Blows Up ].And auto manufacturing is still hot, fired up by US auto sales that might soon set an all-time record in units and have already set all-time records in dollars due to higher vehicle prices.
[Dec 07, 2015] CIBC The Crude Glut Might Be Cured Faster Than You Think
Notable quotes:
"... The EIA's data on the changes in 'legacy' production-a measure on the decline rate of existing wells-suggests that if no new rigs were drilled, production would drop by a million barrels per day every quarter, writes Exarhos. U.S. production is now forecast to decline by 500,000 barrels per day over the next six months, a reason to expect at least some price recovery in 2016. ..."
finance.yahoo.com
CIBC World Markets Economist Nick Exarhos notes that the decline in U.S. oil production hasn't come about with the speed or magnitude most experts expected. But in the details of production data, he finds a dynamic that could support crude prices next year.
"The EIA's data on the changes in 'legacy' production-a measure on the decline rate of existing wells-suggests that if no new rigs were drilled, production would drop by a million barrels per day every quarter," writes Exarhos. "U.S. production is now forecast to decline by 500,000 barrels per day over the next six months, a reason to expect at least some price recovery in 2016."
Increasingly productive new rigs are behind the resilience of U.S. production, but this comes at a cost. Higher initial production also implies upward pressure on decline rates for these new wells. All else equal, the ability to take more oil out of the ground more expediently reduces the life span of a single well.
Tight oil projects like shale have much swifter decline rates than conventional plays.
The price of 12-month West Texas Intermediate futures contracts and shale drillers' access to capital remain integral variables that will inform when the supply-demand imbalance in the oil market is resolved.
But if drillers don't tap into the fracklog too much , Exarhos has mapped out an avenue through which the oil market's rebalancing process could meaningfully accelerate in the near future. To be sure, there are a number of countervailing forces that could derail this forecast. For instance, the elimination of OPEC's production target threatens to see more production unleashed onto the market, and the economist readily admits that the extent to which shale production has been curtailed has continuously been overestimated.
[Dec 07, 2015] Stronger Dollar And OPEC Inaction Force Crude Below $40
OilPrice.com
This week we get our timely triumvirate of monthly oil reports: EIA kicks things off as usual with tomorrow's Short Term Energy Outlook, while Thursday sees the release of OPEC's monthly oil report. IEA brings up the rear with its oil market report on Friday.
... ... ...
The chart below (via @jkempenergy) illustrates that short positions held by hedge funds have reached 172 million barrels, almost doubling in the last seven weeks to reach their third-largest position on record:
... ... ...
While this highlights the extremely bearish mindset of the market, we have to remember what happened the last two times we were stretched to such extreme short positions: at the previous lows in March and August. At these junctures, prices experienced a swift bout of short-covering, propelling prices higher.
Looking at global offshore rigs, even though 40 out of 350 rigs have been taken out of the market in the price rout of the last year, according to analysis from Rystad Energy we need to see up to 100 rigs go offline to halt the supply glut.
... ... ...
Oil production from the Gulf of Mexico is set to rise by 10% in 2015, as projects come online this year. Accordingly, production in September was up to almost 1.7 million barrels a day.By Matt Smith
[Dec 07, 2015] WTI just dipped under $38
"... WTI just dipped under $38 (to 37.72). If the price stays at this level, the frackers will go home and the bankers will turn into scrooges. ..."
"... EOX Emerald Oil, 1.13 USD per share today, -61 USD per share earnings. A 52 week high of 33.60 usd per share, a 96 percent decrease in price. They all look bad because it is bad. ..."
peakoilbarrel.com
Frugal, 12/07/2015 at 12:23 pm
WTI just dipped under $38. If the price stays at this level, the frackers will go home and the bankers will turn into scrooges.R Walter, 12/07/2015 at 12:35 pmOil is 35.60 per barrel in Japan today.31,930¥ per metric ton.
123 yen for a dollar, 259 USD per tonne, 35.56 USD per barrel.
EOX Emerald Oil, 1.13 USD per share today, -61 USD per share earnings. A 52 week high of 33.60 usd per share, a 96 percent decrease in price. They all look bad because it is bad.
A rout, a crash, cut your losses and run, the jig is up.
Huckleberry Finn, 12/07/2015 at 3:56 pm
Another 88,065 of barrels to be lost in January 2016 in the shale plays for a month on month decline of 1.81%.
Eagle ford will be down 30% in 9 months. That is something.dmg555, 12/04/2015 at 1:31 pm
For the 13th week of the last 14, US Oil rig counts declined. Down 10 to 545 rigs, this is the lowest since May 2010 as the temporary respite in the early Fall has given way to reality and rig counts track the lagged crude price lower…
shallow sand, 12/07/2015 at 5:25 pm
How many E & Ps will have write downs in 2015 greater than their current market caps. Just let that one sink in.
[Dec 07, 2015] Did Erdogan Commit Political Suicide Shahir ShahidSaless
www.huffingtonpost.com
Erdogan, desperate and angry over his losing battle to oust Syrian president Bashar al-Assad, ordered the shooting down of a Russian fighter jet. Erdogan has been actively pursuing the ouster of Assad since 2012, but Russia's recent intervention in Syria, in alliance with Iran and its highly ideologically and politically motivated proxies, has resulted in a serious setback for Erdogan's plans.Putin's determination to destroy Turkey's proxies at the Syrian borders and to thwart Erdogan's plan to create a no-fly/buffer zone in the area has derailed Erdogan's plans for Syria. Erdogan hoped to use the buffer zone as an operational hub aimed at bringing down President Assad.
Russian attacks on Turkmen-dominated areas in Bayirbucak, where the Russian plane was downed, would also inflict serious collateral damage to Turkey. The Turkish government regards the area in north-west Syria, presently under the control of the Bayirbucak Turkmens, as an important buffer zone preventing the territorial expansion of Syria's Kurdish-minority militias, whom it regards as terrorists linked to the Kurdistan Workers' Party (PKK).
Erdogan's objective in shooting down the plane was to provoke Russia into a harsh response. He hoped the response would bring Russia into conflict with the whole of NATO, which would help reverse Turkey's declining fortunes in the Syrian war.
Erdogan's calculations went terribly wrong. Following the incident, Turkey requested an emergency meeting with NATO members. Contrary to Erdogan's expectations, although, members did not support Russia, neither did they wholeheartedly support Turkey. Many members questioned Turkey's action and, according to Reuters, "expressed concern that Turkey did not escort the Russian warplane out of its airspace." In a clear indication of the suspicion among NATO members regarding Turkey's real intention behind its adventurism, some diplomats told Reuters, "There are other ways of dealing with these kinds of incidents."
Not only didn't Cold War II happen, French President Francois Hollande, who promised "merciless" revenge in the aftermath of Paris attacks, met with Putin and they agreed to form an alliance against Daesh (also known as ISIS/ISIL) in Syria. The outcome of such an alliance is that the "Assad must go" mantra will be overshadowed by the war against Daesh--something that Erdogan hated to occur. Erdogan's plan to bring the West and Russia into conflict became even more unattainable when France's move was followed by Britain and then Germany.
Turkey also lost significant room to maneuver in the post-shootdown of the Russian fighter jet. Russia, by deploying the powerful S-400 surface-to-air missile system in Hmeymim airbase near Latakia, sent a strong signal to Turkey--a de facto no-fly zone already in effect south of the Turkish-Syrian border.
Russia also sent Turkey and NATO a clear message by arming its fighter jets with air-to-air missiles. On November 30, the Russian Air Force announced that "today, for the first time Su34 fighter-bombers departed for combat sorties with air-to-air short- and medium-range missiles.... The usage of such weaponry is necessary for providing security of the aircraft of the Russian" air force, the announcement read.
Moscow also authorized numerous economic sanctions against Ankara ranging from tourism to agricultural products as well as sanctions on energy and construction projects.
Erdogan took a conciliatory stance after the incident. In a speech in Ankara, he said, "We are strategic partners ... 'Joint projects may be halted, ties could be cut'? Are such approaches fitting for politicians?" Erdogan even requested a meeting with Putin while both leaders were in Paris for the COP21 climate change conference on November 30, but Putin rejected the request.
Russians launched a heavy campaign to damage Erdogan's credibility and reputation. Vladimir Putin and numerous other Russian politicians leveled accusations regarding Turkey's sponsorship and cooperation with ISIS as well as allegations of buying oil smuggled by ISIS.
On November 30, on the sidelines of the climate change summit in Paris, Putin stated, "At the moment we have received additional information confirming that that oil from the deposits controlled by Islamic State militants enters Turkish territory on industrial scale." He even went further to say, "We have every reason to believe that the decision to down our plane was guided by a desire to ensure security of this oil's delivery routes to ports where they are shipped in tankers."
In response, Erdogan said he will resign as the country's president if Russia provides evidence that implicates Turkey in any oil trade with ISIS.
Later, Sergei Lavrov, the Russian Foreign Minister, said, "We have repeatedly publicly stated that oil from the IS-controlled territories is transported abroad, particularly to Turkey. The facts that substantiate these claims will be formally presented in the UN in particular, and to all parties concerned."
Then on December 2, the Russian Defense Ministry held a briefing concerning ISIS funding. During the briefing, which included a PowerPoint presentation, satellite images, and videos, Deputy Defense Minister Anatoly Antonov said, "According to our data, the top political leadership of the country - President Erdogan and his family - is involved in this criminal business."
Antonov added, "In the West, no one has asked questions about the fact that the Turkish president's son heads one of the biggest energy companies, or that his son-in-law has been appointed energy minister. What a marvelous family business."
On December 3, without mentioning specifics, Putin declared there was more evidence to come. "We are not planning to engage in military saber-rattling," he said. "But if anyone thinks that having committed this awful war crime ... are going to get away with some measures concerning their tomatoes or some limits on construction and other sectors, they are sorely mistaken."
At this point, it is apparent that Putin's ultimate objective is to take advantage of the opportunity presented to him to severely damage Erdogan's name and trustworthiness, both domestically and internationally, or, even better, bring him and his regime down as a perceived power behind the extremists and the anti-Assad forces in Syria. This is in line with Russia's plan for realizing its strategic objectives in Syria.
[Dec 07, 2015] OPEC to keep pumping crude, sheds symbolic output ceiling
December 4, 2015 | Fuel Fix
Without dramatic production cuts by OPEC, it'll probably take until the end of 2016 for the market to see a rebalance of supply and demand, because of weakening oil-demand growth and the apparent resilience of crude suppliers outside of the 12 OPEC nations, Goldman Sachs said.
OPEC didn't provide an official production ceiling in a communique or a press conference after its semi-annual meeting in Vienna, but said its output would remain around current levels because production cuts wouldn't move the oil market enough.
"The world dynamics have changed," OPEC President Emmanuel Ibe Kachikwu said in a press conference. "We need to look to non-OPEC members to join us in this stability drive."
U.S. benchmark West Texas Intermediate crude ended Friday's trading down $1.11 to $39.97 on the New York Mercantile Exchange.
Abandoning an official output ceiling effectively codifies what OPEC has already done for the past year: ignore its previous target of 30 million barrels a day. The group of 12 oil exporters produced 31.38 million barrels a day in October, up by more than 1.3 million barrels a day since last year.
OPEC said it would decide on an official production number at its next gathering in June, after it monitors the market amid a return to higher production levels by Iran sometime after western powers lift economic sanctions against the Islamic Republic.
"We need to see what Iran brings to the market. We felt comfortable that we just need to wait and watch at this time," Kachikwu said.
When asked about negotiations between the Saudi Arabia-led cartel and OPEC outsiders including Russia to jointly reduce crude production, Kachikwu said the group's first impressions were "50-50." "There have been signs of cooperation, signs of reluctance," he said.
OPEC Secretary General Abdallah Salem el-Badri said that after meeting with nations outside of OPEC to gauge whether others would be willing to cut production alongside OPEC, the group "had a positive reply, but everyone is trying to digest how they can do it."
Over time, though, OPEC expects outsiders will be able to figure out how much they can contribute to a joint cut, he said.
Earlier in the day, crude prices had fallen amid reports OPEC would raise its daily output ceiling by 1.5 million barrels to 31.5 million barrels, a move traders interpreted to mean OPEC would put more oil on the market and worsen a global oversupply. Analysts speculated the group was making room for incoming member Indonesia.
Indonesia, which produced an estimated 789,000 barrels a day last year and has 3.7 billion barrels in reserve, originally joined OPEC in 1962 and left the group in 2009. Its return became official on Friday.
Iran expects to put at least 500,000 barrels a day back into international markets next year after international sanctions are lifted.
[Dec 06, 2015] With allies like Turkey, who needs enemies
Notable quotes:
"... Turkey and the U.S. State Department scoffed when Russia accused the Turkish government of being involved with smuggling ISIS oil. However, after Moscow presented convincing proof of Turkey's involvement, the Obama Administration changed its story. ..."
"... "If the American colleagues are not satisfied with those ones, they should watch videos gained by their own UAVs," the Russian Defense Ministry said on Facebook. ..."
"... The ever-changing political spin in Washington to avoid admitting the obvious looks increasingly dishonest. ..."
"... The deal regarding the base was signed between Kurdistan Regional Government (KRG) President Massoud Barzani and Turkish Foreign Minister Feridun Sinirlioğlu, during the latter's visit to northern Iraq on Nov. 4. ..."
www.dailykos.com
Turkey has sent 2,000 troops into Iraq without getting permission from Baghdad.
The Iraqi government has demanded they withdraw, calling it a "hostile act", but Ankara has decided to ignore Baghdad's wishes.
This is only the latest act that undermines the wisdom of having Turkey as a military ally.
Turkey and the U.S. State Department scoffed when Russia accused the Turkish government of being involved with smuggling ISIS oil. However, after Moscow presented convincing proof of Turkey's involvement, the Obama Administration changed its story.
While the US has long hyped the problem of ISIS oil smuggling, the recent Russian Defense Ministry presentation, showing significant evidence of Turkey being involved in buying ISIS oil and taking it to refineries run by the Turkish government, has changed their tune.
After a previous denial of the allegation against Turkey, the US is now admitting that the oil is ending up smuggled into Turkey, but insists it is "of no significance" because so much of the oil produced in ISIS-controlled parts of Syria is consumed inside Syria.
"The amount of oil being smuggled is extremely low and has decreased over time," claimed US special envoy Amos Hochstein, a stunning admission which suggests the US was well aware of oil smuggling into Turkey even before the Russian evidence.Just in case we don't want to believe the Russian videos, Moscow has a solution.
"If the American colleagues are not satisfied with those ones, they should watch videos gained by their own UAVs," the Russian Defense Ministry said on Facebook.
The ever-changing political spin in Washington to avoid admitting the obvious looks increasingly dishonest.
With the U.S. government knowing about Turkey's government involvement (Russia's photos show ISIS oil smuggling trucks passing through border crossings without stopping), it begs the question of what our objectives actually are?
gjohnsit
mookinsShould Mosul be cleared of the Islamic State the Turkish heavy weapons will make it possible for Turkey to claim the city unless the Iraqi government will use all its power to fight that claim. Should the city stay in the hands of the Islamic State Turkey will make a deal with it and act as its protector. It will benefit from the oil around Mosul which will be transferred through north Iraq to Turkey and from there sold on the world markets. In short: This is an effort to seize Iraq's northern oil fields.
That is the plan but it is a risky one. Turkey did not ask for permission to invade Iraq and did not inform the Iraqi government.
The Turks claim that they were invited by the Kurds:
Turkey will have a permanent military base in the Bashiqa region of Mosul as the Turkish forces in the region training the Peshmerga forces have been reinforced, Hürriyet reported.
The deal regarding the base was signed between Kurdistan Regional Government (KRG) President Massoud Barzani and Turkish Foreign Minister Feridun Sinirlioğlu, during the latter's visit to northern Iraq on Nov. 4.
There are two problems with this. First: Massoud Barzani is no longer president of the KRG. His mandate ran out and the parliament refused to prolong it. Second: Mosul and its Bashiqa area are not part of the KRG. Barzani making a deal about it is like him making a deal about Paris.
Al-masdar news-feed-thing had guncam footage of a night attack, by frogfoots with their cannons, on an ISIS truck park. Magnified view at first so you could see they were full-sized like semi's; and no casual agglomeration, these were parked efficiently in a herringbone pattern, at least 400 and I think closer to a thousand. At the film's end the whole thing is just large, neat rectangles of brightness.
So little did ISIS have to fear from an American-coalition airstrike that they had it set up like this. And now these White House statements that it was no big deal.
And Europe sees all this on the news, the ISIS we didn't fight, the flood of refugees that resulted, and sees Russia and Iran being the good guys.
I read where Putin was worried, called Merkel and Hollande to see if they were still on board with 'Minsk 2', the current ceasefire agreement in Ukraine, and they said yes they were. He was worried because Ukraine's President had said he rejected it and the U.S. had said we support that, we reject it too.
We've lost Europe. World getting better fast.
MrWebster, Dec 06 · 04:28:32 PM
Your observations are right on, but only if you assume that thee enemy is IS and Al Queda in Syria. At this point, I don't believe it is. Assad/Russians are perceived as the bigger and more important enemy for the Obama administration and the neocons to focus on. In this case, what Turkey is doing is acceptable-they are enabling opposition forces to Assad/Russians. Heck, when the Russians started bombing, the Al Nusrat Front (Al Queda in Syria) was magically transformed by the administration and the mass media into "rebels", "moderate rebels", "insurgents", "opposition".
native -> MrWebster
I wonder who gets to claim Mosel, after all the dust settles? Abadi seems to have lost all control over his nominal countrymen in the north. But will the Iraqi Kurds side with Turkey, and against their brethren just across the border?
[Dec 06, 2015] US elite strategy toward Russia is replica of UK strategy a century before
Notable quotes:
"... The relationship between Russia and Western Europe's far right may be a marriage of convenience... ..."
"... Closer ties with rising political parties in the EU will give Putin more leverage against NATO. For its part, the European right sees the Russian leader as a staunch defender of national sovereignty and conservative values who has challenged US influence ..."
russia-insider.com
YoringeTBE -> merchantsofmenaceThe relationship between Russia and Western Europe's far right may be a marriage of convenience...
Closer ties with rising political parties in the EU will give Putin more leverage against NATO. For its part, the European right sees the Russian leader as a staunch defender of national sovereignty and conservative values who has challenged US influence...
https://medium.com/the-eastern-project/greece-s-nazi-problem-continues-5b92ca57dc6d#.kfiaixvdm 1
russia-insider.comGeorge Friedman, Founder and Chairman of Stratfor, or what is called by many "private/shadow CIA" for its well known connections and close cooperation with the CIA, gave a very interesting speech to the Chicago Council of Foreign Affairs on subject Europe: Destined for Conflict? in February of this year.
[Dec 06, 2015] Karr Ingham Oil crash "deepest and longest" in history of Texas Petro Index
Fuel Fix
An index measuring the health of the Texas oil industry tumbled again in October for the 11th straight month as producers shut down additional rigs and more of the state's oil and gas workers lost their jobs.
...Statewide oil output appears to have peaked in the middle of 2015, but Texas still cranked out about 7 million barrels more in October than it did during the same period a year ago. This flood of oil is filling the nation's storage tanks and helping contribute to a global glut that has kept prices depressed.
[Dec 06, 2015] Soon shale guys will be all dressed up but nowhere to go as sweep spots are all gone
Notable quotes:
"... When the price was $100 oil companies always drill first "sweet" spots and gradually move away further to the less desirable spots. Then when price was $40 shale guys continued to drill the "sweet spot" even harder because interest payments are always singing "Tic-Toc" song and you have to feed the bankers on timely basis. Now, how long the price will stay this low? Who knows? But when the price gradually turns around there will be no more sweets spots left for shale guys. Shale guys will be all dressed up but nowhere to go. ..."
"... Geology is exactly what Jean Laherrere leads to predict a slowdown in Bakken. So, even if there would be no pressure from financial markets, production in the Bakken should go down considerably due to geology. This should be a good reason for companies to keep the powder dry, reduce production now and restart again when prices are higher. ..."
peakoilbarrel.com
Ves, 12/06/2015 at 9:35 am" because unlike houses or internet stocks, oil is still used and bought during economical crisis, just a little less and at a lower price."Heinrich Leopold, 12/06/2015 at 3:20 pmBut shale story is little bit different then houses and internet stocks with inconvenient thing for bankers and that is a geology. When the price was $100 oil companies always drill first "sweet" spots and gradually move away further to the less desirable spots. Then when price was $40 shale guys continued to drill the "sweet spot" even harder because interest payments are always singing "Tic-Toc" song and you have to feed the bankers on timely basis. Now, how long the price will stay this low? Who knows? But when the price gradually turns around there will be no more sweets spots left for shale guys. Shale guys will be all dressed up but nowhere to go.
As with OPEC "no cut" decision that it was very obvious to me that will happen, this is also very obvious once you tune out from daily bombardment of useless and misleading analysis from MSM financial news.
Ves,
Geology is exactly what Jean Laherrere leads to predict a slowdown in Bakken. So, even if there would be no pressure from financial markets, production in the Bakken should go down considerably due to geology. This should be a good reason for companies to keep the powder dry, reduce production now and restart again when prices are higher.
[Dec 06, 2015] Looks like shale junk bonds bubble is ready to burst over next several months
Notable quotes:
"... There has been a huge crash of the share price of Rice Energy – the posterchild of Utica – this week (down 12 %), which indicates that something is deeply wrong in this sector and shale companies simply are not economical at these prices. ..."
"... As in previous bubbles, there is still widespread denial – even from the central bank. Over the next few months, it will be interesting to see how far this develops. An interest rise will certainly worsen the situation. ..."
"... I agree that the production curves for US tight oil look too optimistic. To sustain production you have to drill more and more wells and that is incompatible with less and less rigs and less and less money. ..."
peakoilbarrel.com
Heinrich Leopold, 12/06/2015 at 6:59 am
R Walter,There is increasing evidence that the shale bubble bursts (see below chart). In my view this is not only the case for Bakken, yet also for Eagle Ford, Marcellus and Utica. There has been a huge crash of the share price of Rice Energy – the posterchild of Utica – this week (down 12 %), which indicates that something is deeply wrong in this sector and shale companies simply are not economical at these prices.
As in previous bubbles, there is still widespread denial – even from the central bank. Over the next few months, it will be interesting to see how far this develops. An interest rise will certainly worsen the situation.
Javier, 12/06/2015 at 7:31 am
Undeniable, but the question is how that is going to affect production, because unlike houses or internet stocks, oil is still used and bought during economical crisis, just a little less and at a lower price.
I agree that the production curves for US tight oil look too optimistic. To sustain production you have to drill more and more wells and that is incompatible with less and less rigs and less and less money. Rune's estimates look more realistic.
A future scenario where oil production becomes constrained in the midst of a global economic malaise looks to me as the perfect storm.
[Dec 06, 2015] TPH Canceled projects could draw down 19 million daily oil barrels
Fuel Fix
...oil companies have scuttled plans for scores of costly energy projects in an industry-wide retreat that could wipe out 19 million barrels from the world's daily regimen of hydrocarbons over the next few years, a new report says.
...Analysts had expected U.S. oil production, which is down by 500,000 barrels from its peak in April, to drop more rapidly than it has this year and help crude prices recover quickly from multi-year lows.
...The U.S. Energy Information Administration believes the harvest of liquid fuels in non-OPEC countries like Russia and the United States is going to sink in the fourth quarter of 2015, the first absolute decline since mid-2011. Non-OPEC production growth is expected to sink by 520,000 barrels a day - its lowest point next year - in the first quarter of 2016.
...The International Energy Agency estimates it costs $95 to $114 a barrel to pull up a barrel of Canadian oil sands and $59 to $90 a barrel in the U.S. shale plays. Deep-water projects cost $60 to $75 a barrel in West Africa and $38 to $65 a barrel in Brazil. Meanwhile, Saudi Arabia and Iraq can pump oil for $9 to $14 a barrel. Both OPEC countries have pumped record amounts of crude this year.
...BP and Chevron have deferred the largest number of projects while Exxon Mobil Corp. could delay the most oil barrels, about 2.5 million barrels a day of production capacity from 25 projects. That's about two thirds the amount the Irving oil giant currently produces. Royal Dutch Shell is next, deferring 1.7 million barrels of oil a day, but its deal to buy BG Group this year has alleviated many of the growth issues it might face in coming years. BG Group has a big stake in Brazil's deep-water fields.
[Dec 06, 2015] More Planes Than Targets Why the Air War on ISIS Will Fail
www.counterpunch.org
Even if Britain's role is symbolic at this stage, it has joined a very real war against an enemy of great ferocity and experience, not least of air attacks. The highly informed Turkish military analystMetin Gurcan, writing on Al-Monitor website, says that air strikes may have been effective against Isis communications and training facilities, but adds that "it is extraordinary that there is not a single [Isis] control facility that has been hit by allied air strikes".This is not for lack of trying and shows that talk of destroying Isis command and control centres in Raqqa is wishful thinking, given that 2,934 American air strikes in Syria have failed to do so over the last 14 months.
Air strikes have had an impact on Isis's tactics and casualty rate, above all when they are used in close co-operation with a well-organised ground force like the Syrian Kurdish People's Protection Units (YPG). Isis may have lost as many as 2,200 fighters at Kobani which is a small and closely packed city. On the other hand, the length of time it took to drive Isis out of it with 700 air strikes demonstrated their fighters' willingness to die.
Many Isis commanders reportedly regard their tactics at Kobani as a mistake which cost the group too many casualties and which it should not repeat. To do so it sacrificed two of its most important military assets which are mobility and surprise. This does not mean that it will not fight to the last bullet for cities like Raqqa and Mosul, but it did not do so for Tikrit and Sinjar where it used snipers, booby traps and IEDs, but did not commit large detachments of troops.
Isis has modified its tactics to take account of the continuing risk of air strikes. It now has a decentralised command structure, with tactical decisions being taken by leaders of small units of eight to 10 men, whose overall mission is determined from the centre – but not how it should be accomplished. This limits the ability of its opponents to monitor its communications.
Its forces assemble swiftly and attack soon afterwards with multiple diversionary operations, as was seen when Mosul was captured in June 2014 and again when they took Ramadi, the capital of Anbar province, this May.
They had been fighting their way into Baiji refinery, but this turned out to be a diversion and Isis units pulled back from there as soon as Ramadi fell.
Isis's approach is to use a mixture of conventional, guerrilla and terrorist tactics, none unique in themselves, but they have never been used before in combination. Air strikes mean that it is less able to use captured tanks or big concentrations of vehicles packed with fighters. Instead it uses IEDs, booby traps, snipers and mortar teams in even greater numbers.
Public martyrdom as an expression of religious faith is such a central part of its ideology that it can deploy suicide bombers on foot or in vehicles in great numbers to destroy fortifications and demoralize the enemy. Some 28 suicide bombers were reportedly used in the final stages of the battle for Ramadi. Psychological warfare has always been an important element of Isis's tactical armory. It has sought to terrify opposition forces by showing videos in which captured Iraqi or Syrian soldiers are filmed being ritually decapitated or shot in the head.
Sometimes, the families of Syrian soldiers get a phone call from their son's mobile with a picture of his body with his severed head on his chest. Mass killings of prisoners have taken place after all Isis's victories (the al-Qaeda affiliate, al-Nusra Front, does the same thing).
Heavy air attack will increase Isis's losses and it will be more difficult to bring in foreign volunteers through Turkey because most of the border is now closed. But Isis rules an area with a population of at least six million and conscripts all young men, who often want to become fighters because there is no other employment. Isis may have a fighting force of 100,000 men, as is strongly suggested by the very long front lines it holds and its ability to make multiple attacks simultaneously. Whatever Britain's role, we will be fighting a formidable military machine.
[Dec 06, 2015] If I had money to gamble, I would invest some if it in oil futures
peakoilbarrel.com
oldfarmermac, 12/04/2015 at 10:23 pmI for one am not buying the oil stays cheap long term meme.Anon, 12/04/2015 at 10:44 pmThis is after all a peak oil site, and I do believe in depletion and all that sort of thing- although I must admit I thought oil production would peak some years ago. Of course at that time I didn't think things all the way thru, just being focused on the peak and an associated collapse.
Over the last ten or fifteen years, we have seen the price of oil go up about five times, before crashing back to double or so the price then. Five times the price did eventually – after a decade- bring on enough new production to glut the market.
But given geological constraints, I doubt even two hundred dollars would be enough to result in production coming even close to doubling again. Two hundred dollars might get us a few more million barrels a day for a few more years.
A lot of us seem to think supply is going to hold up better than consumption, keeping prices low.
I am thinking that supply may decline EVEN FASTER than the economy, in the event that the world wide economy actually DOES go into a long ,slow, more or less permanent decline. In that case , oil could go up quite a bit even as we all go broke.
So far as the economy EVENTUALLY going belly up is concerned, I am SURE this is in the cards. But I am NOT sure WHEN.
Maybe Old Man Business As Usual has a few more good years left in him, barring accident. Personally I think the odds are pretty good he does. The economy might not fall apart for another ten or fifteen years or maybe even longer.
If the economy declines at one percent, and oil production declines at two percent, we may see the price going up, more or less steadily, this being possible because increasing efficiency will allow us to pay higher prices even as our incomes decline.
Increasing the efficency of use of oil a couple of percent a year is doable.
But I don't think there is any serious possibility we can transition AWAY from oil on the grand scale anytime soon. We aren't likely to build pure electric and plug in hybrid cars fast enough to significantly reduce oil consumption within the next decade.
We gotta have it, and when you gotta have it, you cut back on something else less important to get it.
If I had money to gamble, I would invest some if it in oil futures.
So they have a pretty swift decline starting in 2015 – with positive assumptions about US LTO, Iraq (very!) and Russia.Anonymous, 12/05/2015 at 5:41 amThat doesn't look very nice if you drop those assumptions down to (1) US LTO can't retake its peak coming off a crash for logistical reasons, (2) Iraq will be lucky to break 5 million, let alone 7 between all their problems, and (3) Russia will have a shark fin peak due to how they've kept production up.
Merry Christmas…
The decline really isn't that fast – 1.5% per year average to 2020 and 1% per year to 2025. If the natural decline rate is 4%, which is about the average from IEA etc., then there is a lot of new production that needs to be brought on-line to fill the gap. Given how much budgets have been cut over the last two years it's unclear to me where that would be coming from at least before 2020 and even after if the prices stay as low as indicated through 2021. The charts seem to indicate big rises in Brazil (PetroBras has junk bond status and the country is in deep depression, it will be interesting to see whether the olympics hold up), Saudi later (but their recent development announcements have concentrated on gas and solar to replace local in use), Iraq (has recently told the oil companies there to slow down and is currently being invaded from various sides). Saudi, Iran and Iraq might be only one really bad world wheat harvest away from going down the Syria or Libya route; Nigeria, Venezuela and Angola might be edging to full blown breakdowns as well. I think Russia and maybe USA again might surprise on the upside though.Jeffrey J. Brown, 12/05/2015 at 7:25 am
And then there are the mathematical certainties inherent in what I call Net Export Math. I assume that the analysts that prepared the production forecast didn't address Net Export Math, but here are the mathematical facts of life regarding net exports:Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.
In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE*, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.
For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).
And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 million bpd in 2005 to 8.4 million bpd in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.
*GNE = Global Net Exports of oil, combined net exports from (2005) Top 33 net oil exporters, total petroleum liquids + other liquids (EIA)
[Dec 06, 2015] I expect the US total (C+C) to be in general decline starting in 2015
peakoilbarrel.com
Rune Likvern, 12/05/2015 at 2:04 pm
Ron, thanks for your work.FWIIW
- I expect the US total (C+C) to be in general decline starting in 2015.
- The regrowth with a projected start in 2018 for Western Europe Crude (primarily the North Sea) appears strange and I suspect the 2019 figures is very much influenced by Johan Sverdrup, which now is scheduled to start to flow late 2019 and reach plateau some time after that. North Sea is in general decline.
- Norway will have a YoY growth of about 4% in 2015, but most expect crude to decline. There may be some future uptick, but the magnitude is not supported by present sanctioned developments.
- The OPEC forecast looks strange with the huge build starting in 2021.
- Looking at World C+C (allowing for some adjustments for NGLs) that is very at odds with Dennis Coyne's predictions.
Rune Likvern, 12/05/2015 at 5:56 pm
To me the best approach has been and is a bottom up analysis of every single oil producing country/region.(I did this [with BP, World Oil, EIA data] some years ago, never published the results. [Also several others like Campbell, Statoil using IHS data])
This analysis should take into consideration estimates of recoverable reserves at some year end, Reserves to Production ratio (using the same base year) [R/P], discoveries and the likelihood of future discoveries.
Further, it should split it into conventional oil, oil sands, heavy oil, tight oil and others as deemed necessary.
Then some price assumptions should be applied, allowing due consideration to the health of the balance sheets for (as far that is possible) for the major oil companies (both private and state operated).
I suspect the results would very much take the shape of what was presented in one of Ron's charts.
The further the analysis spans the wider the span of uncertainty becomes, but it should be possible to arrive at a good projection for the next 10 years.
[Dec 06, 2015] I would expect the January Venezuela production to be about 2.0 mmbopd.
peakoilbarrel.com
Fernando Leanme, 12/05/2015 at 2:59 pm
Venezuela update: elections tomorrow. Part of the country has Internet cut off. I just read an interesting item: the regime apparently will try to cheat, but the poll results show a 30 % opposition advantage. The regime has a cheating structure in place to cut the implied 65-35 defeat to a 55-45 "win" they get by gerrymandering the districts. Thus they achieve a majority of seats in spite of losing by 10 %.However, if their cheating is blocked, and the opposition gets a 60-40 win, they do get a bare majority, and do elect the National Assembly president. Plan B involves ignoring the assembly and having Maduro rule with communes. Problem is the clique in power is divided. And the communes may also end up being opposed to the regime. A move to communes and ignoring the National Assembly means a coup. So at that point the country will be in complete chaos.
I know enough about what goes on inside pdvsa to expect significant sabotage carried out by playing stupid. Right now the pdvsa management is red. But those reds are incompetent hacks. The heavy lifting is being done by 30 to 35 year olds who are mostly opposed to the regime. And all they gave to do is act stupid. I expect pressure vessels to explode, wells to stop producing because somebody shot holes in the wrong place, etc. so I would expect the January Venezuela production to be about 2.0 mmbopd.
oldfarmermac, 12/05/2015 at 6:19 pm
I just copied this from a longer piece at the Huffington Post. It was written by a former high ranking Maduro government official.xxxxx
"Nicolas Maduro, Venezuela's president, recently announced that if the opposition were to gain a majority in the National Assembly in elections this Sunday, "We would not give up the revolution and … we would govern with the people in a civil-military union." To ensure that no one would accuse him of not being a true democrat, he clarified that "we would do this with the constitution in hand." The president conveniently ignored the small detail that the constitution does not have any provision for a "civil-military" government, nor does it give the government the option of disregarding the outcome of an election. What Maduro did stress however was that "if the revolution fails, there will be a massacre"–a threat he has repeatedly made throughout the campaign. He usually follows such threats with reassurances that this violence will not ensue, as it is impossible for opposition candidates to win enough votes for a legislative majority, which Maduro's party has enjoyed for the past 17 years. "
xxxx
This piece goes on into some considerable detail and is well worth the time to read it.
http://www.huffingtonpost.com/moises-naim/the-story-behind-venezuelan-elections_b_8728902.html
I suppose the outcome of the brewing revolution in Venezuela could mean as much as a couple of million barrels of oil a day, either way, on world markets, within the next few years.
[Dec 06, 2015] Lybia present output quoted 380K bpd. Pre-upheaval output looks like about 2 mbpd
peakoilbarrel.com
Watcher, 12/05/2015 at 3:30 pm
Libya's warring factions are very close to a deal on forming a unity government and could sign a long-awaited accord in a month, the new U.N. envoy said.Western governments are pushing for the U.N.-backed agreement as the only way to end the chaos in Libya, where two rival governments and their armed factions are struggling for control.
Present output quoted 380K bpd. Pre-upheaval output looks like about 2 mbpd.
FYI the official recognized govt operates out of eastern Libya, having been driven out of Tripoli.
Greenbub, 12/05/2015 at 6:05 pm
Does that accord include ISIS?
[Dec 05, 2015] Oil Forecast From a Reputable Firm
Wildly different set of predictions:
Notable quotes:
"... Oil price drops only slightly next year then rises in 2017 and 2018. Then it levels out for about 5 years before rising sharply in 2024 and 2025. My guess, and it is just my guess, is that the world begins to realize that oil production will never rise again. ..."
"... Emad Mostaque has had a profound change of heart on oil prices. The analyst with London-based consultancy Ecstrat says US$130 per barrel crude could be less than a year away for the European benchmark as lower prices drive demand in both emerging and developed markets, while a weakening stream of capex dollars constrains new exploration and production. ..."
"... Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer. ..."
"... There are two possible scenarios for future oil prices if peak oil takes place (as I believe). – Permanent low prices due to depressed demand as the economy stops functioning in growing mode. This is Gail Tverberg's view. – High volatility scenario with big price swings as mismatches in production and demand take place due to alternate production destruction and demand destruction cycles in an economy that is contracting in bouts. This is my predicted scenario. ..."
"... A scenario where prices take off to sky-high levels due to scarcity is not only unrealistic but lacks understanding of an economy response to a spike in a major energy source prices, when we have already been through that. ..."
"... Just think, we're a biological weapon. Wreck a whole planet in 2500 years, awesome. I suppose its part of God's plan but it does makes you wonder what His ultimate goal is: perhaps algal mats? They were popular from about 3,500 million years ago and have been an important member and maintainer of the planet's ecosystems for a long time. Yup, that's what I recon. We've been put here to prepare for the return of algal mats. ..."
"... Japan is paying $37.33 per barrel today. It is basically free oil for them at that price. ..."
"... The price has to rise above 85 USD before 2017, time is running out, 2019 -2022 can't stay stuck on 80 USD. Somebody put God in charge of these markets, someone who can make a difference. The market is not being very kind and is more worry than work. ..."
"... My wild burro guess is oil goes above 100 before the end of next year. Soon after the US elections. ..."
Dec 04, 2015 | peakoilbarrel.com
Oil price drops only slightly next year then rises in 2017 and 2018. Then it levels out for about 5 years before rising sharply in 2024 and 2025. My guess, and it is just my guess, is that the world begins to realize that oil production will never rise again.
Fernando Leanme, 12/05/2015 at 4:08 am
Huckleberry Finn, 12/04/2015 at 3:11 pmI realize it's a freebie, but I tend to look at these forecasts as just another item for the bug collection unless they show the NGL and the heavies separated.
As you know, I worked in Venezuela, and we relied a lot on Canadian know how, consultants, etc. Late I moved on to consult in Canada (very short term jobs), so I have a grasp of both. And my impression is that many forecasters don't gave the full system in mind. Heavy oil requires a lot of planning, takes forever to develop, and it doesn't have the same product yields unless the upgraders and/or refineries are set up to handle it.
This leads me to recommend the Venezuelan and Canadian crudes lower than say 10 degrees API be handled separately. When this is done several hundred billion barrels listed as "reserves" in these estimates is taken away from the total oil pool. The result stretches out the profile, reduces the peak, and also lowers CO2 emissions.
I suppose they may be reading this, if so maybe they'll comment on how they handle these crude streams.
Did they predict the decline in 2014-2015 in prices….then maybe it is worth the price.
Ron Patterson, 12/04/2015 at 3:21 pm
I have no idea. The document I received was the first document I have seen from this firm. But I doubt anyone predicted the 2014-2015 price collapse.
Allan Stromfeldt Christensen, 12/04/2015 at 4:21 pm
"But I doubt anyone predicted the 2014-2015 price collapse."
What about Steve Ludlum's "Triangle of Doom"?
Two older posts:
http://www.economic-undertow.com/2014/10/08/petroleumeconomic-endgame
http://www.economic-undertow.com/2014/12/10/oil-shockA more recent post:
http://www.economic-undertow.com/2015/07/03/euro-margin-call
BW Hill, 12/05/2015 at 7:27 pm
We stated our position in May of 2014, and put up this page in September.
The date is on the second graph:oldfarmermac, 12/04/2015 at 9:15 pm
Most of the time in matters of business and technology it doesn't really matter who is in control in Washington.
Democrats are little tougher with businesses when environmental considerations are at stake.
But both parties are in the vest pocket of the big banks and otherwise too big to fail businesses.
So far as tight oil is concerned, it is imo impossible to make a case for either party taking credit.
Democrats are not nearly as anti business as the republicans like to pretend. They do however play favorites with DIFFERENT businesses.
So far as the oil industry is concerned, with the exception of the Arctic Refuge and some off shore up the east coast is concerned, the dim rats have pretty much allowed to industry to do to suit itself.
Republicans would have us believe differently of course. The facts are otherwise.
The real opposition to off shore drilling on the east coast has come from the PEOPLE who own businesses and property worth megabucks up and down the coast. Half of them , more or less, are republicans, probably more. Nobody wants his view spoiled , or his high rise waterfront hotel sitting empty due to an oil spill.
Most of the opposition to offshore up Martha's Vineyard way etc in the northeast is coming from super wealthy democrats who don't want THEIR views spoiled either.
LOL.
shallow sand, 12/05/2015 at 10:14 am
OFM. The states regulate drilling on private lands. Therefore, it is no surprise to me that TX and ND had a drilling boom while NY and CA did not.
Admittedly, however, the geology matters much, much more.
oldfarmermac, 12/05/2015 at 1:21 pm
Precisely. The decisions when it comes to oil are mostly NOT made in Washington.
Jeffrey J. Brown, 12/04/2015 at 8:10 pm
Someone posted this link a few days ago:
Oil could hit US$130 as U.S. output 'falls off a cliff': Analyst
http://www.bnn.ca/News/2015/11/10/Oil-could-hit-US130-as-US-output-falls-off-a-cliff-says-analyst.aspx
Emad Mostaque has had a profound change of heart on oil prices. The analyst with London-based consultancy Ecstrat says US$130 per barrel crude could be less than a year away for the European benchmark as lower prices drive demand in both emerging and developed markets, while a weakening stream of capex dollars constrains new exploration and production."What we are seeing is supply is about to roll over dramatically. Demand is continuing to rise," he said an in interview with BNN.
Unlike many analysts, he says U.S. shale production is set to decline, and as such won't provide the necessary stop-gap to supply the increasing appetite in world markets.
"U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off," said Mostaque. He says the notion that shale producers can suddenly boost their output as needed is a common misconception.
The controversial call pushes against bearish sentiment from Wall Street titans like Goldman Sachs. The investment bank's head of commodities research, Jeff Currie, said last month that he does not see the price of oil breaking above US$50 a barrel in the next year.
Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer. He raised concerns about the commodity's price stability before oil started its dramatic decline in 2014.
Now he's calling prices to rally as four to five million barrels disappear from global markets over the next four to five years, and throwing cold water on many of the scenarios where inventories remain oversupplied long-term.
Mostaque says the lack of capital means the estimated $30 to $40-billion annual price tag to ramp up Iranian oil most likely isn't in the cards.
"What we think is happening right now is we've seen mass definancialization of the market, with Brent in particular. All of these massive funds have exited because they lost huge amounts of money," he said.
And a link to my comments, following this article:
http://peakoilbarrel.com/open-thread/comment-page-1/#comment-548711
BC, 12/04/2015 at 8:51 pm
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2Ln6
https://www.youtube.com/watch?v=LRwsVWQPD-U
Jeffrey and all, Tejas and the awl bidness are unequivocally in recession as of spring-summer this year. Tejas ain't fixin' to go into recession, y'all are already in recession.
https://app.box.com/s/7gj0j7fvydrj4du8rihdorbr4pkgvybv
There is a technical target projection for WTI in the mid- to upper $20s by winter/spring 2016.
The oil/commodity cycle has turned negative as in 1986 and the early 1960s, implying WTI in the $20s-$30s in the years ahead and US oil production at 5-6Mbd.
But rather than the cycle turning negative with low debt, reflationary prospects, and demographic tailwinds, we're facing a deflationary cycle with record debt to wages and GDP, fiscal constraints, and peak Boomer demographic headwinds for the foreseeable future, and the trend for global real GDP per capita of ~0% vs. 2.1-2.5%.
Any jobs available at Dairy Queen these days, Jeffrey? I'm gonna to need some gas, food, and hooch money to finance my car camping and drivin' (parkin'?) while blind.
Jeffrey J. Brown, 12/05/2015 at 7:35 am
Excerpt from article linked above:
Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer.
It looks like the annual average Brent price for 2015, through November, was about $54.
BC, 12/05/2015 at 6:42 pm
The price of oil is at the same average price during the mid-1980s (reflationary, debt-induced, Long Wave Downwave) and the early 1870s (onset of the Victorian Depression, Second Industrial Revolution, and effectively the Oil Age Epoch that is now ending):
https://app.box.com/s/ejyjgfb5bsaupghi425y2vjlfl9um7hf
Javier, 12/04/2015 at 3:20 pm
They might get production more or less right, but I seriously doubt they get price right.
There are two possible scenarios for future oil prices if peak oil takes place (as I believe).
– Permanent low prices due to depressed demand as the economy stops functioning in growing mode. This is Gail Tverberg's view.
– High volatility scenario with big price swings as mismatches in production and demand take place due to alternate production destruction and demand destruction cycles in an economy that is contracting in bouts. This is my predicted scenario.
A scenario where prices take off to sky-high levels due to scarcity is not only unrealistic but lacks understanding of an economy response to a spike in a major energy source prices, when we have already been through that.
Arceus, 12/05/2015 at 1:11 pm
Their oil prices look fine to me, BUT this assumes a significantly weaker dollar. I believe this has a good chance of happening but it is far from certain. Yellen and company will do everything they can to keep the dollar strong.
Javier, 12/04/2015 at 3:35 pm
World population
5 minute video showing over a world map how population has evolved in the last 2000 years and to 2050. Looks to me like a disease spreading and taking over. I found it interesting.
Doug Leighton, 12/04/2015 at 4:33 pm
Just think, we're a biological weapon. Wreck a whole planet in 2500 years, awesome. I suppose its part of God's plan but it does makes you wonder what His ultimate goal is: perhaps algal mats? They were popular from about 3,500 million years ago and have been an important member and maintainer of the planet's ecosystems for a long time. Yup, that's what I recon. We've been put here to prepare for the return of algal mats.
R Walter , 12/04/2015 at 3:45 pm
Japan is paying $37.33 per barrel today. It is basically free oil for them at that price.
The price has to rise above 85 USD before 2017, time is running out, 2019 -2022 can't stay stuck on 80 USD. Somebody put God in charge of these markets, someone who can make a difference. The market is not being very kind and is more worry than work.
My wild burro guess is oil goes above 100 before the end of next year. Soon after the US elections.
Politics and all of that nonchalant jazz is suppressing prices. I know I'm right.
Dennis Coyne , 12/05/2015 at 12:25 pm
Hi BC,
It will not really matter as the national industries will not produce enough so oil will need to be imported and oil prices will rise, eventually natural gas and coal will peak as well and those prices will also rise. If lower prices are "decreed" then there will be shortages. Hopefully policy makers will see the futility of such policies which are only likely to make matters worse. Government intervention is not always a positive solution, on that point I am in full agreement with those on the right.
oldfarmermac, 12/04/2015 at 10:43 pm
Terminally ill patients do occasionally live a good while longer than their physicians think they will.
LTO has not exactly CRASHED, YET, but it sure as hell is not growing like crabgrass in hot wet weather anymore.
I thought the entire industry would slow down a lot faster than it has, but now I understand that the industry is so slow and big and ponderous that it truly is like an ocean liner when it comes to changing directions, or speeding up, or slowing down.
It's like an ocean liner so unimaginably big that takes a couple of YEARS just to slow down, and once slowed, it may take as long or longer to ramp up again.
LTO might ramp up considerably faster since the infrastructure is now in place for the drillers to get right back to work when the price goes up.
Dennis Coyne, 12/05/2015 at 12:28 pm
Hi Old Farmer Mac,
The ship analogy is a good one for big oil, I made the mistake of thinking these smaller companies would behave differently. I wuz wrong. Unfortunately I will also make mistakes in the future.
oldfarmermac, 12/05/2015 at 1:38 pm
Hi Dennis,
My amateur seat of the pants opinion is that the smaller companies have dug in and stubbornly resisted cutting back on production and investment, to the extent they have been ABLE to avoid cutting back, for easily understood reasons.
First off management most likely expected the price of oil to go back up soon and certainly before now.
Second, they are playing what some people call the extend and pretend game, gambling every thing on pulling thru this price crash.
If you are knocking down good money as a manager, at any level, you are going to be very reluctant to do anything that eliminates your OWN job when the entire industry is in the doldrums or worse. Nobody is going to hire you.
Nobody wants to admit they were wrong in making the decisions they made before the price crash, if they can possibly avoid doing so.
If they surrender, they lose out. If they hang tough and make it, they still have nice jobs.
This would even apply to a certain extent to bank managers. If they admit they MADE BIG MISTAKES, they are out on their ass. If they hang tough, they may pull thru and collect most of the money they loaned. If they hang tough for another six months and then get fired, well, they collected another six months salary and bennies.
This comment is intended more to give insight into the way individuals perceive their own interests than otherwise.
Think about the concept "tragedy of the commons" whereby any individual's own best interest is to abuse the commons at the expense of every body else.
There are similar elements in play.
Nick G, 12/04/2015 at 6:10 pm
Prices have currently fallen below the 2016 level in this forecast. If we believe this forecast, then we're at the price bottom right now, this second!
There's a lot of money to be made in going long on oil futures (and EVs)….if we believe this forecast.
Mario, 12/04/2015 at 8:07 pm
There is a bit of a disconnect to me. If production really does significantly contract in the next few years, its unfathomable to me that we don't get a very significant price spike.
I don't believe we will see that level of production contraction this soon.
twocats, 12/04/2015 at 8:31 pm
I agree, isn't the decline going below current consumption? Granted, its not hard to imagine 1) a global economic recession, which could slow, if not reduce, demand, 2) the recession strengthening the dollar, making oil cheap in $ terms. But still if production comes within a million barrels of consumption, it's going to be a factor, right?
Dennis Coyne, 12/05/2015 at 12:51 pm
Hi Twocats,
Good point. Remember there is a fair bit of oil in storage (roughly 300 million barrels above normal levels), so it will take 10 months to bring those levels down (assuming supply falls 1 Mb/d below demand for 300 days). Then either supply increases or demand decreases due to a recession, for a supply increase we would need higher prices, the forecast does predict a rise in oil prices in 2017. The flat part of the price curve does not make sense with declining oil output, I would expect prices to continue to rise as output falls. I usually get the price predictions wrong however.
[Dec 04, 2015] Trends in oil production
Notable quotes:
"... the EIA estimates that U.S. shale oil production will be half a million barrels a day lower in December than it had been in June. ..."
"... And it will fall further. The five biggest pure players among U.S. shale oil producers could be EOG, Pioneer, Devon, Whiting, and Continental Resources. Between them, these companies may account for about a fifth of total U.S. shale oil production, and between them they have lost $25 billion so far in the first three quarters of 2015. ..."
"... Shale and tar oil extraction was always a function of Peak Oil (that is widely believed to be refuted) and was never ecologically or economically sustainable. ..."
"... most inventory has to do with operational reasons and there are some definite constraints on how low/high it can get. ..."
"... Much actually depends on the ability to hedge oil production by the producers; given that the speculators are running out of collateral, the producers will not be able to hedge their output the way they have been able to do in the past. ..."
"... They can hedge but it only protects them from dropping below the current price and strip. Which is already a pain point. ..."
"... So, when we ask for the price of oil, we get the price of actual crude oil, but when we ask for the volume of oil, we get some combination of crude oil + condensate + natural gas liquids (NGL) + biofuels + refinery gains. ..."
"... the only reasonable interpretation of the available data is that actual global crude oil production (45 API and lower gravity crude oil) has been approximately flat to down since 2005, while global natural gas production and associated liquids, Condensate Natural Gas Liquids (NGL), have (so far) continued to increase. ..."
"... My point is that it seems quite likely that despite trillions of dollars in upstream capex since 2005, we have seen little or no increase in actual global crude oil production, while global natural gas production–and associated liquids–have so far continued to increase. It seems to me that this might be an important point, since it would also be known as Peak Crude Oil, but I seem to be very much in the minority. ..."
"... My argument is that the available data suggest that actual global crude oil production (45 and lower API gravity crude oil) has been approximately flat to down since 2005, while global gas production and associated liquids, condensate and natural gas liquids, have (so far) continued to increase, as annual Brent prices increased from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive (remaining at $99 in 2014). ..."
"... Stein's law says oil prices will rise: http://www.reuters.com/article/2015/11/23/oil-prices-kemp-idUSL8N13I37R20151123#wJl5uV2DGFS6XwrZ.99 "If something cannot go on forever, it will stop," according to Herbert Stein, former chief economist to U.S. President Richard Nixon ("What I think: essays on economics, politics and life" 1998). Stein's law is one of the most simple but important statements in economic theory, yet it is remarkable how often it is forgotten. ..."
Econbrowser
Analysis of current economic conditions and policy
World field production of crude oil increased 2.9 million barrels a day in the 12 months ended last July. That compares with a 3.6 mb/d increase over the entire nine years from Jan 2005 to Dec 2013.
- The biggest single factor is Iraq, where production is up almost 1.1 mb/d over the last year. Although ISIS has managed to bring cruelty to much of the rest of the world, so far they have not disrupted Iraqi oil production.
- The second biggest factor in the 2.9 mb/d gain was the United States, where production increased 0.6 mb/d July 2014 to July 2015, thanks to the tremendous success of shale oil, or production based on horizontal fracturing of tight geologic formations.
But that is going to change. The EIA Drilling Productivity Report tabulates detailed summaries of drilling and production in the main U.S. counties that have been responsible for the shale oil revolution. One of the interesting statistics is their calculation of the change in "legacy" production. To get this, the EIA tabulates production in these counties coming from wells that had been in operation for two months or more as of August, and then looks at how much was being produced by these same wells in September. This calculation comes out to be a drop in production of those legacy wells of some 330,000 barrels per day between August and September. The EIA series for the change in legacy production each month is plotted below. If we were relying only on historical wells without drilling new ones, U.S. shale production would fall about a million barrels/day every three months.
Drilling hasn't stopped but it has been cut back significantly.
Production has not fallen as dramatically as many of us has anticipated thanks to remarkable ongoing gains in productivity. Even so, the EIA estimates that U.S. shale oil production will be half a million barrels a day lower in December than it had been in June.
And it will fall further. The five biggest pure players among U.S. shale oil producers could be EOG, Pioneer, Devon, Whiting, and Continental Resources. Between them, these companies may account for about a fifth of total U.S. shale oil production, and between them they have lost $25 billion so far in the first three quarters of 2015.
Eventually this adjustment will bring crude oil inventories back to more normal historical levels. But we're not there yet.
BC, November 22, 2015 at 2:23 pm
Shale and tar oil extraction was always a function of Peak Oil (that is widely believed to be refuted) and was never ecologically or economically sustainable. As a consequence, the bubbles in energy sector junk debt and bank loans to the energy and energy-related transport sectors, including commercial real estate, will collapse and have to be bailed out by trillions more in Fed printing, along with subprime auto and student loans, munis, local and state pensions, and bank and insurers' debt and equity.
... ... ...
The energy states are in recession, but unlike during the previous energy sector bust during a disinflationary/reflationary regime, the incipient bust is occurring during a debt-deflationary regime that will result in an unprecedented consolidation in the energy and industrial sectors, as well as decelerating real GDP per capita forcing mass cross-industry consolidation in health care, tech, hotels/resorts/casinos, restaurants, and further consolidation in financial services, insurance, airlines, trucking, media, energy, etc.
... ... ... ...
Nony, November 22, 2015 at 3:34 pm
1. Crude oil stocks in the US are a little bit of a local peculiarity (export ban, Jones Act, LTO versus complexes coker style refineries, and just geography [Cushing versus Gulf, plus the oceans themselves]). On the world stage what matters is world inventory. The situation there is maybe less tight than in the US.
BTW, I think storage is over-reported because it's more accurate/objective of a metric than most production and consumption estimates (anything other than just price). But most inventory has to do with operational reasons and there are some definite constraints on how low/high it can get. Plus it gets much more complex and large if you really look at the whole supply chain (from DUC wells, to onsite, to pipelines, to ships, to terminals (sometimes more than once), to refinery onsite, to refined products at the refinery, terminals, shipping, and retail. (See the excellent recent article by John Kemp with diagrams).
http://www.reuters.com/article/2015/11/20/oil-storage-kemp-idUSL8N13F2MV20151120#JG2O81y3Q1SsLkfY.97 (diagrams are linked about halfway down).
... ... ...
Procyon Mukherjee, November 23, 2015 at 2:43 am
Much actually depends on the ability to hedge oil production by the producers; given that the speculators are running out of collateral, the producers will not be able to hedge their output the way they have been able to do in the past. Once that settles, there is only one way to go, cut oil output in a big way. That would eventually settle the prices upwards.
But this is likely to be faster given the direction of the interest rates, which also cannot support inventories the way it has done in the past.
Nony, November 23, 2015 at 7:14 am
They can hedge but it only protects them from dropping below the current price and strip. Which is already a pain point.
Plus there is a cost of hedging in margin requirement. Besides CAPM argues that investors can diversify risk themselves more efficiently and that producers should be exposed to the market. Not see peculating via hedges.
Nony, November 23, 2015 at 3:59 am
"Low Crude Prices Catch Up With the U.S. Oil Patch"
http://www.nasdaq.com/article/low-crude-prices-catch-up-with-the-us-oil-patch-20151120-00792 (from the John Kemp daily email of energy stories)
Jeffrey J. Brown, November 23, 2015 at 4:35 am
What the EIA calls "Crude oil" is actually Crude + Condensate (C+C). The most common dividing line between crude and condensate is 45 API gravity. The two principal global crude oil price indexes, Brent & WTI, refer to crude oils with an average API gravity of less than 40 API.
So, when we ask for the price of oil, we get the price of actual crude oil, but when we ask for the volume of oil, we get some combination of crude oil + condensate + natural gas liquids (NGL) + biofuels + refinery gains.
A chart showing API gravity versus sulphur content for 16 global crude oils:
http://i1095.photobucket.com/albums/i475/westexas/APGravityVsSulfurContentforCrudeOils_zpsc28e149c.gifAs I have periodically noted, in my opinion the only reasonable interpretation of the available data is that actual global crude oil production (45 API and lower gravity crude oil) has been approximately flat to down since 2005, while global natural gas production and associated liquids, Condensate & Natural Gas Liquids (NGL), have (so far) continued to increase.
Following are some available annual rate of change data for global production metrics and for OPEC (EIA data). We have crude oil only data for only OPEC and Texas, although the EIA estimates that US condensate production increased by about one million bpd from 2011 to 2014. Incidentally, EIA monthly data (April to September, 2015) indicate that US C+C production declined at an annualized rate of 13%/year.
Regarding US and global C+C inventories, I suspect that we are seeing is a global condensate glut, and I suspect that US refiners, in late 2014, pretty much hit the limit of how much additional condensate that they could take, if they wanted to maintain their distillate output. For example, Reuters had an article earlier in the year documenting case histories of refiners increasingly rejecting "toxic" blends of heavy crude + condensate that were deficient in distillate content.
Global Gas, NGL & C+C 2005 to 2013/2014 Rates of Change
(EIA, 2013 for gas, 2014 for other data)Gas: +2.6%/year
NGL: +2.6%/year
C+C: +0.6%/yearOPEC Gas, NGL & C+C and OPEC Crude Only 2005 to 2013/2014 Rates of Change
(EIA + OPEC, 2013 for gas, 2014 for other data)Gas: +5.1%/year
NGL: +1.3%/year
C+C: +0.2%/year
OPEC Crude Only Data: -0.2%/year
Implied* Condensate: +8%/year*EIA C+C less OPEC Crude Only
Link to more detailed essay & graphs and discussion:
http://peakoilbarrel.com/worldwide-rig-count-dropping-again/comment-page-1/#comment-546170Excerpt:
My point is that it seems quite likely that despite trillions of dollars in upstream capex since 2005, we have seen little or no increase in actual global crude oil production, while global natural gas production–and associated liquids–have so far continued to increase. It seems to me that this might be an important point, since it would also be known as Peak Crude Oil, but I seem to be very much in the minority.
aws, November 24, 2015 at 5:36 pm
Nony,
You get less diesel when you distil EF condensate than you would distilling a true WTI. Diesel does the heavy lifting in our economies. The rich middle has been taken out of the "Oreo" of the crude slate. The Bakken and Eagle Ford LTOs were too light for the gulf coast oil refineries to chew on as they were engineered to digest much heavier crude.
Jeffrey J. Brown, November 25, 2015 at 1:31 am
Liquids over an API gravity of 42 can't be used to satisfy WTI contracts at Cushing (see "Dumbbell" crudes article below, which discusses the problems with synthetic WTI blends of heavy oil and condensate).
But in any case, my argument is not over the relative qualities of actual crude oil versus condensate.
My argument is that the available data suggest that actual global crude oil production (45 and lower API gravity crude oil) has been approximately flat to down since 2005, while global gas production and associated liquids, condensate and natural gas liquids, have (so far) continued to increase, as annual Brent prices increased from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive (remaining at $99 in 2014).
Jeffrey J. Brown, November 23, 2015 at 5:49 am
There have been some downward revisions to preliminary weekly EIA C+C production numbers for the US this year, as the monthly data are released, which I suspect is a pattern that we will see if the US C+C production decline continues. In any case, at the 4/15 to 9/15 annualized rate of decline in US C+C production, it would be down to about 8 million bpd in September, 2016, versus 9.6 million bpd in April, 2015.
Note that when drilling activity slowed considerably in the Haynesville Shale Gas Play, the observed net rate of decline in Louisiana's marketed natural gas production (from both conventional + shale gas sources) was a two year exponential rate of decline of 20%/year from 2012 to 2014. This was the net rate of decline. The gross rate of decline from existing wells in 2012 and 2013 would have been even higher than 20%/year.
In regard to US refineries:
U.S. refiners turn to tanker trucks to avoid 'dumbbell' crudes (March, 2015)
http://www.reuters.com/article/2015/03/23/us-usa-refiners-trucks-analysis-idUSKBN0MJ09520150323In a pressing quest to secure the best possible crude, U.S. refiners are increasingly going straight to the source.
Firms such as Marathon Petroleum Corp and Delek U.S. Holdings are buying up tanker trucks and extending local pipeline networks in order to get more oil directly from the wellhead, seeking to cut back on blended crude cocktails they say can leave a foul aftertaste. . . .
Many executives say that the crude oil blends being created in Cushing are often substandard approximations of West Texas Intermediate (WTI), the longstanding U.S. benchmark familiar to, and favored by, many refiners in the region.
Typical light-sweet WTI crude has an API gravity of about 38 to 40. Condensate, or super-light crude that is abundant in most U.S. shale patches, ranges from 45 to 60 or higher. Western Canadian Select, itself a blend, is about 20.
While the blends of these crudes may technically meet the API gravity ceiling of 42 at Cushing, industry players say the mixes can be inconsistent in makeup and generate less income because the most desirable stuff is often missing.
The blends tend to produce a higher proportion of fuel at two ends of the spectrum: light ends like gasoline, demand for which has dimmed in recent years, and lower-value heavy products like fuel oil and asphalt. What's missing are middle distillates like diesel.
Subject: COLUMN-U.S. crude inventories might be tighter than they look: Kemp (September, 2015)
http://uk.reuters.com/article/2015/09/08/usa-crude-storage-kemp-idUKL5N11E2YE20150908Nony, November 24, 2015 at 4:10 am
Stein's law says oil prices will rise: http://www.reuters.com/article/2015/11/23/oil-prices-kemp-idUSL8N13I37R20151123#wJl5uV2DGFS6XwrZ.99 "If something cannot go on forever, it will stop," according to Herbert Stein, former chief economist to U.S. President Richard Nixon ("What I think: essays on economics, politics and life" 1998). Stein's law is one of the most simple but important statements in economic theory, yet it is remarkable how often it is forgotten.
Stein's law explains why oil prices crashed from the middle of 2014 after spending more than three years over $100 per barrel (http://tmsnrt.rs/1SVIZk9). Most commentators now accept a price of $100 was unsustainable (though at the time there were plenty who predicted prices would remain at that level forever).
High prices were encouraging too much new production, especially from U.S. shale, while causing consumption to fall in the advanced economies and slow in emerging markets. The emerging supply-demand imbalance could only be resolved by a sharp price fall which was triggered in July 2014 after Islamic State fighters failed to seize Kurdistan's oilfields and Libya resumed oil exports. In retrospect, all this is obvious…"
---–
Of course "Stein's Law" is more of a philosophical statement than some statistical correlation. And Kemp goes on to say that one can have over-runs before corrections and no one knows when were a correction will occur. [Further one can think of examples like natural gas prices where the unsustainable does seem to have been sustained and we really have a state change.]
The amount of on-site storage available at refineries has changed little and remains around 150 million barrels, compared with 156 million in 2004 and 164 million in 1994.
But the amount of storage available at tank farms, most of which is leased either long-term or short-term to traders, has surged.
Steven Kopits, November 23, 2015 at 7:22 am
Latest from me on vehicle miles traveled, at CNBC
http://www.cnbc.com/2015/11/23/traffic-is-getting-worse-heres-how-to-trade-it-commentary.html
And the one before it, in which I essentially review the BoE version of Jim's ICE oil price model.
http://www.cnbc.com/2015/11/13/why-oil-could-rally-big-in-2016-commentary.html
[Dec 04, 2015] But It's Just A 0.25% Rate Hike, What's The Big Deal - Here Is The Stunning Answer
Notable quotes:
"... So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S P along with a Treasury market crashing in parallel and no buyers. ..."
Zero Hedge
johngaltfla
Fascinating article Tyler. Because if the math is correct, which I believe it to be or damned close, then the Fed is about to drain several hundred billion dollars from an illiquid credit market leaving no bid at year end.
So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S&P along with a Treasury market crashing in parallel and no buyers.
Shit could get real between the next two Fed meetings, that is for certain.
FireBrander
Bernanke did a little "draining" of his own; and brought down the global financial system...
THEN "SAVED IT", AND HE WAS HAILED AS A FUCKEN HERO!
Yellen my just be trying to secure her spot on the cover of Time for "Saving Us Again".
Fish Gone Bad
In October of 2008 there was a fairly large drain of money and things got scary (https://research.stlouisfed.org/fred2/graph/?chart_type=line&height=600&...[1][id]=MULT&width=1000).
[Dec 04, 2015] Alphachat The US SUV boom, Jamaica's IMF success and a chat with Reihan Salam
Notable quotes:
"... The US is on course this year to post its largest vehicle sales since the start of the 21st century. The surge is being led by the return of the sport utility vehicle, which accounts for a higher market share than ever before. ..."
"... This is where the surge in US car sales comes in. It was common in 2009 to read about the SUV's demise. The petrol-guzzling car was heading for that "great junkyard in the sky," said one analyst. They were too expensive, and too politically incorrect, to survive a recession and an Obama administration. For a while, sales did fall. But in the past 18 months, they have broken all records. The tipping point was falling oil prices. Once a gallon of petrol dropped below $3 last year, consumers reverted to pre-recession tastes. ..."
"... So far this year, SUV sales are up almost a fifth. Some models, such as the Jeep Cherokee, are selling at almost 33 per cent more than in 2014. With the exception of Volkswagen , which is suffering one of the largest vehicle recalls in history, nearly every major US and foreign carmaker is posting record margins. In each case, SUV and light truck sales are leading the growth. Even allowing for the fact that compact SUVs account for a rising share of the sales, and many of them are hybrids, their fuel economy is still lower than the alternatives. Meanwhile, sales of the Toyota Prius have been plummeting. ..."
FT Alphaville
The US SUV boom
Car sales in the US are set to hit a record high this year, led by the resurgence of the sport utility vehicle. And cheap fuel prices have Americans driving more miles. FT correspondents Edward Luce and Robert Wright join Shannon to examine what this tells us about the incentives the government employs to steer people to more fuel-efficient cars, and whether the SUV boom will have any impact on the US position at next week's UN climate summit in Paris. Read Ed's column on the topic here.
Gas-guzzling models are back in vogue in the US, so why should poorer nations cut emissions?
Rumours of the death of American car culture have been greatly exaggerated. The US is on course this year to post its largest vehicle sales since the start of the 21st century. The surge is being led by the return of the sport utility vehicle, which accounts for a higher market share than ever before.
More than one in three US vehicle sales is an SUV. Though discontinued by General Motors, demand for second-hand Hummers is at an 11-year high. With numbers like these, President Barack Obama will have a tough sell in Paris next week. More than all its non-binding pledges, the global warming summit is meant to begin an era of new habits. If Americans won't change theirs, will others follow?
... ... ...
Much has been made of the fact that US carbon emissions are falling. America's total output is lower today than it was in 2005. Partly this is because of stricter fuel efficiency standards. Some of it is also because of the slowdown caused by the Great Recession. Yet it would be wrong to infer it is doing enough. Of the major economies, America's per capita carbon dioxide emissions are the highest and will remain so for some time.
Even if China continues to build new coal plants at its current rate, the average American pumps out three times more carbon every year than the average Chinese and more than 10 times the average Indian. Both China and India have borrowed the American idiom to proclaim their own middle-class dreams. Yet if the US version cannot be reimagined, it will be hard to persuade others to change theirs.
This is where the surge in US car sales comes in. It was common in 2009 to read about the SUV's demise. The petrol-guzzling car was heading for that "great junkyard in the sky," said one analyst. They were too expensive, and too politically incorrect, to survive a recession and an Obama administration. For a while, sales did fall. But in the past 18 months, they have broken all records. The tipping point was falling oil prices. Once a gallon of petrol dropped below $3 last year, consumers reverted to pre-recession tastes.
So far this year, SUV sales are up almost a fifth. Some models, such as the Jeep Cherokee, are selling at almost 33 per cent more than in 2014. With the exception of Volkswagen, which is suffering one of the largest vehicle recalls in history, nearly every major US and foreign carmaker is posting record margins. In each case, SUV and light truck sales are leading the growth. Even allowing for the fact that compact SUVs account for a rising share of the sales, and many of them are hybrids, their fuel economy is still lower than the alternatives. Meanwhile, sales of the Toyota Prius have been plummeting.
... ... ...
[Dec 04, 2015] Russia Presents Evidence Of Turkey-ISIS Oil Trade
December 03, 2015 | OilPrice.com
The charges and counter-charges have been fast and furious since last week, when the Turkish air force shot down a Russian fighter jet near Turkey's border with Syria. But now it's getting personal.The Russian Defense Ministry is accusing Turkish President Recep Tayyip Erdogan, his family and his country's leadership of being tied up in illegal trade in oil with the so-called Islamic State (IS), and that Turkey is the group's chief customer.
"Today, we are presenting only some of the facts that confirm that a whole team of bandits and Turkish elites stealing oil from their neighbors is operating in the region," Russian Deputy Defense Minister Anatoly Antonov told a Moscow news conference Wednesday. He said thousands of trucks ship "large quantities" of the oil into Turkey.
"According to our data, the top political leadership of the country – President Erdogan and his family – is involved in this criminal business," Antonov said, adding that, "Turkey is the main consumer of the oil stolen from its rightful owners, Syria and Iraq."
During the briefing, reporters were shown satellite images that ministry officials said showed columns of the tanker trucks taking on cargoes of oil at loading facilities in areas of Syria and Iraq controlled by IS, and other photos said to show the vehicles crossing into Turkey.
The briefing didn't present direct evidence that Erdogan and his family were involved in the trade – an accusation that the Turkish leader has emphatically denied – but Antonov said, "According to information we've received, the senior political leadership of the country, President Erdogan and his family, are involved in this criminal business."
Antonov specifically implicated Erdogan's son and his son-in-law in the illegal trade. "In the West, no one has asked questions about the fact that the Turkish president's son heads one of the biggest energy companies, or that his son has been appointed energy minister," he said, adding sarcastically. "What a marvelous family business."
Turkey's Energy Minister is Berat Albayrak, the president's son-in-law. The son Antonov referred to evidently is Necmettin Bilal Erdogan, one of three owners of BMZ Group, a marine shipping concern that has been linked in at least one news report with transporting IS's stolen oil.
Antonov didn't say how much oil was involved in the suspected IS trade with Turkey, but another ministry official stressed that the quantity would be greater today if Russia hadn't begun its operations against IS – also called ISIS and Daesh – on Sept. 30, greatly cutting into the group's revenues from oil smuggling.
"The income of this terrorist organization was about $3 million per day," Lt.-Gen. Sergey Rudskoy said. "After two months of Russian airstrikes, their income was about $1.5 million a day."
The intensity of Russia's accusations has been growing since the downing of the jet on Nov. 24, the most dangerous incident involving Russia and a NATO state in the past 50 years. On Monday, as the heat was rising between the two countries, Erdogan demanded that Russian President Vladimir Putin back up his allegations with evidence. If he could, the Turkish leader said, he would resign.
"As soon as such a claim is proved, the nobility of our nation requires [me] to [step down]. I will not remain in this post," Erdogan said. He also challenged Putin to do the same if the accusations prove baseless. "I am asking Mr Putin, would you remain?"
[Dec 04, 2015] Oil and gas industry is using enormous amount of petroleum to operate and move equipment and people
400-600 gal/day for a small rig and 1,200-1600 gal/day for a big rig.
peakoilbarrel.com
rochapeau, 12/01/2015 at 10:15 amHi, everybody! Trying my first post.Ron Patterson, 12/01/2015 at 10:45 am
Just my 2 cents in. When discussing oil demand, did anybody already mention here that the oil industry has just eliminated close to half a million barrels a day of its own oil (diesel, gasoline etc) demand by idling almost 1500 drilling rigs worldwide and putting a great number of projects on hold. Oil and gas industry is using enormous amount of petroleum to operate and move equipment and peopleDoing the math, 500,000 barrels divided by 1500 rigs comes to 333,33 barrels per rig per day. That times 42 comes to 14,000 gallons per rig per day. I know you must include the gasoline and diesel used by the trucks and cars that serviced those rigs. But still, that seems like a bit much.daniel, 12/01/2015 at 12:34 pmI would think 100 to max 200,000 bbl per day seems more realisticrochapeau, 12/01/2015 at 1:14 pmI agree, it is probably an exaggeration. However, we need to account for rig construction, servicing and all the secondary jobs (around 80-90) that each rig creates. Those jobs and people employed in them use petroleum products. Then we need to account for well spudding, pumping, transporting, and storing the oil and again for all the secondary jobs that those activities create. Then there is exploration and all the oil-consuming activities associated with it. All of this combined will account for a number in hundreds of thousands of barrels a day of petroleum consumed. That is why shutting or even scaling down oil industry creates a temporary oil glut. Not too many analysts seem to be talking about this phenomenonJohn S, 12/01/2015 at 3:53 pmRon,John S , 12/01/2015 at 10:26 pmI just talked to a diesel fuel salesman. he said a small rig will use about 3-400 gallons / day and a big rig will use between 6-8,000 gallons of diesel / day.
Correction, my diesel salesman corrected his numbers : 400-600 gal/day for a small rig and 1,200-1600 gal/day for a big rig.
[Dec 04, 2015] Turkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II.
Notable quotes:
"... "Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term. Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020." ..."
"... Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine . ..."
marknesop.wordpress.com
karl1haushofer, December 3, 2015 at 9:42 amTurkish Stream is now officially cancelled. All the eggs are now in the same basket: Nord Stream II. Hopefully the US/UK/Baltics/Poland front will not be able to stop it. Because otherwise Russia is stuck with Ukraine as a transit country.marknesop, December 3, 2015 at 10:45 amWell, I don't think they want to stop it. They want the gas the same as before – they just want it on their own terms. Brussels wants to exercise control over whose gas goes through the pipeline, so that if they are have a "spat" with Russia, they can stop orders of Russian gas and bring some at-this-moment-unknown supplier's gas through the same pipeline, probably Azerbaijan.kirill , December 3, 2015 at 2:17 pmRead this 2011 press conference with Gazprom; I found it while looking for a layman's explanation of what the Third Energy Package actually entails. Because it appears what is most unappealing to it from Gazprom's point of view is that it limits vital investment in gas futures, considering it would substantially restrict long-term contracts. They could be happy with you today, buying off your competitors tomorrow. According to Brussels, that's healthy competition which ensures the customer gets the best price, while Gazprom naturally prefers to deal in long-term contracts which lock the customer in, although they are usually willing to talk out a deal if it looks like the customer is really unhappy because unhappy customers are bad for business, even in the gas industry.
Right away, you notice that Europe accepts long-term contracts, but nonetheless takes the position that long-term capacity supply orders upset the market. As Gazprom correctly points out, these two views cannot reasonably coexist.
In 2011, Gazprom was still considering a joint venture with NaftoGaz Ukraine, and intended to actually increase gas transit through Ukraine while simultaneously building South Stream. They were also considering a merger, and Miller said if that came about, Ukrainian gas consumers would pay the same prices as Russia. Look how far they are away from that now – funny old world, innit? Here was Miller's vision, at the time, for a Gazprom-NaftoGaz merger:
"Firstly, Ukraine is an energy-deficient country and the tendency we observe today will continue and develop: gas production in Ukraine will decline and consumption will grow. We proceed from the assumption that the Ukrainian economy will develop successfully. The present-day level of gas consumption clearly shows that Ukraine has not solved all of its economic problems. In this regard, gas supplies to Ukraine will increase in the medium and long term.
Secondly, if a merger takes place, we will load Ukraine's gas transmission system to the extent possible and it surely means additional income that is significant for the Ukrainian budget. At the same time, if the Ukrainian gas transmission system is loaded with some 95 billion cubic meters of gas per year, we know well that it may deliver 120 and even 125 billion cubic meters with a particular level of investments in modernization and reconstruction, of course. And if small investments are made in new compressor stations and pipeline loops, we may probably speak of 140 billion cubic meters of gas. However, we realize that European gas consumption will grow. According to our estimates, gas demand in Europe may grow up to 130-140 billion cubic meters of gas by the turn of 2020."You can see, I'm sure, why Brussels didn't like it. Under the Third Energy Package, the operator of the gas transit system will be elected by the European Union on a tender basis. You can see, I'm sure, why Gazprom didn't like that. If the merger between Gazprom and NaftoGaz Ukraine had come about, Ukrainians would have paid Russian domestic prices, in a word, forever.
What Europe's position boils down to is it wants a system whereby its suppliers do not own anything of the transit system, and the operator could be anyone depending on who sucks up to Europe the most, so that it can make its suppliers fight with one another and be assured of the cheapest prices. Until that magical sugar-daddy supplier appears that can provide steady and sustained competition to Russia, Europe is not in a very good bargaining position. But you bet that would change fast if the western alliance could get rid of Assad, partition Syria and get a Qatari gas pipeline laid across it.
Here's a poignant reminder of what might have been, which serves to point up who are the real troublemakers:
"Remember the story with biogas, wonderful – 20 per cent by 2020, and mass media start writing that it will enable escaping from dependence on Russia. Then we find out that biogas is there, together with food supply problems, etc. Then we observed the European Union's wonderful program – "20-20-20". I think, there's no need of deciphering it – everyone knows about it. And again mass media say that it will enable reducing dependence on Gazprom and Russia. The same thing is with shale gas. First, no one will cope with shale gas transportation, because it is too expensive, add transport – and it is already a business with no prospects. I have a plea for mass media – would you please stop frightening Europe, stop frightening everyone around with Russia and Gazprom. For Europe it is a real blessing that it has such a powerful neighbor with such conventional gas reserves. Exploration of non-conventionals [N.B.: Non-conventional energy resources] may end with no results, as experience of certain countries shows. So let's live in peace and friendship and contribute to strengthening Russia's contacts and ties with the European Union and Ukraine."
See above. It is time for Russia to lay down the law. Russia can go without the $25 billion per year of lost revenues. But whole EU economies will crash into epic depressions without this energy supply. In other words, the EU is looking at TRILLIONS of DOLLARS in economic damage. The Brussels Uncle Scam cocksuckers will have to justify their actions. Russia does not have to since it is the vendor. If you are not happy, then shop the fuck elsewhere, idiots.
[Dec 03, 2015] Why oil could rally big in 2016-commentary
Notable quotes:
"... ...Demand isn't weak. Oil demand year to date is up 6 percent in China, according to China Oil, Gas Petrochemicals. And more than that, oil demand globally is posting a stellar year. Over the last quarter, the US Energy Information Administration sees annual global oil demand up 1.3 million barrels per day (mbpd)-a solid performance. Private consultancies put it even higher, with demand up as much as 1.9 million barrels per day. There is no demand weakness as such. ..."
"... Certainly, this is deceleration, but hardly Armageddon. Of course, unofficial estimates put growth lower, anywhere from 3.5 percent to 5.5 percent. For example, consulting firm Capital Economics estimates China's third-quarter GDP growth at just over 4 percent. But was this slowdown sufficient to torpedo commodity prices by 35 percent? ..."
"... Shale production in the U.S. has enormously improved U.S. terms of trade. The U.S. trade deficit in oil has shrunk dramatically, from $30 billion per month from the dawn of the shale revolution in early 2012, to a mere $6 billion recently. ..."
www.cnbc.com
...Demand isn't weak. Oil demand year to date is up 6 percent in China, according to China Oil, Gas & Petrochemicals. And more than that, oil demand globally is posting a stellar year. Over the last quarter, the US Energy Information Administration sees annual global oil demand up 1.3 million barrels per day (mbpd)-a solid performance. Private consultancies put it even higher, with demand up as much as 1.9 million barrels per day. There is no demand weakness as such.
Nor can China's economy be said to be so weak. Official estimates put gross domestic product growth around 6.9 percent for the third quarter, down from 7.7 percent at mid year 2014.
Certainly, this is deceleration, but hardly Armageddon. Of course, unofficial estimates put growth lower, anywhere from 3.5 percent to 5.5 percent. For example, consulting firm Capital Economics estimates China's third-quarter GDP growth at just over 4 percent. But was this slowdown sufficient to torpedo commodity prices by 35 percent?
...Although China's proxy GDP had been trending down since 2011, it took a sharp dive in the second half of 2014. What explains this sudden deterioration?
The Bank of England's analysis suggests that supply and demand were simultaneously afflicting oil prices, and in similar magnitudes. In simple terms, the model suggests that China was collapsing just as an oil-supply surge was tanking oil prices. But how likely are two such momentous events to occur independently within weeks of each other? Not very likely at all.
However, the collapse of oil prices did have a profound impact on China, and for a simple reason: China failed to devalue the yuan. Shale production in the U.S. has enormously improved U.S. terms of trade. The U.S. trade deficit in oil has shrunk dramatically, from $30 billion per month from the dawn of the shale revolution in early 2012, to a mere $6 billion recently.
Commentary by Steven Kopits, managing director, Princeton Energy Advisors.
[Dec 03, 2015] It's a pretty tough situation for Putin
Recently annonced: Too Late for Apologies: Russia Halts Turk Stream Gas Pipeline
marknesop.wordpress.com
Moscow Exile, December 3, 2015 at 4:39 am
Just announced:
Too Late for Apologies: Russia Halts Turk Stream Gas Pipeline
Earlier, during his address to the nation, the Evil One questioned the sanity of the Turkish political leadership, stressing that Russia is nor criticising the Turkish nation for the recent downturn in Russo-Turksh relationships.
marknesop, December 3, 2015 at 7:37 am
Washington will be delighted, as it was one of the hoped-for consequences of the major downturn in relations. Hoped for by Washington and Brussels, I mean. Brussels will now ramp up its rhetoric against Nord Stream II, and if the coalition building it have not got all their ducks in a row the EC will be all too ready to put a stop to it. The objective will be leaving Russia no option but to continue transit through Ukraine, because the transit fees are vital to its solvency. The EU can't afford to give it $2 Billion a year for nothing for as far as the eye can see.
kirill, December 3, 2015 at 2:13 pm
As I posted elsewhere, Russia needs to make a formal announcement that the transit of gas via Ukraine will stop at the end of 2016 regardless of the state of alternative routes. Brussels can then go and eat shit.
likbez, December 3, 2015 at 8:21 pm
It's a pretty tough situation for Putin. No friends anywhere. Everybody want a peace of Russia economically or otherwise. The situation reminds me a Russian cruiser Varyag at the Battle of Chemulpo Bay with the Japanese squadron of Admiral Uriu.
Fledging political alliance of Turkey and Ukraine is not a very good development. Also while economic sanctions are not that damaging to Russia per se as they are for Turkey, they still increase isolation of Russia. Exactly what the USA wanted from the very beginning.
So this whole incident with shooting down Russian Su-24 looks like another victory of the US diplomacy in its efforts to isolate Russia. And it might well be a plot similar to MH17 plot, if you wish. It does not matter if Erdogan acted on his own initiative or with gentle encouragement. The net result is the same.
Also a new Saudi leadership is a pretty impulsive and aggressive folk. And the are definitely adamantly anti-Russian.
[Dec 03, 2015] Is crude oil ready for a rebound Lipow--commentary
www.cnbc.com
...On shore oil production in the U.S. is declining. The decline in the rig counts is having an effect. While U.S. weekly production estimates from the Energy Information Administration have been declining from about 9.6 million barrels per day in May and June to 9.1 million barrels per day last week, something else happened - U.S. Gulf of Mexico production increased by over 200,000 barrels per day, meaning the effect of the lower rig count on oil production may be more significant than one might think.
Upstream earnings for big oil were terrible. Exxon upstream earnings were down 79 percent, BP 96 percent, Chevron 99 percent while Anadarko and Conoco Phillips lost $2.2 and $1.8 billion respectively. The producers are cutting costs, cutting investment, cutting jobs. Shell for example cancelled its big Arctic project and its Carmon Creek Canadian Oil sands project. Other high cost areas in deep-water - Gulf of Mexico, the North Sea, West Africa or Brazil - will see projects delayed, deferred or cancelled. This means that investments today will not produce oil 3, 5 or 7 years in the future. While Conoco Phillips and Chevron have stated that they will maintain dividends, they are no longer sacrosanct. Marathon Oil Company cut its dividend 76 percent. Oil prices will have to rise in order to encourage additional production. And U.S. shale producers will then benefit.
Add to the bullish side of the ledger that the market has virtually no geopolitical risk premium in it. With violence continuing in the Middle East, while the Venezuelan and Nigerian governments deplete their foreign reserves, there is upside to the oil market.
Pain in the short term, gain in the long term. How to play it? I like Exxon, EOG Resources and although Anadarko lost a lot of money this quarter, I like it as well. With little new investment in Canada, I like Suncor and Husky Energy both of which have refining operations that have done well in the lower crude oil price environment. Rising oil prices and an increase in shale oil production will help the North American Pipeline operators so Plains All American, Sunoco Logistics and Magellan Midstream Partners look to have upside from here.
[Dec 03, 2015] Who are those moderate rebels in Syria
marknesop.wordpress.com
yalensis, December 3, 2015 at 4:48 pmmarknesop , December 3, 2015 at 6:15 pmYou are burying the lede, which is Congressman Ed Royce's not-so veiled threat against Russia:
"I think what Vladimir Putin should think on, for a minute, is the fact that Moscow itself IS a target. The attack on the Metro-Liner from Russia over Egypt clearly is another message from ISIS. So, at this point what we would like to see is a recalibration on the part of the Russian military. So that instead of attacking the Free Syrian Army and the more secular Syrian forces, they should begin to attack ISIS. So far we haven't seen that."
Translation from American B.S. into plain talk:
"Putin: Stop attacking our guys, we know they are ISIS but we have to pretend they're not. If you keep attacking them, we'll have them commit ever more terror attacks against the Russian people."The USA is perhaps the worst choice on the planet to ask who is a "moderate rebel" and who is ISIS, as witnessed by their sad-sack training plan for moderate rebels which produced 5 or so whom they say are reliable after spending $500 Million. Obviously they trained many more than 5, but they have no idea where those people or their equipment are now. The real hot button in that article is the mention of General Steven Groves and his operation to "oversee the suppression of assessments showing the war on a perilous trajectory." That's what the American intelligence organs do now – blow smoke up people's asses so they can't see reality.
[Dec 03, 2015] Germany Rebukes Its Own Intelligence Agency for Criticizing Saudi Policy
Notable quotes:
"... "The cautious diplomatic stance of the older leading members of the royal family is being replaced by an impulsive policy of intervention," said the memo, which was titled " Saudi Arabia - Sunni regional power torn between foreign policy paradigm change and domestic policy consolidation" and was one and a half pages long. ..."
"... Since taking the throne early this year, King Salman has invested great power in Prince Mohammed, making him defense minister and deputy crown prince and giving him oversight of oil and economic policy. The sudden prominence of such a young and untested prince - he is believed to be about 30, and had little public profile before his father became king - has worried some Saudis and foreign diplomats. ..."
"... Prince Mohammed is seen as a driving force behind the Saudi military campaign against the Iranian-backed Houthi rebels in Yemen, which human rights groups say has caused thousands of civilian deaths. ..."
"... In its memo, the BND said that Saudi rivalry with Iran for supremacy in the Middle East, as well as Saudi dependency on the United States, were the main drivers of Saudi foreign policy. ..."
"... The Saudi-Iranian rivalry plays out throughout the region, the memo said, most recently and strikingly in the Saudi military intervention in Yemen. There, it said, "Saudi Arabia wants to prove that it is ready to take unprecedented military, financial and political risks in order not to fall into a disadvantageous position in the region." ..."
"... In Syria, Saudi Arabia's aim was always to oust President Bashar al-Assad, and that has not changed, the memo said. ..."
"... "The concentration of economic and foreign policy power on Mohammed bin Salman contains the latent danger that, in an attempt to establish himself in the royal succession while his father is still alive, he could overreach with expensive measures or reforms that would unsettle other members of the royal family and the population," the memo observed, adding, "That could overstrain the relations to friendly and above all to allied states in the region." ..."
The New York Times
The intelligence agency's memo risked playing havoc with Berlin's efforts to show solidarity with France in its military campaign against the Islamic State and to push forward the tentative talks on how to end the Syrian civil war. The Bundestag, the lower house of the German Parliament, is due to vote on Friday on whether to send reconnaissance planes, midair fueling capacity and a frigate to the Middle East to support the French.
The memo was sent to selected German journalists on Wednesday. In it, the foreign intelligence agency, known as the BND, offered an unusually frank assessment of recent Saudi policy.
"The cautious diplomatic stance of the older leading members of the royal family is being replaced by an impulsive policy of intervention," said the memo, which was titled "Saudi Arabia - Sunni regional power torn between foreign policy paradigm change and domestic policy consolidation" and was one and a half pages long.
The memo said that King Salman and his son Prince Mohammed bin Salman were trying to build reputations as leaders of the Arab world.
Since taking the throne early this year, King Salman has invested great power in Prince Mohammed, making him defense minister and deputy crown prince and giving him oversight of oil and economic policy. The sudden prominence of such a young and untested prince - he is believed to be about 30, and had little public profile before his father became king - has worried some Saudis and foreign diplomats.
Prince Mohammed is seen as a driving force behind the Saudi military campaign against the Iranian-backed Houthi rebels in Yemen, which human rights groups say has caused thousands of civilian deaths.
... ... ...
In its memo, the BND said that Saudi rivalry with Iran for supremacy in the Middle East, as well as Saudi dependency on the United States, were the main drivers of Saudi foreign policy.
The Saudi-Iranian rivalry plays out throughout the region, the memo said, most recently and strikingly in the Saudi military intervention in Yemen. There, it said, "Saudi Arabia wants to prove that it is ready to take unprecedented military, financial and political risks in order not to fall into a disadvantageous position in the region."
In Syria, Saudi Arabia's aim was always to oust President Bashar al-Assad, and that has not changed, the memo said.
But it suggested that the recent shift in Saudi leadership has added new factors in the Middle East. "The concentration of economic and foreign policy power on Mohammed bin Salman contains the latent danger that, in an attempt to establish himself in the royal succession while his father is still alive, he could overreach with expensive measures or reforms that would unsettle other members of the royal family and the population," the memo observed, adding, "That could overstrain the relations to friendly and above all to allied states in the region."
[Dec 03, 2015] Murder And Mayhem In The Middle East
Notable quotes:
"... Because you live in the real world, you know that NATO knew exactly where Gaddafi was at all times and that he was in that convoy attempting to escape NATOs bombing raid. Further, you wont be surprised to learn that many of these vehicles were pickup trucks that really posed no military threat to NATO. The point was to kill Gaddafi, and numerous resources were brought to bear on that mission. ..."
"... Gaddafis killing was the assassination of a foreign leader by Western interests. In this case, Gaddafi was just yet another target in a long line of leaders that attempted to keep those same interests at bay. ..."
"... While imperfect by many standards, all of these countries were stable and increasingly prosperous before outside interests came in and turned them into a living nightmare. ..."
"... It is this context that explains why such reactionary and violent groups as ISIS arose. They are the natural response of violated people seeking to assert some control over lives that otherwise have no hope and even less meaning. ..."
"... Islamic State militants have consolidated control over central Libya, carrying out summary executions, beheadings and amputations, the United Nations said on Monday in a further illustration of the North African states descent into anarchy. ..."
"... All sides in Libyas multiple armed conflicts are committing breaches of international law that may amount to war crimes, including abductions, torture and the killing of civilians, according to a U.N. report. ..."
"... Islamic State (IS) has gained control over swathes of territory, committing gross abuses including public summary executions of individuals based on their religion or political allegiance , the joint report by the U.N. High Commissioner for Human Rights and the U.N. Support Mission in Libya said. ..."
"... The U.N. had documented IS executions in their stronghold city of Sirte, in central Libya along the Mediterranean coast, and in Derna to the east, from which they were later ousted by local militias. Victims included Egyptian Copts, Ethiopians, Eritreans and a South Sudanese, the report said. ..."
Dec 1, 2015 | Safehaven.com
Why it matters to those living in the West
To understand what's happening in Syria right now, you have to understand the tactics and motivations of the US and NATO -- parties sharing interwoven aims and goals in the Middle East/North African (MENA) region.
While the populations of Europe and the US are fed raw propaganda about the regional aims involved, the reality is far different.
Where the propaganda claims that various bad dictators have to be taken out, or that democracy is the goal, neither have anything at all to do with what's actually happening or has happened in the region.
For starters, we all know that if oil fields were not at stake then the West would care much much less about MENA affairs.
But a lot of outside interests do care. And their aims certainly and largely include controlling the region's critical energy resources. There's a lot of concern over whether Russia or China will instead come to dominate these last, best oil reserves on the planet.
Further, we can dispense with the idea that the US and NATO have any interest at all in human rights in this story. If they did, then they'd at least have to admit that their strategies and tactics have unleashed immeasurable suffering, as well as created the conditions for lots more. But it would be silly to try and argue about or understand regional motivations through the lenses of human rights or civilian freedoms -- as neither applies here.
Divide And ConquerInstead, the policies in the MENA region are rooted in fracturing the region so that it will be easier to control.
That's a very old tactic; first utilized to a great extent by Britain starting back in the 1700s.
Divide and conquer. There's a reason that's a well-worn catch phrase: it's hundreds of years old.
But to get a handle on the level of depravity involved, I think it useful to examine what happened in Libya in 2011 when NATO took out Muamar Gaddafi and left the country a broken shell -- as was intended.
I cannot really give you a good reason for NATO involving itself in taking out Gaddafi. I only have bad ones.
The official reason was that after the Arab Spring uprising in Libya in early 2011 (with plenty of evidence of Western influences in fanning those flames) things got ugly and protesters were shot. This allowed the UN to declare that it needed to protect civilians, and the ICC to charge Gaddafi with crimes against humanity, declaring that he needed to stand trial.
Here's how it went down:
On 27 June, the ICC issued arrest warrants for Gaddafi, his son Saif al-Islam, and his brother-in-law Abdullah Senussi, head of state security, for charges concerning crimes against humanity.[268] Libyan officials rejected the ICC, claiming that it had "no legitimacy whatsoever" and highlighting that "all of its activities are directed at African leaders".[269]
That month, Amnesty International published their findings, in which they asserted that many of the accusations of mass human rights abuses made against Gaddafist forces lacked credible evidence, and were instead fabrications of the rebel forces which had been readily adopted by the western media.
After the ICC's indictment, it was a hop, skip and a jump to declaring a NATO-enforced 'no fly zone' over Libya to protect civilians.
From there it was just a straight jump to NATO actively shooting anything related to the Gaddafi government. NATO had thereby chosen sides and was directly supporting the rebellion.
The pattern in play here is always the same: cherry-picked events are used as a pretext to support the side seeking to topple the existing government and thereby leave a sectarian wasteland to flourish in the inevitable power vacuum.
If you are like most people in the West, you know almost nothing of any of this context. It's not well reported. And Libya is rarely in the news even though it's going through increasingly desperate times.
I found a speech given by Gaddafi a few months before he was killed to be especially compelling and revealing. I will reproduce it in its entirety here:
For 40 years, or was it longer, I can't remember, I did all I could to give people houses, hospitals, schools, and when they were hungry, I gave them food. I even made Benghazi into farmland from the desert, I stood up to attacks from that cowboy Reagan, when he killed my adopted orphaned daughter, he was trying to kill me, instead he killed that poor innocent child. Then I helped my brothers and sisters from Africa with money for the African Union.
I did all I could to help people understand the concept of real democracy, where people's committees ran our country. But that was never enough, as some told me, even people who had 10 room homes, new suits and furniture, were never satisfied, as selfish as they were they wanted more. They told Americans and other visitors, that they needed "democracy" and "freedom" never realizing it was a cut throat system, where the biggest dog eats the rest, but they were enchanted with those words, never realizing that in America, there was no free medicine, no free hospitals, no free housing, no free education and no free food, except when people had to beg or go to long lines to get soup.
No, no matter what I did, it was never enough for some, but for others, they knew I was the son of Gamal Abdel Nasser, the only true Arab and Muslim leader we've had since Salah-al-Deen, when he claimed the Suez Canal for his people, as I claimed Libya, for my people, it was his footsteps I tried to follow, to keep my people free from colonial domination - from thieves who would steal from us.
Now, I am under attack by the biggest force in military history, my little African son, Obama wants to kill me, to take away the freedom of our country, to take away our free housing, our free medicine, our free education, our free food, and replace it with American style thievery, called "capitalism," but all of us in the Third World know what that means, it means corporations run the countries, run the world, and the people suffer. So, there is no alternative for me, I must make my stand, and if Allah wishes, I shall die by following His path, the path that has made our country rich with farmland, with food and health, and even allowed us to help our African and Arab brothers and sisters to work here with us, in the Libyan Jamahiriya.
I do not wish to die, but if it comes to that, to save this land, my people, all the thousands who are all my children, then so be it.
Let this testament be my voice to the world, that I stood up to crusader attacks of NATO, stood up to cruelty, stood up to betrayal, stood up to the West and its colonialist ambitions, and that I stood with my African brothers, my true Arab and Muslim brothers, as a beacon of light. When others were building castles, I lived in a modest house, and in a tent. I never forgot my youth in Sirte, I did not spend our national treasury foolishly, and like Salah-al-Deen, our great Muslim leader, who rescued Jerusalem for Islam, I took little for myself...
In the West, some have called me "mad", "crazy", but they know the truth yet continue to lie, they know that our land is independent and free, not in the colonial grip, that my vision, my path, is, and has been clear and for my people and that I will fight to my last breath to keep us free, may Allah almighty help us to remain faithful and free.
Gaddafi's great crime seems to be giving away too much oil wealth to his people. Was he a strongman? Yes, but you have to be to rule in that region right now. Was he the worst strong man? No, not by a long shot.
As bad as he was, at least he didn't kill a million Iraqis on trumped up charges of non-existent weapons of mass destruction. Nor was he chopping off 50 heads per week and stoning females for adultery as is the case with Saudi Arabia right now.
But again, whether he killed protestors or not, or committed war crimes or not, is irrelevant to the power structure. What mattered was that he had locked out Western interests, and instead used his country's oil wealth to provide free or extremely cheap health care, education and housing to a wide swath of Libyans.
So let's cut to the murder scene. Here's how it went down:
At around 08:30 local time on 20 October, Gaddafi, his army chief Abu-Bakr Yunis Jabr, his security chief Mansour Dhao, and a group of loyalists attempted to escape in a convoy of 75 vehicles.[7][8] A Royal Air Force reconnaissance aircraft spotted the convoy moving at high speed, after NATO forces intercepted a satellite phone call made by Gaddafi.[9]
NATO aircraft then fired on 11 of the vehicles, destroying one. A U.S. Predator drone operated from a base near Las Vegas[8] fired the first missiles at the convoy, hitting its target about 3 kilometres (2 mi) west of Sirte. Moments later, French Air Force Rafale fighter jets continued the bombing.[10]
The NATO bombing immobilized much of the convoy and killed dozens of loyalist fighters. Following the first strike, some 20 vehicles broke away from the main group and continued moving south. A second NATO airstrike damaged or destroyed 10 of these vehicles. According to the Financial Times, Free Libya units on the ground also struck the convoy.[11]
According to their statement, NATO was not aware at the time of the strike that Gaddafi was in the convoy. NATO stated that in accordance with Security Council Resolution 1973, it does not target individuals but only military assets that pose a threat. NATO later learned, "from open sources and Allied intelligence," that Gaddafi was in the convoy and that the strike likely contributed to his capture.[11]
To believe NATO, it had no idea Gaddafi was in that convoy (honest!), but just managed to have a Predator drone handy as well as a large number of jets armed for ground targets (not anti-aircraft missiles, as a no-fly zone might imply). It merely struck all of these vehicles over and over again in their quest to kill everyone on board because they were "military assets that posed a threat."
Because you live in the real world, you know that NATO knew exactly where Gaddafi was at all times and that he was in that convoy attempting to escape NATO's bombing raid. Further, you won't be surprised to learn that many of these vehicles were pickup trucks that really posed no military threat to NATO. The point was to kill Gaddafi, and numerous resources were brought to bear on that mission.
Gaddafi's killing was the assassination of a foreign leader by Western interests. In this case, Gaddafi was just yet another target in a long line of leaders that attempted to keep those same interests at bay.
After NATO was finished making a mess of Libya by taking out Gaddafi and leaving a right proper mess of a power vacuum, it simply departed -- leaving the country to fend for itself. Libya descended, of course, into an outright civil war and has remained ever since a hotbed of sectarian violence and increasing ISIS control and presence.
If NATO/US had to follow the Pier I rule of "you break it, you buy it" they would still be in Libya offering money and assistance as the country settles down and begins the long process of rebuilding.
But no such luck. That's absolutely not how they operate. It's disaster capitalism in action. The idea is to break things apart and then make money off of the pieces. It's not to help people.
Otherwise, how do we explain these images?
While imperfect by many standards, all of these countries were stable and increasingly prosperous before outside interests came in and turned them into a living nightmare.
It is this context that explains why such reactionary and violent groups as ISIS arose. They are the natural response of violated people seeking to assert some control over lives that otherwise have no hope and even less meaning.
I'm not justifying ISIS; only explaining the context that led to its rise.
Speaking of which, let's turn back to Libya:
ISIS is tightening its grip in Libya
Nov 15, 2015
GENEVA (Reuters) - Islamic State militants have consolidated control over central Libya, carrying out summary executions, beheadings and amputations, the United Nations said on Monday in a further illustration of the North African state's descent into anarchy.
All sides in Libya's multiple armed conflicts are committing breaches of international law that may amount to war crimes, including abductions, torture and the killing of civilians, according to a U.N. report.
Islamic State (IS) has gained control over swathes of territory, "committing gross abuses including public summary executions of individuals based on their religion or political allegiance", the joint report by the U.N. High Commissioner for Human Rights and the U.N. Support Mission in Libya said.
The U.N. had documented IS executions in their stronghold city of Sirte, in central Libya along the Mediterranean coast, and in Derna to the east, from which they were later ousted by local militias. Victims included Egyptian Copts, Ethiopians, Eritreans and a South Sudanese, the report said.
Some were accused of "treason", others of same-sex relations, but none were given due legal process, according to the report, which covered the year through October.
Four years after the overthrow of Muammar Gaddafi, Libya is locked in a conflict between two rival governments - an official one in the east and a self-declared one controlling the capital Tripoli - and the many armed factions that back them.
After that atrocious summary, how bad does life under Gaddafi sound now? Again, he was targeted for execution by Western interests and the resulting mess is of little surprise to anybody with even modest curiosity about how violent overthrows tend to work out in the MENA region.
But where is the UN security council denouncing the war crimes? And where is the ICC leveling crimes against humanity charges? Nowhere. There's no more Western political interest in Libya now that it has been broken apart.
As they say in the military: once is bad luck, twice is a coincidence, but three times is enemy action. This pattern of eliminating "a very bad man" and leaving the country in a complete mess has happened three times of late, with Syria targeted to be the fourth. So enemy action it is.
ISIS and other extreme jihadist groups arose because of brutal conditions that made such harsh interpretations of ancient religious texts make sense by comparison. When you have nothing left to believe in, one's belief system can compensate by becoming rather inflexible.
I know I have greatly simplified a terribly complex dynamic, but -- speaking of beliefs -- I don't believe that terrorists are born, I believe they are raised. When one has nothing left to lose, then anything becomes possible, including strapping on a suicide belt and flicking the switch.
What I am saying is that this is not a battle between Christians and Muslims, nor is it a battle between good and evil, both characterizations that I've read recently in great abundance. That's all nonsense for the masses.
This is about resources and true wealth that is being siphoned from the people who have had the misfortune to be born on top of it, and towards other regions with greater power and reach.
There's nothing different in what I am reading today from what the British redcoats did in India from the late 1700's throughout the 1800's. Their military might assured that the East India Tea Company could continue to extract resources from the locals.
At the time the locals were called heathens, implying they were subhuman and therefore could be safely dispatched. Now they are called terrorists -- same thing. Dehumanize your foe to help rationalize one's behaviors. It's a tried and true practice of war propaganda.
How This Affects YouWhile we might be tempted to sit in our Western environs, secure in the idea that at least we aren't 'over there' where all the bad things are happening, it would be a mistake to think that this turmoil will not impact you.
I'm not talking about the ultra-remote chance of being a victim of blow-back terrorism either. I am referring to the idea that it would be a mistake to think that any government(s) that think nothing of ruining entire MENA countries will hesitate to throw anybody else under the bus that gets in their way.
Ben Bernanke gave no thought to throwing granny under the bus in order to help the big banks get even bigger. He willingly and knowing transferred over a trillion dollars away from savers and handed it to the big banks.
Similarly, we shouldn't expect enlightened behavior to emerge from the shadows of leadership once things get even dicer on the world stage. In fact, we should expect the opposite.
It would be a mistake to think that powers in charge would not turn their malign intent inwards toward their own populace if/when necessary. Today it's Syria, yesterday it was Libya, but tomorrow it might be us.
The people of France recently got a small taste of the horror that has been visited upon the people of Iraq, Syria, Yemen and Libya. And while I have no interest in seeing any more violence anywhere, perhaps the people of France will finally begin to ask what happened and why. I don't mean the fine details of the night of the massacre, but how it came to be considered a 'thing to do' at all by the people who did it. (For those unaware, France has been particularly involved for years in fomenting revolt within Syria)
ConclusionMy intention in stringing these dots together is so that we can have an informed discussion about what's happening in Syria and the Middle East at large. I am not at all interested in trying to understand events through the framing lenses of religion and/or 'terrorism', both of which are tools of distraction in my experience.
Instead, I want to understand the power dynamics at play. And to try to peel back the layers, to understand why the powers that be consider this region so important at this moment in history.
I think they know as well as we do that the shale oil revolution is not a revolution at all but a retirement party for an oil industry that has given us everything we hold economically dear but is on its last legs.
I think that the power structures of the next twenty years are going to be utterly shaped by energy - who has it, who needs it and who's controlling it.
Saudi Arabia is acting increasingly desperate here and I think we know why. They have a saying there: "My father rode a camel, I drove a car, my son flies a jet and his son will ride a camel."
They know as well as anyone that their oil wealth will run out someday; and so, too, will the West's interest in them. With no giant military to protect them, the royalty in Saudi Arabia should have some serious concerns about the future.
Heck, it's even worse than that:
Saudi Wells Running Dry -- of Water -- Spell End of Desert Wheat
Nov 3, 2015
Saudi Arabia became a net exporter of wheat in 1984 from producing almost none in the 1970s. The self-sufficiency program became a victim of its own success, however, as it quickly depleted aquifers that haven't been filled since the last Ice Age.
In an unexpected U-turn, the government said in 2008 it was phasing out the policy, reducing purchases of domestic wheat each year by 12.5 percent and bridging the gap progressively with imports.
The last official local harvest occurred in May, although the United Nations Food and Agriculture Organization projects that a small crop of about metric 30,000 tons for traditional specialty bakery products will "prevail" in 2016. At its peak in 1992, Saudi Arabia produced 4.1 million tons of wheat and was one of the world's top 10 wheat exporters.
The Saudis did something very unwise - they pumped an aquifer filled over 10,000 years ago and used it to grow wheat in the desert. Now their wells are running dry and they have no more water.
And yet their population is expanding rapidly even as their oil fields deplete. There's a very bad intersection for Saudi Arabia, and the rulers know it.
It helps to explain their recent actions of lashing out against long-standing regional foes and helps to explain the increasing desperation of their moves to help destabilize (and even bomb) their neighbors.
My point here is that as resources become tight, the ruling powers can be expected to act in increasingly desperate ways. This is a tenet of the Long Emergency of which James Kunstler wrote.
The only response that makes any sense to me, at the individual level, is to reduce your needs and increase your resilience.
This is something we cover in great detail in our new book, Prosper!: How To Prepare for the Future and Create a World Worth Inheriting, so I won't go into all the details here. Instead, my goal is to help cast a clarifying light on recent events and add some necessary detail that can help us more fully appreciate what's happening around the world and why taking prudent preparations today is becoming increasingly urgent.
[Dec 03, 2015] ISIS Oil Plot Thickens Turkish MP Has Evidence Erdogans Son-In-Law Involved In Illegal Crude Trade
Notable quotes:
"... Underscoring that contention is CHP lawmaker Eren Erdem who says he, like Moscow, will soon provide proof of Erdogan's role in the smuggling of Islamic State oil. I have been able to establish that there is a very high probability that Berat Albayrak is linked to the supply of oil by the Daesh terrorists," Erdem said at a press conference on Thursday (see more from Sputnik ). ..."
"... There is one company, headquartered in Erbil, which in 2012 acquired oil tankers, and which is currently being bombarded by Russian aircraft," Erdem said. "I am now studying this companys records. It has partners in Turkey, and I am checking them for links to Albayrak. ..."
"... Note that this is entirely consistent with what we said last week , namely that in some cases, ISIS takes advantage of the Kurdish oil transport routes, connections, and infrastructure in Turkey. It will certainly be interesting to see if theres a connection between Albayrak, the energy ministry, and Bilal Erdogans BMZ Group. ..."
"... Many loose ends now for Erdogan popping up. How long he can play whack-a-mole until one illuminates paper trail implication between ISIS and Erdogans masters like McCain, Graham, Nuland? ..."
"... Maybe Erdogan will come up with a massive distraction that makes oil-thievery insignificant. Hope not. ..."
Zero Hedge
... ... ...Underscoring that contention is CHP lawmaker Eren Erdem who says he, like Moscow, will soon provide proof of Erdogan's role in the smuggling of Islamic State oil. "I have been able to establish that there is a very high probability that Berat Albayrak is linked to the supply of oil by the Daesh terrorists," Erdem said at a press conference on Thursday (see more from Sputnik).
Berat Albayrak is Erodan's son-in-law and is Turkey's Minister of Energy and Natural Resources.
Erdem isn't the only person to mention Albayrak this week. Recall that in his opening remarks at the dramatic Russian MoD presentation on Wednesday Deputy Minister of Defence Anatoly Antonov said the following:
"No one in the West, I wonder, does not cause the issue that the son of the President of Turkey is the leader of one of the largest energy companies, and son-in-appointed Minister of Energy? What a brilliant family business!"
"There is one company, headquartered in Erbil, which in 2012 acquired oil tankers, and which is currently being bombarded by Russian aircraft," Erdem said. "I am now studying this company's records. It has partners in Turkey, and I am checking them for links to Albayrak."
Note that this is entirely consistent with what we said last week, namely that in some cases, ISIS takes advantage of the Kurdish oil transport routes, connections, and infrastructure in Turkey. It will certainly be interesting to see if there's a connection between Albayrak, the energy ministry, and Bilal Erdogan's BMZ Group.
If you know anything about Erdogan, you know that he doesn't take kindly to this kind of thing and as Erdem goes on to account, he's already been the subject of a smear campaign:
"Today, the Takvim newspaper called me an American puppet, an Israeli agent, a supporter of the [Kurdish] PKK, and the instigator of a coup…all in the same sentence. I am inclined to view this attack on me as an attempt to belittle my significance, to attack my reputation in the eyes in the public, given that my investigation is a real threat to the government. Such a sharply negative reaction suggests that my assumptions are fair, and I am moving in the right direction to find the truth."
The lawmaker says that type of attack has "only convinced [him] further on the need to carry this investigation through to the end."
In the meantime, we can only hope that, for the sake of exposing the truth, "the end" doesn't end up being a Turkish jail cell, or worse for Erdem.
Troll Magnet
Do they make nail guns in Turkey?
Truther
Yep, with top brands for JPM, Goldman, RBS, WF, CITI and Deutche. They even self point at you too.
Baby Bladeface
Many loose ends now for Erdogan popping up. How long he can play whack-a-mole until one illuminates paper trail implication between ISIS and Erdogan's masters like McCain, Graham, Nuland?
o r c k
Maybe Erdogan will come up with a "massive" distraction that makes oil-thievery insignificant. Hope not.
Anonymous User
The shit is hitting the fan for the turks
GhostOfDiogenes
Go figure huh?
http://russia-insider.com/en/politics/israel-main-buyer-isis-oil-report/...
[Dec 03, 2015] Canadian Energy Companies Seen Disappearing in Oil's 'New World'
peakoilbarrel.com
aws., 12/01/2015 at 11:18 pmCanadian Energy Companies Seen Disappearing in Oil's 'New World'Ves, 12/02/2015 at 9:08 amRebecca Penty, Bloomberg, November 27, 2015 - 5:35 PM EST
Canada is poised to lose energy companies as the industry faces the "new normal" of lower and more volatile oil prices along with tougher climate and regulatory policies, billionaire investor Murray Edwards warned Friday.
The chairman of the nation's largest heavy-oil producer, Canadian Natural Resources Ltd., likened the oil industry to a horse race in which western Canadian producers are struggling to compete with developers of light crude from U.S. shale.
-
Some parts of the industry won't outlive the new regime, said Peter Tertzakian, chief energy economist at ARC Financial Corp. and a member of the royalty review panel."I am confident that segments of the industry will remain competitive," Tertzakian told reporters. In an earlier presentation, he outlined a "new world" facing oil companies since the Organization of Petroleum Exporting Countries last year decided to maintain output amid a supply glut, boosting competition, complicated by rising use of renewable energy that's damping demand for crude. "We are in the mother of all market share battles."
Canada is one of the most expensive places to extract crude, yet some of its largest energy companies publicly embraced the province's new climate policy even if it means that only oil-sands projects with the lowest carbon footprint get developed in the future, Edwards said.
Why does the glut always seem to be blamed on OPEC (Saudi Arabia) when most of the new production was U.S. LTO and Alberta bitumen?
And… it's remarkable the mess Harper and the Alberta oil patch have made of the Canadian economy.
"Why does the glut always seem to be blamed on OPEC (Saudi Arabia)"when most of the new production was U.S. LTO and Alberta bitumen?Because when we blame someone else we are actually hiding our own irrational behavior.
[Dec 03, 2015] Oil could hit US$130 as US output falls off a cliff
Notable quotes:
"... Emad Mostaque has had a profound change of heart on oil prices. The analyst with London-based consultancy Ecstrat says US$130 per barrel crude could be less than a year away for the European benchmark as lower prices drive demand in both emerging and developed markets, while a weakening stream of capex dollars constrains new exploration and production. ..."
"... "What we are seeing is supply is about to roll over dramatically. Demand is continuing to rise," he said an in interview with BNN. ..."
"... "U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off," said Mostaque. He says the notion that shale producers can suddenly boost their output as needed is a common misconception. ..."
"... Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer. He raised concerns about the commodity's price stability before oil started its dramatic decline in 2014. ..."
"... Now he's calling prices to rally as four to five million barrels disappear from global markets over the next four to five years, and throwing cold water on many of the scenarios where inventories remain oversupplied long-term. ..."
"... Based on monthly data, it seems likely that US 2015 annual net total liquids imports will be approximately flat to slightly below 2014 levels (net total liquids imports of 5.1 million bpd in 2014), with US net imports almost certainly increasing in 2016, assuming a continued decline in US C+C production. ..."
"... Reuters had the article earlier this year discussing why refiners were increasingly rejecting artificial WTI blends of condensate and heavy oil that met the upper API limit for WTI, but that were deficient in distillates. ..."
peakoilbarrel.com
Jeffrey J. Brown, 12/01/2015 at 8:23 amA missive I sent out to some industry guys (I highlighted an article someone posted a few days ago):Jeffrey J. Brown, 12/01/2015 at 7:11 amThe winter of our discontent, made glorious summer?
Since we are once again retesting the 2015 monthly lows in Brent crude oil prices, i.e., $45 currently versus monthly lows, so far, of $47 to $48 earlier this year, and entering what appears to be the "Winter of our discontent" for folks in the Oil Patch, I thought that the following article was compelling for two reasons: (1) The analyst was bearish on oil prices last year, while he is now bullish and (2) It's at least nice to read about the possibility of a "Glorious summer" next year in regard to oil prices.
Oil could hit US$130 as U.S. output 'falls off a cliff': Analyst
Emad Mostaque has had a profound change of heart on oil prices. The analyst with London-based consultancy Ecstrat says US$130 per barrel crude could be less than a year away for the European benchmark as lower prices drive demand in both emerging and developed markets, while a weakening stream of capex dollars constrains new exploration and production.
"What we are seeing is supply is about to roll over dramatically. Demand is continuing to rise," he said an in interview with BNN.
Unlike many analysts, he says U.S. shale production is set to decline, and as such won't provide the necessary stop-gap to supply the increasing appetite in world markets.
"U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off," said Mostaque. He says the notion that shale producers can suddenly boost their output as needed is a common misconception.
The controversial call pushes against bearish sentiment from Wall Street titans like Goldman Sachs. The investment bank's head of commodities research, Jeff Currie, said last month that he does not see the price of oil breaking above US$50 a barrel in the next year.
Mostaque was early to bet against oil, forecasting between US$50 and US$70 per barrel last summer. He raised concerns about the commodity's price stability before oil started its dramatic decline in 2014.
Now he's calling prices to rally as four to five million barrels disappear from global markets over the next four to five years, and throwing cold water on many of the scenarios where inventories remain oversupplied long-term.
Mostaque says the lack of capital means the estimated $30 to $40-billion annual price tag to ramp up Iranian oil most likely isn't in the cards.
"What we think is happening right now is we've seen mass definancialization of the market, with Brent in particular. All of these massive funds have exited because they lost huge amounts of money," he said.
My comments:
US Crude + Condensate Production Declining at 11%/year
Note that the EIA shows that US Crude + Condensate (C+C) production fell an annualized rate of about 11%/year from April, 2015 (9.6 million bpd) to October, 2015 (9.1 million bpd). At this rate of decline, US C+C production would be down to about 8 million bpd in late 2016.
Based on monthly data, it seems likely that US 2015 annual net total liquids imports will be approximately flat to slightly below 2014 levels (net total liquids imports of 5.1 million bpd in 2014), with US net imports almost certainly increasing in 2016, assuming a continued decline in US C+C production.
Note that US refineries, based on most recent four week running average EIA data, were dependent on net crude oil imports for 42% of the Crude + Condensate processed daily in US refineries.
I also added my usual comments about crude versus C+C, excerpt follows:
. . . . the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. Given the foregoing data, one can't help but wonder if most, or perhaps virtually all, of the reported year over year build in US and global and C+C inventories consists of condensate. As a case in point, reportedly most of Iran's floating oil storage consists of condensate.
To the extent that we have a global inventory "glut," it probably consists of mostly condensate. For example, a Reuters article earlier this year pointed out that US refiners were increasingly rejecting "foul" blends of condensate and heavy oil (that technically met the API gravity requirements for WTI crude, but that were deficient in distillate yield).
The bottom line is that if it took trillions of dollars of upstream capex to keep us on a post-2005 "Undulating Plateau" in actual global crude oil production, with (so far) increasing global gas, NGL and condensate production, what happens to actual crude production, i.e., the stuff that corresponds to the oil price indexes, given the large and ongoing cutbacks in global upstream capex?
I suspect that late last year US refineries hit the upper limit of how much very light oil and condensate (roughly 42+ API) that they could take, if they wanted to maintain their distillate output. Note that at Cushing 42 API is the upper limit for WTI crude oil contracts. And as previously discussed, Reuters had the article earlier this year discussing why refiners were increasingly rejecting artificial WTI blends of condensate and heavy oil that met the upper API limit for WTI, but that were deficient in distillates.Dennis Coyne, 12/01/2015 at 8:18 amThe problems would be resolved if the US stopped restricting crude exports, there are refineries in other parts of the World that are set up to refine lighter crude.Jeffrey J. Brown, 12/01/2015 at 8:30 amAlso some of the light crude will go away as the LTO plays are depleted, though there will still be a lot of condensate coming from the tight gas plays. Canada needs some of this condensate to get the oil sands to move through pipelines in the form of diluted bitumen (the so-called "dilbit").
Although I have no problem with lifting the ban, my guess is that lifting the US export ban will have little or no impact, given what I suspect is a global condensate glut.AlexS, 12/01/2015 at 8:52 amJeffrey,Jeffrey J. Brown, 12/01/2015 at 9:02 amThere is no global condensate or ultralight crude glut. In fact, the average barrel outside the U.S. is heavier than in the past.
However, I agree with you that the effect of lifting the US export ban will be limited. Basically, the current spread between WTI and Brent will be largely eliminated.If the global condensate to C+C ratio is around 10%, an increase in heavy oil production and/or declining 30's API gravity production would have a disproportionate impact on the average API gravity worldwide. In other words, I don't think the average API gravity tells us anything about a probable condensate glut.Watcher, 12/01/2015 at 2:58 pmOne more time:Dennis Coyne, 12/01/2015 at 3:52 pmUS consumption is 47% gasoline.
85% of global distillate fuel oil is burned outside the US. This includes diesel.
Condensate doesn't have this in it. Hard to export something that would have no buyers.
Hi Watcher,Toolpush, 12/01/2015 at 9:32 amSome of the crude is lighter crude which can be refined elsewhere in refineries designed to handle crude fro 36 to 45 API.
The condensate could be exported to Venezuela or Canada where it is needed to move oil sands through pipelines.
Jeff,Jeffrey J. Brown, 12/01/2015 at 10:44 amI believe you may be correct that the US refineries hit their upper limit of high API oil this year, but there are several projects coming online next year for spliter capacity. with the continued export of condensates and decreasing "oil" supply from LTO producers, there may just be a very quick flip over to a shortage high API oil for these new projects.
In the meantime refiners continue to increase their consumption of light crude and to add capacity such as the two new Kinder Morgan condensate splitters processing ultra-light condensate that are located at Galena Park close to the Houston Ship Channel. Another refinery investment to process more light crude is being made by Valero to their Houston refinery that will enable it to process an additional 90 Mb/d by mid-2016. Houston has also become a center for waterborne exports of lightly processed condensate – movements permitted since July 2014 by new interpretation of the export regulations for condensate (see Ticket To Export). Such processed condensate has to pass through a distillation tower and then kept segregated en-route to marine docks for export
Of course, there are two separate issues here. The upgrades to refineries to allow them to handle more light oil would increase the demand for 42+ light crude and condensate, but the condensate splitters are designed to allow condensate exports under existing crude oil export restrictions.Fernando Leanme, 12/02/2015 at 10:42 amI think that the bottom line is that the first hydrocarbon to peak globally is light/sweet crude, while we are definitely seeing increasing production on the light end, condensate to gas, and probably increased heavy crude production, but as noted above, I suspect that we have been on an "Undulating plateau" in total crude oil production (45 API and lower) since 2005.
So the Obamite bureaucracy spurred the construction of condensate fractionation towers (the so called splitters).
[Dec 03, 2015] Shale oil produsers may recover about 1.5 to 2 billion barrels of oil from current wells enough to pay 24 billion their debt
Notable quotes:
"... companies in the Bakken spend $24 billion more than the cash from operations during the last years to come to the current level of production ..."
"... Do you have a very rough estimation of how much remaining oil, and consequently how much free cash flow (based on strip prices) you think they can recover? Will it be more or less than the $24 billion? ..."
"... In my own estimation, they may recover about 1.5 to 2 billion barrels of oil from current wells. Depending on the strip prices, and the increase in operational expenses as the wells age (as Shallow as pointed out), they still may be able to recover those funds. It would not make the whole operation profitable, but at least most funds from creditors would be saved (unlike probably those of investors whose holdings more depend on the profitability). ..."
peakoilbarrel.com
Rune Likvern, 11/30/2015 at 3:52 pm
I just posted an update on Bakken(ND) LTO developments based upon NDIC data as per Sep 15.gwalke, 12/02/2015 at 6:48 am
http://fractionalflow.com/2015/11/30/bakkennd-light-tight-oil-update-with-sep-15-ndic-data/Excellent as ever, Rune. It always makes me feel I'm on the right track when my results are close to your own.Enno Peters, 12/02/2015 at 7:33 amRune, thanks for the great article.Rune Likvern, 12/02/2015 at 8:44 amQuestion: So in your estimation, companies in the Bakken spend $24 billion more than the cash from operations during the last years to come to the current level of production. Suppose they would stop drilling (I know, not very realistically..), and try to maximize their free cash flows until their wells run into the economic limit and they are plugged. Do you have a very rough estimation of how much remaining oil, and consequently how much free cash flow (based on strip prices) you think they can recover? Will it be more or less than the $24 billion?
This could answer the question whether in theory they will be able to show a net nominal profit, or loss.
In my own estimation, they may recover about 1.5 to 2 billion barrels of oil from current wells. Depending on the strip prices, and the increase in operational expenses as the wells age (as Shallow as pointed out), they still may be able to recover those funds. It would not make the whole operation profitable, but at least most funds from creditors would be saved (unlike probably those of investors whose holdings more depend on the profitability).
Enno, thanks.
Using the assumptions you describe I arrive at the same amount of oil recovered as yourself, so let us put this at 2 billion barrels.
And as you point out there is a plethora of dynamics that comes into play in such a scenario.
So roughly the total amount ($24B) is likely to be nominally recovered, there is however a wide range of the quality of the acreage for the companies operating in Bakken. Returns will suffer.Another way to look at this is to look at figure 04 in my post, where the nominal net back of the average well by vintage is shown. The average well is on a trajectory to recover its costs in nominal terms. The 20015 vintage will struggle.
[Dec 03, 2015] The history of the Arab conquest of Byzantium is purposefully ignored
economistsview.typepad.com
Syaloch said in reply to anne...,Yep. I sometimes think that the history of the Arab conquest of East Roman (Byzantine) provinces is purposefully ignored because it doesn't fit into a Western narrative of what Arab Muslim peoples are like.
The modern Islamic fundamentalist movements we see today are actually a fairly recent invention -- Wahhabism for example originated in the 18th century. And their rise to dominance is largely due to meddling by Western governments, which backed these groups to prevent Soviet expansion into the Middle East and southern Asia and to undermine nationalist movements that might oppose Western interests.
[Dec 03, 2015] ISIS oil hub with 3000 parked oil trucks escaped detection by the USA and its eagle-eyed coalition
marknesop.wordpress.com
marknesop, December 2, 2015 at 2:10 pmHere's the evidence that the USA rejects. I particularly enjoyed the satellite imagery of the "ISIS oil hub", at which were parked 3,000 oil trucks. Apparently it escaped detection by the USA and its eagle-eyed coalition. Does it seem realistic that a country which was offered a major and legitimate pipeline deal would rather move its oil around in thousands of tanker trucks? If the oil trucking business were benefiting Assad's regime, don't you think ISIS would have blown it sky-high by now? It's in a region they control and apparently in the middle of open ground, completely unguarded.marknesop, December 2, 2015 at 1:10 pmThe battle lines have been drawn in yet another field of conflict – Russia aims to take down Erdogan, and Washington aims to keep him in his position. It remains to be seen just how embarrassing that will become.
Moscow is not backing away at all from accusations that Erdogan's family is personally involved in receiving and trafficking in ISIS oil. In a phenomenon pointed out by others of late, Yahoo comments are now overwhelmingly supportive of Russia on these issues. Not only that, mainstream news are picking up the accusation rapidly. The USA may reject Russia's evidence, but we knew they would do that anyway – the USA would reject a signed confession by Erdogan if they got it from Russia. I don't know why Moscow even bothers to show evidence to the Americans, it would do far better to approach Europeans – especially Germany and France – with its proof. If it could convince Germany, the USA would look a lot more foolish if it said it was all more Russian propaganda and lies.Patient Observer, December 2, 2015 at 2:11 pmThe USA will shield Erdogan for so long as it can, because his country is in a tremendous strategic position and is studded with NATO military installations. Washington certainly does not want to be confronted with a leadership transition it cannot micromanage. It might throw Erdogan under the bus, but not until it has identified and groomed a successor.
It is also significant that rather than groveling for mercy, Russia continues to attack the alliance's credibility, and it is scoring hits.
The comment with the most "likes" on a yahoo article on Russian claiming that Turkey is buying ISIS oil (lost the link):marknesop, December 2, 2015 at 2:21 pm
" 542 – likes
First it does not require a high school education to understand in order for ISIS to sell any oil from captured oil fields and or refineries it must have buyers of said oil. Our govt claims to watch everyone and know everything yet with all their tax payer space observations, massive fleet of drones to track ants in the sand they cannot figure out where all the oil goes to fund ISIS?
Our govt is intentionally not stopping this oil from being sold and our leaders aware of this need to be exposed then put on trial then executed. In fact political figures in our country need to be facing firing squads monthly until they tell the truth and serve just our citizens. This in turn makes for a huge employment opportunity both in firing squads and new politicians."The European Union voted to give itself permission to buy oil from "Syrian rebels" to help them overthrow Assad. The only stipulations of who could not benefit from it were "regime-associated" individuals and companies. The agency that must be consulted – the Syrian National Coalition – is based in Turkey and its president is chummy with Erdogan. Come on. Washington is ready to indict and convict Moscow on a hell of a lot less evidence than this on any day you care to name.et Al, December 2, 2015 at 2:43 pmNeuters: Russia says it has proof Turkey involved in Islamic State oil trade
http://uk.reuters.com/article/2015/12/02/mideast-crisis-russia-turkey-idUKL8N13R2KV2015120…U.S. officials say coalition air strikes have destroyed hundreds of IS oil trucks while the Russian campaign has mainly targeted opponents of the Syrian government who are not from Islamic State, which is also known as ISIL.
"The irony of the Russians raising this concern is that there's plenty of evidence to indicate that the largest consumer of ISIL oil is actually Bashar al-Assad and his regime, a regime that only remains in place because it is being propped up by the Russians," White House spokesman Josh Earnest said.
The State Department's Toner said U.S. information was that Islamic State was selling oil at the wellheads to middlemen who were involved in smuggling it across the frontier into Turkey…
…The ministry said the Western route took oil produced at fields near the Syrian city of Raqqa to the settlement of Azaz on the border with Turkey.
From there the columns of tanker trucks pass through the Turkish town of Reyhanli, the ministry said, citing what it said were satellite pictures of hundreds of such trucks moving through the border crossing without obstruction.
"There is no inspection of the vehicles carried out … on the Turkish side," said Rudskoy.
Some of the smuggled cargoes go to the Turkish domestic market, while some is exported via the Turkish Mediterranean ports of Iskenderun and Dortyol, the ministry said.
Another main route for smuggled oil, according to the ministry, runs from Deir Ez-zour in Syria to the Syrian border crossing at Al-Qamishli. It said the trucks then took the crude for refining at the Turkish city of Batman….
…The defence ministry officials said the information they released on Wednesday was only part of the evidence they have in their possession, and that they would be releasing further intelligence in the next days and weeks.
####I can't wait for that twitter evidence from the State Department and the Pentagon. It should be devastating.
[Dec 03, 2015] Tomgram Andrew Bacevich, An Invitation to Collective Suicide
Notable quotes:
"... Aside from long-shots Bernie Sanders and Rand Paul, any candidate likely to enter the Oval Office in January 2017 will be committed to some version of much-more war, including obviously Donald Trump, Marco (" clash of civilizations ") Rubio, and Hillary Clinton, who recently gave a hawkish speech at the Council on Foreign Relations on her version of war policy against the Islamic State. ..."
"... Assume that the hawks get their way -- that the United States does whatever it takes militarily to confront and destroy ISIS. Then what? Answering that question requires taking seriously the outcomes of other recent U.S. interventions in the Greater Middle East. In 1991, when the first President Bush ejected Saddam Hussein's army from Kuwait, Americans rejoiced, believing that they had won a decisive victory. A decade later, the younger Bush seemingly outdid his father by toppling the Taliban in Afghanistan and then making short work of Saddam himself -- a liberation twofer achieved in less time than it takes Americans to choose a president. After the passage of another decade, Barack Obama got into the liberation act, overthrowing the Libyan dictator Muammar Gaddafi in what appeared to be a tidy air intervention with a clean outcome. As Secretary of State Hillary Clinton memorably put it , "We came, we saw, he died." End of story. In fact, subsequent events in each case mocked early claims of success or outright victory. Unanticipated consequences and complications abounded. "Liberation" turned out to be a prelude to chronic violence and upheaval. ..."
"... Indeed, the very existence of the Islamic State (ISIS) today renders a definitive verdict on the Iraq wars over which the Presidents Bush presided, each abetted by a Democratic successor. A de facto collaboration of four successive administrations succeeded in reducing Iraq to what it is today: a dysfunctional quasi-state unable to control its borders or territory while serving as a magnet and inspiration for terrorists. ..."
"... Were it not for the reckless American decision to invade and occupy a nation that, whatever its crimes, had nothing to do with 9/11, the Islamic State would not exist. ..."
"... True, in both Syria and Iraq the Islamic State has demonstrated a disturbing ability to capture and hold large stretches of desert, along with several population centers. It has, however, achieved these successes against poorly motivated local forces of, at best, indifferent quality. ..."
"... Time and again the unanticipated side effects of U.S. military action turned out to be very bad indeed. In Kabul, Baghdad, or Tripoli, the Alamo fell, but the enemy dispersed or reinvented itself and the conflict continued. Assurances offered by Kristol that this time things will surely be different deserve to be taken with more than a grain of salt. Pass the whole shaker. ..."
"... American Interest ..."
"... Now I happen to think that equating our present predicament in the Islamic world with the immensely destructive conflicts of the prior century is dead wrong. Yet it's a proposition that Americans at this juncture should contemplate with the utmost seriousness. ..."
"... With so much on the line, Cohen derides the Obama administration's tendency to rely on "therapeutic bombing, which will temporarily relieve the itch, but leave the wounds suppurating." The time for such half-measures has long since passed. Defeating the Islamic State and "kindred movements" will require the U.S. to "kill a great many people." To that end Washington needs "a long-range plan not to 'contain' but to crush" the enemy. Even with such a plan, victory will be a long way off and will require "a long, bloody, and costly process." ..."
"... Nor were Americans sufficiently willing to die for the cause. In South Vietnam, 58,000 G.I.s died in a futile effort to enable that country to survive. In Iraq and Afghanistan, where the stakes were presumably much higher, we pulled the plug after fewer than 7,000 deaths. ..."
"... In the meantime, U.S. forces would have to deal with the various and sundry "kindred movements" that are already cropping up like crabgrass in country after country. Afghanistan -- still? again? -- would head the list of places requiring U.S. military attention. But other prospective locales would include such hotbeds of Islamist activity as Lebanon, Libya, Palestine, Somalia, and Yemen, along with several West African countries increasingly beset with insurgencies. Unless Egyptian, Pakistani, and Saudi security forces demonstrate the ability (not to mention the will) to suppress the violent radicals in their midst, one or more of those countries could also become the scene of significant U.S. military action. ..."
"... At first glance, $1.8 trillion annually is a stupefyingly large figure. To make it somewhat more palatable, a proponent of World War IV might put that number in historical perspective. During the first phases of World War III, for example, the United States routinely allocated 10% or more of total gross domestic product (GDP) for national security. With that GDP today exceeding $17 trillion, apportioning 10% to the Pentagon would give those charged with managing World War IV a nice sum to work with and no doubt to build upon. ..."
"... In other words, funding World War IV while maintaining a semblance of fiscal responsibility would entail the kind of trade-offs that political leaders are loathe to make. Today, neither party appears up to taking on such challenges. That the demands of waging protracted war will persuade them to rise above their partisan differences seems unlikely. It sure hasn't so far. ..."
"... In my view, Cohen's World War IV is an invitation to collective suicide. Arguing that no alternative exists to open-ended war represents not hard-nosed realism, but the abdication of statecraft. Yet here's the ultimate irony: even without the name, the United States has already embarked upon something akin to a world war, which now extends into the far reaches of the Islamic world and spreads further year by year. ..."
"... Andrew J. Bacevich, a ..."
"... , is professor emeritus of history and international relations at Boston University. He is the author of ..."
"... , among other works. His new book, ..."
"... is due out in April 2016. ..."
"... on Twitter and join us on Facebook . Check out the newest Dispatch Book, Nick Turse's ..."
"... , and Tom Engelhardts latest book, ..."
Dec 03, 2015 | TomDispatch
Let's consider the two parties in Washington. I'm not referring to the Republican and Democratic ones, but our capital's war parties (there being no peace party, of course). They might be labeled the More War Party and the Much (or Much, Much) More War Party. Headed by President Obama, the first is distinctly a minority grouping. In a capital city in which, post-Paris, war seems to be the order of the day, it's the party of relative restraint, as the president has clearly grasped the obvious: for the last 14 years, the more wholeheartedly the U.S. has gone into any situation in the Greater Middle East, militarily speaking, the worse it has turned out.
Having promised to get us out of two wars and being essentially assured of leaving us in at least three (and various other conflicts on the side), he insists that a new invasion or even a large-scale infusion of American troops, aka "boots on the ground," in Syria or Iraq is a no-go for him. The code word he uses for his version of more war -- since less war is simply not an option on that "table" in Washington where all options are evidently kept -- is "intensification." Once upon a time, it might have been called "escalation" or "mission creep." The president has pledged to merely "intensify" the war he's launched, however reluctantly, in Syria and the one he's re-launched in Iraq. This seems to mean more of exactly what he's already ordered into the fray: more air power, more special forces boots more or less on the ground in Syria, more special ops raiders sent into Iraq, and perhaps more military advisers ever nearer to the action in that country as well. This is as close as you're likely to get in present-day America, at least in official circles, to an antiwar position.
In the Much (or Much, Much) More War party, Republicans and Democrats alike are explicitly or implicitly criticizing the president for his "weak" policies and for "leading from behind" against the Islamic State. They propose solutions ranging from instituting "no-fly zones" in northern Syria to truly intensifying U.S. air strikes, to sending in local forces backed and led by American special operators (à la Afghanistan 2001), to sending in far more American troops, to simply putting masses of American boots on the ground and storming the Islamic State's capital, Raqqa. After fourteen years in which so many similar "solutions" have been tried and in the end failed miserably in the Greater Middle East or North Africa, all of it, as if brand new, is once again on that table in Washington.
Aside from long-shots Bernie Sanders and Rand Paul, any candidate likely to enter the Oval Office in January 2017 will be committed to some version of much-more war, including obviously Donald Trump, Marco ("clash of civilizations") Rubio, and Hillary Clinton, who recently gave a hawkish speech at the Council on Foreign Relations on her version of war policy against the Islamic State. Given that stark reality, this is a perfect moment to explore what much-more war (call it, in fact, "World War IV") might actually mean and how it might play out in our world -- and TomDispatch regular Andrew Bacevich is the perfect person to do it. Tom
Beyond ISIS: The Folly of World War IV
By Andrew J. BacevichAssume that the hawks get their way -- that the United States does whatever it takes militarily to confront and destroy ISIS. Then what?
Answering that question requires taking seriously the outcomes of other recent U.S. interventions in the Greater Middle East. In 1991, when the first President Bush ejected Saddam Hussein's army from Kuwait, Americans rejoiced, believing that they had won a decisive victory. A decade later, the younger Bush seemingly outdid his father by toppling the Taliban in Afghanistan and then making short work of Saddam himself -- a liberation twofer achieved in less time than it takes Americans to choose a president. After the passage of another decade, Barack Obama got into the liberation act, overthrowing the Libyan dictator Muammar Gaddafi in what appeared to be a tidy air intervention with a clean outcome. As Secretary of State Hillary Clinton memorably put it, "We came, we saw, he died." End of story.
In fact, subsequent events in each case mocked early claims of success or outright victory. Unanticipated consequences and complications abounded. "Liberation" turned out to be a prelude to chronic violence and upheaval.
Indeed, the very existence of the Islamic State (ISIS) today renders a definitive verdict on the Iraq wars over which the Presidents Bush presided, each abetted by a Democratic successor. A de facto collaboration of four successive administrations succeeded in reducing Iraq to what it is today: a dysfunctional quasi-state unable to control its borders or territory while serving as a magnet and inspiration for terrorists.
The United States bears a profound moral responsibility for having made such a hash of things there. Were it not for the reckless American decision to invade and occupy a nation that, whatever its crimes, had nothing to do with 9/11, the Islamic State would not exist. Per the famous Pottery Barn Rule attributed to former Secretary of State Colin Powell, having smashed Iraq to bits a decade ago, we can now hardly deny owning ISIS.
That the United States possesses sufficient military power to make short work of that "caliphate" is also the case. True, in both Syria and Iraq the Islamic State has demonstrated a disturbing ability to capture and hold large stretches of desert, along with several population centers. It has, however, achieved these successes against poorly motivated local forces of, at best, indifferent quality.
In that regard, the glibly bellicose editor of the Weekly Standard, William Kristol, is surely correct in suggesting that a well-armed contingent of 50,000 U.S. troops, supported by ample quantities of air power, would make mincemeat of ISIS in a toe-to-toe contest. Liberation of the various ISIS strongholds like Fallujah and Mosul in Iraq and Palmyra and Raqqa, its "capital," in Syria would undoubtedly follow in short order.
In the wake of the recent attacks in Paris, the American mood is strongly trending in favor of this sort of escalation. Just about anyone who is anyone -- the current occupant of the Oval Office partially excepted -- favors intensifying the U.S. military campaign against ISIS. And why not? What could possibly go wrong? As Kristol puts it, "I don't think there's much in the way of unanticipated side effects that are going to be bad there."
It's an alluring prospect. In the face of a sustained assault by the greatest military the world has ever seen, ISIS foolishly (and therefore improbably) chooses to make an Alamo-like stand. Whammo! We win. They lose. Mission accomplished.
Of course, that phrase recalls the euphoric early reactions to Operations Desert Storm in 1991, Enduring Freedom in 2001, Iraqi Freedom in 2003, and Odyssey Dawn, the Libyan intervention of 2011. Time and again the unanticipated side effects of U.S. military action turned out to be very bad indeed. In Kabul, Baghdad, or Tripoli, the Alamo fell, but the enemy dispersed or reinvented itself and the conflict continued. Assurances offered by Kristol that this time things will surely be different deserve to be taken with more than a grain of salt. Pass the whole shaker.
Embracing Generational War
Why this repeated disparity between perceived and actual outcomes? Why have apparent battlefield successes led so regularly to more violence and disorder? Before following Kristol's counsel, Americans would do well to reflect on these questions.
Cue Professor Eliot A. Cohen. Shortly after 9/11, Cohen, one of this country's preeminent military thinkers, characterized the conflict on which the United States was then embarking as "World War IV." (In this formulation, the Cold War becomes World War III.) Other than in certain neoconservative quarters, the depiction did not catch on. Yet nearly a decade-and-a-half later, the Johns Hopkins professor and former State Department official is sticking to his guns. In an essay penned for the American Interest following the recent Paris attacks, he returns to his theme. "It was World War IV in 2001," Cohen insists. "It is World War IV today." And to our considerable benefit he spells out at least some of the implications of casting the conflict in such expansive and evocative terms.
Now I happen to think that equating our present predicament in the Islamic world with the immensely destructive conflicts of the prior century is dead wrong. Yet it's a proposition that Americans at this juncture should contemplate with the utmost seriousness.
In the United States today, confusion about what war itself signifies is widespread. Through misuse, misapplication, and above all misremembering, we have distorted the term almost beyond recognition. As one consequence, talk of war comes too easily off the tongues of the unknowing.
Not so with Cohen. When it comes to war, he has no illusions. Addressing that subject, he illuminates it, enabling us to see what war entails. So in advocating World War IV, he performs a great service, even if perhaps not the one he intends.
What will distinguish the war that Cohen deems essential? "Begin with endurance," he writes. "This war will probably go on for the rest of my life, and well into my children's." Although American political leaders seem reluctant "to explain just how high the stakes are," Cohen lays them out in direct, unvarnished language. At issue, he insists, is the American way of life itself, not simply "in the sense of rock concerts and alcohol in restaurants, but the more fundamental rights of freedom of speech and religion, the equality of women, and, most essentially, the freedom from fear and freedom to think."
With so much on the line, Cohen derides the Obama administration's tendency to rely on "therapeutic bombing, which will temporarily relieve the itch, but leave the wounds suppurating." The time for such half-measures has long since passed. Defeating the Islamic State and "kindred movements" will require the U.S. to "kill a great many people." To that end Washington needs "a long-range plan not to 'contain' but to crush" the enemy. Even with such a plan, victory will be a long way off and will require "a long, bloody, and costly process."
Cohen's candor and specificity, as bracing as they are rare, should command our respect. If World War IV describes what we are in for, then eliminating ISIS might figure as a near-term imperative, but it can hardly define the endgame. Beyond ISIS loom all those continually evolving "kindred movements" to which the United States will have to attend before it can declare the war itself well and truly won.
To send just tens of thousands of U.S. troops to clean up Syria and Iraq, as William Kristol and others propose, offers at best a recipe for winning a single campaign. Winning the larger war would involve far more arduous exertions. This Cohen understands, accepts, and urges others to acknowledge.
And here we come to the heart of the matter. For at least the past 35 years -- that is, since well before 9/11 -- the United States has been "at war" in various quarters of the Islamic world. At no point has it demonstrated the will or the ability to finish the job. Washington's approach has been akin to treating cancer with a little bit of chemo one year and a one-shot course of radiation the next. Such gross malpractice aptly describes U.S. military policy throughout the Greater Middle East across several decades.
While there may be many reasons why the Iraq War of 2003 to 2011 and the still longer Afghanistan War yielded such disappointing results, Washington's timidity in conducting those campaigns deserves pride of place. That most Americans might bridle at the term "timidity" reflects the extent to which they have deluded themselves regarding the reality of war.
In comparison to Vietnam, for example, Washington's approach to waging its two principal post-9/11 campaigns was positively half-hearted. With the nation as a whole adhering to peacetime routines, Washington neither sent enough troops nor stayed anywhere near long enough to finish the job. Yes, we killed many tens of thousands of Iraqis and Afghans, but if winning World War IV requires, as Cohen writes, that we "break the back" of the enemy, then we obviously didn't kill nearly enough.
Nor were Americans sufficiently willing to die for the cause. In South Vietnam, 58,000 G.I.s died in a futile effort to enable that country to survive. In Iraq and Afghanistan, where the stakes were presumably much higher, we pulled the plug after fewer than 7,000 deaths.
Americans would be foolish to listen to those like William Kristol who, even today, peddle illusions about war being neat and easy. They would do well instead to heed Cohen, who knows that war is hard and ugly.
What Would World War IV Look Like?
Yet when specifying the practical implications of generational war, Cohen is less forthcoming. From his perspective, this fourth iteration of existential armed conflict in a single century is not going well. But apart from greater resolve and bloody-mindedness, what will it take to get things on the right track?
As a thought experiment, let's answer that question by treating it with the urgency that Cohen believes it deserves. After 9/11, certain U.S. officials thundered about "taking the gloves off." In practice, however, with the notable exception of policies permitting torture and imprisonment without due process, the gloves stayed on. Take Cohen's conception of World War IV at face value and that will have to change.
For starters, the country would have to move to something like a war footing, enabling Washington to raise a lot more troops and spend a lot more money over a very long period of time. Although long since banished from the nation's political lexicon, the M-word -- mobilization -- would make a comeback. Prosecuting a generational war, after all, is going to require the commitment of generations.
Furthermore, if winning World War IV means crushing the enemy, as Cohen emphasizes, then ensuring that the enemy, once crushed, cannot recover would be hardly less important. And that requirement would prohibit U.S. forces from simply walking away from a particular fight even -- or especially -- when it might appear won.
At the present moment, defeating the Islamic State ranks as Washington's number one priority. With the Pentagon already claiming a body count of 20,000 ISIS fighters without notable effect, this campaign won't end anytime soon. But even assuming an eventually positive outcome, the task of maintaining order and stability in areas that ISIS now controls will remain. Indeed, that task will persist until the conditions giving rise to entities like ISIS are eliminated. Don't expect French President François Hollande or British Prime Minister David Cameron to sign up for that thankless job. U.S. forces will own it. Packing up and leaving the scene won't be an option.
How long would those forces have to stay? Extrapolating from recent U.S. occupations in Iraq and Afghanistan, something on the order of a quarter-century seems like a plausible approximation. So should our 45th president opt for a boots-on-the-ground solution to ISIS, as might well be the case, the privilege of welcoming the troops home could belong to the 48th or 49th occupant of the White House.
In the meantime, U.S. forces would have to deal with the various and sundry "kindred movements" that are already cropping up like crabgrass in country after country. Afghanistan -- still? again? -- would head the list of places requiring U.S. military attention. But other prospective locales would include such hotbeds of Islamist activity as Lebanon, Libya, Palestine, Somalia, and Yemen, along with several West African countries increasingly beset with insurgencies. Unless Egyptian, Pakistani, and Saudi security forces demonstrate the ability (not to mention the will) to suppress the violent radicals in their midst, one or more of those countries could also become the scene of significant U.S. military action.
Effective prosecution of World War IV, in other words, would require the Pentagon to plan for each of these contingencies, while mustering the assets needed for implementation. Allies might kick in token assistance -- tokenism is all they have to offer -- but the United States will necessarily carry most of the load.
What Would World War IV Cost?
During World War III (aka the Cold War), the Pentagon maintained a force structure ostensibly adequate to the simultaneous prosecution of two and a half wars. This meant having the wherewithal to defend Europe and the Pacific from communist aggression while still leaving something for the unexpected. World War IV campaigns are unlikely to entail anything on the scale of the Warsaw Pact attacking Western Europe or North Korea invading the South. Still, the range of plausible scenarios will require that U.S. forces be able to take on militant organizations C and D even while guarding against the resurgence of organizations A and B in altogether different geographic locations.
Even though Washington may try whenever possible to avoid large-scale ground combat, relying on air power (including drones) and elite Special Operations forces to do the actual killing, post-conflict pacification promises to be a manpower intensive activity. Certainly, this ranks as one of the most obvious lessons to emerge from World War IV's preliminary phases: when the initial fight ends, the real work begins.
U.S. forces committed to asserting control over Iraq after the invasion of 2003 topped out at roughly 180,000. In Afghanistan, during the Obama presidency, the presence peaked at 110,000. In a historical context, these are not especially large numbers. At the height of the Vietnam War, for example, U.S. troop strength in Southeast Asia exceeded 500,000.
In hindsight, the Army general who, before the invasion of 2003, publicly suggested that pacifying postwar Iraq would require "several hundred thousand troops" had it right. A similar estimate applies to Afghanistan. In other words, those two occupations together could easily have absorbed 600,000 to 800,000 troops on an ongoing basis. Given the Pentagon's standard three-to-one rotation policy, which assumes that for every unit in-country, a second is just back, and a third is preparing to deploy, you're talking about a minimum requirement of between 1.8 and 2.4 million troops to sustain just two medium-sized campaigns -- a figure that wouldn't include some number of additional troops kept in reserve for the unexpected.
In other words, waging World War IV would require at least a five-fold increase in the current size of the U.S. Army -- and not as an emergency measure but a permanent one. Such numbers may appear large, but as Cohen would be the first to point out, they are actually modest when compared to previous world wars. In 1968, in the middle of World War III, the Army had more than 1.5 million active duty soldiers on its rolls -- this at a time when the total American population was less than two-thirds what it is today and when gender discrimination largely excluded women from military service. If it chose to do so, the United States today could easily field an army of two million or more soldiers.
Whether it could also retain the current model of an all-volunteer force is another matter. Recruiters would certainly face considerable challenges, even if Congress enhanced the material inducements for service, which since 9/11 have already included a succession of generous increases in military pay. A loosening of immigration policy, granting a few hundred thousand foreigners citizenship in return for successfully completing a term of enlistment might help. In all likelihood, however, as with all three previous world wars, waging World War IV would oblige the United States to revive the draft, a prospect as likely to be well-received as a flood of brown and black immigrant enlistees. In short, going all out to create the forces needed to win World War IV would confront Americans with uncomfortable choices.
The budgetary implications of expanding U.S. forces while conducting a perpetual round of what the Pentagon calls "overseas contingency operations" would also loom large. Precisely how much money an essentially global conflict projected to extend well into the latter half of the century would require is difficult to gauge. As a starting point, given the increased number of active duty forces, tripling the present Defense Department budget of more than $600 billion might serve as a reasonable guess.
At first glance, $1.8 trillion annually is a stupefyingly large figure. To make it somewhat more palatable, a proponent of World War IV might put that number in historical perspective. During the first phases of World War III, for example, the United States routinely allocated 10% or more of total gross domestic product (GDP) for national security. With that GDP today exceeding $17 trillion, apportioning 10% to the Pentagon would give those charged with managing World War IV a nice sum to work with and no doubt to build upon.
Of course, that money would have to come from somewhere. For several years during the last decade, sustaining wars in Iraq and Afghanistan pushed the federal deficit above a trillion dollars. As one consequence, the total national debt now exceeds annual GDP, having tripled since 9/11. How much additional debt the United States can accrue without doing permanent damage to the economy is a question of more than academic interest.
To avoid having World War IV produce an endless string of unacceptably large deficits, ratcheting up military spending would undoubtedly require either substantial tax increases or significant cuts in non-military spending, including big-ticket programs like Medicare and social security -- precisely those, that is, which members of the middle class hold most dear.
In other words, funding World War IV while maintaining a semblance of fiscal responsibility would entail the kind of trade-offs that political leaders are loathe to make. Today, neither party appears up to taking on such challenges. That the demands of waging protracted war will persuade them to rise above their partisan differences seems unlikely. It sure hasn't so far.
The Folly of World War IV
In his essay, Cohen writes, "we need to stop the circumlocutions." Of those who would bear the direct burden of his world war, he says, "we must start telling them the truth." He's right, even if he himself is largely silent about what the conduct of World War IV is likely to exact from the average citizen.
As the United States enters a presidential election year, plain talk about the prospects of our ongoing military engagement in the Islamic world should be the order of the day. The pretense that either dropping a few more bombs or invading one or two more countries will yield a conclusive outcome amounts to more than an evasion. It is an outright lie.
As Cohen knows, winning World War IV would require dropping many, many more bombs and invading, and then occupying for years to come, many more countries. After all, it's not just ISIS that Washington will have to deal with, but also its affiliates, offshoots, wannabes, and the successors almost surely waiting in the wings. And don't forget al-Qaeda.
Cohen believes that we have no alternative. Either we get serious about fighting World War IV the way it needs to be fought or darkness will envelop the land. He is undeterred by the evidence that the more deeply we insert our soldiers into the Greater Middle East the more concerted the resistance they face; that the more militants we kill the more we seem to create; that the inevitable, if unintended, killing of innocents only serves to strengthen the hand of the extremists. As he sees it, with everything we believe in riding on the outcome, we have no choice but to press on.
While listening carefully to Cohen's call to arms, Americans should reflect on its implications. Wars change countries and people. Embracing his prescription for World War IV would change the United States in fundamental ways. It would radically expand the scope and reach of the national security state, which, of course, includes agencies beyond the military itself. It would divert vast quantities of wealth to nonproductive purposes. It would make the militarization of the American way of life, a legacy of prior world wars, irreversible. By sowing fear and fostering impossible expectations of perfect security, it would also compromise American freedom in the name of protecting it. The nation that decades from now might celebrate VT Day -- victory over terrorism -- will have become a different place, materially, politically, culturally, and morally.
In my view, Cohen's World War IV is an invitation to collective suicide. Arguing that no alternative exists to open-ended war represents not hard-nosed realism, but the abdication of statecraft. Yet here's the ultimate irony: even without the name, the United States has already embarked upon something akin to a world war, which now extends into the far reaches of the Islamic world and spreads further year by year.
Incrementally, bit by bit, this nameless war has already expanded the scope and reach of the national security apparatus. It is diverting vast quantities of wealth to nonproductive purposes even as it normalizes the continuing militarization of the American way of life. By sowing fear and fostering impossible expectations of perfect security, it is undermining American freedom in the name of protecting it, and doing so right before our eyes.
Cohen rightly decries the rudderless character of the policies that have guided the (mis)conduct of that war thus far. For that critique we owe him a considerable debt. But the real problem is the war itself and the conviction that only through war can America remain America.
For a rich and powerful nation to conclude that it has no choice but to engage in quasi-permanent armed conflict in the far reaches of the planet represents the height of folly. Power confers choice. As citizens, we must resist with all our might arguments that deny the existence of choice. Whether advanced forthrightly by Cohen or fecklessly by the militarily ignorant, such claims will only perpetuate the folly that has already lasted far too long.
Andrew J. Bacevich, a TomDispatch regular, is professor emeritus of history and international relations at Boston University. He is the author of Breach of Trust: How Americans Failed Their Soldiers and Their Country, among other works. His new book, America's War for the Greater Middle East (Random House), is due out in April 2016.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Nick Turse's Tomorrow's Battlefield: U.S. Proxy Wars and Secret Ops in Africa, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.
Copyright 2015 Andrew J. Bacevich
[Dec 02, 2015] Russian Oil Output Stays Near Record Level as OPEC Set to Meet
www.bloomberg.com
AlexS, 12/02/2015 at 5:31 amRussian Oil Output Stays Near Record Level as OPEC Set to MeetRussian oil output in November hovered near a post-Soviet record set the previous month, shrugging off a crude-price slump before OPEC gathers for its annual meeting in Vienna.
Production of crude and gas condensate averaged 10.779 million barrels a day during the month, according to data from the Energy Ministry's CDU-TEK unit. That's an increase of 1.3 percent from a year earlier and slightly beneath the 10.782 million barrels a day record in October.
Russia … continues to build output as a weakened ruble reduces costs for drilling and the nation's tax system helps compensate for the lower price. Crude exports reached 5.32 million barrels of oil a day in November, an 11 percent gain from the previous year and a 2.4 percent decline from the previous month.
My comment: using the 7.3 barrels/ton conversion ratio, November production was 10,735 kb/d vs. 10,737 kb/d in October (revised; preliminary estimate for October was 10,731 kb/d).
Russian annual output is on track to surpass the official forecast for 2015 of 533 million tons, or 10.66 mb/d.
Source: Russian Energy Ministry
[Dec 02, 2015] America's biggest gas field finally succumbs to downturn
Notable quotes:
"... I had another look at the Colorado well data. I found out how I could only focus on horizontal wells, and also selected only the prolific Wattenberg field in the Niobrara area. I kept being amazed by the declines, compared with the Bakken. See the full picture below. ..."
peakoilbarrel.com
TechGuy, 12/02/2015 at 12:05 pmFYI:Enno Peters, 12/02/2015 at 4:18 pm
America's biggest gas field finally succumbs to downturn
http://www.reuters.com/article/2015/12/02/us-usa-marcellus-decline-insight-idUSKBN0TL0CY20151202#bOmHd0LCw1u9zR5x.97I had another look at the Colorado well data. I found out how I could only focus on horizontal wells, and also selected only the prolific Wattenberg field in the Niobrara area. I kept being amazed by the declines, compared with the Bakken. See the full picture below.coffeeguyzz, 12/02/2015 at 5:18 pmThe average well here returns 82 kbo after 3.5 years, so the EUR may be about 100 kbo or so. Newer wells are slightly better, but also not by much: 2014/2015 wells produce maybe 10 kbo more in the early phase, but similar as in the Bakken the daily rate drops to the same rate as older wells after 1.5 years.
Gas output is higher, may be in the tune of 500-1000 kMCF EUR.
These wells together produced about 170 kbo/d in July.
EnnoIt is great to get a broader perspective from different shale plays. All the attention on the data-rich Bakken can mask what is occurring elsewhere.
Many of the Wattenberg field wells are 6,000′ deep and have laterals slightly over 4,000′, and 20/25 stages.
The decline would be horrendous compared to the Bakken where wells run 9,500'/10,000 deep, have 9,500′ long laterals as a rule, and anywhere from 30 to 60 stages.
A lot of the Niobrara guys drilled the shallowest bench first (Niobrara 1 ?), and have yet to extensively test benches 2 and 3, as well as the deepest Codell, where it exists.
The usual HBP circumstances as well as economics (shallower = cheaper) have influenced development there.
The Niobrara wells will never compare favorably to the Bakken, but if the intense down spacing proves effective, and the operators get more than 75 cents/a buck for a gallon ATW for their product, it may make economic sense.
(As per the down spacing, Whiting just put 32 wells on one pad, but seem to think 30 will be optimal going forward).
[Dec 02, 2015] Ed Morse is saying OPEC will not cut until June, 2016 at the earliest.
Notable quotes:
"... Not sure the shale drillers have many "friends" on Wall Street. Most of the smart money is short the shales. ..."
"... When enough money has been made, the bones of the shalies will be picked over. ..."
"... I'm going to stick with my call-OPEC cuts Friday. Every analyst seems to think that they won't cut. But to me, the language out of al-Naimi the last couple of weeks at least leaves the door open. I think they will reference current high inventories and the fact that higher prices are needed now to prevent a major price spike in a year or two. They've knocked out 3-5 million barrels per day of future oil supply with some of it coming out of OPEC members Nigeria, Algeria, Venezuela, Ecuador and Iraq who can't afford to invest in maintaining production. We'll see. ..."
"... Personally I am still of the opinion that the Saudis are keeping the pedal to the metal in order to put a hurting on their enemies, real or perceived. My take is that they are fighting a war, using the price of oil as their primary and probably only effective weapon, thus depriving their enemies, most or all of whom are oil exporters, of revenue. It takes revenue to fight, revenue to overthrow existing governments, revenue to do just about anything. ..."
"... I don't think they will cut anytime soon, given that they still have plenty of money in the bank, and can afford to give up the revenue for a while yet, if they so choose. But I wouldn't bet very much on this opinion. ..."
"... "…difficult choice OPEC nations have to make. They could cut output to revive crude prices from a four-year low, at the risk of losing more market share to rival suppliers, including U.S. shale drillers. Or they could do nothing and allow prices to fall low enough to deter growth in U.S. output, a move that would also squeeze the finances of poorer members like Venezuela and Nigeria." ..."
peakoilbarrel.com
shallow sand, 12/01/2015 at 6:37 pm
Ed Morse is saying OPEC will not cut until June, 2016 at the earliest. Given that his employer, Citibank, is owned to a large extent by Saudi royals, he should be listened to (assuming he is shooting straight).Arceus, 12/01/2015 at 7:22 pmI also notice he is calling for US stripper well production to be shut in. Also note WSJ has written two stripper well articles in the last week.
What the heck? We were just minding our own business the whole time. Per Macquarie, US conventional onshore, which a large chunk of is stripper, has rolled over harder in percentage terms than in even 1986 or 1998. Those numbers are just through June, 2015, see my post above. We are being responsible, not drilling, not doing work overs, not borrowing. Why should we close up shop? Just because we don't want to borrow above our means?
Shale caused this mess. But I guess a bunch of Wall Street types would rather see stripper producers fail, as stripper producers are not generally indebted to Wall Street. MLPs such as LINE, BBEP are exceptions.
So sorry, but to totally kill US stripper production, will need lower prices for longer, which may very well happen. But you Wall Streeters will need to loan more $$ to your Shale oil buddies, are you willing to do that as their $$ per BOE slides below $20?
Not sure the shale drillers have many "friends" on Wall Street. Most of the smart money is short the shales. But you are right, the big money center banks and smaller banks do not want the companies to go under – they need to make money off of them first in a variety of ways – shorting of their stocks, issuing preferred converts, buying up secured high yield junk bonds, doing secondaries, arranging potential mergers, etc.John Keller, 12/01/2015 at 9:56 pmWhen enough money has been made, the bones of the shalies will be picked over.
oldfarmermac, 12/01/2015 at 10:43 pmI'm going to stick with my call-OPEC cuts Friday. Every analyst seems to think that they won't cut. But to me, the language out of al-Naimi the last couple of weeks at least leaves the door open. I think they will reference current high inventories and the fact that higher prices are needed now to prevent a major price spike in a year or two. They've knocked out 3-5 million barrels per day of future oil supply with some of it coming out of OPEC members Nigeria, Algeria, Venezuela, Ecuador and Iraq who can't afford to invest in maintaining production. We'll see.
Personally I am still of the opinion that the Saudis are keeping the pedal to the metal in order to put a hurting on their enemies, real or perceived. My take is that they are fighting a war, using the price of oil as their primary and probably only effective weapon, thus depriving their enemies, most or all of whom are oil exporters, of revenue. It takes revenue to fight, revenue to overthrow existing governments, revenue to do just about anything.Greenbub, 12/01/2015 at 11:19 pmAnother reason for them to wait a while yet on cutting is that they may not yet be SATISFIED that the other OPEC countries have GOTTEN THE MESSAGE about cheating on quotas.
When the Saudis cut before, all their friends except one or two played the backstabber by cheating like hell and leaving the Saudis to eat the loss of revenue and market share.
The longer the Saudis put off cutting, the more they rub the cheaters noses in their past mistakes. Maybe this time around, the Saudis will be able to get GUARANTEES that the rest of OPEC will not cheat. Something in writing maybe, specifying damages to be paid to the Saudis. Maybe they think the other OPEC members will be desperate enough to give such written binding guarantees , sooner or later.
I don't think they will cut anytime soon, given that they still have plenty of money in the bank, and can afford to give up the revenue for a while yet, if they so choose. But I wouldn't bet very much on this opinion.
This is a couple weeks old, but a good summary of the theories:
http://www.bloomberg.com/news/articles/2014-11-21/confused-opec-watchers-are-more-divided-than-ever"…difficult choice OPEC nations have to make. They could cut output to revive crude prices from a four-year low, at the risk of losing more market share to rival suppliers, including U.S. shale drillers. Or they could do nothing and allow prices to fall low enough to deter growth in U.S. output, a move that would also squeeze the finances of poorer members like Venezuela and Nigeria."
[Dec 02, 2015] Russia Presents Detailed Evidence Of ISIS-Turkey Oil Trade
Notable quotes:
"... Now obviously, conclusive evidence that Ankara is knowingly facilitating the sale of ISIS crude will probably be hard to come by, at least in the short-term, but the silly thing about Erdogans pronouncement is that were talking about a man who was willing to plunge his country into civil war over a few lost seats in Parliament. The idea that he would ever step down is patently absurd. ..."
"... Whats critical is that the world gets the truth about whos financing and facilitating Raqqas Rockefellers. If a NATO member is supporting this, and if the US has refrained from bombing ISIS oil trucks for 14 months as part of an understanding with Erdogan, well then we have a problem. ..."
"... In the opening address, the Deputy says the ISIS oil trade reaches the highest levels of Turkeys government. He also says Erdogan wouldnt resign if his face was smeared with stolen Syrian oil. Antonov then blasts Ankara for arresting journalists and mocks Erdogans lovely family oil business. Antonov even calls on the journalists of the world to get involved and help Russia expose and destroy the sources of terrorist financing. ..."
"... I might be too harsh, but at the hands of the Turkish military killed our comrades. The cynicism of the Turkish leadership is unlimited. Look what theyre doing ?! Climbed to a foreign country, it shamelessly robbed. And if the owners interfere, then they have to be addressed. ..."
"... No one in the West, I wonder, does not cause the issue that the son of the President of Turkey is the leader of one of the largest energy companies, and son-in-appointed Minister of Energy? What a brilliant family business! ..."
"... National intelligence agencies watch Facebook, Twitter, Google and other search engines to see if they have to do damage control. If a few sites come out with articles implicating Bilal but the little people dont do many searches for him or re-tweet links, then theres no reason to react. They simply ignore the story. ..."
"... The government defines the narrative, and MSM stenographers fill in the pieces. Facebook, Twitter and Google are checked to see if they had the desired effect. They can also use a bit more direct techniques like massaging the Google search result rankings or blowing away Facebook and Twitter accounts they dont like. Israel is insane about collecting this data from Americans and reacting. Uncle Sugar isnt going to cough up that free $3 billion a year handout to them if the people are in the streets with pitchforks and torches. They are especially interested in de-ranking Google results that make Israel look bad, and promoting sites that deliver the message they want. Google is the worst search engine to look for Israeli current events. ..."
"... Obama Administration Supporting Islamic State -- OASIS. It certainly is if youre a terrorist rebel or well-connected oil pimp... ..."
"... The US made a deal with OPEC: the US would help to remove Assad, and in return, OPEC would dump oil to weaken Russia and Iran, fulfilling PNAC/Cheneys pet dream of consolidating the remaining oil reserves under US-friendly control. ISIS was a tool to that end. ..."
"... Now that the cat is out of the bag, now that Chinas overdue correction has been triggered, now that Brazil and Canada know who is largely responsible for their collapsing economies, now that Europe knows why they are overrun by refugees, I wonder how friendly those countries will be moving forward. ..."
"... As I read it, according to traditional international law, the Russian Federation may legally seize Erdogans Maltese-flagged neutral tankers carrying ISIS crude oil, because that crude oil constitutes a significant portion of ISIS war making potential, that tanker then effectively constituting an enemy merchant vessel, with the tankers subsequent condemnation in Russian prize courts, as the capturing belligerent power. ..."
"... A former police commander from Tajikistan was featured in an ISIS video recently where he admitted he was trained by the U.S. State Department and former military contractor Blackwater all the way up until last year. ..."
"... It was Turkeys national intelligence agency, known as MIT, that first organized Syrian military defectors into Western-backed groups under the banner of the Free Syrian Army. ..."
"... Free Syrian Army factions still convene on Turkish soil in the Joint Operations Center, a CIA-led intelligence hub that gives vetted rebels training as well as U.S.-made TOW antitank missiles used to destroy Syrian army tanks and armored units. ..."
"... Islamist groups, however, have benefited from Turkeys pro-opposition policy as well. In May, the Turkish daily newspaper Cumhuriyet published video from 2014 showing customs agents impounding a truck owned by the MIT. The trucks manifest said it was carrying humanitarian assistance for Syrians. Instead it was bearing a cache of ammunition and shells the newspaper said were destined for Islamist rebels. The videos release caused a furor. Erdogan vowed to prosecute Cumhuriyet, a threat he carried out Friday when authorities arrested two of the papers journalists on charges of espionage and aiding a terrorist organization. ..."
"... According to a 2015 United Nations study, two border crossings controlled by a faction of the Army of Conquest handle more than 300 trucks a day, a figure that exceeds prewar levels. The traffic yields an estimated $660,000 a day. ..."
Zero Hedge
On Monday, Turkey's sultan President Recep Tayyip Erdogan said something funny. In the wake of Vladimir Putin's contention that Russia has additional proof of Turkey's participation in Islamic State's illicit crude trade, Erdogan said he would resign if anyone could prove the accusations.Now obviously, conclusive evidence that Ankara is knowingly facilitating the sale of ISIS crude will probably be hard to come by, at least in the short-term, but the silly thing about Erdogan's pronouncement is that we're talking about a man who was willing to plunge his country into civil war over a few lost seats in Parliament. The idea that he would ever "step down" is patently absurd.
But that's not what's important. What's critical is that the world gets the truth about who's financing and facilitating "Raqqa's Rockefellers." If a NATO member is supporting this, and if the US has refrained from bombing ISIS oil trucks for 14 months as part of an understanding with Erdogan, well then we have a problem. For those who need a review, see the following four pieces:
- The Most Important Question About ISIS That Nobody Is Asking
- Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey's President
- How Turkey Exports ISIS Oil To The World: The Scientific Evidence
- ISIS Oil Trade Full Frontal: "Raqqa's Rockefellers", Bilal Erdogan, KRG Crude, And The Israel Connection
Unfortunately for Ankara, The Kremlin is on a mission to blow this story wide open now that Turkey has apparently decided it's ok to shoot down Russian fighter jets. On Wednesday, we get the latest from Russia, where the Defense Ministry has just finished a briefing on the Islamic State oil trade. Not to put too fine a point on it, but Turkey may be in trouble.
First, here's the bullet point summary via Reuters:
- RUSSIA'S DEFENCE MINISTRY SAYS RUSSIA'S AIR STRIKES IN SYRIA HELPED TO ALMOST HALVE ILLEGAL OIL TURNOVER
- RUSSIA'S DEFENCE MINISTRY SAYS TURKISH PRESIDENT AND FAMILY INVOLVED IN BUSINESS WITH ISLAMIC STATE OIL
- RUSSIAN DEFENCE MINISTRY SAYS WILL CONTINUE STRIKES IN SYRIA ON ISLAMIC STATE OIL INFRASTRUCTURE
- RUSSIA'S DEFENCE MINISTRY SAYS KNOWS OF THREE ROUTES BY WHICH ISLAMIC STATE OIL IS DIRECTED TO TURKEY
- RUSSIAN DEFENCE MINISTRY SAYS TO PRESENT NEXT WEEK INFORMATION SHOWING TURKEY HELPING ISLAMIC STATE
That's the Cliff's Notes version and the full statement from Deputy Minister of Defence Anatoly Antonov is below. Let us be the first to tell you, Antonov did not hold back.
In the opening address, the Deputy says the ISIS oil trade reaches the highest levels of Turkey's government. He also says Erdogan wouldn't resign if his face was smeared with stolen Syrian oil. Antonov then blasts Ankara for arresting journalists and mocks Erdogan's "lovely family oil business." Antonov even calls on the journalists of the world to "get involved" and help Russia "expose and destroy the sources of terrorist financing."
"Today, we are presenting only some of the facts that confirm that a whole team of bandits and Turkish elites stealing oil from their neighbors is operating in the region," Antonov continues, setting up a lengthy presentation in which the MoD shows photos of oil trucks, videos of airstrikes and maps detailing the trafficking of stolen oil. The clip is presented here with an English voice-over. Enjoy.
... ... ...
Oh, and for good measure, Lieutenant-General Sergey Rudskoy says the US is not bombing ISIS oil trucks.
ISIS OIL logistics hub, over 3,000 TRUCKS, travelling between Iraq & TURKEY & US can't seem to find this???
BS pic.twitter.com/TNBa7CD9F0- WowWow (@wowscasino) December 2, 2015
* * *
Full statement from Anatoly Antonov (translated)
At a briefing for the media, "the Armed Forces of the Russian Federation in the fight against international terrorism. The new data "
International terrorism - is the main threat of our time. This threat is not illusory but real, and many countries, primarily Russia, knows this firsthand. The notorious "Is Islamic state" - the absolute leader of the terrorist international. This is a rearing monster of international terrorism can be countered. And you can win. Over the past two months, Aerospace Russian forces is clearly demonstrated.
We are firmly convinced that victory over LIH need to deliver a powerful and devastating blow to the sources of its funding, as repeatedly mentioned by President Vladimir Putin. Terrorism has no money - is a beast without teeth. Oil revenues are a major source of terrorist activity in Syria. They earn about $ 2 billion. Dollars annually, spending this money on hiring fighters around the world, providing them with weapons, equipment and weapons. That's why so LIH protects thieves oil infrastructure in Syria and Iraq.
The main consumer of stolen from legitimate owners - Syria and Iraq - the oil is Turkey. According to the data entered in this criminal business involved the highest political leadership of the country - President Erdogan and his family.
We have repeatedly talked about the dangers of flirting with terrorists. It's like that stokes. The fire from one country can spill over to others. This situation we are seeing in the Middle East. Today, we present only part of the facts, confirming that the region has a team of bandits and Turkish elites stealing oil from the neighbors.
This oil in large numbers on an industrial scale, for the living pipelines from thousands of oil tankers entering the territory of Turkey. We are absolutely convinced today present you the hard facts about what the final destination of the stolen oil - Turkey. There is a large number of media representatives, and Our briefing will see more of your colleagues. In this regard, I would like to say the following. We know and appreciate the work of journalists. We know that in the journalistic community, many courageous, fearless people honestly do its job. Today, we have clearly shown you how the illegal trade in oil, the result of which - the financing of terrorism. Provided concrete evidence that, in our opinion, may be the subject of investigative journalism.
We are confident that the truth with your help will, will find its way. We know the price to Erdogan. He has already been caught in a lie again Turkish journalists who opened Turkey delivery of arms and ammunition to militants under the guise of humanitarian convoys. For this imprisoned journalists.
Do not resign Turkish leaders, particularly Mr. Erdogan, and did not recognize, even if their faces will be smeared by oil thieves. I might be too harsh, but at the hands of the Turkish military killed our comrades. The cynicism of the Turkish leadership is unlimited. Look what they're doing ?! Climbed to a foreign country, it shamelessly robbed. And if the owners interfere, then they have to be addressed.
I stress that Erdogan's resignation is not our goal. It is - it is the people of Turkey. Our goal and the goal to which we urge you, ladies and gentlemen, - joint action to block the sources of funding for terrorism. We will continue to provide evidence of robbery by Turkey of its neighbors. Maybe I'll be too straightforward, but the control of these thieves in business can be entrusted only to the most close people.
No one in the West, I wonder, does not cause the issue that the son of the President of Turkey is the leader of one of the largest energy companies, and son-in-appointed Minister of Energy? What a brilliant family business!
This, in general, may elsewhere? Well, once again, of course, such cases can not be charging anyone, only the closest people. Votes this fact in the Western media we do not see much, but it sure can not hide the truth. Yes, of course, dirty petrodollars will work. I am sure that there are now discussions about the fact that everything you see here, - falsification. Well. If it did not - let be allowed in those places that we showed journalists.
It is obvious that today the publicity was devoted only part of the information about the monstrous crimes of the Turkish elites who directly finance international terrorism. We believe that any sane journalist should fight this plague of the XXI century. The world experience has repeatedly argued that the objective journalism is able to be an effective and formidable tool in the fight against various financial corruption schemes. We invite colleagues to investigative journalism on the disclosure of financial schemes and supplies oil from the terrorists to the consumers. Especially since the oil produced in the controlled militants territories in transit through Turkish ports shipped to other regions. For its part, the Ministry of Defense of Russia will continue to disclose new evidence on the supply of terrorists oil to foreign countries and to talk about the conduct of aerospace forces of Russia operations in Syria.Let's unite our efforts. We will destroy the sources of financing of terrorism in Syria, as you get involved in the kind of work abroad. "
Latina Lover
Doesn't matter what evidence Putin offers, the USSA Minion Mainstream Media liars will bury, distort or outright lie to defend Turkey. If Putin wanted any media play, he should photoshop the detailed evidence on a picture of Kim Kardasians ass.
The good news is that the Turks will figure it out, along with the rest of the world.
The9thDoctor
The main difference between al-CIAduh and CIsisA is that even the dumbest of the dumb have figured out that ISIL is controlled and equipped by Western Intelligence.
two hoots
John Kerry can explain this....to his own satisfaction.
Gaius Frakkin' ...
I've already seen more evidence for ISIS-Turkey oil trading than Saddam's WMDs... still waiting for that BTW.
farflungstar
NATO cunts supporting terrorists deserve whatever they get.
There was a lull when the Russians made their entrance into Syria, as Thinktank Land had to recalibrate their bullshit and get on message for the sheep. A couple weeks later the AmeriKans are crying crocodile tears over civilians and Russia killing kinder, gentler terrorists rather than ISIS.
LOL AmeriKans concerned over civilian casualties.
Kirk2NCC1701
And yet, we are still suppose to "Support Our Troops"
If they had 'truth in advertising', they'd call it "Support Our Storm-Troopers", to serve the Empire
Wise up, people. We have a MERCENARY ARMY -- by Definition.
MERCENARY =
a. You Volunteered 1,
b. You are getting Paid,
c. You have a Contract (with or w/o a Retirement Package)
d. After said Contract has expired, and if Released from further Duty (at sole discretion of Employer), you may enter a new Contract with a private 'security firm', i.e. "Mercs R US", or retire to pursue other activities (work for Gov.US, or one of its para-Gov units known as NGOs). In some cases, you may be so disillusioned or burned out, that you actually join the private sector. In some rare cases, assuming you haven't killed yourself, you may actually have become an open or closet anti-war activist. Which makes you a Born-Again Citizen, and a genuine Hero. If you are married with children, you are a mutha-facking hero, aka... 'Dad'.
[1] It matters not/naught if you're a well-meaning 'Patriot' (10%), a Economic Desperado (85%) or a Closet Psycho (5%). They'll take you even if you're not a US Citizen. In which case, you can become one after a mere 2 years, and in the Naturalization Process their Look-back Window is literally 2 years. I know this for fact. If you want to challenge me on this, you'll have to put your money where your mouth is, and pony up some serious Cash/BTC
McMolotov
For people of a certain age, "Russia is evil" is their default setting. They literally had that message pounded into their brains for decades, and unless they frequent alternative media sites, it's hard to overcome.
I see it with my parents. I can talk to them about this stuff for a few hours and gradually get them to see glimmers of the truth, but they usually completely revert to their normal thinking by the next time I see them. It doesn't help that they have Fox News on all the time.
rwe2late
UndergroundPost
Su-24 you say?
There is fair certainty that the SU-24 was hit (inside Syria) by radar-guided missiles(s) fired by the Turk jets,
and the missiles were guided and the SU-24 targeted by airborne US AWACS.
http://russia-insider.com/en/politics/bombshell-turkish-attack-russian-s...
The Chief
Im not sure which is worse, domestic frackers and their rape of the the american consumer and retiree with ridiculous oil and gas prices, junk bond sales to pensioners, etc, or ISIS. ISIS, in my view is no threat at all. These are contractors working for deep state functionaries intent on a long-term rape of the global population...but really, just hoodlums intent on taking a vig from illegal oil sales. Just ask Bush, Cheney, and now the democratic machine. New guys at the trough.
Frackers, however, are scum of the fucking earth. The business doesnt work unless oil prices are high. Fuck that. They pay their bills with a junk bond ponzi.
As for frackers themselves...its a tiny fraction of the workforce. Go be auto mechanics or go back to selling meth, fuckers.
847328_3527
Canada could take 50,000 refugees by end of 2016
http://ottawacitizen.com/news/national/governor-general-urges-support-fo...
The Canadian Gubmint will need to cut benefits to its citizens for the benefit of newcomers just as Barry wants to cut SS for Senior Americans so he can import thousands more.
"Yes we can!"
kralizec
Life of IllusionMust be Vlad is daring the Turk to invoke Artcile 21 of Montreux: Erdogan has a trump card against Putin that would transform the Syrian war
You have to admire their bold manner, they are fearless.
They love warning NATO to back off. http://news.yahoo.com/russia-warns-nato-montenegro-invite-111359017.html
But who doesn't? They are a paper tiger, seems pointless to join them.
They get to build on newly seized territory ala China. http://news.yahoo.com/russia-building-military-bases-islands-claimed-jap...
The annexation of Crimea and Donbas is secure. Oil, gas and currency deals with China, India...nuclear deals with Iran.
And nobody is stopping him. Who can? That Muzzie faggot pretender in Washington? The toothless NATO police? The bed-wetting Euro's submitting to Islam?
Ha!
It is a de facto Russian/Chinese world now. Most still have no clue. The kabuki is so strong, the illusion of states and freedom and wealth...all an illusion.
Pah, who cares? Put on the DWTS, snort some lines and pop the bubbly! All is well!
Kralizec, you need to complete the illusion......wheres the oil goes when in Turkey.....
Goldman Sachs buys into Turkish Petkim's Aegean port 21.07.2014Hurriyet Daily News – Global leader US investment firm Goldman Sachs has become a partner in Turkey's largest integrated port, operated by petrochemicals maker Petkim, in a deal that will boost Petkim's plans to develop the port as the largest in the Aegean region.
Petkim announced that it has reached a preliminary agreement to sell its 30 percent stake in Petkim Limanc?l?k (Petlim) for USD 250 million, after months of talks beginning in February of this year.
Petkim and Petlim are controlled by the Turkish branch of Azeri energy giant SOCAR. Petlim was founded to run the financial operations of Petkim's port in the Alia?a district of the Aegean province of ?zmir.
"For one of the world's biggest investors to become a partner in our port company means approval of the value and finance of our project," SOCAR Turkey President Kenan Yavuz said, speaking after a ceremony to mark the signing of the deal
Urban Redneck
The yahoos at Yahoo!News should really stick to message boards and perhaps one day expand to fringe blogging (if they can ever pull their heads of their asses). Neither the Russians nor the Turks are interested in seeing the Straights closed.
The purpose of the Montreaux Convention is to prevent another Russo-Turkish war by guaranteeing Russia (and other States that border the Black Sea) will have full military and commercial access to the Straights, while foreign powers will have only limited access. In return for providing this guarantee Turkey was allowed to build fortification to support its obligations under the treaty, while maintaining Turkey's natural right to self defense.
Any attempt by Turkey to prevent Russian access to the Straights, is an act of blockade, and invites either a blockade of Turkish ports (and pipelines) on the Mediterranean, if not another Russo Turkish war. Closing the Straights is simply not some trump card, and even the Sultan of Ankara isn't dumb enough to view such an action as a step towards extending his grip on power.
moonshadow
Putin with "checkmate". Erdogan can only flip the board over and walk away muttering to the int'l crowd somethin bout "Putin...cheater". Great article, Antonov's comments priceless, and video worth a smirk a minute
Noplebian
The NATO led escalation and it's push towards WW3, continues unabated……
http://beforeitsnews.com/conspiracy-theories/2015/11/us-gives-their-prox...
JustObserving
Will Erdogan resign?
How about detailed evidence on the shooting of the Russian jet?
BOMBSHELL: Ambush of Russian Bomber Was Guided by US ReconnaissanceA U.S. Air Force Boeing E-3 Sentry AWACS plane took off on 24 November from the Preveza airbase in Greece. A second E-3A of the Saudi Arabian air force took off from the Riyadh airbase. Both planes were executing a common task-determining the precise location of Russian aircraft. It is they that picked the "victim."
http://russia-insider.com/en/politics/bombshell-turkish-attack-russian-s...
JustObserving
Erdogan and his oil-smuggling son, Bilal, will be welcomed as heroes in Neocon-controlled Washington. Argentina and Paraguay are now for minor criminals only.
CalmyourselfErdogan you Islamist bastard Ataturk is laughing at you from beyond the grave, GTFO
edit: why the hell has no one dropped cluster munitions on that truck park? US has been there a year and just missed it? Apparently Obama's (Stalin's) purge of the military has been quite successful because none of them have any balls.
RockySpears
Because cluster bombs are illegal. Not that this is exactly what they were designed for, but people cried about the little bomblets that failed to go off and were subsequently "ploughed" up by civilian farmers.
War is bad, but sometimes it is made worse by the intention to do good.
Same as Chemical weapons, for the most part, they kill no one, they just incapacitate. And anyway, why is a 1,000lb of TNT NOT chemical?
Calmyourself
Only against civilians and nobody signed on anyway.
"During Desert Storm US Marines used the weapon extensively, dropping 15,828 of the 27,987 total Rockeyes against armor, artillery, and personnel targets. The remainder were dropped by Air Force (5,346) and Navy (6,813) aircraft.[1]"
Chairman
2003-2006: United States and allies attacked Iraq with 13,000 cluster munitions, containing two million submunitions during Operation Iraqi Freedom. At multiple times, coalition forces used cluster munitions in residential areas, and the country remains among the most contaminated by this day, bomblets posing a threat to both US military personnel in the area, and local civilians.
When these weapons were fired on Baghdad on April 7, 2003 many of the bomblets failed to explode on impact. Afterward, some of them exploded when touched by civilians. USA Today reported that "the Pentagon presented a misleading picture during the war of the extent to which cluster weapons were being used and of the civilian casualties they were causing." On April 26, General Richard Myers, chairman of the Joint Chiefs of Staff, said that the US had caused only one civilian casualty.
margincall575
Follow up
Breaking: Did the US and Saudis use AWACS to help target the SU-24?
http://www.veteranstoday.com/2015/12/01/breaking-did-the-us-and-saudis-u...zeroboris
I used to read the soviet newspaper Pravda and am reading modern western media. And know what? Pravda was many times more truthful. Many of us, Russians, didn't understand this in soviet times (we had no access to western papers). But now I can tell this without any doubt. Most of modern Russian papers are less truthful too.
ThanksChumpI'd be surprised if the WPost ignores this. They did cover the Iraqi claim that the US is backing ISIS.
Paveway IV
National intelligence agencies watch Facebook, Twitter, Google and other search engines to see if they have to do damage control. If a few sites come out with articles implicating Bilal but the 'little people' don't do many searches for him or re-tweet links, then there's no reason to react. They simply ignore the story. If they notice enough little people start Googling Bilial and illegal oil sales or retweeting damaging articles, then they let the boss know. The U.S. MSM is ordered to send out a few stories quoting each other to spin it one way or another.
The government defines the narrative, and MSM stenographers fill in the pieces. Facebook, Twitter and Google are checked to see if they had the desired effect. They can also use a bit more direct techniques like massaging the Google search result rankings or blowing away Facebook and Twitter accounts they don't like. Israel is insane about collecting this data from Americans and reacting. Uncle Sugar isn't going to cough up that free $3 billion a year handout to them if the people are in the streets with pitchforks and torches. They are especially interested in de-ranking Google results that make Israel look bad, and promoting sites that deliver the message they want. Google is the worst search engine to look for Israeli current events.
You'll notice none of the MSM ISIS oil sales articles will mention U.S. stooge Barzani's involvement, and they for damn sure won't mention Israel as a destination for much of the stolen oil. They'll simply steer the narrative to focus on Turkish oil sales, and somehow blame it on Assad.
krispkritter
Obama Administration Supporting Islamic State --> OASIS. It certainly is if you're a terrorist 'rebel' or well-connected oil pimp...
ThanksChump
Mike MasrOccam's Razor.
The US made a deal with OPEC: the US would help to remove Assad, and in return, OPEC would dump oil to weaken Russia and Iran, fulfilling PNAC/Cheney's pet dream of consolidating the remaining oil reserves under US-friendly control. ISIS was a tool to that end.
That's the easy obvious part.
Less obvious is the tie to Ukraine. Ukraine should have been "converted" after Assad was driven out, and not before. This has me confused. Was it only a mistake in timing?
Now that the cat is out of the bag, now that China's overdue correction has been triggered, now that Brazil and Canada know who is largely responsible for their collapsing economies, now that Europe knows why they are overrun by refugees, I wonder how friendly those countries will be moving forward.
https://www.rt.com/news/324252-russian-military-news-briefing/
US pal and NATO ally Turkey
- 12:26 GMT
2,000 fighters, 250 vehicles and over 120 tons of ammo have been sent in the past weeks from Turkey to terrorists in Syria, fuelling the violence in the country.
- 12:31 GMT
Russia cannot comprehend that such a large-scale business as oil smuggling could not have been noticed by the Turkish authorities. Russia concludes that the Turkish leadership is directly involved in the smuggling.
- 12:35 GMT
Russia doesn't expect Turkish President Erdogan to resign in the face of the new evidence, even though he had promised to do so. His resignation is not Russia's goal and is a matter for the Turkish people.
SoDamnMad
I' m watching the rebroadcast live right now. Video of all these trucks. Damn good video and stills. Gee, why can't the USSA produce these(oh yeah, the MSM isn't allowed to show the truth. Better to show some college campus protest rather than the truth about whose side is really trying to stop terrorism.) Maybe our reconaissence equipment isn't as good as Russian equipment and our satelittes can't find the Turkish-Syrian border. Never seen so many trucks back to back, even on the Jersey Turnpike or the Long Beach Freeway before a holiday when the economy was good.s a lot of bucks going into Erdogan son's pocket (and Israel's)
fel.temp.reparatio
Erdogan: "So what if the MIT trucks were filled with weapons?"
Yttrium Gold Nitrogen
Statements available in English here:
http://eng.syria.mil.ru/en/index/syria/news/more.htm?id=12070726@cmsArticle
Duc888
....another interesting point here...
http://www.alaraby.co.uk/english/features/2015/11/26/raqqas-rockefellers...
"The Islamic State group uses millions of dollars in oil revenues to expand and manage vast areas under its control, home to around five million civilians.
IS sells Iraqi and Syrian oil for a very low price to Kurdish and Turkish smuggling networks and mafias, who label it and sell it on as barrels from the Kurdistan Regional Government.
It is then most frequently transported from Turkey to Israel, via knowing or unknowing middlemen, according to al-Araby's investigation.
The Islamic State group has told al-Araby that it did not intentionally sell oil to Israel, blaming agents along the route to international markets."
no1wonder
Official media release (and speech translation into English) by Russia's Defense Ministry:
cn13
This story is finally hitting the MSM in the U.S. after being reported here for the past week. The powers to be must have needed time to get their lies straight. Anyway, check out the comment section on Yahoo regarding this story. It is almost 100% pro-Russian and anti-NATO/U.S.
I have never seen anything like this before.
The U.S. public has lost total confidence in the government. They are finally catching on to the lies and deceit of those in power.
http://news.yahoo.com/russia-says-proof-turkey-main-consumer-islamic-state-124337872.html
MadVladtheconquerer
Looks like Putin is simply trying to maintain what little remains of the status quo in Syria:
http://www.hurriyetdailynews.com/is-russia-fighting-isil-or-occupying-sy...
gregga777
As I read it, according to traditional international law, the Russian Federation may legally seize Erdogan's Maltese-flagged "neutral" tankers carrying ISIS' crude oil, because that crude oil constitutes a significant portion of ISIS' war making potential, that tanker then effectively constituting an enemy merchant vessel, with the tanker's subsequent condemnation in Russian prize courts, as the capturing belligerent power.
I hope that the Russian Federation's Navy seizes all of Erdogan's tankers, bankrupting Erdogan's company. Let them then sit in port for the next several years awaiting disposition in a Russian prize court.
dot_bust
Then there's this rather enlightening bit of information:
ISIS Colonel was Trained By Blackwater and U.S. State Department for 11 Years
A former police commander from Tajikistan was featured in an ISIS video recently where he admitted he was trained by the U.S. State Department and former military contractor Blackwater all the way up until last year.
http://theantimedia.org/isis-colonel-trained-by-blackwater-and-us-state-...
Amun
http://www.latimes.com/world/middleeast/la-fg-syria-turkey-20151201-stor...
"It was Turkey's national intelligence agency, known as MIT, that first organized Syrian military defectors into Western-backed groups under the banner of the Free Syrian Army.
Free Syrian Army factions still convene on Turkish soil in the Joint Operations Center, a CIA-led intelligence hub that gives vetted rebels training as well as U.S.-made TOW antitank missiles used to destroy Syrian army tanks and armored units.
Islamist groups, however, have benefited from Turkey's pro-opposition policy as well. In May, the Turkish daily newspaper Cumhuriyet published video from 2014 showing customs agents impounding a truck owned by the MIT. The truck's manifest said it was carrying humanitarian assistance for Syrians. Instead it was bearing a cache of ammunition and shells the newspaper said were destined for Islamist rebels. The video's release caused a furor. Erdogan vowed to prosecute Cumhuriyet, a threat he carried out Friday when authorities arrested two of the paper's journalists on charges of espionage and aiding a terrorist organization.
Turkish assistance has been instrumental in empowering the Army of Conquest, a loose coalition of hard-line Islamist factions including Al Nusra Front, which seized control of Idlib province in March in an offensive backed by Turkey and Saudi Arabia.
Economic ties also have been forged between Turkey and rebel factions.
According to a 2015 United Nations study, two border crossings controlled by a faction of the Army of Conquest handle more than 300 trucks a day, a figure that exceeds prewar levels. The traffic yields an estimated $660,000 a day. "
[Dec 01, 2015] The party is over for oil
Notable quotes:
"... Assuming the nuclear sanctions are lifted on Iran in late winter or spring, Iran could bring what we currently estimate to be another 400,000 to 600,000 barrels of oil a day within several months. Irans oil minister pegs the number higher - around a million barrels per day. ..."
finance.yahoo.com
After the price collapse, the new U.S. shale-oil industry has proved to be more resilient than many had anticipated, as companies found that they could be much more efficient. In fact, U.S. output continued to increase through April. According to the IHS Oil Performance Evaluator, which tracks U.S. production down to the individual well, a dollar spent this month in the U.S. oil patch will be 65 percent more efficient than in 2014.
But efficiency is not enough to hold off the impact of lower oil prices. As companies struggle to cut budgets and, in some cases, to survive, U.S. oil production is now on a downward trend from that high point last April. By next April, we estimate it will be about a million barrels a day lower than April 2015. Around the world, projects are being postponed, drawn out, or simply canceled. All of this will show up in the future oil balance in years ahead.
Oil's collapse does mark the end of the commodity supercycle. And that means that oil-exporting countries are now in the same boat as other commodity-exporting countries - struggling with yawning gaps in their budgets, low growth or recession, austerity and bitterness, and the potential for social and political turmoil. The countries that benefited so much from the heat of China's growing economy are now suffering from the impact of the "China chill."
This nexus of slowing China and deeply-troubled emerging market countries may end up an offset to a U.S. economy strengthening enough for the Federal Reserve to begin raising rates.
Meanwhile, oil's turmoil will continue. For new petroleum supplies are likely to come into the market in 2016. Assuming the nuclear sanctions are lifted on Iran in late winter or spring, Iran could bring what we currently estimate to be another 400,000 to 600,000 barrels of oil a day within several months. Iran's oil minister pegs the number higher - around a million barrels per day.
This specter of Iran battling to regain market share from its geopolitical rival Saudi Arabia and the other Gulf countries is likely to loom very large in the OPEC debates ahead.
Commentary by Daniel Yergin, the vice chairman of IHS and author of, "The Quest: Energy, Security, and the Remaking of the Modern World." Follow him on Twitter @danielyergin.
[Dec 01, 2015] Oil prices tread water ahead of US data, OPEC meeting
finance.yahoo.com
Iran is expected to increase its oil exports after Western sanctions are lifted under a deal reached with major world powers in July to curb its nuclear program.
Iran's deputy foreign minister Abbas Araghchi said last week his country expects the deal to come into force in early January, allowing it to resume a high level of exports.
Traders meanwhile expect a drop in high US commercial crude inventories in Wednesday's weekly report from the Department of Energy.
According to a Bloomberg News survey of experts, US crude stockpiles likely decreased by 800,000 barrels last week. Inventories increased by 1.0 million barrels to 488.2 million barrels in the week ending November 20, up 27.5 percent from a year ago.
[Dec 01, 2015] Texas (and ND, WY, AK, OK, and LA) technically entered recession in the Apr-Aug period
peakoilbarrel.com
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2Ln6Texas (and ND, WY, AK, OK, and LA) technically entered recession in the Apr-Aug period, similar to Mar-Apr 2008, Dec 2000, and Jun-Jul 1990, which coincided with the US economy entering recession.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2yLR
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2K3Z
This is confirmed by the deep, recession-like contraction in the acceleration of TMS money velocity to private GDP and the broad US equity market entering a bear market during the same period.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2KxB
This is occurring with real final sales per capita less household health care spending and the fiscal deficit decelerating to "stall speed" and recessionary rates of the past, implying that the improvement in the fiscal deficit/GDP has peaked, the deficit will increase hereafter, and the Fed will resume QEternity to credit primary dealer banks' balance sheets with liquidity to finance the fiscal deficit in order to prevent nominal GDP from contracting in 2016-17.
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2vmr
The incipient broad equity bear market will reduce gov't receipts hereafter, confirming the need for the Fed to resume QEternity to finance the increasing deficit over at least the next 4-6 quarters.
Under similar conditions as exist today, the Fed raised rates or otherwise restricted banking/financial system reserves/liquidity only three times during its history to date: 1931, 1936-37, and very briefly in 1980; the results thereafter were other than positive, to say the least.
HHNW_GDP.jpg 1920x1080 105 KB
I would like to point out something I have in my mind concerning EROI. I have been here on this board a long time so I have seen all the various pro's and con's on EROI. As a doomer and one who looks at doom systematically I find oil and its EROI interesting from the point of view of what is adequate for industrial civilization at the estimated 6 to 1. I feel because oil is existentially vital as a foundational fuel and feed stock it will be harvested at lower EROI's than is adequate for a modern society. How long is debatable and if it will be done is debatable because at a certain point it all comes down to human confidence that allows economic liquidity.
Society may do this regardless of the ETP of oil. I am a firm believer in Short's Hill's group ETP equation. I am not an engineer nor very good with advanced math but I am good enough with conceptional relationships. The fact that oil's BTU utility and EROI falls below what supports industrial civilization will not stop oil continuing being used for the attempts at industrial civilization. Industrial man will continue to try to use oil even as the use of oil will be a sink not a gain.
Industrial man can likely do this for much longer than we might theoretically imagine per the physics. There are so many ways for industrial man to subsidize the production of oil and cannibalize the greater infrastructure. I also will discount Short's ETP concerning price by saying oil and the economy are linked as a car and gas are. They have no use without the other. Sure postmodern man will be toying with oil for many generations hence but oil driving an economy puts oil in another category. This puts oil into the human nature category found in markets just as human nature must live in the reality of the physics of oil. Somewhere in the ether between this relationship a compromise is met.
The price of oil is as much a function of the physics of oil as the human nature of its value. We can say the physics of oil trumps the human nature but this is just not fully accurate except in theory and absolutes. Humans will try to drive an economy far past what theory says is possible. Price will vary as much by oils BTU contribution to the greater economy as the human nature actions of price discovery. I want to add price discovery with all its distortions. We see those distortions today with QE and central bank repression.
Our system is built upon economic fundamentals. One of these fundamentals is continuous substitution. We cannot substitute oil in an oil based society at the "foundational level". Greenies and other strains of technotopians talk this way but the reality is we are stuck with what we have because of scale of time, place, and productive ability. We can substitute oil's "declining value" by using other fossil fuels or alternative energies. We can use animal and human labor. We can realize vast wealth inequality with a two tier society with the elites using oil and the serfs in a postindustrial hybrid society of preindustrial technologies and lifestyles. In other words we will see an oil based man use oil even as his civilization decays. He will use oil even as it kills himself.
Decay is random. Decay is about abandonment, dysfunction, and irrational. We are in and will increasingly enter a period of flux were our world is surreal. It will be surreal because it will be a growth based human system entering a bumpy descent. Once a full on descent is entered "meaning" will change. Of course the physics will not change but the human nature will change or not change in a random fashion.
Where the human nature changes with reality we will see functional. Where it does not change we will see dysfunctional. There will be surreal dysfunctions with modern industrial oil based man living in a unsustainable decaying industrial system. He will attempt to run a civilization on oil far past where its contributions are positive to growth. He will use oil by choice even though it is destructive to his betterment. Industrial man has no choice for he knows no other life and has no tools to transition. It is nature that will force reality. It is man that will resist.
In the period we are now in the price for oil will likely bounce all over the place because we are human and subject to human nature. That human nature is approaching a turbulence. Turbulence is one physical state without definition per physics. Please give me an equation for it. EROI and ETP are theories that represent reality. The psychology of humans is both rational and irrational. You mix these and you get a cocktail. This cocktail will be different at a growth/decay inflection point then it is now with an economy that is still growing. I say growing but that does not mean positive long term growth. Oil will likely be used long past ETP and EROI says it should be. Price will move around irrationally during the turbulent inflection point of growth and descent. Call that prattle and word salad but how else do you reconcile the rational and irrational.
I would have to say that is a stupendous post Davy. I would add that oil as the foundational energy source is as you said irreplaceable even as some substitution can take place. Therefore, both out of desire but also out of need societies will still try and attain oil for its myriad of uses. I would like to cover a bit the pananorma of how this relates with regions of the planet and respective countries. As we are aware Northern countries are richer in may ways while Southern countries are more overpopulated relative to resources. On the other hand the reliance of Northern countries completely on a modern oil based infrastructre makes them particularly vulnerable to price fluctuations and both perceived instabilities as well as material/physical shortages and instabilities. On the other hand Asia with its vast population will find it very difficult to avoid the most drastic of effects of overshoot, meaning die-off. What is happening in the Midde East is so apparent a child can discern it. They are there first and foremost for the oil. The War on Terrror is but a smokescreen. Middle East is simply blessed with much oil and gas as well. The trajectory of powerdown is a composite of as you stated human rationality and irrationality along with physical realities that cannot be negotiated or changed. Thus, it will be both voluntary and forced. Oil will continue to play a role in human affairs for some time to come. The proof is how the Climate conferences including the latest in Paris are not really intent on substantial fossil fuel reduction and also because recent polls clearly show that people by and large are still not overly concerned with climate change. I think clearly humanity will have to endure massive die-off in a both gradual and at times abrupt manner. Industrial modern civilization cannot be maintained that much longer in so much as resource shortages of many kinds especially of course fossil fuels will not allow it. So modern civilization will wither away in fits and starts while humanity tries to adapt and mitigate. All the while climate change threatens ever more massive disruptions and discontinuities. At the other side of the bottleneck of overshoot perhaps remaining humans that probably will number less than a billion will try and maintain some level of functioning society and modernity but certainly at a much less complex level than now and beholden to the whims of Mother nature and what she has in store for us.