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Paper oil, Minsky financial instability hypothesis and casino capitalism

 Why Peak Oil Threatens the Casino Capitalism

News Peak Cheap Energy and Oil Price Slump Recommended Links The idea of Minsky moment Oil glut fallacy Neoliberalism as a New Form of Corporatism Great condensate con
Paper oil and record oil futures trading volumes Oil prices and debt bubble Slightly skeptical view of oil price forecasts        
Russia oil production Deflation of the USA shale oil bubble MSM propagated myth about Saudis defending this market share Iran return to western oil markets fearmongering

Slightly skeptical view of oil price forecasts

 

Oil consumption growth Secular Stagnation
 Energy returned on energy invested (ERoEI) Energy Geopolitics Energy Bookshelf Bakken Reality Check Junk bond bubble Energy disinformation agency and friends US military energy consumption
A note of ERoEI decline  Why Peak Oil Threatens the Casino Capitalism All wars are bankers wars Fiat money, gold and petrodollar Financial Quotes Financial Humor Etc

 

Note: This article sounds pretty counterintuitive in view of current slump of oil prices with a barrel of oil prices below $30 (more then 4 times drop from the highest level achieved.), In other words, instead of peak oil temporary the world is living in the regime of "oil glut" (which is a misnomer, as in reality this is an overproduction of condensate not oil, but at least low prices are real). 

But the key reason for this was extremely rapid increase  of production in the US and Canada in 2012-2014 fueled by cheap credit. Essentially producing "subprime oil" and in parallel the stream of junk bonds that will never be repaid (aka subprime oil as a Ponzi scheme).

At the same time this was not a revolution but a retirement party as fundamental did not change -- abundance of credit for shale oil and tar sand project was just a side effect of QE.

Reprinted from: Commentary: Why Peak Oil Threatens the International Monetary System By Erik Townsend

| January 6, 2013 (Note: Commentaries do not necessarily represent the position of ASPO-USA. )

Introduction

Having spent the last several years of my life engineering investment strategies to profit from the inevitability of Peak Oil, I’ve become obsessed with understanding the ramifications of radically different energy supply dynamics on the global economy. There are many facets to this, some obvious and some not so obvious. So when ASPO-USA Executive Director Jan Mueller approached me at the end of this year’s conference in Austin and asked for an article discussing the less obvious economic impacts of Peak Oil, I knew instantly that the topic should be the threat Peak Oil poses to the International Monetary System (IMS). This connection is critically important, but far from obvious.

I assure you that this story is very much about Peak Oil, but please bear with me, as I’ll need to start by reviewing what the IMS is and how it came about in the first place. Then I’ll explain the role energy has already played in shaping the present-day IMS, and finally, I’ll tie this back to Peak Oil by explaining why rising energy prices could very well be the catalyst that will cause the present system to fail.

What is the International Monetary System?

At the end of World War II, many countries were literally lying in ruin, and needed to be rebuilt. It was clear that international trade would be very important going forward, but how would it work? World leaders recognized the need to architect a new monetary system that would facilitate international trade and allow the world to rebuild itself following the most devastating war in world history.

A global currency was out of the question because the many countries of the world valued their sovereignty, and wanted to continue to issue their own domestic currencies. In order for international trade to flourish, a system was needed to allow trade between dozens of different nations, each with its own currency.

A convention was organized by the United Nations for the purpose of bringing world leaders together to architect this new International Monetary System. The meetings were held in July, 1944 at the Mt. Washington Hotel in Bretton Woods, New Hampshire, and were attended by 730 delegates representing all 44 allied nations. The official name for the event was the United Nations Monetary and Financial Conference, but it would forever be remembered as The Bretton Woods Conference.

To this day, the system designed in those meetings remains the basis for all international trade, and is known as the Bretton Woods System. The system has evolved quite a bit since its inception, but its core principles remain the basis for all international trade. I’m going to focus this article on the parts of the system which I believe are now at risk of radical change, with Peak Oil the most likely catalyst to bring about that change. Readers seeking a deeper understanding of the system itself should refer to the Further Reading section at the end of this article.

Why is an International Monetary System needed?

It simply wouldn’t be practical for all countries to sell their export products to other countries in their own currencies. If one had to pay for wine from France in French Francs (there was no Euro currency in 1944), and then pay to import a BMW automobile in German Marks, then pay for copper produced in Chile in Pesos, each country would face an overwhelming burden just maintaining reserve deposits of all the various world currencies. The system of trade would be very inefficient. For centuries, this problem has been solved by using a single standard currency for all international trade.

Because a standard-currency system dictates that each nation’s central bank will need to maintain a reserve supply of the standard currency in order to facilitate international trade, the standard currency is known as the reserve currency. At various times in history, the Greek Drachma, the Roman Denari, and the Islamic Dinar have served as de-facto reserve currencies. Prior to World War II, the English Pound Sterling was the international reserve currency.

Throughout history, reserve currencies came into and out of use through happenstance. The Bretton Woods conference marked the first time that a global reserve currency was established by formal treaty between cooperating nations. The currency chosen was, of course, the U.S. Dollar.

How does the IMS work?

The core of the system was the U.S. Dollar serving as the standard currency for international trade. To assure other nations of the dollar’s value, the U.S. Treasury would guarantee that other nations could convert their U.S. dollars into gold bullion at a fixed exchange rate of $35/oz. Other nations would then “peg” their currencies to the U.S. dollar at a fixed rate of exchange. Each nation’s central bank would be responsible for “defending” the official exchange rate to the U.S. dollar by offering to buy or sell any amount of currency bid or offered at that price. This meant each nation would need to keep a healthy reserve of U.S. dollars on hand to service the needs of domestic businesses wishing to convert money between the local currency and the U.S. dollar.

By design, the effect of the system was that each national currency was indirectly redeemable for gold. This was true because each nation’s central bank guaranteed convertibility of its own currency to U.S. dollars at some fixed rate of exchange, and the U.S. Treasury guaranteed convertibility of U.S. dollars to gold at a fixed rate of $35/oz. So long as all of the governments involved kept their promises, each nation’s domestic currency would be as good as gold, because it was ultimately convertible to gold. United States President Richard Nixon would break the most central promise of the entire system (U.S. dollar convertibility for gold) on August 15, 1971. I’ll come back to that event later in this article.

Triffin’s Dilemma

In 1959, three years after M. King Hubbert’s now-famous Peak Oil predictions, economist Robert Triffin would make equally prescient predictions about the sustainability of the “new” IMS, which was then only 15 years old. Sadly, Triffin’s predictions, like Hubbert’s, would be ignored by the mainstream.

The whole reason for choosing the U.S. dollar as the global reserve currency was that without a doubt, the U.S.was the world’s strongest credit in 1944. To assure confidence in the system, the strongest, most creditworthy currency on earth was chosen to serve as the standard unit of account for global trade. To eliminate any question about the value of the dollar, the system was designed so that any international holder of U.S. dollars could convert those dollars to gold bullion at a pre-determined fixed rate of exchange. Dollars were literally as good as gold.

Making the USD the world’s reserve currency created an enormous international demand for more dollars to meet each nation’s need to hold a reserve of dollars. The USA was happy to oblige by printing up more greenbacks. This provided sufficient dollars for other nations to hold as foreign exchange reserves, while at the same time allowing the U.S.to spend beyond its means without facing the same repercussions that would occur were it not the world’s reserve currency issuer.

Triffin observed that if you choose a currency because it’s a strong credit, and then give the issuing nation a financial incentive to borrow and print money recklessly without penalty, eventually that currency won’t be the strongest credit any more! This paradox came to be known as Triffin’s Dilemma.

Specifically, Triffin predicted that as issuer of the international reserve currency, the USA would be prone to over consumption, over-indebtedness, and tend toward military adventurism. Unfortunately, the U.S. Government would prove Triffin right on all three counts.

Triffin correctly predicted that the USA would eventually be forced off the gold standard. The international demand for U.S. dollars would allow the USA to create more dollars than it otherwise could have without bringing on domestic inflation. When a country creates too much of its own currency and that money stays in the country, supply-demand dynamics kick in and too much money chasing too few goods and services results in higher prices. But when a country can export its currency to other nations who have an artificial need to hold large amounts of that currency in reserve, the issuing country can create far more money than it otherwise could have, without causing a tidal wave of domestic inflation.

Nixon proves Triffin right

By 1970, the U.S.had drastically over-spent on the Vietnam War, and the number of dollars in circulation far outnumbered the amount of gold actually backing them. Other nations recognized that there wasn’t enough gold in Fort Knox for the U.S.to back all the dollars in circulation, and wisely began to exchange their excess USDs for gold. Before long, something akin to a run on the bullion bank had begun, and it became clear that the USA could not honor the $35 conversion price indefinitely.

On August 15, 1971, President Nixon did exactly what Triffin predicted more than a decade earlier: he declared force majeure, and defaulted unilaterally on the USA’s promise to honor gold conversion at $35/oz, as prescribed by the Bretton Woods accord.

Of course Nixon was not about to admit that the reason this was happening was that the U.S. Government had abused its status as reserve currency issuer and recklessly spent beyond its means. Instead, he blamed “speculators”, and announced that the United States would suspend temporarily the convertibility of the Dollar into gold. Forty-two years later, the word temporarily has taken on new meaning.

Exorbitant Privilege

With the whole world conducting international trade in U.S. dollars, nations with large export markets wound up with a big pile of U.S. dollars (payments for the goods they exported). The most obvious course of action for the foreign companies who received all those dollars as payment for their exported products would be to exchange the dollars on the international market, converting them into their own domestic currencies. What may not be obvious at first glance is that there would be catastrophic unintended consequences if they actually did that.

If all the manufacturing companies in Japan or China converted their dollar revenues back into local currency, the act of selling dollars and buying their domestic currencies would cause their own currencies to appreciate markedly against the dollar. The same holds true for oil exporting countries. If they converted all their dollar revenues back into their own currencies, doing so would make their currencies more expensive against the dollar. That would make their exports less attractive because, being priced in dollars, they would fetch lower and lower prices after being converted back into the exporting nation’s domestic currency.

The solution for the exporting nations was for their central banks to allow commercial exporters to convert their dollars for newly issued domestic currency. The central banks of exporting nations would wind up with a huge surplus of U.S. dollars they needed to invest somewhere without converting them to another currency. The obvious place to invest them was into U.S. Government Bonds.

This is the mechanism through which the reserve currency status of the dollar creates artificial demand for U.S. dollar-denominated treasury debt. That artificial demand allows the United States government to borrow money from foreigners in its own currency, something most nations cannot do at all. What’s more, this artificial demand for U.S. Treasury debt allows the USA to borrow and spend far more borrowed foreign money than it would otherwise be able to, were it not the world’s reserve currency issuer. The reason is that, if not for the artificial need to hold dollar reserves, foreign lenders would be much less inclined to purchase U.S. debt, and would therefore demand much higher interest rates. Similarly, the more that international trade has grown as a result of globalization, the more the United States’ exorbitant privilege has grown.

Have you ever wondered why China, Japan, and the oil exporting nations have such enormous U.S. Treasury bond holdings, despite the fact that they hardly pay any interest these days? The reason is definitely not because those nations think 1.6% interest on a 10-year unsecured loan to a nation known to have a reckless spending habit is a good investment. It’s because they have little other choice. The more their own economies rely on exports priced in dollars, the more they need to keep their own currencies attractively priced relative to the U.S. dollar in order for their exports to remain competitive on the international market. To achieve that outcome, they must hold large reserves denominated in U.S. dollars. That’s why China and Japan – major export economies – are the biggest foreign holders of U.S. debt.

The net effect of this system is that the USA gets to borrow money from foreigners at artificially low interest rates. Moreover, the USA can become over-indebted without the usual consequences of increasing borrowing cost and declining creditworthiness. Other nations have little choice but to maintain a large reserve supply of dollars as the international trade currency. But the U.S. has no need to maintain large reserves of other nations’ currencies, because those currencies are not used in international trade.

By the mid-1960s, this phenomenon became known as exorbitant privilege: That phrase refers to the ability of the USA to go into debt virtually for free, denominated in its own currency, when no other nation enjoys such a privilege. The phrase exorbitant privilege is often attributed to French President Charles de Gaulle, although it was actually his finance minister, Valery Giscard d’Estaing, who coined the phrase.

What’s important to understand here is that the whole reason the U.S. can get away with running trillion-dollar budget deficits without the bond market revolting (a la Greece) is because of exorbitant privilege. And that privilege is a direct consequence of the U.S. dollar serving as the world’s reserve currency. If international trade were not conducted in dollars, exporting nations (both manufacturers and oil exporters) would no longer need to hold large reserves of U.S. dollars.

Put another way, when the U.S. dollar loses its reserve currency status, the U.S. will lose its exorbitant privilege of spending beyond its means on easy credit. The U.S. Treasury bond market will most likely crash, and borrowing costs will skyrocket. Those increased borrowing costs will further exacerbate the fiscal deficit. Can you say self-reinforcing vicious cycle?

But wait… Wasn’t Gold convertibility the whole basis of the system?

If the whole point of the Bretton Woods system was to guarantee that all the currencies of the world were “as good as gold” because they were convertible to U.S. dollars, which in turn were promised to be convertible into gold… And then President Nixon broke that promise in 1971… Wouldn’t that suggest that the whole system should have blown up in reaction to Nixon slamming the gold window shut in August of ’71?

Actually, it almost did. But miraculously, the system has held together for the last 42 years, despite the fact that the most fundamental promise upon which the system was based no longer holds true. To be sure, the Arabs were not happy about Nixon’s action, and they complained loudly at the time, rhetorically asking why they should continue to accept dollars for their oil, if those dollars were not backed by anything, and might just become worthless paper. After all, if U.S. dollars were no longer convertible into gold, what value did they really have to foreigners? The slamming of the gold window by President Nixon in 1971 was not the only cause of the Arab oil embargo, but it was certainly a major influence.

What’s holding the IMS together?

Why didn’t the rest of the world abandon the dollar as the global reserve currency in reaction to the USA unilaterally reneging on gold convertibility in 1971? In my opinion, the best answer is simply “Because there was no clear alternative”. And to be sure, the unmatched power of the U.S.military had a lot to do with eliminating what might otherwise have been attractive alternatives for other nations.

U.S. diplomats made it clear to Arab leaders that they wanted the Arabs to continue pricing their oil in dollars. Not just for U.S.customers, but for the entire world. Indeed, U.S. leaders at the time understood all too well just how much benefit the USA derives from exorbitant privilege, and they weren’t about to give it up.

After a few years of tense negotiations including the infamous oil embargo, the so-called petro-dollar business cycle was born. The Arabs would only accept dollars for their oil, and they would re-invest most of their profits in U.S. Treasury debt. In exchange for this concession, they would come under the protectorate of the U.S. military. Some might even go so far as to say that the U.S. government used the infamous Mafia tactic of making the Arabs an “offer they couldn’t refuse” – forcing oil producing nations to make financial concessions in exchange for “protection”.

With the Arabs now strongly incented to continue pricing the world’s most important commodity in U.S. dollars, the Bretton Woods system lived on. No longer constrained by the threat of a run on its bullion reserves, the U.S. kicked its already-entrenched practice of borrowing and spending beyond its means into high gear. For the past 42 years, the entire world has continued to conduct virtually all international trade in Dollars. This has forced China, Japan, and the oil exporting nations to buy and hold an enormous amount of U.S. Treasury debt. Exorbitant privilege is the key economic factor that allows the U.S.to run trillion dollar fiscal deficits without crashing the Treasury bond market. So far.

There’s a limit to how long this can last

But how long can this continue? The U.S.debt-to-GDP ratio now exceeds 100%, and the U.S. has literally doubled its national debt in the last 6 years alone. It stands to reason that eventually, other nations will lose faith in the dollar and start conducting business in some other currency. In fact, that’s already started to happen, and it’s perhaps the most important, under-reported economic news story in all of history.

Some examples…China and Brazil are now conducting international trade in their own currencies, as are Russia and China. Turkey and Iran are trading oil for gold, bypassing the dollar as a reserve currency. In that case, US sanctions are a big part of the reason Iran can’t sell its oil in dollars. But I wonder if President Obama considered the undermining effect on exorbitant privilege when he imposed those sanctions. I fear that the present U.S. government doesn’t understand the importance of the dollar’s reserve currency role nearly as well as our leaders did in the 1970s.

The Biggest Risk We Face is a US Bond and Currency Crisis

To be sure, Peak Oil in general represents a monumental risk to humanity because it’s literally impossible to feed all 7+ billion people on the planet without abundant energy to run our farming equipment and distribution infrastructure. But the risks stemming directly from declining energy production are not the most imposing, in my view.

Decline rates will be gradual at first, and it will be possible, even if unpopular, to curtail unnecessary energy consumption and give priority to life-sustaining uses for the available supply of liquid fuels. In my opinion, the greatest risks posed by Peak Oil are the consequential risks. These include resource wars between nations, hoarding of scarce resources, and so forth. Chief among these consequential risks is the possibility that the Peak Oil energy crisis will be the catalyst to cause a global financial system meltdown. In my opinion, the USA losing its reserve currency status is likely to be at the heart of such a meltdown.

A good rule of thumb is that if something is unsustainable and cannot continue forever, it will not continue forever. The present incarnation of the IMS, which affords the United States the exorbitant privilege of borrowing a seemingly limitless amount of its own currency from foreigners in order to finance its reckless habit of spending beyond its means with trillion-dollar fiscal deficits, is a perfect example of an unsustainable system that cannot continue forever.

But the bigger the ship, the longer it takes to change course. The IMS is the biggest financial ship in the sea, and miraculously, it has remained afloat for 42 years after the most fundamental justification for its existence (dollar-gold convertibility) was eliminated. How long do we have before the inevitable happens, and what will be the catalyst(s) to bring about fundamental change? Those are the key questions.

In my opinion, the greatest risk to global economic stability is a sovereign debt crisis destroying the value of the world’s reserve currency. In other words, a crash of the U.S. Treasury Bond market. I believe that the loss of reserve currency status is the most likely catalyst to bring about such a crisis.

The fact that the United States’ borrowing and spending habits are unsustainable has been a topic of public discussion for decades. Older readers will recall billionaire Ross Perot exclaiming in his deep Texas accent, “A national debt of five trillion dollars is simply not sustainable!” during his 1992 Presidential campaign. Mr. Perot was right when he said that 20 years ago, but the national debt has since more than tripled. The big crisis has yet to occur. How is this possible? I believe the answer is that because the U.S. dollar is the world’s reserve currency and is perceived by institutional investors around the globe to be the world’s safest currency, it enjoys a certain degree of immunity derived from widespread complacency.

But that immunity cannot last forever. The loss of reserve currency status will be the forcing function that begins a self-reinforcing vicious cycle that brings about a U.S. bond and currency crisis. While many analysts have opined that the USA cannot go on borrowing and spending forever, relatively few have made the connection to loss of reserve currency status as the forcing function to bring about a crisis.

We’re already seeing small leaks in the ship’s hull. China openly promoting the idea that the yuan should be asserted as an alternative global reserve currency would have been unthinkable a decade ago, but is happening today. Major international trade deals (such as China and Brazil) not being denominated in US dollars would have been unthinkable a decade ago, but are happening today.

So we’re already seeing signs that the dollar’s exclusive claim on reserve currency status will be challenged. Remember, when the dollar loses reserve currency status, the U.S.loses exorbitant privilege. The deficit spending party will be over, and interest rates will explode to the upside. But to predict that this will happen right now simply because the system is unsustainable would be unwise. After all, by one important measure the system stopped making sense 42 years ago, but has somehow persisted nonetheless. The key question becomes, what will be the catalyst or proximal trigger that causes the USD to lose reserve currency status, igniting a U.S. Treasury Bond crisis?

Elevated Risk

It’s critical to understand that the USA is presently in a very precarious fiscal situation. The national debt has more than doubled in the last 10 years, but so far, there don’t seem to have been any horrific consequences. Could it be that all this talk about the national debt isn’t such a big deal after all?

The critical point to understand is that while the national debt has more than doubled, the U.S. Government’s cost of borrowing hasn’t increased at all. The reason is that interest rates are less than half what they were 10 years ago. Half the interest on twice as much principal equals the same monthly payment, so to speak. This is exactly the same trap that subprime mortgage borrowers fell into. First, money is borrowed at an artificially low interest rate. But eventually, the interest rate increases, and the cost of borrowing skyrockets. The USA is already running an unprecedented and unsustainable $1 trillion+ annual budget deficit. All it would take to double the already unsustainable deficit is for interest rates to rise to their historical norms.

This all comes back to exorbitant privilege. The only reason interest rates are so low is that the Federal Reserve is intentionally suppressing them to unprecedented low levels in an attempt to combat deflation and resuscitate the economy. The only reason the Fed has the ability to do this is that foreign lenders have an artificial need to hold dollar reserves because the USD is the global reserve currency. They would never accept such low interest rates otherwise. Loss of reserve currency status means loss of exorbitant privilege, and that in turn means the Fed would lose control of interest rates. The Fed might respond by printing even more dollars out of thin air to buy treasury bonds, but in absence of reserve currency status, doing that would cause a collapse of the dollar’s value against other currencies, making all the imported goods we now depend on unaffordable.

In summary, the U.S. Government has repeated the exact same mistake that got all those subprime mortgage borrowers into so much trouble. They are borrowing more money than they can afford to pay back, depending solely on “teaser rates” that won’t last. The U.S. Government’s average maturity of outstanding treasury debt is now barely more than 5 years. This is analogous to cash-out refinancing a 30-year fixed mortgage, replacing it with a much higher principal balance in a 3-year ARM that offers an initial teaser rate. At first, you get to borrow way more money for the same monthly payment. But eventually the rate is adjusted, and the borrower is unable to make the higher payments.

The Janszen Scenario

When it comes to evaluating the risk of a U.S. sovereign debt and currency crisis, most mainstream economists dismiss the possibility out of hand, citing the brilliant wisdom that “the authorities would never let such a thing happen”. These are the same people who were steadfastly convinced that housing prices would never crash in the United States because they never had before, and that Peak Oil is a myth because the shale gas boom solves everything (provided you don’t actually do the math).

At the opposite extreme are the bloggers on the Internet whom I refer to as the Hyperinflation Doom Squad. Their narrative generally goes something like this: Suddenly, when you least expect it, foreigners will wise up and realize that the U.S. national debt cannot be repaid in real terms, and then there will be a panic that results in a crash of the U.S. Treasury market, hyperinflation of the U.S. dollar, and declaration of martial law. This group almost always cites the hyperinflations of Zimbabwe and Argentina as “proof” of what’s going to happen in the USA any day now, but never so much as acknowledges the profound differences in circumstances between the USA and those countries. These folks deserve a little credit for having the right basic idea, but their analysis of what could actually happen simply isn’t credible when examined in detail.

Little-known economist Eric Janszen stands out as an exception. Janszen is the only credible macroeconomic analyst I’m aware of who realistically acknowledges just how real and serious the threat of a U.S. sovereign debt crisis truly is. But his analysis of that risk is based on credible, level-headed thinking complemented by solid references to legitimate economic theory such as Triffin’s Dilemma. Unlike the Doom Squad, Janszen does not rely on specious comparisons of the USA to small, systemically insignificant countries whose past financial crises have little in common with the situation the USA faces. Instead, Janszen offers refreshingly sound, well constructed arguments. Many of the concepts discussed in this article reflect Janszen’s work.

Janszen also happens to be the same guy who coined the phrase Peak Cheap Oil back in 2006, drawing an important distinction between the geological phenomenon of Hubbert’s Peak and the economic phenomenon which begins well before the actual peak, due to increasing marginal cost of production resulting from ever-increasing extraction technology complexity.

“But there’s no sign of inflation…” (Hint: It’s coming)

Janszen has put quite a bit of work into modeling what a U.S. bond and currency crisis would look like. He initially called this KaPoom Theory, because history shows that brief periods of marked deflation (the ‘Ka’) usually precede epic inflations (the ‘Poom’). He recently renamed this body of work The Janszen Scenario.

Briefly summarized, Janszen’s view is that the U.S. has reached the point where excessive borrowing and fiscal irresponsibility will eventually cause a catastrophic currency and bond crisis. He believes that all that’s needed at this point is a proximal trigger, or catalyst, to bring about such an outcome. He thinks there are several potential triggers that could bring such a crisis about, and chief among the possibilities is the next Peak Cheap Oil price spike.

How Peak Oil could cause a Bond and Currency Crisis

There are several ways that an oil price spike could trigger a U.S. bond and currency crisis. Energy is an input cost to almost everything else in the economy, so higher oil prices are very inflationary. The Fed would be hard pressed to continue denying the adverse consequences of quantitative easing in a high inflation environment, and that alone could be the spark that leads to higher treasury yields. The resulting higher cost of borrowing to finance the national debt and fiscal deficit would be devastating to the United States.

A self-reinforcing vicious cycle could easily begin in reaction to oil price-induced inflation alone. But we must also consider how an oil price shock could lead to loss of USD reserve currency status, and therefore, loss of U.S. exorbitant privilege. In the 1970s, the USA represented 80% of the global oil market. Today we represent 20%, and demand growth is projected to come primarily from emerging economies. In other words, the rationale for oil producers to keep pricing their product in dollars has seriously deteriorated since the ‘70s. The more the global price of oil goes up, the more the U.S. will source oil from Canadian tar sands and other non-OPEC sources. That means less and less incentive for the OPEC nations to continue pricing their oil in dollars for all their non-U.S. customers.

Iran and Turkey have already begun transacting oil sales in gold rather than dollars. What if the other oil exporting nations wake up one morning and conclude “Hey, why are we selling our oil for dollars that might some day not be worth anything more than the paper they’re printed on?” Oil represents a huge percentage of international trade, so if oil stopped trading in dollars, that alone would be reason for most nations to reduce the very large dollar reserves they now hold. They would start selling their U.S. treasury bonds, and that could start the vicious cycle of higher interest rates and exploding borrowing costs for the U.S. Government. The precise details are hard to predict. The point is, the system is already precarious and vulnerable, and an oil price shock could easily detonate the time bomb that’s already been ticking away for more than two decades.

What if U.S. Energy Independence claims were true?

There’s another angle here. Peak Oil just might be the catalyst to cause the loss of U.S. exorbitant privilege, even without an oil price shock.

Astute students of Peak Oil already know better than to believe the recently-popularized political rhetoric claiming that the USA will soon achieve energy independence, thanks to the shale oil and gas boom. To be sure, the Bakken, Eagle Ford, and various other U.S. oil and gas plays are a big deal. The most optimistic forecasts I’ve seen show these plays collectively ramping up to as much as 4.8 million barrels per day of production, which is equivalent to about ½ of Saudi Arabia’s current production.

But the infamous “wedge of hope” chart from the EIA projects production declines from existing global resources of 60 million barrels per day by 2030. By the most optimistic projections, all the exciting new plays in the U.S. will replace less than 5 million barrels per day. Where the other 55 million barrels per day will come from remains a mystery! And of course the politicians never bother to mention such minor details when they make predictions of energy independence.

But let’s just pretend for a moment that hyperbole is reality, and that the USA will achieve energy-independence in just a few years’ time. Now consider the consequences to the IMS. The oil-exporting nations would lose the USA as their primary export customer, and would no longer have an incentive to price their oil in dollars, or to maintain large dollar reserves. They would start selling off their U.S. treasury bonds, and pricing their oil in something other than dollars. Large oil importers like China and Japan would stop paying for oil in dollars, and would no longer need to maintain present levels of U.S. dollar reserves. So they too would start selling U.S. treasury bonds, pushing up U.S. interest rates in the process. Once again, we have the ingredients for a self-reinforcing vicious cycle of increasing U.S. interest rates causing U.S. Government borrowing costs to skyrocket.

Without the artificial demand for treasury debt created by exorbitant privilege, the U.S. would be unable to finance its federal budget deficit. The Federal Reserve might respond with even more money printing to monetize all the government’s borrowing needs, but without the international demand that results from the dollar’s reserve currency status, the dollar would crash in value relative to other currencies as a result of excessive monetization by the Fed. The resulting loss of principal value would cause even more international holders of U.S. Treasury debt to panic and sell their holdings. Once again, a self-reinforcing vicious cycle would develop, with consequences for the United States so catastrophic that the 2008 event would pale in contrast.

Rambo to the Rescue?

Let’s not forget that the USA enjoys virtually unchallenged global military hegemony. China is working hard to build out its “blue water navy”, including strategic ballistic missile nuclear submarine capability. But the USA is still top dog on the global power stage, and if the USA was willing to use its nuclear weapons, it could easily defeat any country on earth, except perhaps China and Russia.

While the use of nuclear weapons in an offensive capacity might seem unthinkable today, the USA has yet to endure significant economic hardship. $15/gallon gasoline from the next Peak Cheap Oil price shock coupled with 15% treasury yields and a government operating in crisis mode just to hold off systemic financial collapse in the face of rampant inflation would change the mood considerably.

All the USA has to do in order to secure an unlimited supply of $50/bbl imported oil is to threaten to nuke any country refusing to sell oil to the U.S. for that price. Unthinkable today, but in times of national crisis, morals are often the first thing to be forgotten. We like to tell ourselves that we would never allow economic hardship to cause us to lose our morals. But just look at the YouTube videos of riots at Wal-Mart over nothing more than contention over a limited supply of boxer shorts marked down 20% for Black Friday. What we’ll do in a true crisis that threatens our very way of life is anyone’s guess.

If faced with the choice between a Soviet-style economic collapse and abusing its military power, the USA just might resort to tactics previously thought unimaginable. Exactly what those tactics might be and how it would play out are unknowable. The point is, this is a very complex problem, and a wide array of factors including military capability will play a role in determining the ultimate outcome.

I certainly don’t mean to predict such an apocalyptic outcome. All I’m really trying to say is that the military hegemony of the USA will almost certainly play into the equation. Even if there is no actual military conflict, the ability of the U.S. to defeat almost any opponent will play into the negotiations, if nothing else.

Conclusions

The current incarnation of the International Monetary System, in which the USA enjoys the exorbitant privilege of borrowing practically for free, and is therefore able to pursue reckless fiscal policy with immunity from the adverse consequences that non-reserve currency issuing nations would experience by doing so, cannot continue indefinitely. Therefore, it will not continue indefinitely. How and when it will end is hard to say, especially considering the fact that it’s already persisted for 42 years after it stopped making sense. The system will continue to operate until some catalyst or trigger event brings about catastrophic change.

The next Peak Cheap Oil price spike is not the only possible catalyst to bring about a U.S. bond and currency crisis, but it’s the most likely candidate I’m aware of. I don’t believe that U.S. energy independence is possible, but if it were, the end of oil imports from the Middle East would also be the catalyst to end exorbitant privilege and bring about a U.S.bond and currency crisis. To summarize, the music hasn’t stopped quite yet, but when it does, this will end very, very badly. I’m pretty sure we’re on the last song, but I don’t know how long it has left to play.

Further Reading

Erik Townsend is a hedge fund manager based in Hong Kong.


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[Oct 17, 2017] Trumps tough talk on Iran could end in a big, blame-evading dodge

Effect of Trump move on energy market remains to be seen... Might well be another step toward fiscal collapse...
Notable quotes:
"... Better refresh. The United States is by definition, an empire. Has been since December 10, 1898. Not all empires have or have had emperors. At least, as an official title. We even still possess a few de facto colonies, Puerto Rico being the most populous. The Philippines were part of the American empire from December 10, 1898 to July 4, 1946. ..."
"... The Philippines' colonial history has been described by one historian as "500 years in a convent, followed by 50 years at Disneyland." ..."
"... This is the result of our long string of wars since Reagan took on Grenada. Then Bush in Panama. And on and on until today. We've chosen to do battle with small weak countries that don't have a hope in hell of winning or even inflicting major harm. ..."
Oct 13, 2017 | www.theguardian.com

-> Ponderbelle , 13 Oct 2017 02:21

Saudis bought 15 billion dollars antirocket system. Its one deal only. Just to get Trump to stop messing around and crash the Persians they also bought Russian system.

, 12 Oct 2017 23:32

"A peculiar pattern of Trumpian behavior is emerging. First, his fragile ego forbids him to ever take responsibility for anything. Ever. Second, because he craves the adulation of his base, he will to shift blame or throw any and all supporters and allies under the bus."

He also has a tendency to want to take revenge for any imagined or real slight that bruise his fragile ego. Not a statesman or leader by any strength of the imagination.

-> ghstwrtrx7 , 12 Oct 2017 22:51

The good news is that ALL empires, throughout history, have fallen. Looking forward to the fall of the American Empire.

-> Fred Fawcett , 12 Oct 2017 22:46

Yes laughable and tragic all at the same time. Even the guy whose nickname actually is "Mad Dog" (James Mattis) has gone on record with some intelligent comments on why the Iran nuclear deal should be kept in place.

I'm not surprised you got so much hate on that comment board. The Neo-Nazis seem to loiter where they know they can get away with crap that isn't monitored properly.

, 12 Oct 2017 20:45

US citizens who believe they're 'victims' of a 'deep state' have no idea how their war-mongering nation is viewed abroad...

-> lefttheleft , 12 Oct 2017 18:25

He's the best shot that the USA becomes truly 3rd world.

-> Rigobertus , 12 Oct 2017 17:25

Trump is the antidote. You may not like it but he's the best shot at pulling the USA from the brink of ruin.

-> Abigailgem , 12 Oct 2017 17:20

America's been piling on the bad karma since Vietnam. It could well cause the world egregious trauma, but no one will shed a tear when the beast is brought low by its episodic-tho-predictable bouts of cluster-fuck. Methinks they've hit the Big One.

And aren't its politicians infinitely grateful for a citizenry so simply and quickly distracted by Hollywood shenanigans (as awful as they are in this instance) whilst a) 3 million of its own have been blown into third world living standards; b) 528 took a bullet from a shooter in the span of less than 10 minutes; and c) Californians are being roasted alive in the latest indication that something's gone screwy in our biosphere? The Oaf and Chief considers Weinstein as nothing more than relief.

Riddle: What's the difference between a President and a leader?

A: There shouldn't be difference, but now there is.

-> GatesOfRome , 12 Oct 2017 16:08

Iran is a danger to the region and the world.

I know enough of Iran to respectfully disagree. In many respects, Iran is similar to China, 30 years ago. Under the right leadership, it has the potential of becoming an economic engine for the South-West Asia, helping economic growth of itself and many of its neighboring countries.

Iran has a well-educated population that does not like the US, mainly because of the past US behaviour both in their country and in the surrounding region. The people there revolted against a US-installed government and used religion as a unifying ideology. Now they should be left alone to sort out the problems that religion has brought to them.

In case of China, Napoleon Bonaparte is quoted to say:

Let China Sleep, for when she wakes, she will shake the world

As the journal Economist once suggested, it is also better to leave the Persian Lion alone. Indeed, the Bonaparte's quote can be restated to apply to Iran; it could read:

Let the Persian Lion Sleep, for when it wakes, it will never live like a sheep

For those interested in military mind-set, it is worth mentioning here that Afghans and Iranians are in fact the same people and approach war and fighting in the same manner. The difference between the two is the cunning and sophistication of the latter.

, 12 Oct 2017 14:53

Mr. McLean's analysis is largely on the mark. Indeed much of it is supported by Mr. Trump's behavioral pattern, which has been witnessed by the world public during the past 11 months. There is, however, an area where - like many others - Mr. McLean tries to play safe. When he says::

But he promised his loyal base, Fox News and Steve Bannon, he would dump the accord

he is apparently leaving out an important - and probably the most critical - constituency of Mr. Trump. When Mr. McLean says:

He has Bannon and Breitbart howling on his heels, along with most of the rabid rightwing noise machine.

he is getting close; but, then then he shies away from identifying who are the people behind that "rabid rightwing noise machine.".

Many believe that Mr. Trump decisions are influenced by this "rabid rightwing machine" more than anything or anyone else. He has been reported to call many of the machine's "operators" after hours, from the WH as well as his Mar-a-Lago palace, in every opportunity he gets. As examples of the power of this machine, they refer to its ability:

1. To undo the harm of Pope Francis condemnation of candidate Trump, clling him "not being Christian", after his pledge to deport undocumented immigrants and build a wall between US and Mexico. The machine undermined Vatican's moral authority by overnight flooding of the world media with the old story of Pope John Paul II having a close relationship with a Polish women;

2. To pump out billions of dollars into the US futures market on the night of Mr. Trump's election victory to reverse its steep drop of almost 1000 points .

Now the "rabid rightwing machine" wants US decertification of the nuclear treaty with Iran. Mr. Trump is a businessman and no doubt understands how transactional relationships work. He is indebted to this machine, and has to reciprocate its favours in order to receive more of the same in future. Note that he has already registered as a canadidate, to be re-elected the US president for his second term!

-> Durangotang , 12 Oct 2017 11:43

And the US did not attack North Korea?

-> GatesOfRome , 12 Oct 2017 05:23

Iran is a danger to the region and the world.

The facts don't support this assumption. Clearly and without a doubt by far the most dangerous, the most destructive, the most deadly player in the region has been the United States. This fact is indisputable to the sincere.

-> Daniel Berg , 12 Oct 2017 05:15

Better refresh. The United States is by definition, an empire. Has been since December 10, 1898. Not all empires have or have had emperors. At least, as an official title. We even still possess a few de facto colonies, Puerto Rico being the most populous. The Philippines were part of the American empire from December 10, 1898 to July 4, 1946.

The Philippines' colonial history has been described by one historian as "500 years in a convent, followed by 50 years at Disneyland."

, 12 Oct 2017 05:02

Trump makes a big medicine show of cancelling "the worst deal ever" (Man! Trump can go from 0 - Hyperbole in no time flat, eh?) but that's easier said than done. The United States simply cannot arbitrarily walk away from the deal. Not legally. Aside from that Trump no longer enjoys the support of the GOP to cancel the agreement.

Oh! Make no mistake. These very same Republicans were all for walking away from the deal when Obama made it and they didn't control all three branches of government (although I'm not sure who or what controls the executive at the moment). Now that they do, having nothing but years of obstructionism to bring to the table, the GOP, lacking any governing skills whatsoever, is as impotent as ever and tearing itself apart from the inside besides.

I tell ya'. The GOP, already severely weakened by the Koch Brothers'-funded grassroots Tea Party movement, may very well just not survive the cancer of Trump.

-> GatesOfRome , 12 Oct 2017 04:50

Again, not the topic. The question is asked: Is Iran in compliance with the Joint Comprehensive Plan of Action? The answer, of course, is yes. Trump's entire domestic and foreign policy decisions appear to be based entirely on if Obama had anything to do with it, then it has to go. Bad or good. Right or wrong . This is not a viable method of sound government. It is petty, however. Childish and puerile, to say the least.

At any rate, if Trump renegades on this deal as he has on so many since he's been in office, then it will be the United States which will be in noncompliance with the treaty and it will be the reputation of the United States which will suffer yet another blow delivered by none other than our Buffoon-in-Chief.

Besides, Iran is not the only other nation muckraking about in the region. There are other players in the game. I hear rumors of another, more powerful, more destructive, far more deadlier entity stomping about the place, making a mess of just about everything. Been doing it for decades now. Just keeps making matters worse.

-> Fred Fawcett , 11 Oct 2017 22:37

I know it's sexy to blame Rethugs for everything, but American wars against weak countries didn't begin with Reagan. From the halls of Montezuma...

-> phubar , 11 Oct 2017 21:38

North Korea might just decide that it's own best interests would be served by selling Iran a working bomb. With Trump's sanctions interfering with North Korea obtaining oil, Iran might just pay the tab that way. The world could very quickly become a much more dangerous place because of Trump's antics.

-> ID4752094 , 11 Oct 2017 21:32

Israel is probably mentioned because Netanyahu is an active partner in Trump's war on the Iran Deal.

-> zolotoy , 11 Oct 2017 21:25

This is the result of our long string of wars since Reagan took on Grenada. Then Bush in Panama. And on and on until today. We've chosen to do battle with small weak countries that don't have a hope in hell of winning or even inflicting major harm.

With each new painless war the American people have been conditioned to believe that because it hasn't caused personal suffering that war is somehow painless. Now we've worked our way up to North Korea and Iran. Both of them a whole different ball game. War with either or both would likely result in a return of the draft.

Trump's scumbag supporters would quickly be singing a different tune as soon as they found themselves being forced to participate.

-> Stranger1548 , 11 Oct 2017 21:09

Well said.

[Oct 17, 2017] For War Hawks, Iran Deal Dump Is Music to the Ears

As one commenter aptly said: " 'Moron', as Tillerson would say." and as another noted "Don the Neocon.. We can keep the military in the end-stateless, goal-less, sinkhole known as Afghanistan for decades, STILL subsidize the defense of rich EU and Asian countries, fight the latest "Al Qaeda offshoot" everywhere on the African continent but we can't afford universal healthcare like US welfare baby Israel or about every other developed country, or restore power or drinking water in a US territory."
Notable quotes:
"... the question is, who are these people all excited about Iran? Other than politicians who may be working for foreign lobbies? ..."
"... This is pure lawlessness. We are breaking an agreement and by advocating regime change against a govt that has not attacked us or even threatened us in a serious manner are breaking the U.N. charter. ..."
"... Screw Trump. I mean really, screw him. He got my vote because I thought he was going to first crush ISIS and then get us out of the Middle East. Instead he's intensifying nearly every aspect of our Middle East entanglements. ..."
"... Now he's creating a new mess of his own. And this crap he's pulling with Iran is for Saudi Arabia and Israel. America First really? ..."
"... Of all of the Obama-era foreign policy decisions Trump could pull back, he's hell-bent on crushing one of the only good ones. I'd be shocked if he has even an elementary understanding of the agreement. "Moron", as Tillerson would say. ..."
"... "Cotton is one of the biggest Israel money guys in the Senate, if not the biggest. Really whopping contributions – "the Swamp" personified. In return for Israel money he has tirelessly pushed the core Israeli policy of hostility to Iran, so much so that it hardly makes sense to think of him as an American senator anymore." ..."
"... It appears that Trump's strategy is to insult and ruin Ran's economy to the point where he can get Iran to do something that will allow him to declare war against Iran because they attacked us. ..."
"... And how many countries has Iran invaded in the last 200 years? And how many countries has Israel invaded in the last 80 years? ..."
"... We will really find out who the Swamp creatures are now. Any congressman or Senator who votes for new sanctions against Iran – a country that poses virtually no threat to the United States – exposes himself as a bought-and-paid-for tool of Saudi Arabia and the jihadist fanatics the Saudis support. ..."
"... it's less that Trump wants to undo what Obama did and more that he wants to do what Netanyahu wants. ..."
"... Any notion of American excellence has now been erased. Our country will not soon recover all that Trump has tossed away and as citizens, we cannot absolve ourselves from blame. We have elected the most odious leader in our history and have allowed (mostly) a Republican Party to participate in government without having made a single contribution to the welfare of the American republic. Cotton is not alone in his folly that dismisses all real national interest. Like others, there have been many times I have despaired at the state of affairs in our Country, but this is different. Trump and his vandal allies I believe have inflicted permanent and irreversible damage to our country. Joe F , says: October 13, 2017 at 5:07 pm One follow up to earlier post: with this action, Trump has proven beyond doubt that the Mullah regime in Iran is a far more trustworthy nation than the United States. Well done Donald ..."
Oct 13, 2017 | www.theamericanconservative.com

Fran Macadam , says: October 13, 2017 at 12:48 am

Making war in other people's countries is what an American government captured by globalist financial elites is all about. For elites, such wars, paid for by the deplorable ordinary Americans they loathe, have no downside and carry no risk to them. Lose-lose for the American public is win-win for them, they cannot lose, especially since wars that can't be won will never end, perfect profit streams.
80 Percent Polyester , says: October 13, 2017 at 5:39 am
"Cotton was among the fiercest and loudest opponents of the agreement before it was made, and he has continued to look for ways to sabotage it."

Cotton is one of the biggest Israel money guys in the Senate, if not the biggest. Really whopping contributions – "the Swamp" personified. In return for Israel money he has tirelessly pushed the core Israeli policy of hostility to Iran, so much so that it hardly makes sense to think of him as an American senator anymore.

He's more like a member of the Netanyahu government who somehow ended up in one of Arkansas's US Senate seats.

Early To Rise , says: October 13, 2017 at 5:58 am
Does anyone here know any real Americans who are pushing for this policy against Iran? My family and friends are nearly all real Americans, and not one of them has any interest in ending the deal with Iran. Most of them wish we would get out of the Middle East altogether.

So the question is, who are these people all excited about Iran? Other than politicians who may be working for foreign lobbies?

Christian Chuba , says: October 13, 2017 at 7:16 am
This is pure lawlessness. We are breaking an agreement and by advocating regime change against a govt that has not attacked us or even threatened us in a serious manner are breaking the U.N. charter.

We are doing this while condemning other countries for not following a 'liberal, rules based world order' (whatever that is, oh, wait, it is following Caesar's decrees). Our Hubris will catch up to us, whether it will be by the Almighty that the Haley's and Cotton's claim to serve or just the law of reciprocity, I don't know. No one is more blind than those corrupted by power.

John Quincy Adams, "But she goes not abroad, in search of monsters to destroy She well knows that by once enlisting under other banners than her own, were they even the banners of foreign independence, she would involve herself beyond the power of extrication The fundamental maxims of her policy would insensibly change from liberty to force . She might become the dictatress of the world. She would be no longer the ruler of her own spirit."

He was able to see this because we were not yet intoxicated by power.

Everything Must Go , says: October 13, 2017 at 8:01 am
Screw Trump. I mean really, screw him. He got my vote because I thought he was going to first crush ISIS and then get us out of the Middle East. Instead he's intensifying nearly every aspect of our Middle East entanglements.

Now he's creating a new mess of his own. And this crap he's pulling with Iran is for Saudi Arabia and Israel. America First really?

Frederick Martin , says: October 13, 2017 at 9:38 am
Of all of the Obama-era foreign policy decisions Trump could pull back, he's hell-bent on crushing one of the only good ones. I'd be shocked if he has even an elementary understanding of the agreement. "Moron", as Tillerson would say.
Fred Bowman , says: October 13, 2017 at 10:14 am
What seem to be missing here is anybody talking about Israel nuclear capability. That's the "dirty little secret" that nobody talks about. Imho, as long as Iran is in compliance the deal should. Of course Trump and the Hawks in Congress are going to do everything to scuttle it and bring about a war with Iran which will end up being a World War and will necessitate the US returning to a military draft to fight this war. It will be a sad way to "wake up" America to what is being done militarily in their name. But perhaps when they see their little "Johnny and Jill" marched off to war, they'll see what has been done in these endless, unwinnable wars in the Middle East.
AR complaint , says: October 13, 2017 at 10:31 am
[Tom Cotton gets] "Really whopping contributions – "the Swamp" personified."

He got a $700,000 check from a single Israel donor in 2014. You think anybody in Arkansas not named "Walton" can match that? No sir. Tom Cotton does what Israel tells him to do. Scuttle the Iran deal? No problem.

It's time that my fellow Arkansans did for Tom Cotton what those upstanding Virginians did for Eric Cantor back in 2014, and for the same reason: we want our government back from corrupt politicians working for foreign interests.

SDS , says: October 13, 2017 at 11:53 am
I second EVERYTHING said above by all –
Steve Waclo , says: October 13, 2017 at 11:53 am
" the president made clear over the summer, he didn't "believe" Iran was in compliance and would not certify again."

Wait, what?! What does Trump know that the IAEA has been unable to learn and at the risk of compromising intelligence sources, why has he not shared that knowledge? As with many of the man's "beliefs", such attitudes do not make issues remotely true. We don't need to stir the Iran pot, for goodness sake. Has not this man kicked enough hornets nests around the world?

Stephen J. , says: October 13, 2017 at 11:58 am
I believe the "War Hawks"are leading Trump into another war. Therefore, I asked on: February 4, 2017 Will There Be War With Iran?
http://graysinfo.blogspot.ca/2017/02/will-there-be-war-with-iran.html
Steve in Ohio , says: October 13, 2017 at 12:35 pm
"Cotton is one of the biggest Israel money guys in the Senate, if not the biggest. Really whopping contributions – "the Swamp" personified. In return for Israel money he has tirelessly pushed the core Israeli policy of hostility to Iran, so much so that it hardly makes sense to think of him as an American senator anymore."

Cotton is wrong on this issue, but he's hardly a Swamp politico. He understands the dangers of mass immigration and looks likely to replace Jeff Sessions as the leading immigration hawk in the Senate. Unfortunately, I suspect he has presidential ambitions and being pro Israel is a must in GOP primaries.

Rand Paul, on the other hand, like his dad, is good on foreign policy, but doesn't get the immigration issue. People like me who want a non interventionist FP and low immigration seldom have candidates that believe in both to support. I had high hopes for Trump, but he seems to have too many generals around him telling him the wrong things.

the times they are a'changing , says: October 13, 2017 at 1:23 pm
"Cotton is wrong on this issue, but he's hardly a Swamp politico. He understands the dangers of mass immigration and looks likely to replace Jeff Sessions as the leading immigration hawk in the Senate. Unfortunately, I suspect he has presidential ambitions and being pro Israel is a must in GOP primaries. "

No it's not. It was a litmus test for the old neocon Establishment GOP, and it's gone the way of Eric Cantor. You have to go to New York, DC, or some left coastal city to find anyone who gives a goddamn about it, and those places don't vote Republican anyway.

Politicians who take the Israel dollar care about it a lot, naturally. And Cotton's near the top of the list.

jk , says: October 13, 2017 at 2:04 pm
Don the Neocon.. We can keep the military in the end-stateless, goal-less, sinkhole known as Afghanistan for decades, STILL subsidize the defense of rich EU and Asian countries, fight the latest "Al qaeda offshoot" everywhere on the African continent but we can't afford universal healthcare like US welfare baby Israel or about every other developed country, or restore power or drinking water in a US territory.

"NO KIN IN THE GAME": STUDY FINDS MEMBERS OF CONGRESS WITHOUT DRAFT-AGE SONS WERE MORE HAWKISH"

https://theintercept.com/2017/10/11/congress-war-hawkish-policies-study/

That explains "lifetime bachelor" Graham's behavior!

Kent , says: October 13, 2017 at 3:09 pm
To our neocon friends:

1. Even though Iran and Iraq are 4 letter words and share the first 3, they are very, very different animals. Iran is an industrial state of 85 million capable of designing and building effective rockets. It is highly unlikely the US can defeat Iran in a conventional war on its own turf.

2. Even if we did defeat them, there is nobody there yearning for American style pseudo-democracy. While they are not perfectly happy with their own government, they'll be dammed if they're going to accept one from us. So you'd have to put millions of American troops in harms way against the civilian population essentially forever.

And a note on the President. I don't believe he knows or cares a thing about Iran or their capabilities. What he does know, after watching Fox News for the last 8 years is: Obama bad. So the only reason, I'm certain, that Trump cares about this is because it was an Obama initiative.

Robert Charron , says: October 13, 2017 at 3:34 pm
It appears that Trump's strategy is to insult and ruin Ran's economy to the point where he can get Iran to do something that will allow him to declare war against Iran because they attacked us.

And how many countries has Iran invaded in the last 200 years? And how many countries has Israel invaded in the last 80 years?

As I recall we made a regime change in the Iranian government when we had the CIA along with the English intelligence by replacing the elected Prime Minister of Iran with the despotic, tyrannical Shah.

As an American, Trump has desecrated our flag with his flat out lies, not the NFL athletes who simps knelt during the National Anthem.

simon94022 , says: October 13, 2017 at 3:54 pm
We will really find out who the Swamp creatures are now. Any congressman or Senator who votes for new sanctions against Iran – a country that poses virtually no threat to the United States – exposes himself as a bought-and-paid-for tool of Saudi Arabia and the jihadist fanatics the Saudis support.

Let them be counted!

Ollie , says: October 13, 2017 at 4:26 pm
No president in history has been more feckless and reckless than Trump. The danger demands that the 25th amendment be asserted.
Why Does The Heathen Rage? , says: October 13, 2017 at 4:49 pm
"So the only reason, I'm certain, that Trump cares about this is because it was an Obama initiative."

I've heard this before, but if it were true than why is Trump helping the Saudis wreck and starve Yemen? That was an Obama initiative too. That's why I now think that it's not really the Obama connection so much as the Netanyahu connection that drives Trump. In other words, it's less that Trump wants to undo what Obama did and more that he wants to do what Netanyahu wants.

Joe F , says: October 13, 2017 at 5:05 pm
Any notion of American excellence has now been erased. Our country will not soon recover all that Trump has tossed away and as citizens, we cannot absolve ourselves from blame. We have elected the most odious leader in our history and have allowed (mostly) a Republican Party to participate in government without having made a single contribution to the welfare of the American republic.

Cotton is not alone in his folly that dismisses all real national interest. Like others, there have been many times I have despaired at the state of affairs in our Country, but this is different. Trump and his vandal allies I believe have inflicted permanent and irreversible damage to our country.

Joe F , says: October 13, 2017 at 5:07 pm
One follow up to earlier post: with this action, Trump has proven beyond doubt that the Mullah regime in Iran is a far more trustworthy nation than the United States. Well done Donald
Liam , says: October 13, 2017 at 5:21 pm
Regarding the 25th amendment option: how far down the line of succession must one go to find someone who has solid, bona fide cred to stop this inanity?
picture window , says: October 13, 2017 at 5:45 pm
The Economist today opines that Xi Jinping has more clout than Donald Trump.

And I read on TAC that Trump is p***ing away our wealth and power doing favors for Israel and Saudi Arabia in the Middle East, like scuttling the Iran deal and picking fights with the Iranian government. And I conclude that the reason that the Economist may be right about Xi Jinping is because Trump is doing what I read about in TAC, wasting our time, blood, money, and focus on appeasing a bunch of goddamn foreigners in the form of the Israel and Saudi lobbies.

Pretty damn grim.

[Oct 17, 2017] Rerry on attempt to destuct Iran economy by blocking purchases of oil from China and India

Oct 16, 2017 | www.moonofalabama.org

karlof1 | Oct 15, 2017 5:22:59 PM | 12

In the final days of the Iran Deal negotiations, August 2015, I completely missed the interview Kerry did with Reuters, https://2009-2017.state.gov/secretary/remarks/2015/08/245935.htm that Mercouris parses for his detailed article proving the Outlaw US Empire's Imperial Policy is now "irrational"--utterly I'd say since for me it's been irrational for decades when weighing the actual interests of the United States's populous. The key excerpt:

"But if everybody thinks, 'Oh, no, we're just tough; the United States of America, we have our secondary sanctions; we can force people to do what we want.' I actually heard that argument on television this morning. I've heard it from a number of the organisations that are working that are opposed to this agreement. They're spreading the word, 'America is strong enough, our banks are tough enough; we can just bring the hammer down and force our friends to do what we want them to.'

"Well, look – a lot of business people in this room. Are you kidding me? The United States is going to start sanctioning our allies and their banks and their businesses because we walked away from a deal and we're going to force them to do what we want them to do even though they agreed to the deal we came to? Are you kidding ?

"That is a recipe quickly, my friends, for them to walk away from Ukraine, where they are already very dicey and ready to say, 'Well, we've done our bit.' They were ready in many cases to say, 'Well, we're the ones paying the price for your sanctions.' We – it was Obama who went out and actually put together a sanctions regime that had an impact. By – I went to China. We persuaded China, 'Don't buy more oil.' We persuaded India and other countries to step back.

"Can you imagine trying to sanction them after persuading them to put in phased sanctions to bring Iran to the negotiating table, and when they have not only come to the table but they made a deal, we turn around and nix the deal and then tell them you're going to have to obey our rules on the sanctions anyway?

"That is a recipe very quickly, my friends, businesspeople here, for the American dollar to cease to be the reserve currency of the world – which is already bubbling out there .." (Bold italics in original.)

[Oct 17, 2017] Trump Decertifies Iran Deal, Vows New Sanctions by Jason Ditz

The immediate costs of decertification for the USl include the loss of the trust of allies, increased tensions with Iran, and much greater skepticism from all other governments. It also create additional difficulties the next time America wants to negotiate a major international agreement as some countries will view the USA as a rogue nation which is unable to keep its word. If decertification leads to the U.S. breaching its obligations under the nuclear deal, as seems likely, that the costs will increase even more, and so will the chances of war with Iran.
It might well be that Trump made a step increasing the probability of his removal from the current position by cabinet members.
Looks like Trump focus on appeasing a bunch of foreigners in the form of the Israel and Saudi lobbies.
Pretty damn grim.
Oct 13, 2017 | news.antiwar.com

President Trump started his long-anticipated anti-Iran speech by complaining about the 1979 hostage situation. What followed was an increasingly fantastical and absurd accounting of Iran's history, before finally announcing he is decertifying the nuclear deal for "violations," and announcing new sanctions.

The allegations against Iran went from things that happened a generation ago to treating things like the specious "Iranian plot" to attack a DC restaurant as not only the government's fault, but absolute established fact. Beyond that, he blamed Iran for the ISIS wars in Iraq and Syria, repeatedly accused them of supporting al-Qaeda, and claimed Iran was supporting the 9/11 attackers.

The allegations were so far-fetched by the end, that even President Trump appeared cognizant that many won't be taken seriously. Later in his speech, he insisted that the claims were "factual."

When addressing "violations" of the P5+1 nuclear deal, Trump similarly played fast and loose with the facts, citing heavy water claims that are really more the international community's violation than Iran's (Iran was guaranteed an international market for the water, but after Congress got mad the US has refused to buy any more, meaning Iran's totally non-dangerous stock grew), and accusing them of "intimidating" inspectors, insinuating that was the reason there aren't investigations at Iranian military sites.

In reality, Iranian military sites are only subject to investigation in the case of a substantiated suspicion of nuclear activities, and there simply are none. The IAEA has in recent days clarified multiple times that they don't need or want to visit any military sites right now. The only allegations about the sites are from the Mujahedin-e Khalq, which has been the source of repeated false accusations in the past.

And while this was supposed to be a speech about the nuclear deal, Trump closed it off with comments that very much sound like his goal is regime change, saying Iran's people want to be able to interact with their neighbors (despite Iran being on very good terms with most of its neighbors already), and suggesting that whatever he's going to do will lead to "peace and stability" across the Middle East.

[Oct 17, 2017] Syria, Iraq - Why The Kurdish Independence Project Died

Oct 17, 2017 | www.moonofalabama.org

With backing from the Iraqi parliament, public opinion and international support the Iraqi government of Prime Minister Abadi had for months demanded a return of the 2003 borders for the Kurdish region. It condemned the illegal independence bid. The Kurds had pushed far beyond their original borders and occupied areas with critical oil reserves. The ruling Barzani family mafia sold the oil and pocketed the money that by law was owned to Iraq's federal government. The Barzani militia mafia occupied the federal border stations to neighboring countries and kept all custom income to themselves. Meanwhile teachers and other public workers in the Kurdish region went unpaid.

The Barzani family clan is only one of the powers in the Kurdish region of Iraq. Historically its main competitor is the Talabani clan. Both clans control their own political parties (KDP and PUK) and militia. Both had been fighting against each other during a civil war in the 1990s. Then the Barzanis called in help from Iraqi president Saddam Hussein to defeat their local enemies.

Over the last decade the Talabanis were handicapped by their ailing patriarch Jalal Talabani. After the U.S. invasion of Iraq he eschewed a major role in the Kurdish region in exchange for the ceremonial position of a president of Iraq. When Jalal Talbani died on October 2 his family immediately asserted its position. It negotiated a deal with the central Iraqi government to reign in the Barzanis' quasi dictatorial powers. The Iranian general Qassam Suleiman helped to arrange the agreement.

When the Iraqi government forces, as previously announced, moved to retake Kirkuk from the Kurds the Kurdish militia forces (peshmerga) under PUK/Talibani command immediately retreated. The militia under KDP/Barzani command were left in an indefensible position and had to flee.

Yesterday and today Iraqi national forces retook control of various large oil fields the Kurds had occupied. They are also back in control of border stations with Syria and Turkey. Without them the Kurdish region lacks the assets and income to finance any regional independence. While his project collapsed in front of everyone's eyes not a word was heard from Masoud Barzani.

The Iraqi government will not only retake full control of the areas the Kurds under Brazani had illegally usurped. It will also demand new regional elections. It is doubtful that Masoud Barzani, or any of his sons, can win such local elections after the mismanagement and disasters they caused

Virgile | Oct 17, 2017 10:07:12 AM | 1

Trump should quickly declare victory over ISIS and resist the neo-cons and Israel calls to linger in Syria as the US military may become the target of attacks from everyone who want them out, and this is the large majority in Syria.
After they saw the lack of the US support for the KRG independence, the lack of US condemnation of Turkey's actions against the YPG, the Syrian Kurds have realized that their strongest and most reliable allies are ... Bashar al Assad and the Syrian army.
As mentioned in the article, there will be a discreet dialog between the Syrians Kurds and the Syrian government to the detriment of the USA.
Trump, get your guys out asap!
Peter AU 1 | Oct 17, 2017 10:13:53 AM | 2
The pieces are starting to drop into to place. US sure got a kick in the butt after going for the Syrian oilfields and killing Russian officers. Well thought out asymetrical warfare by Russia, Syria, Iraq, Iran.

[Oct 16, 2017] Iraqi army clashes with Kurds in operation to 'impose security' on Kirkuk

Oct 16, 2017 | www.theguardian.com

World oil prices jumped on Monday amid reports of the clashes.

[Oct 16, 2017] Barrels, ballots ISIS Why Iraq is taking back Kirkuk, and what the US will do about it

Notable quotes:
"... The 250,000 barrels per day produced in the governorate represent more than a third of the oil output of the entire Kurdish autonomy, while Iraq pumps out more than 4 million barrels daily from its other oil fields. ..."
Oct 16, 2017 | www.rt.com

Is it about the oil?

While the oil contained in the ground in Kirkuk is important to both sides in the long run, tactically the impact of losing the fields is likely to be more painful for the Kurdistan Region. The 250,000 barrels per day produced in the governorate represent more than a third of the oil output of the entire Kurdish autonomy, while Iraq pumps out more than 4 million barrels daily from its other oil fields.

Still, Baghdad regards the Kurds' unwillingness to share the proceeds from the export of hydrocarbons in the past half-decade as unfair.

[Oct 16, 2017] The Latest Iraq media say troops enter area held by Kurds

Notable quotes:
"... Al-Iraqiya TV says the military, anti-terrorist units and federal police have taken control of some areas around the oil-rich city of Kirkuk. It says they advanced without firing a shot. ..."
"... A commander of the local Kurdish police force says Kurds remain in control of Kirkuk province's oil wells. ..."
Oct 16, 2017 | finance.yahoo.com

BAGHDAD (AP) -- The latest on Iraqi government's move to take control of disputed territories held by Iraqi Kurds outside their autonomous region (all times local):

2:50 a.m.

Iraqi state media say federal troops have entered disputed territories occupied by the nation's Kurds.

The move comes three years after Kurdish militias seized the areas outside their autonomous region to defend against an advance by the Islamic State extremist group.

Al-Iraqiya TV says the military, anti-terrorist units and federal police have taken control of some areas around the oil-rich city of Kirkuk. It says they advanced without firing a shot.

The maneuver comes three weeks after Kurds voted for independence in a controversial but symbolic referendum that Baghdad has so far refused to acknowledge. It says the vote organized by the country's autonomous Kurdish authority was unconstitutional.

A commander of the local Kurdish police force says Kurds remain in control of Kirkuk province's oil wells.

[Oct 15, 2017] Saudi Aramco Reportedly Shelves IPO In Face-Saving Move Zero Hedge

Notable quotes:
"... Some analysts view the possible IPO delay as a sign of the problems Aramco and the Saudi government currently face. A lack of transparency, issues with its oil and gas reserves, and the role of the Saudi government as the main stakeholder have all been suggested as the reason for this possible delay. Most of these suggestions, however, are based purely on issues surrounding the IPO itself. The true reason for this delay, however, likely hides among the intricate societal and economic problems in the Kingdom. ..."
"... One obvious reason for a delay is the still-fledgling global oil price. A higher price setting -- above $60 per barrel -- would surely drive up the overall interest in the IPO. As long as OPEC and non-OPEC members, such as Russia, are still struggling to get a grip on the oil market, the potential for disaster looms. Needless to say, an oil price slump would have a detrimental effect on the expected revenues of the IPO. ..."
"... The impact of an influx of $1-2 trillion into the current Saudi economy is bound to have a significant impact. The implementation of Saudi Vision 2030 is broad and ambitiously planned. A full diversification of the economy is needed to guarantee work and salaries for future young Saudis, with the end of government subsidies or handouts. ..."
"... We previously indicated that China could step in as a financial savior. With around 8.5 million bpd of crude oil imports, which is 2.5 million bdp more than in 2014, the attractiveness of having a stake in Saudi Aramco is huge. Even though an energy diversification program is in place, China's imports from Saudi Arabia are going to increase. For Beijing, a stake in one of its main suppliers is a very attractive proposition. It will not only lock in Saudi crude oil and petroleum product exports to China but it will also provide some additional political and strategic clout in the heart of the Middle East. ..."
"... Given most of the largest sovereign wealth funds were created from their own oil revenue, I don't see them getting into someone else's oil. ..."
Oct 15, 2017 | www.zerohedge.com

The FT notes that talks about a private sale to foreign governments - including China - and other investors have gathered pace in recent weeks, according to five people familiar with the IPO preparations, amid growing concerns about the feasibility of an international listing.

The Saudi state oil company has struggled to select a suitable international venue for its shares, as New York and London have vied for what has been billed as the largest ever flotation.

The company would still aim to list shares on the kingdom's Tadawul exchange next year if they pursue the private sale, the people said.

The latest proposal by the company's financial advisers was described by one of the people as a "face-saving" option for Saudi Aramco, which has worked on plans to list its shares internationally for more than a year.

Desk chatter included comments that the Saudis were anxious about the level of due diligence and transparency involved in a public offering.

A Saudi Aramco spokesperson said:

"A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track."

The planned listing of a 5 per cent stake in Saudi Aramco is the centrepiece of an economic reform programme led by Saudi Arabia's powerful crown prince Mohammed bin Salman, who is keen for a 2018 IPO. He has said the company could be worth $2tn although a Financial Times analysis put the valuation figure at around $1tn.

An economic recession in the kingdom is piling pressure on the prince, the king's son and next in line for the throne, amid calls for the government to increase investment and ease austerity. As we noted previously, there could be more at play here...

Some analysts view the possible IPO delay as a sign of the problems Aramco and the Saudi government currently face. A lack of transparency, issues with its oil and gas reserves, and the role of the Saudi government as the main stakeholder have all been suggested as the reason for this possible delay. Most of these suggestions, however, are based purely on issues surrounding the IPO itself. The true reason for this delay, however, likely hides among the intricate societal and economic problems in the Kingdom.

One obvious reason for a delay is the still-fledgling global oil price. A higher price setting -- above $60 per barrel -- would surely drive up the overall interest in the IPO. As long as OPEC and non-OPEC members, such as Russia, are still struggling to get a grip on the oil market, the potential for disaster looms. Needless to say, an oil price slump would have a detrimental effect on the expected revenues of the IPO.

The analysts, it seems, feel no need to look any further than this simple oil price explanation, but several other key factors should be addressed

The impact of an influx of $1-2 trillion into the current Saudi economy is bound to have a significant impact. The implementation of Saudi Vision 2030 is broad and ambitiously planned. A full diversification of the economy is needed to guarantee work and salaries for future young Saudis, with the end of government subsidies or handouts.

A multitrillion investment scheme in a rather small local economy will likely result in total disorder, inflation and possibly ineffective investment schemes. The attractiveness of investing the total amount could lead to staggering inflation, higher costs and superfluous projects being realized.

A delay of such an influx of cash seems to be more and more attractive, giving the Saudi government and local industries more time to adjust and put in place the right steps for a sustainable and commercially attractive economic future.

We previously indicated that China could step in as a financial savior. With around 8.5 million bpd of crude oil imports, which is 2.5 million bdp more than in 2014, the attractiveness of having a stake in Saudi Aramco is huge. Even though an energy diversification program is in place, China's imports from Saudi Arabia are going to increase. For Beijing, a stake in one of its main suppliers is a very attractive proposition. It will not only lock in Saudi crude oil and petroleum product exports to China but it will also provide some additional political and strategic clout in the heart of the Middle East.

There will, of course, be a few big bankers who will be upset as their billion dollar fee/commission just went up in smoke, but this may give MBS some breathing room - without the undue attention of an IPO - as he deals with the nation's economic slowdown. However, coming just a few days after the Saudi king's trip to Moscow, the timing of this leaked information seems interesting at the least.

Tugg McFancy •Oct 13, 2017 5:41 PM

Given most of the largest sovereign wealth funds were created from their own oil revenue, I don't see them getting into someone else's oil.

Freddie -> Government needs you to pay taxes •Oct 13, 2017 3:00 PM

They would have to release information on their in the ground oil reserves. Their biggest oil field Ghawar is 60 years old and almost dead. They shelved it to hide this.

[Oct 15, 2017] The global oil supply report from HSBC

Oct 15, 2017 | peakoilbarrel.com

FreddyW

says: 10/14/2017 at 10:01 am
A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:

YouTube clip:
https://www.youtube.com/watch?v=7KfVJBNX2U4

The report:
https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view

It contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.

[Oct 15, 2017] Timing of peak global oil production

Notable quotes:
"... I already picked the peak, 2015. So I was slightly off, but not by all that much as you can clearly see by the chart. I think we are on the peak plateau right now. ..."
Oct 15, 2017 | peakoilbarrel.com

Ron Patterson says: 10/14/2017 at 7:31 am

I already picked the peak, 2015. So I was slightly off, but not by all that much as you can clearly see by the chart. I think we are on the peak plateau right now.

The actual 12-month peak could be anywhere from 2017 to 2019 but no later than that. Well, in my humble opinion anyway.

Dennis Coyne says: 10/14/2017 at 11:39 am
Hi Ron,

The question was about US LTO, you have picked the World C+C peak, but as far as I remember you have not said anything recently about US LTO except that it will be before 2025.

So far the 12 month centered average for US LTO peaked in June 2015.

If US LTO output continues at the August output level (4750 kb/d) for 5 months, then a new 12 month centered average peak will be reached by Aug 2017 (average output from Feb 2017 to Jan 2018). US LTO output has risen about 600 kb/d over the past 12 months so an assumption of no further US LTO output increases over the next 5 months is a conservative estimate in my view.

[Oct 15, 2017] US Baker Hughes Rig Count

Oct 15, 2017 | peakoilbarrel.com

Energy News: 10/13/2017 at 1:13 pm

US Baker Hughes Rig Count (Oct 13)

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

[Oct 15, 2017] Oil production in Iraq has increased by more then one million barrels a day since July 2014 when oil prices last averaged 100 dollars. More than any other country

Notable quotes:
"... A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC: YouTube clip: https://www.youtube.com/watch?v=7KfVJBNX2U4 The report: https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration. ..."
Oct 15, 2017 | peakoilbarrel.com

Energy News: 10/14/2017 at 1:02 pm

I was just having a quick look at countries that have come back from outages, sanctions, conflict, wildfires. Not sure if this list is complete?

Energy News says: 10/14/2017 at 1:55 pm
Iraq's oil production has increased by 1.4 million b/day since oil prices last averaged $100 in July 2014. More than any other country
Chart on Twitter: https://pbs.twimg.com/media/DMHrqLZXkAAFiro.jpg
FreddyW says: 10/14/2017 at 10:01 am
A bit old so you may have seen it already. But if you haven´t then I highly recommend you to read the global oil supply report from HSBC:

YouTube clip:
https://www.youtube.com/watch?v=7KfVJBNX2U4

The report: https://drive.google.com/file/d/0B9wSgViWVAfzUEgzMlBfR3UxNDg/view contains a lot of interesting information. For example on page 15 we can see that oil field discovery rate has dropped from around 20% to only 5% in 2015. Saying that it has fallen of a cliff is not an exaggeration.

[Oct 14, 2017] Trump Is Signaling an Unprecedented Right Turn on Foreign Policy by John Feffer

Notable quotes:
"... The Washington Post ..."
"... By handing off any real decision to Congress, [Trump] can avoid having to make a hard decision himself. And by picking a fight with Corker, he has a scapegoat if his supporters grow frustrated with a lack of action in Congress. It seems plausible that Trump's allies are simply being prepared for another legislative failure. ..."
Oct 14, 2017 | fpif.org

For Trump's critics, including virtually all Iran policy experts at the moment, this attempt at scuttling the world's most sophisticated arms control agreement sends absolutely the wrong signal to Iran. Trump is essentially saying, "It doesn't really matter whether you have adhered to the letter of the agreement, we're still going to break our commitment because, honestly, we just don't like you. And by the way, you can't count on the United States to keep its word in the future."

Trump is sending an even more damaging message to the rest of the world: "We as a country suffer from mood swings so severe and delusions so enduring that we can no longer be a responsible member of the international community."

After deep-sixing the Trans-Pacific Partnership and pulling the United States out of the Paris climate agreement, the Trump administration is making good on this one campaign promise even as all the others stall in Congress or the courts. Trump will make America First even if it means going against obvious American national interests, even those defined by the Chamber of Commerce.

This is not the first time that other countries have witnessed the political instability of the United States. But in the past, some underlying continuity provided a measure of reassurance to other countries. Voters might choose vanilla or chocolate, but the world still expects in the end to get some variety of ice cream.

What makes the Trump era different is the lack of that underlying continuity.

... ... ...

It's not just the North Koreans. The democratic world, for instance, found the transition to the George W. Bush years particularly bewildering. Even before the attacks of September 11, 2001, the Bush administration announced that it wouldn't implement the Kyoto Protocol on global warming. After the attacks, the administration broke with international law by embarking on a "preventive" war, violating the Geneva Conventions on treatment of captured combatants, and engaging in torture. The administration also backed away from the Rome statute establishing the International Criminal Court in May 2002 and withdrew from the Anti-Ballistic Missile Treaty with the Russia in June 2002. All of these actions profoundly troubled America's allies.

... ... ...

In other words, even with its sharp turn toward unilateralism, the Bush administration held to a bipartisan consensus in favor of multilateral initiatives that benefit the United States. In some ways Bush offered only a variation on the Clinton theme of "a la carte multilateralism" in which the United States picks and chooses the international structures with which it wants to cooperate.

This kind of Bush-style unilateralism wrapped in a-la-carte multilateralism has returned to the White House. It's represented by most of the top administration officials involved in foreign affairs: Secretary of State Rex Tillerson, Pentagon chief James Mattis, and National Security Advisor H.R. McMaster. These are the so-called adults in the room .

But Trump is something different. And that's what has thrown Republicans like Bob Corker (R-TN) into a tizzy.

... ... ...

Bob Corker is not a moderate Republican. He has an 80 percent ranking from the American Conservative Union for 2016 (by comparison, Susan Collins of Maine clocks in at 44 percent). He's no softie on Iran, either. Last year, he continued to try to pile on additional sanctions against Iran. Ultimately, he had to content himself with an extension of the Iran Sanctions Act for another 10 years. During the presidential campaign, Corker advised Donald Trump on foreign policy and was even in the running for secretary of state.

Corker is cut from the same cloth as Rex Tillerson. They're conservative Republicans who believe in "America First." But they're also committed to preserving a measure of professionalism, if nothing else, when it comes to U.S. foreign policy. They want to preserve U.S. alliances. They want to advance the interests of the U.S. Chamber of Commerce.

They're not isolationists, and they're not exactly internationalists either. They occupy the right wing of the underlying foreign policy consensus that encompasses the think tanks, lobby shops, and mainstream media in DC. They play ball whether it's a Democrat or a Republican in the White House and whichever party controls Congress. They are part of the continuity in American foreign policy that transcends the elections.

So, when Bob Corker takes aim at Donald Trump, it represents a serious breach not just within the Republican Party but within the foreign policy establishment. Over the weekend, Corker charged that Trump was making threats toward other countries that could send the United States reeling toward "World War III." Later, Corker tweeted in response to Trump, "It's a shame the White House has become an adult day care center. Someone obviously missed their shift this morning." Having decided not to run for re-election, Corker is now free to speak truth to power.

... ... ...

So, why pick a fight with Corker just when the president will need him most on the congressional battle over any new Iran sanctions? Writes Adam Taylor in The Washington Post :

By handing off any real decision to Congress, [Trump] can avoid having to make a hard decision himself. And by picking a fight with Corker, he has a scapegoat if his supporters grow frustrated with a lack of action in Congress. It seems plausible that Trump's allies are simply being prepared for another legislative failure.

In other words, it's all about the war that Trump and his still-loyal lieutenant Steve Bannon, assisted by UN ambassador Nikki Haley, have declared on the "deep state." They want to dismantle the foreign policy establishment that has presided over America's engagement in the world. A progressive might find much to rejoice in this attack, given that America's engagement with the world has often been through war and corporate penetration. But the establishment is more than that, and Trump/Bannon also want to unravel everything of diplomatic and humanitarian value as well.

John Feffer is the director of Foreign Policy In Focus and the author of the dystopian novel Splinterlands .

[Oct 14, 2017] The unexplainable rise in production per well in the Bakken may not be as high as the data shows

Oct 14, 2017 | peakoilbarrel.com

SRSrocco says: 10/13/2017 at 7:17 am

Verwimp,

Great to see you posting an update. I can honestly tell you that the "WEIRD" rise in production per well in the Bakken may not be as high as the data shows. Unfortunately, I can't publicly state the reason I know this. If you contact me via my email address: SRSroccoReport@gmail.com , I can provide a few more clues.

However, the SHITE is going to hit the fan in the U.S. Shale Oil Industry once this news gets out which will likely be made public shortly.

[Oct 14, 2017] Over half a million barrels per day are now shut down at Gulf due to hugrage season. Lost oil production due to Nate was around 8 million barrels

Oct 14, 2017 | peakoilbarrel.com

Energy News says: 10/11/2017 at 4:22 pm

2017-10-11 BSEEgov: From operator reports, it is estimated that approximately 32.68 percent of the current oil production in the Gulf of Mexico remains shut-in, which equates to 571,854 barrels of oil per day. It is also estimated that approximately 20.51 percent of the natural gas production, or 660.55 million cubic feet per day in the Gulf of Mexico is shut-in.
https://www.bsee.gov/newsroom/latest-news/statements-and-releases/press-releases/bsee-tropical-storm-nate-activity-4
Estimate of "Lost" Gulf of Mexico crude production due to Hurricane Nate is 7.82 million barrels of oil.

Also, Genscape GoM production chart: https://pbs.twimg.com/media/DL4r7v6UEAA75uK.jpg

[Oct 13, 2017] Trump threatens to rip up Iran nuclear deal unless US and allies fix 'serious flaws'

If Washington takes action without consulting its allies, the alliances could fray.
Oct 13, 2017 | www.theguardian.com

Trump says he will not recertify deal but stops short of pulling out entirely President says US participation 'can be cancelled by me at any time'

... ... ...

For European diplomats seeking to salvage the JCPOA, the days leading up to Trump's long-awaited speech were a roller-coaster. Initially fearful that Trump could immediately trigger a possible collapse of the deal, the Europeans were buoyed when they were briefed that Trump would not call for the reimposition of sanctions by Congress .

However, in the wake of the president's speech on Friday, the JCPOA's survival looked tenuous.

In the speech, Trump declared: "I am directing my administration to work closely with Congress and our allies to address the deal's many serious flaws so the Iranian regime can never threaten the world with nuclear weapons."

He noted that congressional leaders were already drafting amendments to legislation that would include restrictions on ballistic missiles and make the curbs on Iran's nuclear programme under the 2015 deal permanent, and to reimpose sanctions instantly if those restrictions were breached.

However, any such changes would need 60 votes in the US Senate to pass, and Democrats are high unlikely to give them their backing. Even if they did pass into law, the restrictions would represent a unilateral effort to change the accord that would not be acceptable to the other national signatories.

Hours earlier, the US secretary of state, Rex Tillerson had acknowledged that it was very unlikely that the JCPOA agreement could be change, but suggested that the issue of Iran's ballistic missile programme and the time limits on some of the nuclear constraints in the deal, could be dealt with in a separate agreement that could exist alongside the JCPOA.

[Oct 12, 2017] The House of Saud Bows to the House of Putin by Pepe Escobar

Oct 12, 2017 | www.counterpunch.org

The deal may certainly be seen as a purely strategic/economic measure to stabilize the oil market – with no geopolitical overtones. And yet OPEC is geared to become a brand new animal – with Russia and Saudi Arabia de facto deciding where the global oil markets go, and then telling the other OPEC players. It's open to question what Iran, Algeria, Nigeria, Venezuela, among others, will have to say about this. The barely disguised aim is to bring oil prices up to a band of $60-75 a barrel by the middle of next year. Certainly a good deal for the Aramco IPO.

There were a rash of other deals clinched in Moscow – such as Aramco and the Russian Direct Investment Fund (RDIF) $1 billion fund for oil-services projects in Russia, plus another $1 billion for a technology fund.

[Oct 11, 2017] Saudis to Make Deepest Cut to Crude Supply -- over half million of barrels

Notable quotes:
"... The market is "balancing", stocks are drawing down, demand is healthy, US rig count/LTO does not increase, Nigeria and Libya have a very small upside in the short term, Venezuela is a pretty big downside risk, offshore is not too healthy. And the Saudis cut _voluntarily_ because ? ..."
"... If true, it seems likely to me that the Saudi's [and Russia?] are going to push the oil price issue and the best interests of the West be damned. Looks to me like SS might get back in the money next year. ..."
"... I don't think the Saudis or Russians would be concerned too much about what happens in the west. The upcoming supply shortage will happen, anyway. There is a lot of talk by the Saudis of making sure prices don't rise too much, but I am sure that is fake concern. ..."
"... I am sure this post does not apply to shale, because shale is a Wall Street phenomenon. However, for us, a price spike will not immediately lead to drilling wells. First, after what we have been going through the last three years, I would want to make sure the price is going to hold. Yes, no way to know that really, but I can guarantee we would not be rushing out to get permits. ..."
"... That is what always blows me away about Wall Street. They analyze every metric imaginable when it comes to E & P's except the bottom line. I'd rather own 50 BOPD and make $50K per month than own 500 BOPD and lose $50K per month. ..."
"... Is it possible that all of the end of oil talk actually helps cause a supply crunch? Believe me, it is going through our minds now that maybe we need to be worried about decreasing demand in our lifetimes due to EV's. ..."
"... Best to ignore the EV wackos and watch Chinese and India oil consumption data. ..."
Oct 11, 2017 | peakoilbarrel.com

Jeff says: 10/09/2017 at 1:44 pm

Saudis to Make Deepest Cut to Crude Supply Despite Demand, -0.560mbd for November supply.
https://www.bloomberg.com/news/articles/2017-10-09/saudis-to-make-deepest-cut-to-oil-supply-despite-strong-demand

The market is "balancing", stocks are drawing down, demand is healthy, US rig count/LTO does not increase, Nigeria and Libya have a very small upside in the short term, Venezuela is a pretty big downside risk, offshore is not too healthy. And the Saudis cut _voluntarily_ because ?

Guym says: 10/09/2017 at 3:23 pm
Because, frankly they know more about the oil market than most of the "anal ists". Rather than fighting them, and claiming no more need for "cuts", they are playing along with the crowd. When the shortage hits, they can claim surprise and blame the EIA for over reporting. Better price for the IPO.
clueless says: 10/09/2017 at 3:45 pm
If true, it seems likely to me that the Saudi's [and Russia?] are going to push the oil price issue and the best interests of the West be damned. Looks to me like SS might get back in the money next year.

I wonder if Trump will realize that now is not the time to have Exxon's ex-CEO as Secretary of State. I think that Trump really wanted better relations with Russia [and Russia wanted better US relations], but politics has totally destroyed that idea – and I think that Russia now knows it.

Guym says: 10/09/2017 at 4:06 pm
I don't think the Saudis or Russians would be concerned too much about what happens in the west. The upcoming supply shortage will happen, anyway. There is a lot of talk by the Saudis of making sure prices don't rise too much, but I am sure that is fake concern. They make it look like they are concerned shale production will gear up, which goes along with what the pundits are saying. They are playing us like a violin. Much like their purported "cuts". Jack production up several months, take it back to where it was before, and call it a cut. We bought it, hook line and sinker.
shallow sand says: 10/09/2017 at 8:24 pm
I am sure this post does not apply to shale, because shale is a Wall Street phenomenon. However, for us, a price spike will not immediately lead to drilling wells. First, after what we have been going through the last three years, I would want to make sure the price is going to hold. Yes, no way to know that really, but I can guarantee we would not be rushing out to get permits.

Second, after this crash, we would want to heal some. Get cash balances higher, then maybe actually take some decent draws. After all, we are in this for the income, not to see how much we can produce. That is what always blows me away about Wall Street. They analyze every metric imaginable when it comes to E & P's except the bottom line. I'd rather own 50 BOPD and make $50K per month than own 500 BOPD and lose $50K per month.

Third, there are some much cheaper things we can do to boost production than drilling new wells. Workovers may not yield as much, but they cost 1/5 or less that of a new well.

I wonder, outside of shale, if we would see this type of attitude if there is a supply crunch? Will all those high cost projects suddenly come back on line.

Finally, everyone and their dog is proclaiming the end of oil anyway. Everything is going to electric in terms of transportation. Countries abolishing ICE vehicle production. Never mind that is in 2040 mostly.

Now, why would I want to drill more wells knowing oil is nearing the end? Might as well just try to make what I can off this existing ones. No reason to spend a bunch of CAPEX. Is it possible that all of the end of oil talk actually helps cause a supply crunch? Believe me, it is going through our minds now that maybe we need to be worried about decreasing demand in our lifetimes due to EV's.

Watcher says: 10/10/2017 at 12:53 am
Best to ignore the EV wackos and watch Chinese and India oil consumption data.

[Oct 11, 2017] Saudis to Make Deepest Cut to Crude Supply Despite Strong Demand

www.bloomberg.com
Saudi Aramco plans to make "the deepest customer allocation cuts in its history" in oil supplies in November to help reduce global inventories and balance the market.

State-run Saudi Arabian Oil Co., known as Aramco, will make an "unprecedented" cut of 560,000 barrels a day in its allocations to customers next month, the Saudi energy ministry said in a statement. Aramco plans to supply 7.15 million barrels a day "despite very strong demand" that exceeds 7.7 million barrels a day, it said.

"Saudi Arabia is once again demonstrating extraordinary leadership in its commitment to re-balancing the market, as we approach the upcoming key meeting of November 30 in Vienna, by restraining not only the top-line of production volume, but even more importantly the bottom line of exports, which are what ultimately shape global inventories and market balances," the ministry said. "The kingdom expects all other participants in the effort to follow suit and to maintain the high levels of overall conformity achieved in August going forward."

Saudi Arabia, the world's top crude exporter, is leading the Organization of Petroleum Exporting Countries and other producers including Russia in paring output under a deal that helped propel oil into a bull market in September. Lower compliance with the curbs promised by some nations combined with rising production in OPEC members Libya and Nigeria -- both exempt from reducing output due to their internal strife -- have added pressure on Saudi Arabia to make deeper cuts of its own.

Brent, the global benchmark, erased earlier declines to trade marginally higher at $55.62 a barrel at 3:47 pm in London after the news of the Saudi oil allocations cuts.

The decrease in allocations for November "constitutes a full 290,000 barrels a day reduction over and above the 486,000 barrels a day" that Saudi Arabia pledged to cut as part of its commitment to the global output accord, the ministry said. This adds up "to a massive total of almost 800,000 barrels a day" in cuts, it said.

[Oct 11, 2017] State-run Saudi Arabian Oil Co., known as Aramco, will make an "unprecedented" cut of 560,000 barrels a day in its allocations to customers next month, the Saudi energy ministry said in a statement. Aramco plans to supply 7.15 million barrels a day "despite very strong demand" that exceeds 7.7 million barrels a day, it said.

Oct 11, 2017 | www.bloomberg.com

Saudi Aramco plans to make "the deepest customer allocation cuts in its history" in oil supplies in November to help reduce global inventories and balance the market.

"Saudi Arabia is once again demonstrating extraordinary leadership in its commitment to re-balancing the market, as we approach the upcoming key meeting of November 30 in Vienna, by restraining not only the top-line of production volume, but even more importantly the bottom line of exports, which are what ultimately shape global inventories and market balances," the ministry said. "The kingdom expects all other participants in the effort to follow suit and to maintain the high levels of overall conformity achieved in August going forward."

Saudi Arabia, the world's top crude exporter, is leading the Organization of Petroleum Exporting Countries and other producers including Russia in paring output under a deal that helped propel oil into a bull market in September. Lower compliance with the curbs promised by some nations combined with rising production in OPEC members Libya and Nigeria -- both exempt from reducing output due to their internal strife -- have added pressure on Saudi Arabia to make deeper cuts of its own.

Brent, the global benchmark, erased earlier declines to trade marginally higher at $55.62 a barrel at 3:47 pm in London after the news of the Saudi oil allocations cuts.

The decrease in allocations for November "constitutes a full 290,000 barrels a day reduction over and above the 486,000 barrels a day" that Saudi Arabia pledged to cut as part of its commitment to the global output accord, the ministry said. This adds up "to a massive total of almost 800,000 barrels a day" in cuts, it said.

[Oct 11, 2017] Saudi had five percent decline rates from mid 2015 until they bought on Al Shaybah extension. They started to have something similar from mid 2016 until they made their cuts in October.

Oct 11, 2017 | peakoilbarrel.com

George Kaplan says: 10/10/2017 at 2:22 am

Jeff – I think I'm on the same page as you: it might not be voluntary. They had 5% decline rates from mid 2015 until they bought on Al Shaybah extension. They started to have something similar from mid 206 until they made their cuts in October. If you extend natural 5% decline rate from then till now on their pre-cut rate you'd just about get their current production. During the past year they have been drawing down stocks of crude and products for exports, and have announced no new greenfield developments. Khurais expansion was due about now but is going to be next year now, and was announced by the Aramco CEO that it would only replace decline, not increase capacity. They lost a water injection line on one major field to corrosion, I can't remember the replacement time, but a couple of years I'd have thought. All their major investment announcements have been to do with anything but oil in Saudi – petrochem, tight gas (I think a failure), maybe Russian gas, now India – that's what companies do when they've run out of options with their traditional business – the managers in oil companies don't take high risk decisions like that voluntarily.

If nothing else they might not have any spare capacity so any maintenance (planned or unplanned) will not be able to be replaced. But maybe they are now back to natural decline and want to get ahead of the numbers so it looks like they can still control production rather than being dictated to by depletion.

Jeff says: 10/10/2017 at 3:58 pm
Aleklett wrote in his book that Saudi can maintain their current production up until around 2030 but they need to invest a lot more in new projects. I don´t remember his assumptions on P2 but he is usually on the conservative side.

There can be several reasons for the IPO but I think their motives are: i) need to invest a lot more than what is publicly disclosed, ii) P2 is lower than what is officially stated, iii) use the money to diversify the economy. Everything you read in the MSM is about iii) but I think that i) & ii) are more important.

BTW. Norway privatised Statoil just when their production peaked.

[Oct 11, 2017] Demand has increased over 3 million combined the past two years it appears. With the price staying low because high decline LTO can make up any short fall, just ask Wall Street traders and the business media.

Notable quotes:
"... But demand has increased over 3 million combined the past two years it appears. With the price staying low because high decline LTO can make up any short fall, just ask Wall Street traders and the business media. ..."
"... I may be completely wrong, but no reason traders can't keep prices low for a lot longer yet. And the suddenly world inventories hit new lows as demand continues to increase 1.5+ million yoy. ..."
"... But geology is the primary concern. That's why Ron made the blog. This stuff CAN run out or run short, and we see very clearly now after 3 yrs that price doesn't greatly affect production. ..."
"... We can all rest assured that geology WILL affect production. If there's not much left, then it won't flow, regardless of investment. ..."
Oct 11, 2017 | peakoilbarrel.com

shallow sand

says: 10/10/2017 at 6:51 am
Missing my point watcher.

EV push is causing companies such as Shell to say peak oil demand is coming soon. If Shell believes that no reason to be putting a lot of CAPEX into oil exploration.

But demand has increased over 3 million combined the past two years it appears. With the price staying low because high decline LTO can make up any short fall, just ask Wall Street traders and the business media.

I may be completely wrong, but no reason traders can't keep prices low for a lot longer yet. And the suddenly world inventories hit new lows as demand continues to increase 1.5+ million yoy.

GoneFishing says: 10/10/2017 at 8:54 am
Car numbers are expected to double by the 2040's. In order for EV's to take over by then they would have to be built at the rate of over 100 million a year starting right now.

Even if there were 1 billion EV's on the planet by 2045 the other 1 billion vehicles would have to be ICE driven in some form. That is not happening, so I think the EV threat to oil is way overblown.

If EV production can reach 130 million cars per year by 2045 it will have reached the replacement rate of ICE's and take another decade or more to complete the takeover.

Those are huge numbers and it is doubtful that EV's will be produced that fast unless oil becomes scarce. If oil prices go up, EV's become even more desirable, so keeping prices somewhat low is better for the oil companies.

Maybe the real reason that companies are not exploring and developing more oil is that there is not a lot left worth developing and not a lot of places left to explore with current technology. They will concentrate on higher profit plays while shifting to other business models.

Watcher says: 10/10/2017 at 10:13 am
Yo SS, from fishing dood:

"Maybe the real reason that companies are not exploring and developing more oil is that there is not a lot left worth developing and not a lot of places left to explore with current technology."

Remember that the majors own fewer and fewer reserves, not just in the context of geology, but because NOCs have bought them up -- or the stuff may be forbidden. Iranian fields and Russian fields are largely forbidden to US companies. Libya's oil is probably the best oil in the planet and you're not going to see much of a queue of companies bidding.

But geology is the primary concern. That's why Ron made the blog. This stuff CAN run out or run short, and we see very clearly now after 3 yrs that price doesn't greatly affect production.

We can all rest assured that geology WILL affect production. If there's not much left, then it won't flow, regardless of investment.

Eulenspiegel says: 10/10/2017 at 10:32 am
Price affects production – you only don't see it. It's only 3 years cheap now. Lots of the projects coming online now have been planned and financed before this time.

And if you already started the project, and sunk the first billions it's difficult to impossible to stop.

The same thing will happen when prices are high again. When is seen that Permian fracking alone can't supply the whole world, projects have to be started, investors have to be found and then it will take years until the oil from "extra deep sea under salt antarctica extra heavy" flows.

When the pipeline is filled, it can keep long time flowing. This is the thing that drives pork cycles – the time lag of investing and result.

Even shale needed a ramp up of several years – all these service companies needed to be founded, pipelines build. This apparatus now can keep going, but won't increase by much without additional tripple digit billion $ investing.

40$ oil wasn't enough to stop many production directly, because it's above most production costs. Even infill drilling old fields to boost production still works – but without exploring (is there still enough stuff) and bringing new fields online this will decline soon.

Dennis Coyne says: 10/10/2017 at 1:06 pm
Hi Eulenspiegel,

I agree there is quite a lag between changes in oil prices and changes in oil output.

Watcher says: 10/10/2017 at 1:28 pm
Why are you talking about shale? We're 3 years in and price hasn't affected Russia output. Well maybe it did. It increased it. Here is a list of countries producing more oil today than in 2014:

USA
Russia
Canada
Brazil
Ecuador
Norway
Turkmenistan
UK
Iran
Iraq
Oman
Qatar
KSA
UAE
Libya
Angola
Indonesia
Malaysia
Thailand

You might be able to find a handful of those that had a long term project come online. The majority achieved it with infill drilling or politics, that didn't take 3 yrs to plan and fund. The price didn't affect it. Nor should it. If you HAVE to have it, you will get it.

[Oct 11, 2017] OPEC, IEA and drillers/service companies are raising the problem of the lack of investment, but they all stay away from discussing the fall in discoveries and lack of attractive prospective projects

Oct 11, 2017 | peakoilbarrel.com

George Kaplan says: 10/10/2017 at 7:28 am

OPEC SECRETARY GENERAL: 'WORLD CAN'T AFFORD SUPPLY CRUNCH'

https://www.energyvoice.com/video-2/152718/watch-opec-secretary-general-world-cant-afford-supply-crunch/

(Possible paywall, I can't quite figure out how it works on Energy Voice)

"This is particularly evident when we look at investment. While investments are expected to pick up slightly this year and in 2018, it is clear that this is not anywhere close to past levels and it is more evident in short-cycle, rather than long-cycle projects, which are the industry's baseload.

"The issue of a potential investment shortfall was a recurring theme at last week's Russia Energy Week conference, with President Vladimir Putin, as well as many oil and energy ministers making reference to the critical investment challenge.

"As we have all learned from previous price cycles, such pronounced and long-term declines in investments are a serious threat to future supply. But given our projected future demand for oil, with our upcoming World Oil Outlook 2017 expecting demand to reach over 111 million barrels a day by 2040, an increase of almost 16 million barrels a day, the world simply cannot afford a supply crunch."

It's noticeable that OPEC, IEA and drillers/service companies, even the Aramco CEO are raising the lack of investment more and more, but they all stay away from discussing the fall in discoveries and lack of attractive prospective projects. Part of it is real concern, though it's noticeable they don't offer much in the way of solutions, and definitely none that might impact their bottom lines in the short term, but part is pre-emptive arse-coverage.

A lot of factors seem to be lining up for an economic bust next year, but then they have looked like that for a few years (maybe the low oil price has contributed to staving off the problem), if it happens a supply crunch might go unnoticed for some time, and only come appear as the real problem it will be when there is some sort of recovery expected.

[Oct 11, 2017] Art Berman believes falling inventory will result in price support in 2018

Art is very couscous as he remembers that many claimed similar thing in 2015 and 2016 and have thier faces egged.
Initially (in 2014) the consensus was that this is six month to a year blip and then there will be business as usual. It was not. It is funny that now $60 for WTI is considered high price.
US LTO proved to be more resident to price crash then most people assumed. Whether this is just result of overinvestment in the past or continuing support from Wall Street (junk bond generation machine) plus the ability of Wall street to produce "paper oil" and drive price down is unclear.
But now keeping oil price low for the USA means subsidizing China and India. So the situation and behaviors of Wall Street might slightly change.
Notable quotes:
"... New from Laherrere (2 Oct): https://aspofrance.files.wordpress.com/2017/10/jmj-jr7271.pdf It's in French but the figures speak for themselves (and google translate works too). He expects US LTO to decline. ..."
Oct 11, 2017 | peakoilbarrel.com

Longtimber says: 10/11/2017 at 7:18 am

Art believes falling inventory will result in price support.
http://www.artberman.com/higher-oil-prices-likely-early-2018/
Jeff says: 10/11/2017 at 9:28 am
New from Laherrere (2 Oct): https://aspofrance.files.wordpress.com/2017/10/jmj-jr7271.pdf It's in French but the figures speak for themselves (and google translate works too). He expects US LTO to decline.

P5. Global oil creaming curve
P.17 forecast of US LTO

[Oct 11, 2017] Neoliberalism needs to enforce oil prices too (energy prices in general). Often violently (Iraq, Libya, Syria). It does need cheap oil to function properly with its emphasis of globalization and extended global supply chains, as well as low inventories mantra.

Notable quotes:
"... Capitalism has always had a Strong State to enforce its rules, often violently, from its emergence in the 14th Century Italian City States, to its current neoliberal form. It needs a strong government. ..."
"... You can add that neoliberalism needs to enforce oil prices too (energy prices in general). Often violently (Iraq, Libya, Syria). It does need cheap oil to function properly with its emphasis of globalization and extended global supply chains, as well as "low inventories" mantra. ..."
"... With over $60 per barrel oil price permanent stagnation of global neoliberal economy is a real threat. For the USA it is given. With over $100 for several years it might produce the global stock market crash, and another Great Recession (although the previous one did not actually ended). ..."
"... So naturally the power of the major neoliberal state (the USA) and its diplomatic and military machine will be applied not to allow this scenario unless this is short term and serves some distinct purpose. ..."
"... We might also view the current situation as a kind of Hail Mary pass by financial oligarchy which understands that neoliberalism shelf life is coming to the end and tries to prolong it. I don't know. ..."
"... But "paper oil" phenomenon definitely plays an important role in the suppression of the oil prices. Subsidies (direct and indirect) and naked shorting has the power to manipulate the prices down, if you can compensate losses at one area, by gains in another. Which is the case for the US economy as a whole. And neoliberal economy globally. ..."
"... The experience of 2014-2017 strongly suggests that in casino capitalism the balance of supply and demand for oil can be achieved at wide range of prices, depending on Wall Street agenda. And if this means ripping of producers, so be it. They can't stop producing, as their balance of payment depends on oil revenues and they are part of global neoliberal economy and dollar system. Considerable part of them have foreign debt that needs to to be serviced, which also helps to put them in the situation of Wall Street hostages. So they can be taken and were taken for a ride. ..."
"... Then the governments need to dig deep into their pockets to provide funds for capital expenditures for oil, because at $60 oil there won't be enough to keep the economies going for long. Tip: Saudi Arabia, who has one of the lowest costs to produce oil, needs over $80 oil to keep their economy at close to breakeven. Most of the rest are much worse. ..."
"... They make a lot of noise that other countries need to up capex greatly, but they are not doing it either. So what will? Hint: oil price. ..."
"... In a perfect world, a low priced oil would be what we need. Unfortunately, we are limited by the geology of the earth, and the technology we have to work with. At present, $60 oil price will not bring enough out of the earth to keep the economies growing for very long. ..."
"... With multiple natural disasters to clean up after and a desire by some to pump more money into defense, I can't see business as usual in the US continuing. ..."
Oct 11, 2017 | peakoilbarrel.com

Hightrekker says: 10/10/2017 at 2:03 pm

Capitalism has always had a Strong State to enforce its rules, often violently, from its emergence in the 14th Century Italian City States, to its current neoliberal form. It needs a strong government.
likbez says: 10/11/2017 at 12:04 am
Great comment -- Thank you.

You can add that neoliberalism needs to enforce oil prices too (energy prices in general). Often violently (Iraq, Libya, Syria). It does need cheap oil to function properly with its emphasis of globalization and extended global supply chains, as well as "low inventories" mantra.

With over $60 per barrel oil price permanent stagnation of global neoliberal economy is a real threat. For the USA it is given. With over $100 for several years it might produce the global stock market crash, and another Great Recession (although the previous one did not actually ended).

So naturally the power of the major neoliberal state (the USA) and its diplomatic and military machine will be applied not to allow this scenario unless this is short term and serves some distinct purpose.

For example, the direct or indirect decision to fuel shale oil boom under Obama might well be one of reasons for the previous over $100 per barrel period; I always asked myself -- why money were flowing so freely at very questionable enterprises? Which have tiny chances of paying them back outside the "evergreen" loans mode (constant refinancing). Why this boom in shale junk bonds, kind of micro housing bubble, occurred when experience of 2008 was still very fresh; why nobody understood the inevitability of the coming bust? Or creation of such a bust was in the plans ?

That's why probably we now see such a prolonged period of low oil prices. And for the US shale industry in less then $50 dollar per barrel environment, Germans have a nice phase: "The Moor has done his duty, the Moor can go"

We might also view the current situation as a kind of Hail Mary pass by financial oligarchy which understands that neoliberalism shelf life is coming to the end and tries to prolong it. I don't know.

But "paper oil" phenomenon definitely plays an important role in the suppression of the oil prices. Subsidies (direct and indirect) and naked shorting has the power to manipulate the prices down, if you can compensate losses at one area, by gains in another. Which is the case for the US economy as a whole. And neoliberal economy globally.

All that means that people who still provide naïve supply/demand curves here and talk about the balance of supply and demand based on EIA figures need to think about it ;-).

The experience of 2014-2017 strongly suggests that in casino capitalism the balance of supply and demand for oil can be achieved at wide range of prices, depending on Wall Street agenda. And if this means ripping of producers, so be it. They can't stop producing, as their balance of payment depends on oil revenues and they are part of global neoliberal economy and dollar system. Considerable part of them have foreign debt that needs to to be serviced, which also helps to put them in the situation of Wall Street hostages. So they can be taken and were taken for a ride.

So power of Saudi to influence the oil prices is definitely exaggerated (not that Saudi are independent nation in any case; they are the USA vassal). Currently I think it is the USA which has most say in setting of global oil prices and even can "overrule" the decisions by OPEC it does not like, at least for a year or more (at the end, paper oil can't fuel cars or planes, so increasing "paper oil production" can't be done forever)

The role of finance in setting of oil prices creates problem with the applicability of neo-classical economics to the casino capitalism environment. Neo-classical economics denies the existence of the financial sector and the possibility of price manipulations by this sector.

As such it is completely detached from reality. Which makes it another example of voodoo science (with nice graphs though ;-)

Guym says: 10/11/2017 at 6:46 am
Then the governments need to dig deep into their pockets to provide funds for capital expenditures for oil, because at $60 oil there won't be enough to keep the economies going for long. Tip: Saudi Arabia, who has one of the lowest costs to produce oil, needs over $80 oil to keep their economy at close to breakeven. Most of the rest are much worse.

They make a lot of noise that other countries need to up capex greatly, but they are not doing it either. So what will? Hint: oil price.

In a perfect world, a low priced oil would be what we need. Unfortunately, we are limited by the geology of the earth, and the technology we have to work with. At present, $60 oil price will not bring enough out of the earth to keep the economies growing for very long.

At a much higher price, it has the same effect. So, at present, we are stuck with an imperfect world, and an oil price that won't generate sufficient capital investment to keep the world moving.

Boomer II says: 10/11/2017 at 10:39 am
With multiple natural disasters to clean up after and a desire by some to pump more money into defense, I can't see business as usual in the US continuing.

I think demand will change. Why focus our efforts on getting more oil if we don't have an economy to support? Lose a ton of cars in floods and fires, and what do you replace them with?

[Oct 07, 2017] The EIA is making these projections because knuckleheads in the C suite at US shale companies went hog wild at the first sign of oil price improvement and made thesegrowth projections for their individual companies, and the EIA just totaled them up. Once it is clear the EIA is off base, prices could rise to $60 a barrel from around $50 now,

Notable quotes:
"... This year's rise is likely to be closer to about 500,000 barrels, far off an initial forecast by the U.S. Energy Information Administration, according to Hamm, the chairman of Continental Resources Inc. and a pioneer in the shale industry. ..."
"... The EIA projection is "just flat wrong," failing to take into account a new discipline among U.S. drillers, Hamm said in an interview Thursday on Bloomberg TV. "We have capability of producing a whole lot, but you have to get a return on investment," he said, adding, "that's where people have been this last quarter and this year." ..."
"... . "When we're lagging the Brent world price by $6 a barrel, that's not putting America first, that's putting America last. And that's the result of this exaggerated amount that EIA has out there." ..."
"... Once it's clear the EIA is off base, prices could rise to $60 a barrel from around $50 now, Hamm said. ..."
"... Too bad Oilpro shut down. Lots of non-US E & P Industry folks posted there. They absolutely could not stand US shale and the US shale CEO smack talk. Hundreds of thousands out of work, because of shale smack talk and Wall Street encouragement of same, which crashed oil prices below $30. ..."
"... Shale better come through. No one seems to be taking serious the possibility of a supply shock if it cannot. ..."
"... When shale clearly peaks, what is to keep OPEC and Russia from suddenly making a big cut, driving prices past $200 and crashing Western economies? Why wouldn't they afterthe hubris of US shale CEO's, the Wall Street guys who pull their strings, and the US business media who report everything they say as gospel? ..."
Oct 07, 2017 | peakoilbarrel.com

Bob Frisky: 09/22/2017 at 6:06 pm

Shale oil entrepreneur Harold Hamm is back doing interviews on the business networks again. Now he is speaking out against how the oil prices are low due to the EIA.

Shale Billionaire Hamm Slams 'Exaggerated' U.S. Oil Projections

https://www.bloomberg.com/news/articles/2017-09-21/shale-billionaire-hamm-slams-exaggerated-u-s-oil-projections

Billionaire oilman Harold Hamm says the government was way too optimistic with its prediction of more than 1 million new barrels a day in U.S. production, and the snafu is "distorting" global crude prices.

This year's rise is likely to be closer to about 500,000 barrels, far off an initial forecast by the U.S. Energy Information Administration, according to Hamm, the chairman of Continental Resources Inc. and a pioneer in the shale industry.

The EIA projection is "just flat wrong," failing to take into account a new discipline among U.S. drillers, Hamm said in an interview Thursday on Bloomberg TV. "We have capability of producing a whole lot, but you have to get a return on investment," he said, adding, "that's where people have been this last quarter and this year."

The government scenario has contributed to worries about an oversupply that puts U.S. oil at a steep discount to international crude, according to Hamm. "It's distorting," he said . "When we're lagging the Brent world price by $6 a barrel, that's not putting America first, that's putting America last. And that's the result of this exaggerated amount that EIA has out there."

Once it's clear the EIA is off base, prices could rise to $60 a barrel from around $50 now, Hamm said.

shallow sand: 09/22/2017 at 11:38 pm
The EIA is making these projections because knuckleheads in the C suite at US shale companies went hog wild at the first sign of oil price improvement and made these growth projections for their individual companies, and the EIA just totaled them up.

Every Shale CEO bashes OPEC. OPEC tried to give shale a break by cutting production, and shale absolutely blew it, just like shale absolutely blew it in late 2014 by not pretty much shutting down. Instead, shale has lied about profitability for 3 years, and the world E & P industry has paid the price.

Too bad Oilpro shut down. Lots of non-US E & P Industry folks posted there. They absolutely could not stand US shale and the US shale CEO smack talk. Hundreds of thousands out of work, because of shale smack talk and Wall Street encouragement of same, which crashed oil prices below $30.

Shale better come through. No one seems to be taking serious the possibility of a supply shock if it cannot.

When shale clearly peaks, what is to keep OPEC and Russia from suddenly making a big cut, driving prices past $200 and crashing Western economies? Why wouldn't they afterthe hubris of US shale CEO's, the Wall Street guys who pull their strings, and the US business media who report everything they say as gospel?

George Kaplan: 09/23/2017 at 2:08 am
I'd guess a lot of the non-US E&P people complaining about LTO would by from offshore, and I think that side has been just as much to blame for boom and bust mentality with rose tinted specs. (see below the UK investment which went nuts when oil went above $100 and now they have nothing much left).

I'd question with the jobs are going to come back offshore even with a big price rise.

As I keep pointing out, there have to be discoveries before development, and there have to be lease sales before that. We're not seeing either, and though exploration is down compared with 2011 to 2014, there's still a significant amount going on, but wildcat, frontier success rates are what have fallen the most (even with the best seismic methods and computer models we have ever had).

[Oct 07, 2017] The American public, and the politicians that govern it, have been lied to and completely deceived about shale oil and shale gas abundance.

Oct 07, 2017 | peakoilbarrel.com

Mike says: 09/23/2017 at 7:07 am

Shallow, I too miss the hell out of Oilpro. That community could debate the unconventional shale phenomena without bias and with a clear understanding of how it has completely changed the world oil order.

American's, on the other hand, simply enjoy cheap gasoline; they don't care how they get it, what it costs, who ultimately pays for it or that it will not last forever. The American public, and the politicians that govern it, have been lied to and completely deceived about shale oil and shale gas abundance. It is a matter of American nationalistic pride to believe what one reads on the internet and to otherwise be stupid about our hydrocarbon future.

I suggested to you several years ago that OPEC and the rest of the world's producing oil countries were not dumb; they read shale oil K's and Q's and have the same access to SEC filings we do. They know the shale oil phenomena is failing financially and that in the process America is drilling the snot out of its last remaining, bottom of the barrel oil resources. OPEC's production cuts in late 2016, in my opinion, were an effort to give the US shale oil industry just enough rope to eventually hang itself. It has done just that; in the past 24 months it has bankrupted out on another $50B, borrowed yet another $50B and is now back over $300B of upstream long term debt with no current ability to pay that back. Hope (for higher oil prices) is not a plan. The Bakken and the Eagle Ford have peaked and now well productivity in the Permian is starting to fade. In a few more years the rest of the world will have the US right back it its teet and will dictate what the price of oil well be. I think in the next 12-18 months we are going to see big reserve impairments in the US, again, and a pretty big shale oil company will end up the toilet, bankrupt. They'll be a bunch of fist pumping going around the world when that happens.

Harold Hamm is whiner; he has always blamed OPEC for lower oil prices, demanded that OPEC cut more production, he needs more pipelines, fewer regulations (where are those, by the way?), needs to be able to export his oil, warned OTHER shale oil companies in the Permian not to overproduce and drive the price of HIS oil down, the sun is always in his eyes now its the EIA's fault. He, like the rest of America's shale oil industry, is desperate for attention and desperate for help. Once again, Shallow, you are spot on.

shallow sand says: 09/23/2017 at 8:31 am
Mike. It might be worth mentioning here the recent judgment a small OK producer won against Devon Energy.

Apparently one of Devon's high volume fracs destroyed one of the the conventional producers' wells.

When I read about these frac hits, I really worry that US is not properly managing these shale oil resources.

From some reading it appears frac hits are a big deal in PB, and that just a few years in, PB shale could wind up unperformimg due to reservoir damage from these massive fracs.

What do you (or others) think?

[Oct 07, 2017] If you're not bringing new production and the global decline rate is 5 percent then annual loss is about four and a half million barrels per day

So if we assume that since 2014 at least 8 million barrels per day were lost due to aging fields. Who provided additional supply to keep it steady. Something is fishy here.
Notable quotes:
"... If you're not bringing new production online and the global decline rate is call it 5% then each year from now until 2020 we should see a loss of about four and a half million barrels per day off of supply ..."
"... And in 3 years that's 13 million barrels per day supply reduction and there is no way countries can feed themselves with that quick level of scarcity. ..."
"... Venezuela dropping to 0 while the Lybian civil war flames up again – and there isn't 3 MB/D spare capacity left. Nobody besides SA perhaps does frenetic infill drilling for capacity he don't need and use. Or develops fields and put them on idle. ..."
"... Venezuela is the best example of low oil prices making high one – the production will halt sooner or later. ..."
Oct 07, 2017 | peakoilbarrel.com

Watcher

says: 09/28/2017 at 1:46 am
Way too glib a presumption of supply shortage in the 2020 time frame.

If you're not bringing new production online and the global decline rate is call it 5% then each year from now until 2020 we should see a loss of about four and a half million barrels per day off of supply

And in 3 years that's 13 million barrels per day supply reduction and there is no way countries can feed themselves with that quick level of scarcity.

When one says "supply shortage" the consequence of significance is not higher prices; the consequence is unfilled orders.

Energy News says: 09/27/2017 at 12:48 pm
RIO DE JANEIRO, Sept 27 (Reuters) – Only one block in Brazil's prized offshore Santos basin received a bid in the country's 14th oil round on Wednesday, a sign low global oil prices may have reduced the allure of potential new crude and gas investments in Latin America's largest economy.

Karoon Gas Australia Ltd won the block with a signing bonus worth 20 million reais ($6.3 million), but the remaining 75 blocks in the basin received no bids, oil industry watchdog ANP said. Officials expected to sell up to 40 percent of the blocks, raising 500 million reais ($157 million).
http://www.reuters.com/article/brazil-oil-auction/update-2-brazils-prized-santos-basin-receives-single-bid-in-oil-auction-idUSL2N1M80O5

George Kaplan says: 09/28/2017 at 12:47 am
A lot more interest in the other basins though, especially Campos. It can't be just oil price that is against Santos, maybe it's similar to the mirror province in Angola, Kwamza, and it's turning out to be a bust.
Lightsout says: 09/30/2017 at 4:13 am
Hi George

Two more dry holes in the Barents sea.

http://www.worldoil.com/news/2017/9/28/lundin-petroleum-completes-drilling-of-boerselv-exploration-well

http://www.worldoil.com/news/2017/9/27/eni-norge-drills-dry-hole-near-goliat-field-in-the-barents-sea

George Kaplan says: 09/30/2017 at 5:04 am
I think this year has killed off a few of the promising frontier basins now – Kwanza in Angola – bust, deep water offshore Canada – mostly bust, Barents – mostly bust, Santos – looks bust, ultra deep US GoM – mostly played out or uncommercial, offshore Colombia – looks bust for oil, couple of West Africa areas – dry holes, offshore Ireland – half way to bust, UK North Sea – very poor lease sale, also one other lease sale (maybe Oman?) I think didn't do very well from memory.
George Kaplan says: 09/27/2017 at 6:34 am
MARKET SHOULD PREPARE MORE FOR OIL SQUEEZE THAN OPEC SUPPLY GAIN, CITIGROUP SAYS

Those in the oil market fearing a flood of OPEC supply next year will probably be better off preparing for a shortage, according to Citigroup Inc.

Five countries in the group -- Libya, Nigeria, Venezuela, Iran and Iraq -- may already be pumping at their maximum capacity this year, Ed Morse, the bank's global head of commodities research, said in an interview. Rather than a surge in output, there's a risk of a market squeeze emerging as early as 2018, driven by those nations because of weaker investment in exploration and development, he said.

"Fear in the market has been that OPEC production will rise dramatically," said Morse. However, "there could be a supply gap emerging, which could point to a tighter market," he said in Singapore on the sidelines of the S&P Global Platts APPEC Conference.

http://www.worldoil.com/news/2017/9/26/market-should-prepare-more-for-oil-squeeze-than-opec-supply-gain-citigroup-says

Eulenspiegel says: 09/26/2017 at 10:16 am
Geology has to do a lot with oil prices – the run up in price the last 40 years is mostly due to geology.

Why? The original oil was the kind of very conventional land based oil. Once discovered, the most costly thing was the infrastructure to transport it away.

This came to a limit in the 70s. After this, more and more expensive projects where necessary.

Off shore oil, deep sea oil, small spots on land, arctic oil and last fracking oil. And old fields with injections, infill, pressure control.

All things with big investments – much more than "we build an oil terminal for supertankers and drill a few holes".

And so the market gets more and more unstable – these big investments have to pay out, even when done by a state. And you have bigger and bigger planning time lags, so the classical pork cycle can get investors in the false moment.

US fracking oil adds to the chaos – it's expensive, but fast rampup – but not able to replace deep sea oil due to it's pure size.

Old cheap fields are in decline, or not longer cheap as the chinese giants on secondary or tertiary recovery enhancements. So more and more expensive technology with long planing horizonts comes to a short paced market, together with the political chaos describes by you.

And geology gets more complicated, so the long project times you describe will get longer.

I, without a mathematically model, expect a chaotic market in the future until oil gets (hopeful) phased out and put in the steam engine age.

Low oil prices make high oil prices, and high ones low. The demand is very inelastic on the short term, trucks have to drive and people have to drive to work (and the aunt wants the chrismas visit). Only mid way demand gets flexible, a japanese car instead a SUV next or a house nearer at the job. Or a company reduces work travelling.

Many 3rd world countries have regulated gas prices – so a price spike don't reduce demand here on the short term. That makes things even more scary when something happens on the political scale.

Venezuela dropping to 0 while the Lybian civil war flames up again – and there isn't 3 MB/D spare capacity left. Nobody besides SA perhaps does frenetic infill drilling for capacity he don't need and use. Or develops fields and put them on idle.

Venezuela is the best example of low oil prices making high one – the production will halt sooner or later.

[Oct 06, 2017] For offshore there is an effect from moving to deeper fields, these tend to be higher pressure and have higher initial production for a given bore size but also much higher decline rates

Oct 06, 2017 | peakoilbarrel.com

George Kaplan says: 10/04/2017 at 2:51 am

I think there are a few things happening. For offshore there is an effect from moving to deeper fields, these tend to be higher pressure and have higher initial production for a given bore size but also much higher decline rates. There has been more smaller fields tied in and these often only use a single production line with no injection support – hence they start declining immediately with no plateau. Horizontal wells also may play a role (onshore and offshore) as they can maintain high rates for longer but then drop off precipitously once the water interface gets to the drainage volume for the well. Cut backs on infill drilling and planned maintenance are probably big parts of the picture as well – those could be reversed if prices went high enough (but still might not be worth the expense on fields at end of life); the other causes not so much.

[Oct 06, 2017] Mature, offshore oil fields now decline at a rate of eight percent per year, whereas the same fields declined by only by five percent in 2014. And as a consequence, one million barrels of oil have been removed from production balances

As world demand increases more then one million barrels per day, the key question is: what mechanisms are used to keep price low in such a situation
Oct 06, 2017 | peakoilbarrel.com

Energy News, 10/03/2017 at 1:33 pm

Rystad Energy – October 03, 2017

Mature, offshore oil fields now decline at a rate of -8% per year, whereas the same fields declined by only -5% in 2014. And as a consequence, one million barrels of oil have been removed from production balances.

https://www.rystadenergy.com/NewsEvents/PressReleases/mature-fields-declining-faster

Guym 10/03/2017 at 2:42 pm
Goodness! They expect US shale production to triple within five years! You read an informed article that mostly gets your interest, then they start speaking in unknown tongues. Bet the guy's head did a 360 degree turn while he was saying this.

He's been snorting the same stuff as the EIA people are.

Even if the oil companies would lay out the HUGE capex necessary for this to happen, they should be shot by shareholders. Look how badly they got burned the last time. They were drilling wells with first year's production at 70k, and happy with it, at the time, because oil was at $100.

At $30 oil, they sucked wind when those wells pumped. There is a definite limitation on the number of locations that can spew out over 200k barrels the first year. Even in the highly touted Permian.

Realistically, to continue at a certain level of capex from year to year, you have to expect that your current wells completed will return your capex for the next year. Plus, those wells have to produce more than the capex, to allow for additional drilling. Due to current limitations on borrowing, it's not likely to get too much better than that.

Where is the capex to come from, and who is the CEO who going to jump out of the airplane first?

EOG had net profit of about 1% on their gross income. So, theoretically, they may be able to add 1% more wells if the net income was all cash flow. How long does that take to triple production?

[Oct 06, 2017] Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

Notable quotes:
"... In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers. ..."
"... But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply "transfer payments" to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors. ..."
Oct 06, 2017 | peakoilbarrel.com

Ron Patterson says: 10/04/2017 at 6:39 am

Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

A new study published in the peer-reviewed journal Nature Energy found that 50 percent of new oil production in America would be unprofitable if not for government subsidies. The study, performed by researchers at the Stockholm Environment Institute and Earth Track, Inc., found that, at prices of $50 per barrel, light oil produced by hydraulic fracturing ("fracking") was heavily dependent on subsidies.

In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.

In addition, the study highlights what this additional fossil fuel production means for impacts to the climate:

" continued subsidies for oil investment could produce oil (and associated gas) that, once burned, will yield CO2 emissions equivalent to nearly 1 percent of the remaining global carbon budget for all sectors of all economies."

At current oil prices, perhaps the most effective "keep it in the ground" strategy might be to stop subsidizing oil production.

But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply "transfer payments" to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors.

While this study provides valuable insight into how subsidies affect oil production and the climate, it notes that its conclusions are not unique. The authors point out: "As others have found regardless of the oil price, the majority of taxpayer resources provided to the industry end up as company profits."

Also in this article:

US Taxpayers Subsidizing Oil Exports to China

[Oct 06, 2017] Tax Breaks Make $50 Oil Profitable in the US

Or more correctly "only tax breaks and ability to issue junk bonds make oil profitable in the USA". Those tax breaks and other subsidies is pretty much devous anti-market game as the US as a state is partially compensated from the discount on the imported oil. If this is not state capitalism, then what is?
Notable quotes:
"... The effects of the tax deductions are highly connected with oil prices. At $30 per barrel oil, almost no new fields would be profitable to develop, even with those tax provisions, the researchers say. Of course, at $100 oil, revenues from new projects would be enough to sanction nearly all developments without any tax provisions. "In such a case, nearly all of the subsidy value would go to extra profits," the study says. ..."
"... Almost simultaneously with this study, environmental advocacy group Oil Change International said in a report that "U.S. taxpayers continue to foot the bill for more than $20 billion in fossil fuel subsidies each year." ..."
Oct 06, 2017 | www.nakedcapitalism.com

The high Gulf of Mexico 'subsidy-dependence' isn't a surprise either, considering that mostly integrated oil companies operate there, and they're not enjoying as much tax deductions as the independent producers that are doing business in shale basins.

"About 10 billion barrels of Permian oil are in fields that would be profitable at $50 per barrel even without subsidies, but subsidies bring on enough extra fields to produce an additional 6.5 billion barrels of oil," the study says.

The effects of the tax deductions are highly connected with oil prices. At $30 per barrel oil, almost no new fields would be profitable to develop, even with those tax provisions, the researchers say. Of course, at $100 oil, revenues from new projects would be enough to sanction nearly all developments without any tax provisions. "In such a case, nearly all of the subsidy value would go to extra profits," the study says.

"Our findings show that removal of tax incentives and other fossil fuel support policies could both fulfill G20 commitments and yield climate benefits," researchers say.

Almost simultaneously with this study, environmental advocacy group Oil Change International said in a report that "U.S. taxpayers continue to foot the bill for more than $20 billion in fossil fuel subsidies each year."

In the other camp, the American Petroleum Institute (API) says that "It's out there; the myth that America's oil and natural gas industry receives federal subsidies. Subsidies are cash outlays from the U.S. Treasury, and the oil and natural gas industry doesn't get them."

API points to the fact that other industries also get tax-deductible expenses and other tax provisions and breaks.

The debate about tax breaks for the oil industry is certainly not new. Those who support the current provisions argue that they have supported an industry critical for the U.S. economy and energy security. Those against say that the provisions are singling out favorites while shifting the tax burden to others.

Environmentalists say that with climate change a real threat, it's just illogical and wrong to support fossil fuel development with tax breaks.

[Oct 06, 2017] Erdogan says Turkey will close Iraq border and air space soon by Ece Toksabay, Tuvan Gumrukcu

Here we are talking about 0.7 million BPD, around a half of OPEC cut...
Unless Reiter misquotes Putin (which is rather common case) it is rather strange to see President Putin as a defender of oil price slump, engineered to hurt Russia...
Oct 05, 2017 | www.reuters.com

President Tayyip Erdogan said on Thursday that Turkey would soon close its border with northern Iraq and shut its air space in response to last week's Kurdish independence referendum.

Erdogan, who held talks in Tehran on Wednesday with Iranian leaders, also said Turkey would decide jointly with Iran and Iraq's central government in Baghdad whether to cut oil exports from Kurdish northern Iraq.

On Wednesday, Russian President Vladimir Putin said that it was in no-one's interest to cut off oil supplies from Iraq's Kurdistan, which would raise oil prices.

Erdogan, however, brushed off those concerns, saying the final decision would be made by Turkey, Iran and Iraq.

[Oct 05, 2017] Tropical Storm Nate kills at least 22 as storm moves toward US

Oct 05, 2017 | www.msn.com

Six oil production platforms in New Orleans -- out of the 737 manned platforms in the Gulf -- had been evacuated as of midday Thursday, according to the Bureau of Safety and Environmental Enforcement's New Orleans office.

No drilling rigs were evacuated, but one movable rig was taken out of the storm's path. The agency estimated less than 15 percent of the current oil production in the Gulf of Mexico has been shut-in, which equates to 254,607 barrels of oil per day.

Tropical Storm Nate's path is forecast to brush across the tip of Mexico's Yucatan Peninsula early Friday night, then later hit the U.S. Gulf Coast as a hurricane by Sunday morning.

[Oct 04, 2017] U.S. Shale Isn't As Strong As It Appears by Nick Cunningham

Higher than $50 per barrel WTI essential for a meaningful return on capital. May be even higher then $65 per barrel. right now shale oil production is possible only by simultaneous generation of junk bonds.
Notable quotes:
"... Higher than $50 per barrel WTI essential for a meaningful return on capital ..."
"... if WTI remains stuck at about $50 per barrel, U.S. shale drillers might be forced to reign in their ambitions, because they won't generate enough cash to reinvest in growth. Second, shale drillers might actually worsen their financial position if they pursue growth. Spending more to produce more -- while that could lead to more oil sales -- might not necessarily be the wisest strategy. ..."
"... For similar reasons, Jim Chanos, short-seller and founder of Kynikos Associates, has made some headlines shorting Continental Resources. He argues that shale companies simply have to spend too much to keep production going. Shale drillers "are creatures of the capital markets," he told Bloomberg . "Because the wells deplete so quickly, they constantly need to raise money to replace the assets. And this is the crux of the story." ..."
"... Another significant observation is that the shaky financial position for some shale drillers also suggests that the downside risk to oil prices might not be as serious as once thought. ..."
"... "The market may well discover it has been asleep at the wheel and far too relaxed about shale keeping a ceiling on prices forever," Ben Luckock, a senior executive at oil trader Trafigura, told an industry conference in Singapore last week. ..."
"... All of the highly-touted cost reductions and efficiency gains have already been "realized." Moody's lowered its outlook for these large oil companies in 2018 from "positive" to simply "stable ..."
Oct 02, 2017 | oilprice.com
The extraordinary cost reductions achieved by North American oil and gas companies have likely reached their limit, and any boost in profitability for much of the U.S. shale and Canadian oil sands industries will have to come from higher oil prices, according to a new report from Moody's Investors Service.

Moody's studied 37 oil and gas companies in Canada and the U.S., concluding that although the oil industry has dramatically slashed its cost of production in the past three years and is currently in the midst of posting much better financials this year, there is little room left for more progress.

"After substantially improving their cost structures through 2015 and 2016, North American exploration and production (E&P) companies will demonstrate meaningful capital efficiency to the extent the West Texas Intermediate (WTI) oil price is above $50 per barrel and the Henry Hub natural gas price is at least $3.00 per MMBtu," Moody's said . In other words, WTI will need to rise further if the industry is to improve its financial position.

The report is another piece of evidence that suggests the U.S. shale industry is perhaps struggling a bit more than is commonly thought. U.S. shale has been portrayed as nimble, lean and quick to respond to oil price changes. And while that is largely true, strong profits remain elusive, despite the huge uptick in production.

Shale drillers have substantially lowered their breakeven prices, but further reductions will be difficult to achieve, Moody's Vice President Sreedhar Kona said in a statement.

" Higher than $50 per barrel WTI essential for a meaningful return on capital ," Moody's said.

The findings are important for a few reasons. First, it suggests that if WTI remains stuck at about $50 per barrel, U.S. shale drillers might be forced to reign in their ambitions, because they won't generate enough cash to reinvest in growth. Second, shale drillers might actually worsen their financial position if they pursue growth. Spending more to produce more -- while that could lead to more oil sales -- might not necessarily be the wisest strategy.

For similar reasons, Jim Chanos, short-seller and founder of Kynikos Associates, has made some headlines shorting Continental Resources. He argues that shale companies simply have to spend too much to keep production going. Shale drillers "are creatures of the capital markets," he told Bloomberg . "Because the wells deplete so quickly, they constantly need to raise money to replace the assets. And this is the crux of the story."

Another significant observation is that the shaky financial position for some shale drillers also suggests that the downside risk to oil prices might not be as serious as once thought. The oil market has tried to assess how quickly shale production would come roaring back. Reports that shale companies were posting juicy profits at very low oil prices has likely factored into heady projections for shale output. The EIA has repeatedly projected that shale output would average 10 million barrels per day next year (although they have revised that down recently to just 9.8 mb/d).

But that might be overly optimistic if a long list of shale companies are not posting "meaningful" returns on capital.

"The market may well discover it has been asleep at the wheel and far too relaxed about shale keeping a ceiling on prices forever," Ben Luckock, a senior executive at oil trader Trafigura, told an industry conference in Singapore last week. Bloomberg surveyed a bunch of oil traders and energy executives at the conference, and the general sense was that oil would trade between $50 and $60 per barrel, up from an informal consensus of between $40 and $60 last year. While there are many reasons for the newfound bullishness, more modest expectations about shale growth is certainly one of them.

In a separate report focusing on larger integrated oil companies, Moody's came to a similar conclusion -- that the substantial improvement in the financial position of the oil industry over the past year is poised to slow down. All of the highly-touted cost reductions and efficiency gains have already been "realized." Moody's lowered its outlook for these large oil companies in 2018 from "positive" to simply "stable ."

[Oct 04, 2017] Wheels and Deals Trouble Brewing in the House of Saud by Pepe Escobar

The quote attributed to Mark Twain and Yogi Berra "It's Difficult to Make Predictions, Especially About the Future" still holds. This assessment by Pete Escobar about forthcoming bankruptcy of KAS need to be verified in three years from now. It is unclear whether the key future events (such as prediction that the current Crown Prince might be deposed with the CIA help) will take place.
It is, nevertheless, clear that KAS economics is under considerable stress due to low oil prices and that eventually can bankrupt the kingdom as foreign currency reserves shrink rapidly. What such economic crisis might entail for KAS we can only guess by reshuffling at the top is quite probably in this case. So in a way the future of KAS hangs on how soon oil prices will be pushed back into $100 range.
Notable quotes:
"... MBS is surrounded by inexperienced thirty-something princes, and alienating just about everyone else. ..."
"... "the CIA is outraged that the compromise worked out in April, 2014 has been abrogated wherein the greatest anti-terrorist factor in the Middle East, Mohammed bin Nayef, was arrested." That may prompt "vigorous action taken against MBS possibly in early October." And it might even coincide with the Salman-Trump get together. ..."
"... Asia Times' Gulf business source stresses how "the Saudi economy is under extreme strain based on their oil price war against Russia, and they are behind their bills in paying just about all their contractors. That could lead to the bankruptcy of some of the major enterprises in Saudi Arabia. The Saudi Arabia of MBS features the Crown Prince buying a US$600 million yacht and his father spending US$100 million on his summer vacation, highlighted on the front pages of the New York Times while the Kingdom strangles under their leadership." ..."
"... MBS's pet project, the spun-to-death Vision 2030, in theory aims to diversify from mere oil profits and dependency on the US to a more modern economy (and a more independent foreign policy). That's completely misguided, according to the source, because "the problem in Saudi Arabia is that their companies cannot function with their local population and [are] reliant on expatriates for about 70% or more of their staff. Aramco cannot run without expatriates. Therefore, selling 5% of Aramco to diversify does not solve the problem. If he wants a more productive society, and less handouts and meaningless government jobs, he has to first train and employ his own people." ..."
"... The similarly lauded Aramco IPO, arguably the largest share sale in history and originally scheduled for next year, has once again been postponed – "possibly" to the second half of 2019, according to officials in Riyadh. And still no one knows where shares will be sold; the NYSE is far from a done deal. ..."
"... I n parallel, MBS's war on Yemen, and the Saudi drive for regime change in Syria and to reshape the Greater Middle East, have turned out to be spectacular disasters. ..."
"... The Islamic State project was conceived as the ideal tool to force Iraq to implode. It's now public domain that the organization's funding came mostly from Saudi Arabia. Even the former imam of Mecca has publicly admitted ISIS' leadership "draw their ideas from what is written in our own books, our own principles." ..."
"... Salafi-jihadism is more than alive inside the Kingdom even as MBS tries to spin a (fake) liberal trend (the "baby you can drive my car" stunt). The problem is Riyadh congenitally cannot deliver on any liberal promise; the only legitimacy for the House of Saud lies in those religious "books" and "principles." ..."
"... In Syria, besides the fact that an absolute majority of the country's population does not wish to live in a Takfiristan , Saudi Arabia supported ISIS while Qatar supported al-Qaeda (Jabhat al-Nusra). That ended up in a crossfire bloodbath, with all those non-existent US-supported "moderate rebels" reduced to road kill. ..."
"... In Enemy of the State, the latest Mitch Rapp thriller written by Kyle Mills, President Alexander, sitting at the White House, blurts, "the Middle East is imploding because those Saudi sons of bitches have been pumping up religious fundamentalism to hide the fact that they're robbing their people blind." That's a fair assessment. ..."
"... In terms of what Washington wants, the CIA is not fond of MBS, to say the least. They want "their" man Nayef back. As for the Trump administration, rumors swirl it is " desperate for Saudi money , especially infrastructure investments in the Rust Belt." ..."
"... This piece first appeared in Asia Times . ..."
Oct 04, 2017 | www.counterpunch.org

No wonder, considering that the ousted Crown Prince Mohammed bin Nayef – highly regarded in the Beltway, especially Langley – is under house arrest. His massive web of agents at the Interior Ministry has largely been "relieved of their authority". The new Interior Minister is Abdulaziz bin Saud bin Nayef, 34, the eldest son of the governor of the country's largely Shi'ite Eastern Province, where all the oil is. Curiously, the father is now reporting to his son. MBS is surrounded by inexperienced thirty-something princes, and alienating just about everyone else.

Former King Abdulaziz set up his Saudi succession based on the seniority of his sons; in theory, if each one lived to the same age all would have a shot at the throne, thus avoiding the bloodletting historically common in Arabian clans over lines of succession.

Now, says the source, "a bloodbath is predicted to be imminent." Especially because "the CIA is outraged that the compromise worked out in April, 2014 has been abrogated wherein the greatest anti-terrorist factor in the Middle East, Mohammed bin Nayef, was arrested." That may prompt "vigorous action taken against MBS possibly in early October." And it might even coincide with the Salman-Trump get together.

ISIS playing by the (Saudi) book

Asia Times' Gulf business source stresses how "the Saudi economy is under extreme strain based on their oil price war against Russia, and they are behind their bills in paying just about all their contractors. That could lead to the bankruptcy of some of the major enterprises in Saudi Arabia. The Saudi Arabia of MBS features the Crown Prince buying a US$600 million yacht and his father spending US$100 million on his summer vacation, highlighted on the front pages of the New York Times while the Kingdom strangles under their leadership."

MBS's pet project, the spun-to-death Vision 2030, in theory aims to diversify from mere oil profits and dependency on the US to a more modern economy (and a more independent foreign policy). That's completely misguided, according to the source, because "the problem in Saudi Arabia is that their companies cannot function with their local population and [are] reliant on expatriates for about 70% or more of their staff. Aramco cannot run without expatriates. Therefore, selling 5% of Aramco to diversify does not solve the problem. If he wants a more productive society, and less handouts and meaningless government jobs, he has to first train and employ his own people."

The similarly lauded Aramco IPO, arguably the largest share sale in history and originally scheduled for next year, has once again been postponed – "possibly" to the second half of 2019, according to officials in Riyadh. And still no one knows where shares will be sold; the NYSE is far from a done deal.

I n parallel, MBS's war on Yemen, and the Saudi drive for regime change in Syria and to reshape the Greater Middle East, have turned out to be spectacular disasters. Egypt and Pakistan have refused to send troops to Yemen, where relentless Saudi air bombing – with US and UK weapons – has accelerated malnutrition, famine and cholera, and configured a massive humanitarian crisis.

The Islamic State project was conceived as the ideal tool to force Iraq to implode. It's now public domain that the organization's funding came mostly from Saudi Arabia. Even the former imam of Mecca has publicly admitted ISIS' leadership "draw their ideas from what is written in our own books, our own principles."

Which brings us to the ultimate Saudi contradiction. Salafi-jihadism is more than alive inside the Kingdom even as MBS tries to spin a (fake) liberal trend (the "baby you can drive my car" stunt). The problem is Riyadh congenitally cannot deliver on any liberal promise; the only legitimacy for the House of Saud lies in those religious "books" and "principles."

In Syria, besides the fact that an absolute majority of the country's population does not wish to live in a Takfiristan , Saudi Arabia supported ISIS while Qatar supported al-Qaeda (Jabhat al-Nusra). That ended up in a crossfire bloodbath, with all those non-existent US-supported "moderate rebels" reduced to road kill.

And then there's the economic blockade against Qatar – another brilliant MBS plot. That has only served to improve Doha's relations with both Ankara and Tehran. Qatari Emir Tamim bin Hamad Al Thani was not regime-changed, whether or not Trump really dissuaded Riyadh and Abu Dhabi from taking "military action." There was no economic strangulation: Total, for instance, is about to invest US$2 billion to expand production of Qatari natural gas. And Qatar, via its sovereign fund, counterpunched with the ultimate soft power move – it bought global footballing brand Neymar for PSG , and the "blockade" sank without a trace.

"Robbing their people blind"

In Enemy of the State, the latest Mitch Rapp thriller written by Kyle Mills, President Alexander, sitting at the White House, blurts, "the Middle East is imploding because those Saudi sons of bitches have been pumping up religious fundamentalism to hide the fact that they're robbing their people blind." That's a fair assessment.

No dissent whatsoever is allowed in Saudi Arabia. Even the economic analyst Isam Az-Zamil, very close to the top, has been arrested during the current repression campaign. So opposition to MBS does not come only from the royal family or some top clerics – although the official spin rules that only those supporting Muslim Brotherhood, Turkey, Iran and Qatari "terrorism" are being targeted.

In terms of what Washington wants, the CIA is not fond of MBS, to say the least. They want "their" man Nayef back. As for the Trump administration, rumors swirl it is " desperate for Saudi money , especially infrastructure investments in the Rust Belt."

It will be immensely enlightening to compare what Trump gets from Salman with what Putin gets from Salman: the ailing King will visit Moscow in late October. Rosneft is interested in buying shares of Aramco when the IPO takes place. Riyadh and Moscow are considering an OPEC deal extension as well as an OPEC-non-OPEC cooperation platform incorporating the Gas Exporting Countries Forum (GECF).

Riyadh has read the writing on the new wall: Moscow's rising political / strategic capital all across the board, from Iran, Syria and Qatar to Turkey and Yemen. That does not sit well with the US deep state. Even if Trump gets some Rust Belt deals, the burning question is whether the CIA and its friends can live with MBS on the House of Saud throne.

This piece first appeared in Asia Times .

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge and Obama does Globalistan (Nimble Books, 2009). His latest book is Empire of Chaos . He may be reached at pepeasia@yahoo.com .

[Oct 04, 2017] This Giant Oil Trader Sees Upside For Oil Prices by Tsvetana Paraskova

Oct 04, 2017 | oilprice.com

At this year's Asia-Pacific Petroleum Conference (APPEC) in Singapore last week, the mood was the most bullish since the 2015 APPEC annual gathering, with most executives polled by Bloomberg predicting oil prices at $50-$60 next year, compared to last-year predictions that we'd be at the low end of the $40-$60 band. Still, just a few of the two dozen executives surveyed expect oil prices to average more than $60 in 2018.

One notable exception from the herd is oil trader Trafigura, whose co-head of group market risk, Ben Luckock, said at a presentation at the conference, as carried by the Financial Times:

"We are nearing the end of 'lower for longer'."

"This theory may have had its best days," the manager noted.

By the end of 2019, demand could outstrip supply by up to 4 million bpd, due to underinvestment during the downturn, and U.S. shale supply won't be able to fill in the gap, according to Luckock.

Citi has also warned that oil supply would be tighter next year, as some OPEC members are already pumping at capacity, and can't boost their oil output as much as the oil market thinks they might after the end of the OPEC cuts.

[Oct 04, 2017] Strong Crude Draw Boosts Oil Prices by Irina Slav

Notable quotes:
"... Now EIA is out with official oil and fuels inventory figures and these figures will certainly make oil bulls perk up. The authority said crude oil inventories in the week to September 29 dropped by as much as 6 million barrels to 465 million barrels. ..."
Oct 04, 2017 | oilprice.com
4.19-million-barrel build in gasoline stockpiles.

Now EIA is out with official oil and fuels inventory figures and these figures will certainly make oil bulls perk up. The authority said crude oil inventories in the week to September 29 dropped by as much as 6 million barrels to 465 million barrels.

This compares with an average analyst expectation of a 300,000-barrel draw, although the actual forecasts ranged from a build of 2.7 million barrels to a decline of 3 million barrels among 11 analysts polled by the Wall Street Journal.

For gasoline stockpiles, the EIA had some not so good news for traders, but it could have been worse: inventories of the fuel rose by 1.6 million barrels last week, suggesting that the drop in gasoline demand following the end of driving season is already in progress. Still, it's not as bleak as API's figures yesterday that foretold of a 4.19-million-barrel build.

[Oct 04, 2017] China's Oil Demand Is Far Ahead Of Last Year's Pace by Robert Rapier

How comes? Annual world demand raises around 1.5 million BPD per year. So since 2014 it rose probably 4 million BPD. And there is no sizable new discoveries. Iran and Libya cards were already played and total from them is less then 4 million barrel per day. US output is stagnant. Canadian is down. Where all this additional oil is coming from ?
Iran is currently exporting about 3 million BPD of crude and condensate vs. less than 1 million BPD when the sanctions were in place.
Libya and Nigeria have increased production by about 0.5 BPD undercutting the 1.2 million BPD OPEC production cut.
Turkey already threatened to close their border with Iraqi Kurdistan, halting the 0.6 BPD of oil that the Kurds are exporting through Turkey.
Venezuela problems might take another million BPD off the global market.
KSA has recently been forced to borrow $12.5 billion after borrowing $17.5 billion last year.
Notable quotes:
"... The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. ..."
"... China's oil demand rose by 690,000 BPD in July, marking a 6 percent year-over-year (YOY) increase. China's total oil demand reached 11.67 million BPD in July. Year-to-date data indicates an average growth of 550,000 BPD, more than double the 210,000 BPD growth recorded during the same period in 2016. ..."
Oct 04, 2017 | oilprice.com
Monthly Oil Market Report which covers the global oil supply and demand picture through July.

OPEC crude oil production decreased by 79,000 BPD in August to average 32.8 million BPD. This marks the first OPEC production decline since April and was primarily driven by sizable outages in Libya.

The cartel revised global oil demand growth for 2017 upward by 50,000 barrels per day (BPD) to 1.42 million BPD. The group reports strong growth from the OECD Americas, Europe, and China. Global oil demand for 2018 is expected to grow by 1.35 million BPD, an upward revision of 70,000 BPD from the previous report. Growth next year is expected to be driven by OECD Europe and China.

China's oil demand rose by 690,000 BPD in July, marking a 6 percent year-over-year (YOY) increase. China's total oil demand reached 11.67 million BPD in July. Year-to-date data indicates an average growth of 550,000 BPD, more than double the 210,000 BPD growth recorded during the same period in 2016.

China's gasoline demand was higher by around 0.10 million BPD YOY, driven by robust sports utility vehicle (SUV) sales, which were around 17 percent higher than one year ago. China's overall vehicle sales in July rose by 4 percent YOY, with total sales reaching 1.7 million units.

The numbers from China are interesting given the constant refrain of weakening Chinese demand. This seems to be wishful thinking based on China's investments in clean technology.

[Oct 02, 2017] Saudi Arabia Must Prepare for the Post-Petroleum Order by Mark P. Lagon

War in Yemen is perfect destruction from internal problems facing Saudi regime. And Wahhabism is like albatross around the neck on any attempts to reform the county. So as soon as oil ends Saudi Arabia will end as a state too. that means it is unclear if they still exist in 2050 or 2100.
Oct 02, 2017 | nationalinterest.org

Perhaps the prince is purposefully driving us to distraction...

Intensified brutality has not been limited to Saudi soil. As defense minister, Mohammed bin Salman was the architect of a more interventionist posture for Saudi Arabia -- motivated far less by quashing terrorism than its regional and sectarian rivalries. In particular, he shaped a policy that flagrantly violated humanitarian norms against Yemen's civilian population. Even the most jaundiced skeptic about the United Nations would regard Secretary-General Antonio Guterres as a highly credible voice on humanitarian situations given that he is the former high commissioner for refugees and former prime minister of Portugal. His special representative for children abused in wartime, Virginia Gamba, has documented hundreds of cases of Yemeni children killed and maimed by the Saudi's indiscriminate use of force.

... ... ...

enoch arden , September 30, 2017 7:20 AM

There will never be any science in Saudi Arabia. It isn't a part of their civilisation. It has never been in history. The great Islamic science of the Middle Ages existed in entirely different places: Iran, Mesopotamia, Syria and Egypt. The territory to the south has always been a scientific desert. No "human rights" or feminism can change this fundamental historic tradition.

KlingOn2K , September 30, 2017 3:56 AM

It has to be said that this near-existential crisis sneaked up on OPEC nations rather swiftly. I can't see how a pampered and indulged populace can get around to educating itself and working for a living in short order. There is a lot of tumultuous years ahead for these nations.

virgile , October 1, 2017 9:14 AM

Saudi Arabia has no chance to emerge from the middle age unless it leaders admit that their religion Wahhabism is obsolete and need to be revisited.
The trouble is that Wahhabismm and strict Sunnism, contrary to Shiism, forbids any attempt to revisit the teaching of the Sunna ( Koran + Hadith). Wahhabism can't evolve.

Therefore Saudi Arabia is trapped in that scheme and can never get out of it. The only way out is the total collapse of the kingdom as a whole. Maybe that is the real Vision!

Petar Petrovic , October 1, 2017 10:10 AM

Saudis should look at Syria as a model of democracy and pluralism in Arabic Islamic world, yet with their USA friends they tried to destroy it.

Petar Petrovic , October 1, 2017 10:07 AM

And these are the sort of people Trump visited first and they are USA allies in fratricidal war in Syria...there are actually lots of similarity between USA and Saudi Arabia;they are both sadistic governments.

Jeff Edward Easterling , October 1, 2017 1:00 AM

Thanks! :D

Since the actual military/defense/intelligence related spending is 1 trillion dollars a year, including about 100 billion in interest we pay on it, if we cut the spending a little and rely on national guard more since I've read it is cheaper to fund and if necessary nationalize our oil and gas industry like a lot of other countries we could start paying off our debt. :D

Schlesinger's Zenith ElPrimero , September 30, 2017 7:09 AM

The whole world must prepare for the post-petroleum order. But it's not, so there will be chaos and war. A country like Australia could fare better than most - if it could defend itself.

[Sep 27, 2017] Interviewed this morning, Harold Hamm calls EIA STEO projections flat out wrong. US will be lucky to achieve 9.35 million b/day by December

Sep 21, 2017 | peakoilbarrel.com

Energy News, 09/21/2017 at 3:43 pm

Interviewed this morning, Harold Hamm calls EIA STEO projections flat out wrong.

US will be lucky to achieve 9.35 million b/day by December.

https://www.bloomberg.com/news/articles/2017-09-21/shale-billionaire-hamm-slams-exaggerated-u-s-oil-projections

[Sep 26, 2017] Not much exploration is done at the moment as the industry expects (and needs) higher prices

The much reduced growth of US production paves now the way for higher oil and gas prices. As oil prices will be low for a while due to global surplus capacity and substitution of oil demand, the chances for much higher gas prices over the next few months are very high.
Notable quotes:
"... Global costs are expected to decline but cost of US onshore (i.e. tight oil) is increasing by approx. 16% in 2017. The industry has increased its leverage (i.e. more debt) and direct investment to short cycle projects. ..."
Sep 26, 2017 | peakoilbarrel.com

Ignored says: 09/20/2017 at 9:41 am

IEA World Energy Investment 2017, executive summary is available online: http://www.iea.org/bookshop/759-World_Energy_Investment_2017

Not much new for those who follow the industry. Upstream investment declined substantially in 2015 and 2016 (44% for the two years combined) but has been increasing modestly this year.

Global costs are expected to decline but cost of US onshore (i.e. tight oil) is increasing by approx. 16% in 2017. The industry has increased its leverage (i.e. more debt) and direct investment to short cycle projects.

I guess this is a gentle way of saying that not much exploration is done at the moment, the industry expects (or needs) higher prices but will be less agile if/when that happens.

[Sep 26, 2017] Total liquids supply that both the IEA and EIA use as the measure of supply now include a lot of condensate, which is less energy rich then oil

Sep 26, 2017 | peakoilbarrel.com

Energy News says: 09/21/2017 at 9:13 am

Crude oil vs NGLs
I've now included China (NBS, LPG) and The Russian Federation (JODI Data, LPG) in the list of countries that provide separate crude oil & NGLs production data. Since 2013, total liquids production has increased +7.77 million b/day, crude oil +5.01 million b/day, NGLS +2.76 million b/day and so NGLs account for 35% of the overall total liquids increase.

Energy News says: 09/21/2017 at 9:22 am
Crude oil vs NGLs

Jeff says: 09/21/2017 at 3:52 pm
I think NGLs are exempted from OPEC cuts. Not sure if/how much this affect the trend.
Energy News says: 09/21/2017 at 4:16 pm
OPEC NGLs production made a new high in July – I didn't even notice that 🙂

Energy News says: 09/21/2017 at 4:43 pm
I had been wondering what was in total liquids supply, as both the IEA and EIA use this measure of supply, and so now I know.

[Aug 25, 2017] Oil consumption in Russia from 1995 to 2016 (in million metric tons)

get=

> > > > > >

[Aug 09, 2017] When Sadr arrived in Jeddah, an anonymous Twitter user known as Mujtahid -- noted for his regular leaking of alleged developments within the secretive House of Saud -- tweeted that the warm welcoming of Sadr and prior to him al-Araji, offering thousands of [hajj] visas to PMU [Popular Mobilization Units], celebrating the [liberation] of Mosul, are all attempts to get closer to Iran so that they can convince the Houthis to have mercy on bin Salman.

Aug 09, 2017 | www.moonofalabama.org

Posted by: Yul | Aug 4, 2017 7:58:45 PM | 41

Dr Brenner,

Don't know whether you've have seen this article and the navettes of various Iraqi Shi'a authorities to Riyadh, in particular Muqtada's visit this week:

When Sadr arrived in Jeddah, an anonymous Twitter user known as Mujtahid -- noted for his regular leaking of alleged developments within the secretive House of Saud -- tweeted that the warm welcoming of Sadr "and prior to him al-Araji, offering thousands of [hajj] visas to PMU [Popular Mobilization Units], celebrating the [liberation] of Mosul, are all attempts to get closer to Iran so that they can convince the Houthis to have mercy on bin Salman." Thamer al-Sabhan in a July 31 tweet attacked "[Ayatollah Ruhollah] Khomeini's version of Shiism" and praised what Sabhan called "genuine Shiism." Less than 24 hours later, however, that tweet was removed. It is still unclear whether Sadr is really attempting to mediate between Tehran and Riyadh. However, a senior Iranian official who spoke to Al-Monitor on condition of anonymity expressed doubt that such an endeavor would succeed in ending the rivalry between the two regional powers.

http://www.al-monitor.com/pulse/originals/2017/08/iraq-sadr-bin-salman-meeting-saudi-iran-rapprochement.html

Dr Brenner,

Don't know whether you've have seen this article and the navettes of various Iraqi Shi'a authorities to Riyadh, in particular Muqtada's visit this week:

When Sadr arrived in Jeddah, an anonymous Twitter user known as Mujtahid -- noted for his regular leaking of alleged developments within the secretive House of Saud -- tweeted that the warm welcoming of Sadr "and prior to him al-Araji, offering thousands of [hajj] visas to PMU [Popular Mobilization Units], celebrating the [liberation] of Mosul, are all attempts to get closer to Iran so that they can convince the Houthis to have mercy on bin Salman." Thamer al-Sabhan in a July 31 tweet attacked "[Ayatollah Ruhollah] Khomeini's version of Shiism" and praised what Sabhan called "genuine Shiism." Less than 24 hours later, however, that tweet was removed. It is still unclear whether Sadr is really attempting to mediate between Tehran and Riyadh. However, a senior Iranian official who spoke to Al-Monitor on condition of anonymity expressed doubt that such an endeavor would succeed in ending the rivalry between the two regional powers.

http://www.al-monitor.com/pulse/originals/2017/08/iraq-sadr-bin-salman-meeting-saudi-iran-rapprochement.html

[Jul 23, 2017] Russia lost $26 billion on oil and gas exports

Notable quotes:
"... An increase in Libyan output, together with a surge in US production and signs of recovery in Nigeria, may undercut Opec's strategy to re-balance the market and boost prices. ..."
"... The US frackers (along with all other high-cost producers around the globe) will go bust before the end of the decade. ..."
"... It is garbage articles. Only trading oil shares on stock market is zero sum game so when Mr Buffet makes $1 million many others lost a little bit each to the tune of $1 million. But country producing oil and exporting is not stock market. It is life and life is not zero-sum game. If oil companies in one oil producing country lost 10-20-30 billion it does not mean that oil companies in other oil producing country gained 10-20-30 billion. Glenn, this is so basic. ..."
"... Let the Saudis, the Russians and the cheap money wallstreet companies shoot out their battle – when the first topples (perhaps SA running out of money first, Venezuala soon goes bottom-up) prices will be north of 70$ again. ..."
"... Northsea-oil is another candidate for going bottom-up, the same with old giant fields like chinese super fields where they stopped injecting at 60$. Together with a healthy 1.4 mb demand growth there will be times when even a wide deveoloped Permian can't sustain all demands at 40-50$. ..."
"... Financing in the oil industry will take care of it. If loans and investments dry up as lenders and investors find better deals to make, there will be less drilling. It's the oil industry itself to blame for low prices. ..."
Jul 23, 2017 | peakoilbarrel.com

Glenn E Stehle says: 07/18/2017 at 7:05 pm

Ves,

So you think Putin is happy about this?

Russia lost $26 billion on oil and gas exports
http://www.hellenicshippingnews.com/russia-lost-26-billion-on-oil-and-gas-exports/

Russia is making less money on oil and gas exports, according to the data published today by the Federal Customs Service. In 2016, the revenues from oil and gas exports declined by 17.7% (compared to 2015) and amounted to $73.676 billion. Gazprom's revenues from gas exports declined by 25% and amounted to $31.28 billion.

Or this?

Saudis, Russia say oil supply cut being extended to next March
https://www.irishtimes.com/business/energy-and-resources/saudis-russia-say-oil-supply-cut-being-extended-to-next-march-1.3083423

While output curbs introduced at the start of the year are working, global inventories aren't yet at the level targeted by Opec and its allies, Saudi energy minister Khalid Al-Falih said Monday in Beijing alongside his Russian counterpart, Alexander Novak. The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, they said .

An increase in Libyan output, together with a surge in US production and signs of recovery in Nigeria, may undercut Opec's strategy to re-balance the market and boost prices.

Or this?

Oil Prices Ease on Signs of Steady Output from Some Producers
http://www.rigzone.com/news/oil_gas/a/151042/Oil_Prices_Ease_on_Signs_of_Steady_Output_from_Some_Producers?utm_source=DailyNewsletter&utm_medium=email&utm_term=2017-07-18&utm_content=&utm_campaign=industry_headlines_1

Oil prices were about 1 percent lower on Monday as investors continued to await strong indications that an OPEC-led effort to drain a glut was proving effective .

U.S. shale oil production was forecast to rise for the eighth consecutive month, climbing 112,000 barrels per day (bpd) to 5.585 million bpd in August .

Oil prices are less than half their mid-2014 level because of a persistent glut, even after the Organization of the Petroleum Exporting Countries with Russia and other non-OPEC producers cut supplies since January.

Or this?

US Shale Oil Output Seen Up for Eighth Month at 5.6 Mln bpd -EIA
http://www.rigzone.com/news/oil_gas/a/151045/US_Shale_Oil_Output_Seen_Up_for_Eighth_Month_at_56_Mln_bpd_EIA?utm_source=DailyNewsletter&utm_medium=email&utm_term=2017-07-18&utm_content=&utm_campaign=Production_1

U.S. shale oil production is forecast to rise for the eighth consecutive month, climbing 112,000 barrels per day (bpd) to 5.585 million bpd in August, the U.S. Energy Department said in a report on Monday.

The increase comes amid market concerns that rising shale output will dampen the Organization of the Petroleum Exporting Countries' efforts to curb a global supply glut.

The U.S. shale production level would be the highest since record-keeping began in 2007, according to the EIA's monthly drilling productivity report.

Stavros H says: 07/22/2017 at 3:34 pm
The US frackers (along with all other high-cost producers around the globe) will go bust before the end of the decade.
Glenn E Stehle says: 07/18/2017 at 7:40 pm

Ves says: 07/18/2017 at 10:46 pm
Glenn,

It is garbage articles. Only trading oil shares on stock market is zero sum game so when Mr Buffet makes $1 million many others lost a little bit each to the tune of $1 million. But country producing oil and exporting is not stock market. It is life and life is not zero-sum game. If oil companies in one oil producing country lost 10-20-30 billion it does not mean that oil companies in other oil producing country gained 10-20-30 billion. Glenn, this is so basic.

Look this way, very simple way, if you and your neighbour are earning oil royalties on your Texas land in US$ with exactly same interest and he has to live in Texas (and has to pay living expense in $US) and you live in Mexico (paying expenses in pesos) it is not the same. For you "It's morning in Mexico" but for your Texas neighbour is so so.

Glenn E Stehle says: 07/19/2017 at 6:35 am
Ves,

Revenue = number of units sold x price per unit

A lease that produces 12,000 BO per year at $100/BO generates $1.2 million in revenue.

A lease that produces 120,000 BO per year at $50/BO generates $6 million in revenue.

Most people consider $6 million in revenue to be better than $1.2 million.

Eulenspiegel says: 07/19/2017 at 8:30 am
It depends on your costs whats the best – If you have 49$ costs, the first least will still generate 612.000$ profit, the second only 120.000$ despite pumping the 10 fold amount.

If you have only 1 piece of land and can wait(it's your land, and you have the money), the first option is the best – if you are a shale company with 1 zillion in debt, the second option is the best to dish out all your assets to hit your payment rates.

Someone here described at a rule of a thumb you should earn the 3 fold price of drilling costs to make a good fortune since you have additional costs – so waiting a bit before calling for the fracking pump can pay out here.

Let the Saudis, the Russians and the cheap money wallstreet companies shoot out their battle – when the first topples (perhaps SA running out of money first, Venezuala soon goes bottom-up) prices will be north of 70$ again.

Northsea-oil is another candidate for going bottom-up, the same with old giant fields like chinese super fields where they stopped injecting at 60$. Together with a healthy 1.4 mb demand growth there will be times when even a wide deveoloped Permian can't sustain all demands at 40-50$.

Glenn E Stehle says: 07/19/2017 at 8:51 am
Eulenspiegel said:

Together with a healthy 1.4 mb demand growth there will be times when even a wide developed Permian can't sustain all demands at 40-50$.

I sure hope you're right, and that the competitors "go bottom-up," or at least blink, sooner than later.

This is from Pioneer Resources' June investor presentation.

Eulenspiegel says: 07/20/2017 at 3:50 am
Why only 2.31$ productions cost for permian horizontals, I think the pipelines are the same as for the verticals direct in the spot beneath?

All other shales have higher production costs, too – which doesn't make the thing better at the momentary depressed oil prices.

Looks like they have big red numbers in Eagle Ford even at top locations.

Boomer II says: 07/19/2017 at 9:09 am
But if the total BO from the lease is the same whether it comes out slowly or quickly, then getting the oil out quickly at a low price is not as good as getting the oil out slowly at a higher price.

Your lifetime return on your lease would be the most important number.

Glenn E Stehle says: 07/19/2017 at 9:28 am
BoomerII,

Well that certainly is the conclusion that the Pure and the Humble (aka John D. Rockefeller) came to in the 1930s after the discovery of the East Texas Field.

But just exactly how do you propose that those "higher prices" be achieved in a competitive, free market economy?

Or do you advocate for the re-cartelization of the market place for oil, the way it was between 1936 and the 1970?

Boomer II says: 07/19/2017 at 10:17 am
Financing in the oil industry will take care of it. If loans and investments dry up as lenders and investors find better deals to make, there will be less drilling. It's the oil industry itself to blame for low prices.
Glenn E Stehle says: 07/19/2017 at 11:03 am
Boomer II,

That's how the business cycle works in a competitive, free-market economy. The down-cycle is unkind to many, but some make it through and go on to fight another day.

Do you prefer a system where the government picks the winners and losers?

Boomer II says: 07/19/2017 at 11:29 am
Between depletion and increased production costs and a temporary glut of oil, the market is making oil and gas investments less attractive.

The government IS stepping in, to the industry's detriment, by selling more leases right now and encouraging what might be overproduction at the moment.

If market conditions hasten the decline of gas and oil, I won't be sorry because I think we need alternatives anyway.

Glenn E Stehle says: 07/19/2017 at 12:07 pm
Boomer II,

Why do you believe the "alternatives" will necessarily make it through the down-cycle?

They may be some of the first to "go bottom-up," especially as the subsidies for wind and solar begin to be phased out in the next few years.

texas tea says: 07/19/2017 at 12:16 pm
we could always make Mike president That should be good for a couple of hundred $$$ increase per barrel
Boomer II says: 07/19/2017 at 12:59 pm
Countries that don't want to be dependent on fossil fuel imports have an incentive to find alternatives. Even if they pay a bit more for them (which doesn't appear will be the case), renewables offer them more energy independence. If that is America's goal, it is likely to be other countries' goal as well.

Alternative energy sources also provide an economic advantage for some countries because they can become energy players even without their own fossil fuels.

Think of alternative energy the way you do military preparativeness. There is value to countries which taxpayers and governments will support even if there is no direct financial benefit. However money spent for alternative energy WILL have more economic benefit than military spending.

Ves says: 07/19/2017 at 11:23 am
"A lease that produces 12,000 BO per year at $100/BO generates $1.2 million in revenue.

A lease that produces 120,000 BO per year at $50/BO generates $6 million in revenue."

Glenn,

The only problem is that FEW 120.000 BO cannot pay MANY 12,000 BO. So, picking 120.000 BO wells is losing game in long term. It is like a stock picking vs indexing in investing. Indexing always wins. Shale carpet drilling is like trying to find that one 120.000 BO well that will pay for all losers that are 12,000 BO. Losing game in the long term...

[Jul 23, 2017] They are all losing money. Proppant isn"t free. If you use more of it, it costs more. If you add a different kind it costs more. And the executive bonuses are production based, not profit based. If they can get other people to fund via loans those bonuses then of course they will do it.

Jul 23, 2017 | peakoilbarrel.com

Watcher

says: 07/17/2017 at 8:21 am

Dood, they are all losing money.

Proppant isn"t free. If you use more of it, it costs more. If you add a different kind it costs more.

And the executive bonuses are production based, not profit based. If they can get other people to fund via loans those bonuses then of course they will do it.

You want evidence the proppant pays for itself in production? You can find it. It appears in the earnings per share number. If it doesn't then there is no evidence.

This is no different than drilling holes to recover pores of oil amounting to 20 barrels, total. At $45/b you get $900 from that. If someone else pays the $7 million for the hole, why not drill?

Ves

says: 07/17/2017 at 9:08 am

http://wolfstreet.com/2017/07/17/2-billion-private-equity-fund-collapses-to-almost-zero/

"Investors who'd plowed $2 billion four years ago into a private equity fund that had also borrowed $1.3 billion to lever up may receive "at most, pennies for every dollar they invested," people familiar with the matter told the Wall Street Journal."

It is the same WSJ that last 4 years were writing about "resilience of shale" like parrots, every day. Of course it is resilient with Gran Ma and Gran Pa money if you look that it was mostly pension funds that are invested.

Boomer II

says: 07/17/2017 at 10:46 am

From the WSJ article.

"Only seven private-equity funds larger than $1 billion have ever lost money for investors, according to investment firm Cambridge Associates LLC. Among those of any size to end in the red, losses greater than 25% or so are almost unheard of, though there are several energy-focused funds in danger of doing so, according to public pension records."

Glenn E Stehle says: 07/17/2017 at 11:39 am
Ves,

So now those evil shale people are screwing Grand Pa and Grand Ma out of their hard-earned savings?

After all, we have it straight from WolfStreet. Wolf Richter blasts the unscrupulous shale industry when he writes:

" The renewed hype about shale oil – which is curiously similar to the prior hype about shale oil that ended in the oil bust – and the new drilling boom it has engendered, with tens of billions of dollars being once again thrown at it by institutional investors, has skillfully covered up the other reality: The damage from the oil bust is far from over, losses continue to percolate through portfolios and retirement savings, and in many cases – as with pensions funds – the ultimate losers, whose money this is, are blissfully unaware of it."

There's a problem, however, with using EnerVest to bash the shale industry. And the problem is very easy to spot for anyone who has even the most rudimentary knowledge of the oil and gas industry (which of course leaves Richter out): EnerVest's portfolio has very few shale assets.

• EnerVest is the largest conventional oil and natural gas operator in Ohio

• EnerVest is the largest producer in the Austin Chalk, another conventional field.

• EnerVest is the fifth largest producer in the Barnett Shale, which is the only shale holding listed in the company's list of core areas.

• EnerVest has spent $1.5 billion purchasing assets in the Anadarko Basin since 2013, again in conventional fields.

• EnerVest is a top 20 producer in the San Juan Basin, again a conventional field.

https://www.enervest.net/operations/locations-map.html

So Richter uses the implosion of EnerVest, a company that is predominately a conventonal oil and gas producer, to bash shale? That really makes a lot of sense. 😊

Ves says: 07/17/2017 at 12:34 pm
Glenn,
shale/no shale, they lost every single penny. and btw wsj lied to you every single day for the last 4 years about milk & honey in oil patch. how do you feel about it?
Glenn E Stehle says: 07/18/2017 at 5:05 pm
Ves,

For me it is has been "milk and honey in the oil patch." So here's how I feel about it .

https://m.popkey.co/e975d7/JmXzE.gif

Watcher says: 07/17/2017 at 1:30 am
Anyone have info on average Bakken water disposal costs?

They are all losing money, but beyond that water costs usually determine the production level below which cap and abandon.

Watcher says: 07/21/2017 at 11:00 am
Freddy, I doubt you can get this data, but a gassy geology flows liquid that isn't oil. The relentless march upward of API speaks of NGLs rather than oil. If people just ignore API degrees and flow liquid that is API 47 or even 51, but still call it oil, the numbers will all be corrupted and no one will know.

I gotta go research NoDak's taxation regulation on liquids that are not crude.

shallow sand says: 07/17/2017 at 11:50 am
coffee: Thanks for the heads up on Rockman BK discussion on PeakOil.com. I had quit looking at that site because it seemed to have become very radical. Rockman is a good poster, however, lots of knowledge, and a down to earth guy too.

What he describes there is why this is probably going to play out like 1986-1999. Takes years for US onshore upstream to be placed in the category of "not investible". So $40s or lower, on average, until mid-2020's, unless there is a prolonged major supply disruption, which necessarily means a major Middle Eastern war lasting for years.

The possibility of $90 WTI has to be erased from memory, just like $30 WTI had to be erased from memory from 1986-1998.

Watcher says: 07/17/2017 at 1:22 pm
Over the course of the history of mankind, more assets have changed hands at a price completely absent any effect of supply and demand than those that might have cared about such things. Vastly more. Let's count a few.

1) Every single inheritance. In the history of mankind, every single inheritance.

2) All gifts.

3) All conquests.

4) All manifestations of economic predation. Predatory pricing established those levels.

5) All monopolies

6) All thefts

7) All taxation

8) All govt decreed excise or tarrif

Want more proof? How about the ultimate:

The purchase of about 2 Trillion dollars of mortgage backed securities by the Federal Reserve from 2009 to 2015. The pricing of those securities was 0 at mark to market, so mark to market was disallowed, but even with that, the Fed specified the price to be whatever they wished, and the sellers didn't have any reason to complain. The price paid was far above supply and demand (aka 0). $2 Trillion. That probably exceeds amounts for assets from all history that someone imagined was taking place at a free market price. Not to mention the ongoing buys from the ECB in progress today.

So the price of oil will be what the lowest priced large sellers want it to be, and they have no reason to imagine that their victory should be measured in a whimsically created substance.

There is nothing anyone can do about it.

coffeeguyzz says: 07/17/2017 at 1:30 pm
Shallow

The upside potential might be stronger than appears at present for many reasons.

Although the Enervest situation has been conflated with the shale industry, the exact opposite reality might prove to your (smaller operators) collective benefit as you ride out this current storm.

Time was, ss, that some camel upwind in the desert somewhere would fart and global oil markets would reverberate for days.

Now, in hydrocarbon producing countries from Nigeria to the Philippines, including Iraq, Libya, Yemen, Syria, KSA and others there is conflict raging from low level to all out warfare. Heck, there were reports the other day of a thwarted attack on a Saudi offshore facility.

Qatar is virtually quarantined.
Russia is battling international sanctions.

And $46 WTI???
You kidding me???

We ain't in Denmark (most of us), but something's sure is rotten,

clueless says: 07/17/2017 at 3:14 pm
SS – It has been my experience that concerning financial matters, nothing "plays out" like the past. Consider the period 1986-1999: No one was concerned that the world was near peak oil. OPEC spare capacity was at least 4 times what it is today, [ask Ron], at a time when final demand was much less. Iraq invaded Kuwait, and then we went to war to get them out – remember the oil well fires. Russia collapsed. The "BRIC" countries [Brazil, Russia, India and China] were inconsequential. The Dow Jones was down 22.6% in ONE DAY in 1987. The International Monetary system almost collapsed in 1997. The world was transitioning from a period of high inflation to much lower inflation. Japan was booming [until 1990].

You can probably add a dozen significant happenings to the list without thinking too hard. The point is, so many variables have changed that something as significant as oil is going to "play out" based upon today's factors, not "like" 1986-1999. Some people are still trying to analog to the 1930's in order to predict the next great depression in the stock market – do not listen to them.

shallow sand says: 07/17/2017 at 4:37 pm
I know things never play out exactly as in the past.

However, one has to prepare for the worst, and prices will be low for awhile IMO.

The Rockman BK discussion helped put it in focus for me. The wells will be drilled, and only when it is clear all large US shale oil basins have hit their limit, will prices begin to rise. That might not take 12 years, but I think at least 5 is likely.

The only intervenor would be a supply shock from the Middle East.

Another poster on another site also has given me some clarity. He states there has not been enough suffering experienced yet in the US oil patch by those responsible for the production boom.

We just went through two bad years of prices in 2015-2016, and at the first sign of light, the industry was able to raise a ton of cash and go back with guns a blazing. There were no consequences to the powers that be from the 2015-2016 low prices. Heck, the strip was higher this time last year, yet we are still adding rigs.

It will take a minimum of five years, until it is universally believed that prices will be low forever, that supply will be abundant forever, and that the sector is a bad investment.

Once that happens, look out, price could rocket. But it will be awhile IMO.

simon oaten says: 07/17/2017 at 5:57 pm
Shallow,

good paper by mr ray dalio "deleveraging" – worth the time to read .

as you say – history doesn't repeat

rgds
simon

Jeff says: 07/17/2017 at 3:17 pm
Some difference between now and 86-99: i) decline rates are higher, ii) Spare capacity is _much_ lower (oil stocks are high which apparently is what traders observe) – back in 86 KSA could flood the market, iii) not much new big projects in the pipe after 2019 and North Sea is declining this time while it was increasing back then.

Rebalancing should go faster this time if (!) demand continues to increase.

Guy M says: 07/17/2017 at 5:11 pm
EIA numbers are basically worthless, as far as the Permian goes. To analyze it like they are trying to do, you would have to separate conventional production from horizontal production. Take more gathering tools than they are using to accomplish that. Until 2015, they were still drilling 800 a month or so vertical wells, which dropped down to 100 to 150 a month since then. Looking at district 8A, that production is dropping like a rock. Combining the two, production appears to be pretty flat for Texas since the first of the year.

[Jul 23, 2017] I Have Taken A Closer Look At The Data From EIA... Why Horseman Global Is Aggressively Shorting Shale

Notable quotes:
"... Intensive drilling is causing a problem called 'frac-hits', which are cross-well interferences. These happen when fracking pressure is accidently transferred to adjacent wells that have less pressure integrity. As a result a failure of pressure control occurs, which reduces production flow. ..."
"... as the following chart from Goldman shows, the number of horizontal rigs funded by public junk bond issuance has not changed in the past 3 months. Is the funding market about to cool dramatically on US shale, and if so, just how high will oil surge? ..."
"... They want control of Russian oil and resources, so it may be cheap for a long, long time. This means the banksters will fund shale production 'til hell freezes over. They want another Russian revolution. ..."
"... Outside of Shale is DeepWater, Artic and Oil Sands. None of these are much better, and I think it will be harder this time for Oil prices to increase to make these non-convensional oil projects profitable. ..."
Jul 23, 2017 | www.zerohedge.com

From Horseman Capital Management's July Monthly Newsleter

...Having grown up, and spent my entire investing career in periods of bubble inflation and deflation , I am constantly minded to look for where the market is deceiving itself, and then positioning the fund to benefit from the process of realisation. Many years ago, I could see that the commodity bubble was ending, and Chinese growth was peaking. This meant that commodities would be weaker and inflation lower, making a short commodities, long bond position very effective. It was a great strategy, but its effectiveness ended early last year.

The good news is that new market delusion is now apparent to me. When I moved long emerging markets, and short developed markets, the one commodity I could not give detailed bullish reasons for was oil. Unlike most other commodities, the oil industry, in the form of US shale drillers has continued to receive investment flows throughout the entire downturn

I had shorted shale producers and the related MLP stocks before, and I knew there was something wrong with the industry, but I failed to find the trigger for the US shale industry to fail. And like most other investors I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further. However, I have taken a closer look at the data from EIA and from the company presentations. The rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money . If US rates continue to stay low, then it is possible that the high yield markets may continue to supply these drillers with capital, but I think that this is unlikely. More likely is that at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the

next month (Source: EIA).

What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me. A broader commodity squeeze also looks likely to me.

In the latest letter's sector allocation, Clark also added the following section providing a more detailed explanation why he has boosted his shale short to 15.5%:

We are negative on the US shale sector, during the month we increased the short exposure to oil exploration and MLPs to about 15.5%. Conventional oil wells typically produce in 3 stages: the start-up rising production stage lasts 2 to 3 years, it is followed by a plateau stage which lasts another 2-3 years and a long declining stage, during which production declines at rates of 1% to 10% per year. These wells generally produce over 15 to 30 years ( Source: Planete energies).

In contrast, production from unconventional / shale wells peaks within a few months after it starts and decreases by about 75% after one year and by about 85% after two years (Source Permian basin, Goldman Sachs). This means that, in order to keep producing, shale producers need to constantly drill new wells.

Shale drilling is characterised by drilling horizontally into the layers of rock where hydrocarbons lie. Then hydraulic fracturing which consists of pumping a mixture of water, proppant (sand) and chemicals into the rock at high pressure, allows hydrocarbons to be extracted out to the head of the well.

Since 2016, as oil prices rallied, the number of rigs in the Permian basin, which is currently the most sought after drilling area in the US, rose from about 150 to almost 400 . Furthermore, operations have moved into a high intensity phase as wells are drilled closer together, average lateral lengths increased over 80% from 2,687 ft in early 2012 to 4,875 ft in 2016 and the average volume of proppant per lateral foot more has than doubled (Source: Stratas Advisors).

Intensive drilling is causing a problem called 'frac-hits', which are cross-well interferences. These happen when fracking pressure is accidently transferred to adjacent wells that have less pressure integrity. As a result a failure of pressure control occurs, which reduces production flow. In the worst cases, pressure losses can result in a total loss of production that never returns. According to a senior reservoir engineer at CNOOC Nexen, frac-hits have now become a top concern, they can affect several wells on a pad along with those on nearby pads (Sources: Journal of Petroleum Technology).

A former engineer for Southwestern Energy said that frac-hits are very difficult to predict, the best way to respond is with trial and error and experimenting with well spacing and frac sizes to find the optimal combination.

In May Range Resources reported that it was forced to shut wells in order to minimise the impact of frac-hits. This month Abbraxas Petroleum said it will be shutting in several high-volume wells for about a month (Source: Upstream).

In the Permian basin new well production per rig continued to decline in June, from 617 barrels per day down to 602 . In the meantime , legacy oil production, which is a function of the number of wells, depletion rates and production outages such as frac hits, is continuing to rise . (Source: EIA)

In light of the above growing short bet on shale, this is how Clark is positioned:

The analysis leads me to be potentially bearish on bonds, bearish on US shale drillers, but bullish on commodities. Over the month, we have added to US shale shorts, while also selling our US housebuilder longs . We continue to build our US consumer shorts, where the combination of higher oil prices and higher interest rates should devastate an industry already dealing with oversupply and the entry of Amazon into ever more areas . The combination of long mining and short shale drillers has the nice effect of reducing volatility, but ultimately offering high returns. The combination of portfolio changes has taken us back to a net short of over 40%. I find market action is supporting my thesis, and the research and analysis is compelling. Your fund remains short developed markets, long emerging markets.

While we will have more to say on this, Clark may be on to something: as the following chart from Goldman shows, the number of horizontal rigs funded by public junk bond issuance has not changed in the past 3 months. Is the funding market about to cool dramatically on US shale, and if so, just how high will oil surge?

LetThemEatRand •Jul 22, 2017 5:44 PM

A short bet on shale is also a bet on no war that disrupts supply/increases demand. It is also a bet against any kind of crisis in the dollar. As it stands now, that seems pretty risky to me.

NoWayJose -> LetThemEatRand •Jul 22, 2017 6:12 PM

I'd rather be long oil services - the inevitable conclusion of the author is that fracked oil depletes faster, the quality drops, that they cannot get more financing and that production will fall? And you want to be 'short' when all this happens?

LetThemEatRand -> NoWayJose •Jul 22, 2017 6:31 PM

Agreed. A lot of people have already forgotten that oil dropped massively after the US decided (under zero) that it wanted to punish Russia because "Russia invaded Crimea."

I didn't fully believe that TPTB had so much control over the price of oil before it happened, but the timing could not have been coincidental. When they want oil to go back up, it will.

When that happens is anyone's guess for those of us not in the Big Club, but the idea that oil is in a new normal price range is not supported by history. Oil was double or almost triple its current price under similar economic conditions in the past.

daveO -> LetThemEatRand •Jul 22, 2017 10:10 PM

They want control of Russian oil and resources, so it may be cheap for a long, long time. This means the banksters will fund shale production 'til hell freezes over. They want another Russian revolution.

AGuy -> NoWayJose •Jul 23, 2017 2:43 AM

"I'd rather be long oil services"

Seems likely oil services will get hit hard when the shale bubble pops. Its likely they are owed money by shale drillers.

Outside of Shale is DeepWater, Artic and Oil Sands. None of these are much better, and I think it will be harder this time for Oil prices to increase to make these non-convensional oil projects profitable. Consumers and business are even deeper debt than they were in 2008-2009. With the Boomers entering retirement, Companies moving to automation and technology reducing the need for travel, its likely that Oil consumption will start to decline. Hire energy prices would accelerate the declines via demand destruction

Deep Snorkeler •Jul 22, 2017 6:00 PM

1. Fracked fields deplete fast.

2. Frackers need low interest financing for more fracking.

3. Increased fracking density depletes fields even faster.

4. Fracked wells produce ever poorer oil quality.

EROI is against all you frickn fracking f**kers. There is no economic theory that addresses resource depletion.

fattail -> Deep Snorkeler •Jul 23, 2017 8:08 AM

There is no economic theory that addresses resource depletion.

How about printing a fiat currency so that you can buy them all up? Backed by nothing..... Except.... 11 carrier groups and 18 submarines loaded with nuclear missles?

TeraByte •Jul 22, 2017 10:18 PM

This is not at all that black and white. Dirty and expensive shale extraction however had advantages and saved trillions dollars in war expense now required to keep the "cheap" ME oil flowing...

[Jul 23, 2017] I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further.

Jul 23, 2017 | peakoilbarrel.com

Mike

says: 07/22/2017 at 6:41 pm

Here's one for the shale poodles to gnaw on:

"I had shorted shale producers and the related MLP stocks before, and I knew there was something wrong with the industry, but I failed to find the trigger for the US shale industry to fail.

And like most other investors I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further. However, I have taken a closer look at the data from EIA and from the company presentations.

The rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money.

If US rates continue to stay low, then it is possible that the high yield markets may continue to supply these drillers with capital, but I think that this is unlikely.

More likely is that at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the next month. (Source: EIA)."

http://www.zerohedge.com/news/2017-07-22/i-have-taken-closer-look-data-eia-why-horseman-global-aggressively-shorting-shale

MASTERMIND says: 07/22/2017 at 8:52 am
Modern agriculture is the use of land to convert petroleum into food. Without petroleum we will not be able to feed the global population."

Professor Albert Bartlett, University of Colorado, USA

[Jul 23, 2017] I view low oil price more like sophisticated financial scam than the result of cost cuts. For the USA dumping shale oil on the market at below cost prices makes perfect sense.

Jul 23, 2017 | peakoilbarrel.com

likbez says: 07/23/2017 at 10:09 am

Boomer II,

I view low oil price more like sophisticated financial scam than the result of cost cuts.
For the USA dumping shale oil on the market at below cost prices makes perfect sense.

In 2016 the USA imported 3,681,395 thousand barrels or 10 million BPD. That means the subsidizing domestic production just in order to drop the prices of imported oil (dumping) makes perfect sense up to the same number.

That's probably why they are trying to increase shale oil production as if there is no tomorrow. And the money are still flowing unabated, although the stupidity of investors can't be completely discounted taking into account the amount of propaganda in WSJ and the USA MSM in general. Critique of shale oil is suppressed. Articles about shale oil in WSJ do remind me Soviet propaganda about successes of socialism.

That also helps to explain the EIA optimism. After all, the agency was created in order to keep prices low, not to propel them high :-)

[Jul 23, 2017] Shale prices below 60 dollars per barrel are still unrealistic despite all the hoopla about cutting costs

Jul 23, 2017 | peakoilbarrel.com

Glenn E Stehle

says: 07/21/2017 at 1:13 pm
The New Face Of Big Oil: How Vicki Hollub Made Oxy The Top Player In The Permian
https://www.forbes.com/sites/christopherhelman/2017/07/18/touring-the-permian-with-occidental-petroleum-ceo-vicki-hollub/#3aa252192ed0

Oxy is the biggest producer in the [Permian Basin], at 270,000 bpd–half the company's worldwide total. Hollub says it will double that within a decade. "It's pretty hard to drill a dry hole there. We don't have to explore to find it. It's just a matter of engineering the right way to get it out." The geology is so stacked with oil layers that it's like having ten fields in one–a petroleum layer cake .

Thanks to better technology and better fields, Oxy has reduced its total cost per barrel (including overhead, capital and operating costs) by more than half, to just $28.

shallow sand says: 07/21/2017 at 2:10 pm
Good article that deserves some closer reading.

$28 is BOE, not BO.

At $60 WTI (my preferred oil price) OXY earns approximately $1.5 billion, or $1.96 per share. Still would be a 30+ PE ratio and earnings would be less than current dividend payments.

OXY spun off its California assets (California Resources Corporation) and loaded it with $6 billion of debt at the height of oil prices. In my opinion this was the most strategically important decision made by OXY. Take a look at what CRC shares are worth.

Watcher says: 07/21/2017 at 2:28 pm
Whaaaa? This is hype.

Occidental Petroleum produces less than 1/4 of its oil and gas output in the Permian, and some of that is labeled South Texas conventional. This silliness is all small potatoes. Hell, just about 1/2 OXY's BOE output is not even in the US. And it would be even more than 1/2 but for a service outtage in Columbia and planned maintenance (during that quarter) in the Middle East.

Their chemical business made them $170 million that quarter, and their total oil/gas income was $220 million, most of which was from international flow.

Oh, and pssst, oil price was higher Q1 than Q2.

Glenn E Stehle says: 07/21/2017 at 1:20 pm
OPEC, Russia to Stand Pat on Oil Deal Even as Glut Persists
http://www.rigzone.com/news/oil_gas/a/151101/OPEC_Russia_to_Stand_Pat_on_Oil_Deal_Even_as_Glut_Persists

OPEC and Russia's plan to clear the global oil glut hasn't worked as they hoped, but there's little expectation the world's largest producers will act more aggressively when they meet this weekend.

Oil has slumped into a bear market and inventories remain stubbornly high despite a deal between OPEC and 10 countries outside the group to cut output. The implementation of supply curbs is faltering as Libya and Nigeria restore lost production.

The trouble for ministers meeting in St. Petersburg to review the progress of the deal is the alternatives look little better than the status quo. If the Organization of Petroleum Exporting Countries abandons the deal and increases oil output, a further plunge in prices would inflict more pain on their economies. And while deepening the production cuts would spark a rally, that might encourage even bigger flows from U.S. shale drillers.

"They're between a rock and a hard place," said Mike Wittner, head of oil market research at Societe Generale SA in New York. "The bottom line is, it hasn't worked" and "if they cut more, the more they support prices, the more they support U.S. production." .

The failure of the accord is driving Saudi Arabia to consider taking extra steps by itself, according to a report by consultants Petroleum Policy Intelligence, citing information from "key players" in OPEC. The kingdom's exports would probably drop by 600,000 barrels a day this summer as local demand peaks, and it may deepen the reduction to 1 million a day, it said.

Glenn E Stehle says: 07/21/2017 at 1:42 pm
Three Years Into Cheap Oil, Gulf Is Still Depending on a Rebound
https://www.bloomberg.com/news/articles/2017-07-19/three-years-into-cheap-oil-gulf-is-still-depending-on-a-rebound

Energy-rich Gulf Arab nations have scrambled to adjust to the slump in oil prices since 2014. Three years on, their economies are mired in weak growth .

Absent a rebound in oil prices, analysts say it's unlikely that these nations can repair their finances without deeper spending cuts that could further hurt growth. The standoff between a Saudi-led bloc and Qatar is also undermining investor confidence at a time when the GCC is seeking foreign funds.

Five charts illustrate oil's dominance and the challenges facing the region.

Glenn E Stehle says: 07/21/2017 at 1:43 pm
.

Glenn E Stehle says: 07/21/2017 at 1:44 pm

Glenn E Stehle says: 07/21/2017 at 1:46 pm
,

sunnnv says: 07/22/2017 at 2:25 am
Stumbling around the web, I ran across the record of a hearing in 1996 by the House sub-committee on energy and the environment. Part of it has predictions from the EIA's Annual Energy Outlook 1996, which apropos to this post by Ron, predicted that OPEC in 2015 would be producing just over 52 million bpd in the reference case, 61 million bpd in the low-price case, and 47 million bpd in the high price case.
See page 7 of:
https://www.eia.gov/outlooks/archive/aeo96/pdf/038396.pdf

Well, they only blew that prediction by a factor of about 2.
(Russia-OPEC thinks the price is too low, so 61 million bpd predicted vs. 33 actual.)

Their predicted price is about right – inflation adjusted, but no hint of the 2008 spike.

The congressional hearing record has Michael Lynch predicting 2020 world demand at 122 million bpd,
and call-on-OPEC at 57 million bpd.
pg 137 of:
http://ia600300.us.archive.org/11/items/usenergyoutlooki00unit/usenergyoutlooki00unit.pdf

Javier says: 07/22/2017 at 8:08 am
People that extrapolate always get their long term predictions wrong. A lesson not learned despite overwhelming evidence.
texas tea says: 07/22/2017 at 8:50 am
"Well, they only blew that prediction by a factor of about 2."

but don't forget at least they were "courageous" enough to make that failed prediction, right Dennis. All it takes is courage not accuracy. I would be curious for those among us who have the courage, how may failed prediction does one get to make before you are no longer courageous and are a compete fool? not that applies to any body here . but for profit doomsayers seem to be able to go on for decades either being courageous or foolish and get by with it. Al Gore comes to mind Michael Mann likewise ..and any and all who continue repeat and support these complete freking fools

Hightrekker says: 07/22/2017 at 1:09 pm
Actually, Mann and Gore have underestimated their predictions.

https://www.voanews.com/a/who-global-warming-happening-faster-than-predicted/3429127.html

They were wrong– they underestimated the acceleration.

texas tea says: 07/22/2017 at 3:52 pm
https://wattsupwiththat.com/2017/07/22/autopsy-of-an-excuse/
Glenn E Stehle says:

[Jul 23, 2017] Most of us have underestimated how successful light-tight frac oil has now become but what is more important we underestimated how successful MRC and associated technology has been for many gulf nations. They postponed the day of reckoning for at least a decade.

Notable quotes:
"... Not only will enhanced recovery affect the economics of present unconventional operations, it has the potential to greatly expand the application to numerous, older conventional sources as well as undeveloped – yet recognized – formations with hydrocarbons within them ..."
"... But the problem isn't so much whether oil is still in the ground, but how much it costs to get it out. ..."
"... New technologies that don't reduce costs to make oil profitable to drill aren't all that helpful in keeping the oil flowing. Right now we have LTO because the system accepts financial loss. That could change if alternatives promise a better financial return. ..."
"... The way I understand the term Maximum Reservoir Contact (MRC) is that it refers to multiple laterals being drilled from a single vertical wellbore. ..."
"... From what I have read MRC technology is a great fit for a number of fields in the gulf countries and may be practical in other places including USA. Of course one of the problems applying it here is that I think you need a unitized field, or at least a very large area to be implemented. ..."
"... At that time, I was amazed to learn of the multi lateral, extended reach drilling using ultra sophisticated whipstocks in the mid east, offshore, and – if memory serves – Sakhalin. Probably do need large reservoir to be viable. ..."
"... The article says this: "On the supply side, global oil production advanced by 0.5 percent to reach 92.2 million BPD." You know, factoring in both population growth and world economic growth, this isn't much. There might be a crunch coming. ..."
Jul 23, 2017 | peakoilbarrel.com

New technologies did postoned the day f reconing, but they can't increase the total amount of oil availble so the effects are temporary. Adn they are costly. right now low oil price is financial scam.

dclonghorn

says: 07/20/2017 at 1:05 pm

I agree with George that getting stuff wrong is no reason to quit trying. To do so would be stupid. To look back at why projections were wrong is a much more interesting thing. To that end, I have been looking back at predictions from the 2005 to 2010 period, starting with Simmons and progressing to the oil drum and some others. I do not have the technical expertise that many of these people had, but looking back is a lot easier than looking forward.

In my opinion, there are two big reasons the projected decline hasn't come about yet. First, most of the work done was based upon inferred data. Because, the GCC countries don't release much, most of the folks making these projections took whatever info was available and ran with it. I don't blame them for this, as I believe they did what they could with what was out there, but I think they went too far in some instances, and confirmation bias is evident.

A part of Mr Simmon's efforts to deal with the lack of hard data was his review of many SPE papers dealing with various issues. I believe one of these papers is a key to understanding how KSA and others have exceeded projected production. Paper (SPE 88986) deals with well "Shaybah-220 A Maximum Reservoir Contact (MRC) Well and its implications for developing tight-facies reservoirs." https://www.onepetro.org/download/journal-paper/SPE-88986-PA?id=journal-paper%2FSPE-88986-PA

This paper by N.G. Saleri describes the efforts to develop the Shaybah Field. After some initial efforts to produce there were unsatisfactory, Aramco kept on trying and came up with the Shaybah 220, a well with eight laterals of around 40,000 feet of reservoir contact, and producing around 12,000 bbls per day for its first year. Saleri describes this as a "disruptive technology".

Simmons devoted a lot of attention to Shaybah, calling it "The difficult last Giant". He included a discussion of horizontal and MRC wells including the aforementioned paper, but I don't think he fully appreciated these MRC wells. They have allowed KSA to produce lots of oil in many fields that were in decline. Another example is shown by the 2008 paper by Mr Asaad Al-Towalib on "Advanced completion technologies in successful extraction of attic oil reserves in a mature giant carbonate field." In this paper they describe how this technology was adapted to produce the attic oil of Abqaiq, KSA's oldest giant. To summarize, Abqaiq had been produced since the 40's, and had produced about 57% of the original oil, but had around 25 feet of attic oil in poorer reservoir that they had not been able to produce. They tried to produce this attic oil via vertical and conventional horizontal wells with little success. They improved their technology and eventually completed many successful MRC wells with geosteering which allowed them to follow structure, and intelligent completions which delay the effects of coning.

So, much as most of us would have underestimated how successful our light-tight frac oil has now become, many underestimated how successful MRC, and associated technology has been for many gulf nations.

I think the next question is what happens next, so using Abqaiq as an example, after successfully producing that attic oil is there another encore or does it become just a depleted field? They have also used this technology to get more out of Ghawar and many other fields, do they have room to run, or are they done?

coffeeguyzz says: 07/20/2017 at 1:52 pm
dclonghorn

That is simply an outstanding display of, and description of, a serious effort in understanding what is unfolding in the world of hydrocarbon production.

I would suggest that the entire concept of MRC is being currently applied in this 'shale revolution' primarily in the area of maximizing recovery rates, aka better fracturing/completion processes.

Not only will enhanced recovery affect the economics of present unconventional operations, it has the potential to greatly expand the application to numerous, older conventional sources as well as undeveloped – yet recognized – formations with hydrocarbons within them

Boomer II says: 07/20/2017 at 2:05 pm
But the problem isn't so much whether oil is still in the ground, but how much it costs to get it out.

New technologies that don't reduce costs to make oil profitable to drill aren't all that helpful in keeping the oil flowing. Right now we have LTO because the system accepts financial loss. That could change if alternatives promise a better financial return.

Glenn E Stehle says: 07/20/2017 at 2:24 pm
coffeeguyzz,

The way I understand the term Maximum Reservoir Contact (MRC) is that it refers to multiple laterals being drilled from a single vertical wellbore.

I've seen this done in the Devonian in west Texas, but that is a conventional reservoir. Has it ever been tried in US shale?

The only thing I've heard of that sounds like MRC is this project (see attached graphic), but it is still in the pilot stage.

Oxy believes it can lower cost per lateral by between $0.5 and $1.0 million, and reduce operating cost by over 50% with this technology.

https://seekingalpha.com/article/4069021-occidental-petroleum-corporation-2017-q1-results-earnings-call-slides

coffeeguyzz says: 07/20/2017 at 3:01 pm
Glenn

I kind of 'flipped' the MRC concept in dc's post of 'more iron meeting' oil to 'more oil meeting iron' via the greatly enhanced fracturing/conductivity recently taking place in the shales.

Regarding multilaterals, the early (2007-2009) Bakken wells regularly contained 2 or 3 lateral from one vertical.
They used the term "turkey legs' and can still be easily seen on the ND DMR Gis map.

Virtually no one except Slawson still does this and even then, only rarely.

(Correction, might still be done in Madison formation, especially Bottineau county. Would have to check. Gis map is easiest way to literally see this).

BHP said a year ago that they would attempt to try this in the future, but I've not kept close track of their efforts.

dclonghorn says: 07/20/2017 at 3:47 pm
Thank you very much coffee, I appreciate your kind words. From what I have read MRC technology is a great fit for a number of fields in the gulf countries and may be practical in other places including USA. Of course one of the problems applying it here is that I think you need a unitized field, or at least a very large area to be implemented.

Do you know if other areas have adopted this?

coffeeguyzz says: 07/20/2017 at 6:54 pm
dc

I'm pretty sure you know a whole lot more about this stuff than I do.

I started digging into it a few years back when the series of stunningly high IPs started to emerge from the Deep Utica.
Big buzz developed about feasibility of sharing hardware/facilities to develop Marcellus and Utica together.

At that time, I was amazed to learn of the multi lateral, extended reach drilling using ultra sophisticated whipstocks in the mid east, offshore, and – if memory serves – Sakhalin. Probably do need large reservoir to be viable.

Time will tell if this approach makes sense in the shales. Like everything else, economics will be the ultimate determinator.

Boomer II says: 07/20/2017 at 10:03 am
The article says this: "On the supply side, global oil production advanced by 0.5 percent to reach 92.2 million BPD." You know, factoring in both population growth and world economic growth, this isn't much. There might be a crunch coming.
MASTERMIND says: 07/20/2017 at 12:53 pm
The 1973 so-called "oil embargo" which reduced oil supply to the USA by somewhere around 3% or 4%. It slammed the US economy, caused the largest stock market crash since the great depression, doubled gasoline prices, severely damaged US industry and caused a 55 MPH national speed limit which remained in effect for ten years.

Just wait until we experience a 10% or 20% drop in oil supplies. In a few years or sooner we certainly will. When it hits the economic and social damage will be catastrophic.

The end of Western Civilization, from China to Europe, to the US, will not occur when oil runs out. The economic and social chaos will occur when supplies are merely reduced sufficiently. As former Saudi Oil Minister Sheikh Yamani once said "The Oil Age may come to an end for a shortage of oil".

Watcher says: 07/21/2017 at 11:16 am
Bakken NGLs.
http://badlandsngls.com/uploads/1/BadlandsPresentationforBakkenConfMay16.pdf

They are talking about 25-30% and the verbage talks about it being in railcars . . . the suggestion is it's part of the total Bakken flow of 1 million bpd. 25-30% of that is ethane? What a scam this would be.

[Jul 20, 2017] Saudi Arabia - Bin Salman's Coup Is A Model For His Own Ouster

Jul 20, 2017 | www.moonofalabama.org

Someone wanted the public to know that the new Saudi clown prince Mohammed Bin Salman (MbS) took up his new position by unceremoniously disposing his predecessor Mohammed bin Nayef (MbN) by force. The juicy details, true or not, were briefed to Reuters, the Wall Street Journal and the New York Times on the same day:

As next in line to be king of Saudi Arabia, Mohammed bin Nayef was unaccustomed to being told what to do. Then, one night in June, he was summoned to a palace in Mecca, held against his will and pressured for hours to give up his claim to the throne .

By dawn, he had given in, and Saudi Arabia woke to the news that it had a new crown prince: the king's 31-year-old son, Mohammed bin Salman.

Bin Nayef was a darling of the CIA and his disposal was not welcome. It may well be that the author of the tale of his ouster has his office in Langley, Virginia.

We had correctly called the MbN removal a coup and predicted that "the old al-Saud family king [..] will be offed soon." From the current Reuters piece:

Quoting a witness at the palace, one Saudi source said King Salman this month pre-recorded a statement in which he announces the transfer of the throne to his son. The announcement could be broadcast at any time, perhaps as soon as September

We also wrote that "[m]any Arab peninsula citizens will want to see [the new clown prince's] head on a pike."

The details of how MbS deposed the previous crown prince MbN will enrage further parts of the Saudi citizens. Additional leaks about extensive MbS contacts with Israel will increase the bad feelings against him. This especially as Israeli is further encroaching on the al-Haram a-Sharif and the Al-Aqsa mosque on the (likely falsely) claimed Jewish temple mount.

MbS' attempt to push Qatar around has, as predicted , failed. The four countries that had joined against Qatar could not agree to increase the pressure. The demands made to Qatar have now been retracted . This is a huge loss of face for MbS and his Emirati mentor Mohammad bin Zayed. The Saudi war against Yemen kills many civilians and costs lots of money but is militarily lost. The announced big economic reforms have made no progress. The Gulf Cooperation Council is defunct and may fall further apart.

Everything MbS has touched failed. His actions violate traditions and religious commandments. His coup has set an example that can now be used against himself. It would not be astonishing to see a revolt against Mohammed Bin Salman even before he is able to make himself king.

james | Jul 20, 2017 3:32:42 PM | 1

thanks b.. i really resent the war on yemen by this asshole in power.. i hope he is gone soon and for that matter - saudi arabia - israel - and all the rest of the rot contributing to de-stability in the mid east all go the way of the dodo bird..
karlof1 | Jul 20, 2017 3:40:40 PM | 2
Pepe and b probably used similar sources since their articles are quite alike! http://www.atimes.com/article/coup-house-saud/

Relatedly, MBS may not be the primary instigator of the Qatar crisis according to this item, https://southfront.org/finally-know-really-behind-qatar-crisis/

Recently, several articles, including the one above, at Southfront were republications of items originating at a new--to me--site, other barflies may want to explore, http://theantimedia.org/

karlof1 | Jul 20, 2017 3:59:08 PM | 3
The Angry Arab alerts us to "Ben Hubbard's propaganda work for MBS," http://angryarab.blogspot.com/2017/07/nyts-ben-hubbards-propaganda-work-for.html

As'ad also goes off today at blatant propaganda published by The Economist regarding Hezbollah and its alleged involvement with drug trade--something Nasrallah condemns very mightily, http://angryarab.blogspot.com/2017/07/how-did-economist-documents-its.html

b | Jul 20, 2017 4:01:21 PM | 4
MbS smells the anger, tries to coup-proof his regime:
Saudi Arabia establishes new apparatus for state security
JEDDAH: Saudi Arabia created a new apparatus for state security in Royal Decrees issued Thursday.
The new body, State Security Presidency, will be cornered all matters related to state security and be overseen by the king.

...

all matters related to combating terrorism and financial investigations to be separated from the Ministry of Interior and added to the State Security Presidency.

Everything related to the Security Affairs Agency and other functions related to the Ministry of Interior tasks including employees (civil and military), budgets, documents and information are to be added to the State Security Presidency.

The (just newly installed) interior minister is said to be a friend of MbS but he is from the family of MbN and thereby a danger. Must be disarmed ...
karlof1 | Jul 20, 2017 4:16:03 PM | 5
Sorry to monopolize the beginnings of this thread. At the end of his essay about events in Mosul, Craig Murray has this to say about Saudi:

"The other interesting silence is from Saudi Arabia, which poses as the defender of Sunni Islam throughout the world, but actually has no interest at all in it, except as a tool for promoting the much more worldly interests of the Saudi elite....

"For the Saudi elite, the money they pumped into ISIS in Iraq was a trifle; Mosul ISIL were pawns to be sacrificed and the Sunni civilian population of Mosul is no more important to them. By the combination of funding the spread of Wahhabi ideology and providing unlimited arms and organisational financing, the Saudis can pop up another Al Qaida, Al Nusra or ISIL more or less anywhere, any time it seems useful. Meantime they are focused on cementing their burgeoning axis of Saudi Arabia/Israel/USA to continue the violent promotion of Saudi regional ambition." https://www.craigmurray.org.uk/archives/2017/07/mosul-worse-srebrenica/

It now appears the Unipolarists are reduced to just 4 nations: Outlaw US Empire, UK, Zionist Occupied Palestine, and Saudi Arabia. If Corbyn can become UK's PM, then that number might get reduced to 3.

Clueless Joe | Jul 20, 2017 4:31:55 PM | 6
B: I think your last sentence is key. Some grown-ups, in the US and in the Gulf, leaked this because they want to prevent current crown prince of becoming King, and hope to see him replaced as future king before Salman bites the bullet.
I mean, Mohammed BS has shown how bad he is at managing slightly complex crises, be it Yemen, current jihadi setbacks in Syria, or Qatar - the latter being the biggest indictment I suppose, considering the long-term consequences. So, some smarter people want to push him out before he can become king and weaken the Saudi kingdom to the breaking point.
Not sure what was meant by that, though: "on the (likely falsely) claimed Jewish temple mount"
ProPeace | Jul 20, 2017 4:40:24 PM | 7
CV Locations should be watched closely: CVN-77 George H.W. Bush 05Jul-18Jul2017, Med

Also, I believe this 2015 article is worth reminding: The secret projects of Israël and Saudi Arabia

...According to our information, for the last 17 months (in other words, since the announcement of the negotiations between Washington and Teheran, which have in fact been proceeding for the last 27 months), Tel-Aviv has been engaged in secret negotiations with Saudi Arabia. Extremely high-level delegations have met five times – in India, Italy and the Czech Republic.

The cooperation between Tel-Aviv and Riyadh is part of the US plan to create a " Common Arab Defence Force ", under the auspices of the Arab League, but under Israeli command. This " Force " is already effective in Yemen, where Israeli pilots fly Saudi bombers within the framework of an Arab Coalition whose headquarters have been installed by the Israelis in Somaliland, a non-recognised state situated on the other side of the the Bab el-Mandeb straits [1].

However, Riyadh does not intend to officialise this cooperation as long as Tel-Aviv refuses the Arab Peace Initiative, presented to the Arab League in 2002 by Prince Abdullah before he became king [2].

Israël and Saudi Arabia have reached agreement on several objectives.

On the political level :

  • To " democratise " the Gulf States, in other words, to associate the people in the management of their countries, while affirming the intangibility of the the monarchy and the Wahhabite way of life ; To change the political system in Iran (and no longer wage war on Iran) ;
  • To create an independent Kurdistan in such a way as to weaken Iran, Turkey (despite the fact that it is a long-standing ally of Israël), and Iraq (but not Syria, which is already seriously weakened).

On the economic level :

  • To exploit the Rub'al-Khali oil-fields and organise a federation between Saudi Arabia, Yemen, and perhaps Oman and the United Arab Emirates ;
  • To exploit the Ogaden oil-fields, under Ethiopian control, secure the Yemeni port of Aden, and build a bridge linking Djibouti and Yemen.

In other words, while Tel-Aviv and Riyadh are making the best of a bad deal, and accepting that two thirds of Iraq, Syria, and half of Lebanon will be controlled by Iran, they intend :

  • To ensure that Iran gives up on the exportation of its revolution ;
  • To control the rest of the region by excluding Turkey, which took over from Saudi Arabia in the supervision of international terrorism, and has just lost in Syria...
/div> div
div
stonebird | Jul 20, 2017 4:53:03 PM | 8
Do not underestimate the power of the religious autorities. When I was there (admittedly many, many years ago), the monarchy was very careful to always have their agreement for any policy change. Even now with the strict laws governing behaviour (ie. Women, TV and prayers) their impact on ordinary Saudi society apparently hasn't changed much. It may have even got worse.

So the Clown prince's closer ties with Israel - are going to be under close scrutiny. Particularly if Netanyhu continues with the "isolation" and alienation of the Al-Aqsa mosque. Note that the numbers of people hurt in IDF actions against demonstrators has been totally under-reported, if at all. (reported 70 the first day and 35 another. Those wounded include an Imam.)
This is going to pose an ethical problem for ALL the Gulf states. They will have to be seen doing something to retain credibility.

On a jovial note; The traditional way, if the reigning Leader did not hand down part of the money to the other tribesmen according to tradition - was to slit his throat. (The King gets it all, then hands down part of it to Princes, who then hand down part of what they recieved to tribesmen and so on right to the bottom. (widows in the Souk with no family). When there is a lot this works fine. I do not know if this will work when there is less to go round.)

Anonymous | Jul 20, 2017 6:12:01 PM | 9
Israel is upping the ante in Syria.

"Israel is going to build a new field hospital in the Israeli-occupied part of the Golan Heights in Syria. According to the Lieutenant Colonel Tomer Koler, the hospital will be located on the Syrian side of the fence build by Israel in the Golan Heights and may become operational next month."

https://southfront.org/israel-build-new-field-hospital-treat-syrian-militants/

Up to now the IDF has treated its terrorists in Israel proper. Now it seems that even Israel is invading Syria. The extra land grab has started.

[Jul 18, 2017] MoA - Can Washington Prevent The Death Of The Gulf States

Jul 18, 2017 | www.moonofalabama.org
Can Washington Prevent The Death Of The Gulf States?

U.S. Secretary of State Tillerson is angry that Saudi Arabia and the UAE rejected his efforts to calm down their spat with Qatar. His revenge, and a threat of more serious measures, comes in the form of a WaPo "leak" - UAE orchestrated hacking of Qatari government sites, sparking regional upheaval, according to U.S. intelligence officials :

The United Arab Emirates orchestrated the hacking of Qatari government news and social media sites in order to post incendiary false quotes attributed to Qatar's emir, Sheikh Tamim Bin Hamad al-Thani, in late May that sparked the ongoing upheaval between Qatar and its neighbors, according to U.S. intelligence officials.

Officials became aware last week that newly analyzed information gathered by U.S. intelligence agencies confirmed that on May 23, senior members of the UAE government discussed the plan and its implementation . The officials said it remains unclear whether the UAE carried out the hacks itself or contracted to have them done.

That the UAE and/or the Saudis were involved in the hack was pretty clear from the get go. They were the only ones who had a clear motive. Qatar already had specific evidence for the source of the hacking. Congressional anti-Russian sources ignored that and accused , as usual , Russia and Putin.

Tillerson's real message is not the hacking accusation. The hacks themselves are not relevant to the spat and to Tillerson's efforts to defuse it. The "leak" sets the UAE and Saudi leadership on notice that the U.S. has sources and methods to learn of their government's innermost discussions. The real threat to them is that other dirt could be released from the same source.

It is doubtful that this threat will change the minds of these rulers. They believe in their own invincibility. Ian Welsh describes the mindset in his prediction of The Death of Saudi Arabia and other Gulf states:

This is fairly standard: all dynasties go bad eventually because the kings-to-be grow up in wealth and power and think it's the natural state of things: that they are brilliant and deserve it all, when it was handed them on a platter . Perhaps they are good at palace intrigue and think that extends beyond the palace.

It doesn't.

Welsh comes to the same conclusion as I did when the recent GCC infighting broke out:

No matter how the spat with Qatar ends, the GCC unity has (again) been exposed as a sham. It can not be repaired. Saudi "leadership" is shown to be just brutal bullying and will be resisted. U.S. plans for a united GCC under Saudi leadership and U.S. control are in shambles.
...
The Saudi under their new leadership overestimate their capabilities. So did Trump when he raised their role. The Saudi "apes with Macbooks" do not have the capabilities needed for a serious political actor in this world. Their money can paper over that for only so long.

The step Tillerson and some "intelligence officials" now took may be a sign panic. The "leak" revealed "sources and methods". Like every other government the UAE senior officials suspect that the U.S. is trying to listen to their internal deliberations. But they now know for sure. The specific date given in the "leak" will help them to take some countermeasures. Leaking "sources and methods" is not done lightly. That it has to resort to such measures shows that the U.S. administration is not in control of the situation.

During the fall of the Ottoman empire Britain created today's Saudi Arabia. Two world wars exhausted Britain's power. The U.S. took over the management of the empire including the Gulf states. It needs Saudi Arabia for its fossil energy and the related reserve currency status of the U.S. dollar. Unrest in Saudi Arabia is not in the U.S. interest but such is now in sight. The "leak" is just a tactical measure of an inexperienced administration. It is not enough to defuse or mitigate the conflict and its consequences.

What strategies will Washington develop to counter the foreseeable instability in Saudi Arabia and other Gulf states?

Peter AU | Jul 17, 2017 3:04:50 PM | 1

The petro dollar has been around some time now and has given US control of the world trade currency. As far rich kids being handed everything on a platter, the US government is no different to the Saudi's. This will be interesting.
Don Wiscacho | Jul 17, 2017 3:29:16 PM | 2
What can Washington do to save the khalijis?

Nothing beyond sell them weapons and eavesdropping technology. But this only buys some time, and time unfortunately for the GCC countries, isn't on their side.

With increasing swiftness, across the world technologies are being improved on and invented which will eventually wean everyone off fossil fuels. This won't happen overnight, and even when it does, petroleum will still have value as it is used in innumerable applications. But the price will fall, making the latest crash look like a road bump. When that happens, the show's over folks. The GCC countries will become ungovernable, then uninhabitable. There simply are too many people, too few resources.

The only hope the GCC states have is to diversify their economies. Not MBS's 'Prosperity through Austerity' but a multi-pronged tract to develop all critical sectors. The UAE and Qatar are trying, but betting the house on finance and real estate to the detriment of everything else. Petro dollars are still propping up those houses of cards. Oman is the only one seemingly doing things right: good relations with neighbors, trade, and developing domestic industry. If the rest of the GCC doesn't follow Oman's lead, they are simply finished.

Peter AU | Jul 17, 2017 3:39:08 PM | 5
ab initio | Jul 17, 2017 3:30:38 PM | 3 "In any case reserve currency status is not all beneficial to the US."

This is what gives the US the power to sanction countries and make it stick world wide. It is a huge part of US power.

karlof1 | Jul 17, 2017 3:57:40 PM | 6
Peter AU @5--

Thanks for calling the trolling. Its comment was almost 100% disinformation.

In answer to b's query, the Outlaw US Empire cannot save itself let alone any of its vassals. They will be used until they are no longer of use. And that time is rapidly approaching. Although, the Qataris seem best positioned to avoid extinction.

Now that I know of them, I get to purchase Mark Curtis's line of books documenting British Imperialism and its association with terrorism. Thanks b!

ruralito | Jul 17, 2017 4:12:50 PM | 7
shrinkage?

https://southfront.org/trump-hints-abandoning-key-qatar-military-base-talks-saudi-king/

Mike Maloney | Jul 17, 2017 4:18:06 PM | 8
The United States and the Kingdom of Saudi Arabia are ontologically inseparable. You can't have one without the other. The penetration of the U.S. deep state by al-Saud -- whether it's D.C. think tanks or Fortune 500 executive boards -- is complete.

Tillerson knows this, that's why his "woe is me" shuttle diplomacy is nothing more than Kabuki.

This doesn't mean that al-Thani is without wires into the U.S. deep state; it has plenty. That's what makes this GCC throw-down so delightful. The U.S. is at a point where it can no longer sublate all the contradictions produced by its hegemony.

stumpy | Jul 17, 2017 4:58:59 PM | 9
anon @ 4
Re: hack:
Perhaps we shouldnt accept claims about UAE just like that. Lets be honest.

I agree. Consider the source at WAPO. Some credibility gap there. I would guess that Tillerson is not the sole source for whatever might have been leaked (if not invented).

Also, as far as sources and methods, it's one thing to burn an inside informer type of asset, but leaking SIGINT in the form of general pronouncements without physical evidence doesn't burn the source, only indicates a potential weakness in the cyber defenses of the target. For all we know there was no hack, per se, given that a lot of US and allied contractors were probably in on the installation and operation of UAE computer systems.

My impression, not to contradict b's analysis but to propose a direction of thought, is that the WAPO is promulgating a brag, that the US can look up anyone's skirt anytime and tell whatever they want. Thus, reminding the players that they'd better stay in line, as b states.

karlof1 | Jul 17, 2017 6:21:58 PM | 10
Considering Saudi Arabia's creation, its falling to pieces would be considered Nature's reaction to an artificial construct. Soon, instead of Saudis buying Outlaw US Empire weaponry, it will be asking for handouts as it did during its formative years when the UK held its reins. Given its role in the violent histories of the British and Outlaw US Empires, the remaining nations of the planet will be quite pleased to see its demise--even more so given that the three constitute the nest for Global Terrorism. Dan Glazebrook's series detailing the history of "British collusion with sectarian violence" at RT, one of which b linked to, are well worth the time; this links to the first installment, https://www.rt.com/op-edge/338247-uk-extremists-syria-isis-violence/
fast freddy | Jul 17, 2017 6:27:34 PM | 11
It seems that it is not the US, but Israel which owns the most advanced spying hacking technology. The US sublet fiber optic data interception to Israeli companies NARUS and Verint. These companies have since been folded (hidden) into other multinational holding companies, but still (Boeing, Carlisle Group).

When is this a good idea for "National Security" (which is the constant refrain when withholding information from the public)?

https://www.wired.com/2012/04/shady-companies-nsa/

fast freddy | Jul 17, 2017 6:27:35 PM | 12
It seems that it is not the US, but Israel which owns the most advanced spying hacking technology. The US sublet fiber optic data interception to Israeli companies NARUS and Verint. These companies have since been folded (hidden) into other multinational holding companies, but still (Boeing, Carlisle Group).

When is this a good idea for "National Security" (which is the constant refrain when withholding information from the public)?

https://www.wired.com/2012/04/shady-companies-nsa/

Jay | Jul 17, 2017 8:39:20 PM | 13
"It [the USA] needs Saudi Arabia for its fossil energy and the related reserve currency status of the U.S. dollar."

Well Saudi oil is mostly going to Europe, but the Saudi policy does obviously effect the price of oil futures around the world.

A lot more than oil backs the US dollar, the "oil based reserve status" only goes so far.

nobody | Jul 17, 2017 8:52:28 PM | 14
The step Tillerson and some "intelligence officials" now took may be a sign >[of]< panic.

Posted by b on July 17, 2017 at 02:33 PM | Permalink

The last monarch to get "mixed messages" from USA was the late Shah of Iran. Qatar and "Saudi" Arabia, take note.

Voltaire network is pushing an interesting deep analysis that we are witnessing ex-Empire strikes back, with the Occulted British ex-Empire putin' [haha] the finishing touches on their expulsion of the ex-Colonial Empire from "their" sphere of influence (aptly named by the slimy blood sucking limeys as "their" "Middle East").

The dismantling of the "Hyperpower" is nearly complete. Bankster power remains untouched.

As you were.

ProPeace | Jul 17, 2017 8:58:09 PM | 15
This is interesting Pentagon study declares American empire is 'collapsing'
james | Jul 17, 2017 9:28:16 PM | 16
thanks b.. i have been yammering on about 2020 as a critical turning point in world events and that saudi arabia is very central to all this.. in my astro comments on nov 2, 2013 i stated "below is a chart for the next conjunction of saturn/pluto set to riyadh. this exact conjunction happens only once in early 2020, but i suspect given how close it is to the astro positions in the 1902 chart for saudi arabia, that if this chart has legs, this conjunction is going to bring about a transformation of present day saudi arabia and it will probably not be a pretty or easy transition given the issue of terrorism associated with these religious groups i have also mentioned.. saturn and pluto have a connection to terrorism as i understand it and were in the long opposition at the time of 9-11 as well... on the other hand, perhaps it indicates a further clamp down on freedoms and a type of totalitarianism. i suspect it will fluctuate between the two.. and, it is probably already in the process of developing here in 2013.. " from this thread..

@8 mike maloney... i fully concur to your words here: "The U.S. is at a point where it can no longer sublate all the contradictions produced by its hegemony."

saudi arabia and the world by extension are going to look very differently come 2020... lol - how is that for a lousy astro prediction? that is like saying, tomorrow things will look differently.. of course i have mentioned this about saudi arabia in the past at moa...

i enjoyed the article "The Death of Saudi Arabia".. it was fun reading the comments to that post too.. i recognized a few regulars in the comment section from sst and moa..

dh | Jul 17, 2017 9:33:07 PM | 17
@15 Looks like a big scare piece followed by plea for more weapons. Thank you Pentagon.
virgile | Jul 17, 2017 9:53:51 PM | 18
The US continues the strategy they have started less than decade ago: Weaken Saudi Arabia to the point it will accept a peace deal with Israel.
The US threw the Saudis into the Syrian quagmire, the Egyptian quagmire, then in the Yemen quagmire, now in the Qatar quagmire.
When the Saudi kingdom will come out of these, it will be exhausted and in a state of terror in front of the Iranian steadily growing political and economical strength. The threat of the collapse to their family ruled system is looming.
The USA seems to have accepted that the Iran Islamic republic's semi-democratic system is here to stay and evolve while the GCC autocratic monarchies are threatened of extinction.
Buying billions of weapons from the USA seems to give these dying entities the illusion that the USA is on their side. In fact the USA has been backstabbing them continuously thus weakening them by the day and preparation for their collapse.
The emirates will have make reforms of a democratic nature if they want to survive.
Saudi Arabia is doomed.
Sloopyjoe | Jul 17, 2017 10:55:16 PM | 19
First post here.

I have seen a lot of confusion/deception as to the nature/history of the Arabia. In order to understand history properly, one must be willingly open-minded and examine as much evidence as possible. Especially, evidence that is contrary to your understanding. This takes intellectual honesty, critical thinking, and courage. History is written by the winners/manipulators. You rarely hear from the other side. Meaning, you never get the complete picture. Therefore, you cannot get historical accuracy unless you do a bit a honest digging. Ex., Anybody with a working brain stem understands that the official story of 9-11 is a big pile of Donkey Doughnuts.

I am not a biblical scholar nor am I very religiously inclined. I prefer historical accuracy over warm and fuzzy beliefs.

I realize there are many readers who are religious and may be ingrained in their beliefs. What I am presenting below will challenge your root understandings. Please try to have an open mind and use logic, reason, evidence(both pro and con), and patterns of behavior to better your knowledge base. Below are links pertaining to the Arabia/Israel:

https://ashraf62.wordpress.com/2016/04/08/the-jewish-roots-of-takfiri-culture/
http://themillenniumreport.com/2015/12/the-house-of-saud-its-jewish-origin-and-installation-by-the-british-crown/
http://www.voltairenet.org/article192024.html
http://en.abna24.com/service/iran/archive/2016/06/18/760877/story.html
https://biblicisminstitute.wordpress.com/2016/01/05/jews-and-history-lies-galore/
http://www.informationclearinghouse.info/pdf/The%20Zionist%20Plan%20for%20the%20Middle%20East.pdf
https://ashraf62.wordpress.com/2015/04/17/the-real-exodus-end-of-israel-3/
http://wikivisually.com/wiki/Ze%27ev_Herzog

Second external link from above article. You need to use Google translate for this article. The Israeli Govt loves to scrub inconvenient facts about their history.
http://www.hayadan.org.il/bible-no-evidence-291099/

To find a cure, one must address the root causes of the illness - Sloopyjoe

[Jul 18, 2017] Revisiting Saudi Arabia Zero Hedge

Jul 18, 2017 | www.zerohedge.com
Revisiting Saudi Arabia Capitalist Exploits Jul 17, 2017 7:46 PM 0 SHARES www.CapitalistExploits.at

In May of last year I was attempting to figure out if there was an asymmetric play to be had in the land of sand and black gloop. There were a lot of moving pieces to deal with. I think it's worth revisiting but first it's worth reviewing what I thought just over a year ago. Much has subsequently happened so we can piece a little bit more together now.

Only Two Options For The Saudi Sheikhs A few years ago, when living in Phuket, Thailand, a group of Saudis stayed for a week's holiday in a neighboring villa. Outside of the religious and social confines of the land of black gold and endless sand, this group made a bunch of spoiled 5-year olds left to run amok in a candy shop without adult supervision look positively angelic. They were very visible, with an entourage of young Thai "ladies" and a fleet of Land Cruisers to haul them about. On one occasion, after my son witnessed one of the guys buying a beer and throwing a US$100 bill at the waiter, telling him to keep the change, he asked me how come they had so much money to waste. I explained that Saudi Arabia has two things in abundance: sand and oil. And though the world doesn't need sand as much as it does oil, they have grown very wealthy selling the oil to the rest of the world. Depending on whose numbers you take, somewhere between 75% and 85% of Saudi Arabia's revenues come from oil exports, and fully 90% of revenues come from oil and gas. Clearly the Kingdom is dependent on oil revenues in the same way that an infant is dependent on its mother's milk. And unless you've been living under a rock for the last few years, you'll have noticed that the price of oil has collapsed. Now, in a "normal" market the reduced revenues would manifest in a weaker local currency as demand for Riyals declines. But governments and central bankers don't believe in "normal" markets and so the Saudi riyal has been pegged at 3.75 to the US dollar since 1986. It's not hard to see a situation where Saudi Arabia may very well be forced to de-peg the currency to curb the fall in the country's FX reserves should low oil prices persist. Let's look at some of the potential catalysts for this. Could Yellen Kill The Peg? While the Sheiks contemplate how to deal with their predicament from diamond encrusted cars and golden toilets, across the pond we find that monetary policy in the US has been tightening albeit modestly. What's important to understand is that in order for Saudi Arabia to maintain its currency peg it needs to follow FED monetary policy. By following Yellen the Saudis land up sacrificing growth, and by diverging they sacrifice FX reserves in order to maintain the peg. Clearly neither are attractive propositions. According to the Saudi Arabian Monetary Agency (SAMA), for every 100 basis point increase in the Saudi Interbank Offered Rate (SIBOR) this leads to a 90 basis point decline in GDP in the subsequent quarter, and a further 95 basis points in the following quarter. Falling GDP in a country where over 60% of the population are under 30 brings about its own set of problems. Political instability in the Kingdom has been rising and the royal family is increasingly fighting for survival. After all, they had the experience of watching the Arab Spring unfold on their flat screens. If, on the other hand, they opt not to follow the stumpy lady, the gap between interest rates in the US and Saudi Arabia will be quickly exploited by people like me as arbitrage opportunities open up. So this is what we're all looking at right now: SAMA will have to buy riyals in the open market by selling from its hoard of dollar reserves. Any rise in interest rates in the US will mean SAMA will have to further deplete reserves. As I have mentioned before, all pegs eventually break. The question is one of timing. How long do the Sheiks have under current oil prices? The falling oil price since mid-2014, has significantly reduced Saudi Arabian revenues. So much so that the scorecard for 2015 showed a deficit of $98bn, and SAMA is estimating a further $87bn deficit this year. The Saudi government have been funding this deficit by drawing down on forex reserves, spending $132bn in the year to January of this year. With current prices and current reserves they can easily last another 4 years. Some things I'm thinking about:

[Jul 03, 2017] Mohammed ben Salmane takes power at Riyadh

Notable quotes:
"... Mohammed ben Nayef Al Saoud was considered as the US's man. He has been trained first in Oregon, then later by the FBI and Scotland Yard. He obtained results in struggles against Al-Qaeda dissidents. With his removal, the hopes of the Nayef branch coming to the throne have come to an end. ..."
"... Mohammed ben Salmane does not have an academic training. At the very most, he is the holder of a baccalaureate awarded by a local school, and we do not know if you actually need to study to obtain this qualification. ..."
"... Washington had approved the chosen solution to the issue of succession. This solution had been adopted by 31 of 34 members of the allegiance council (the Family Council). It skips two generations. Henceforth, Mohammad ben Salmane is placing young people at the head of different administrations of the country, a country where the average age of the population is 27 years. ..."
Jul 03, 2017 | www.voltairenet.org

King Salmane ben Abdelaziz Al Saoud (81 years old) has removed from office 57 year old Emir Mohammed ben Nayef Al Saoud. The latter was the Crown Prince, Vice-Prime Minister and the Minister of Home Affairs, all at the same time.

De facto, the King's son, Prince Mohammed ben Salmane Al Saoud (31 years), will become the new Crown Prince.

Mohammed ben Nayef Al Saoud was considered as the US's man. He has been trained first in Oregon, then later by the FBI and Scotland Yard. He obtained results in struggles against Al-Qaeda dissidents. With his removal, the hopes of the Nayef branch coming to the throne have come to an end.

Mohammed ben Salmane does not have an academic training. At the very most, he is the holder of a baccalaureate awarded by a local school, and we do not know if you actually need to study to obtain this qualification. He made his political debut as the assistant to his father, first the Governor of Riyadh and then the Minister of Defense. When Salmane becomes king in 2015, Mohammed succeeded his father as the Minister of Defense and engaged his country's troops in the disastrous conflict in Yemen. Having royal power at his disposition, he launched a vast project for economic reform (Vision 2030), which ushered in the privatization of Aramco (the country's only source of revenue) and his country's development beyond the oil sector. He is particularly well known for his jet-set life-style and for buying a yacht, Serene, for half a billion euro.

It seems that King Salmane should shortly abdicate, leaving his son in charge. Thus the difficult question of succession is provisionally settled, in a country where up until now was governed by a rule requiring the oldest son of the dynasty's founder to accede to power. Thus the current king, King Salmane, is the 25th of Abdelaziz ben Abderrahmane Al Saoud's 53 sons.

At King Abdallah's death (January 2015), his half brother, Prince Moukrine ben Abdelaziz Al Saoud, had been appointed Crown Prince. But three months later (April 2015), he had been rudely cut out of the order of succession, something quite unprecedented. He was replaced by Prince Mohammed ben Nayef, who in turn has just been removed from the picture.

As a consolation prize, the Nayefs secured that a son-in-law of Prince Mohammed ben Nayef replaces him at the Ministry of Home Affairs. It would be a son-in-law and not a son, because Prince Mohammed ben Nayef did not have male progeny.

The next king, Mohammed, could rule for about fifty years. But were he to die, then his eldest son, also a minor, would succeed him.

Washington had approved the chosen solution to the issue of succession. This solution had been adopted by 31 of 34 members of the allegiance council (the Family Council). It skips two generations. Henceforth, Mohammad ben Salmane is placing young people at the head of different administrations of the country, a country where the average age of the population is 27 years.

[Jun 30, 2017] Trump, MBS, and the Noxious Saudi Relationship The American Conservative

Jun 30, 2017 | www.theamericanconservative.com
Aaron David Miller and Richard Sokolsky also judge Mohammed bin Salman's record to be very poor:

But one thing is already stunningly clear when it comes to his handling of foreign policy: In two short years, as the deputy crown prince and defense minister, MBS has driven the Kingdom into a series of royal blunders in Yemen, Qatar and Iran, and he has likely over promised what Saudi Arabia is able and willing to do on the Israeli-Palestinian peacemaking front. Far from demonstrating judgment and experience, he's proven to be reckless and impulsive, with little sense of how to link tactics and strategy. And sadly, he's managed to implicate and drag the new Trump administration into some of these misadventures, too.

Miller and Sokolsky are right about MBS' shoddy record, but their warning to the Trump administration is very likely too late. They urge the administration to rethink its position before "its Middle East policy becomes a wholly owned subsidiary of Saudi Arabia," but I fear that that already happened at the Riyadh summit. Unfortunately, some top U.S. officials are only just now realizing it and don't know how to stop it. There could be some belated efforts to undo this, but Trump isn't interested. He doesn't seem to see anything wrong with identifying the U.S. so closely with the Saudis, and he doesn't see their recklessness and destructive behavior for what they are. Since he is impulsive, careless, and has poor judgment, it isn't surprising that he has such an affinity for the aging Saudi despot and his favorite incompetent son. On top of all that, MBS is a short-sighted, foolish hard-liner on Iran, and as far as we can tell Trump is much the same, so we should expect them to be on the same page.

There's no question that every foreign policy initiative associated with MBS has "turned into a hot mess," but this has been obvious in Yemen for the last two years. If no one in the Trump administration noticed that before, what is going to make them realize it now? The authors are also right that Trump's decision "to side with Saudi Arabia in its conflict with Qatar and in Yemen is akin to pouring gasoline on a fire," but until very recently uncritical backing of the Saudis in their regional adventurism enjoyed broad bipartisan support that helped make it possible for things to get this bad. There were very few in Washington who thought that pouring gasoline on the fire was the wrong thing to do, and for more than two years the U.S. poured a lot of gas on the fire in Yemen that has been consuming thousands of lives and putting millions at risk of starvation.

My point here is that Trump has pressed ahead with uncritical support for the Saudis because that has been the conventional hawkish position in Washington for years before he got there. He is catering to the existing warped desire to provide even more support to Riyadh than Obama did. It was conventional wisdom among many foreign policy pundits and analysts that Obama had not been "pro-Saudi" enough, and Trump apparently bought into that view. Trump's enthusiastic embrace of the Saudis is the result of endlessly berating Obama for not giving the Saudis absolutely everything they wanted.

There is now more open opposition to at least some aspects of U.S. policy in Yemen, as we saw with the recent close vote on a Saudi arms sale. The Qatar crisis has prompted more criticism of the Saudis from our government than two years of destroying and starving an entire country. Yet there is still remarkably little scrutiny of the underlying U.S.-Saudi relationship despite growing evidence that the kingdom has become a regional menace and a major liability to the U.S. Until that changes and until Trump's excessive fondness for the Saudi leadership starts to become a major political problem for him, pleading with the arsonist's enabler to put out fires will have little effect.

[Jun 26, 2017] Saudi Hijinks, US Policy Stinks

Notable quotes:
"... Trump is capricious, ignorant and impetuous. His understanding of international relations and history seems woefully inadequate. He also appears to be unscrupulous and reckless. It's all about making money that matters to him. ..."
"... From the earliest opportunity, the Saudi prince wheedled his way into Trump's court. He was greeted in the White House back in March, one of the first foreign leaders to do so. Then two months later, Trump ventured on his maiden foreign trip as president in which he made Saudi Arabia his first stop. ..."
"... The power-struggle antics among the absolute rulers of the House of Saud have promoted a prince who has a reckless outsized ego and lust for dominance. President Donald Trump seems cut from the same cloth. ..."
"... · 5 days ago ..."
marknesop.wordpress.com
The United States' decades-long "special relationship" with Saudi Arabia has always carried major downsides. Yes, the Saudis are a pillar in maintaining the American petrodollar system to prevent the collapse of the US economy; and, yes, the Saudi rulers are lavish spenders on US weapons, which props up the Pentagon military-industrial complex – another lifeline for American capitalism.

However, the Saudi rulers are also longtime sponsors of Wahhabi fundamentalism which has injected deadly sectarian poison into the Middle East region and beyond. Washington is complicit in fomenting sectarianism through its relationship with Saudi Arabia, and the price for that Faustian pact is a world in turmoil from terrorism.

Donald Trump's presidency is an unfortunate marriage of interests with Saudi Arabia. Trump is capricious, ignorant and impetuous. His understanding of international relations and history seems woefully inadequate. He also appears to be unscrupulous and reckless. It's all about making money that matters to him.

From the earliest opportunity, the Saudi prince wheedled his way into Trump's court. He was greeted in the White House back in March, one of the first foreign leaders to do so. Then two months later, Trump ventured on his maiden foreign trip as president in which he made Saudi Arabia his first stop. Trump was royally received by the House of Saud with sword-waving ceremony . And then the Saudis signed record arms deal with the US worth up to $350 billion – the biggest ever in history.

It was during Trump's Saudi visit that the policy of increased hostility towards Iran and isolation of erstwhile Saudi and American ally Qatar was hatched. This reckless, clueless embrace of Saudi Arabia by Trump has led to a dangerous escalation in tensions across the Middle East, which are seen playing out in Syria and towards Iran and Russia.

Trump the tycoon and the Saudi upstart-prince are a duo who are plunging the world into danger of all-out war. The pair are a match made in hell, both being rash and irresponsible in their behavior.

Nobody outside Saudi Arabia had heard of Crown Prince Mohammed bin Salman until his father become king in January 2015 on the death of King Abdullah. In the space of two years, the young prince has been made defense minister and de facto chief of Saudi's oil economy. Now, this week he has been shunted into becoming heir to the throne, sidelining his elder cousin and nephew to the king.

The precocious prince has only enjoyed this meteoric rise in the House of Saud because of his father's favoritism. Other more senior royals feel ousted and see the new Crown Prince as undeserving of his assigned authority. In short, he is out of his depth.

In the Saudi succession rules, the royal line is supposed to pass from brother to brother. There are still surviving brothers of the Saudi founding king, Ibn Saud, who have been removed from the succession. The present King Salman first broke the rules when he made his nephew Mohammed bin Nayef the Crown Prince back in April 2015. Now he has broken the rules again by making his own son the heir and unceremoniously pushing bin Nayef to the side. Such are the hijinks of despots.

Crown Prince Mohammed bin Salman is the architect behind the disastrous war in Yemen, which is turning into a Vietnam-style quagmire for Saudi Arabia, costing the kingdom billions of dollars every month. He is also reportedly the architect behind the policy of renewed hostility towards Iran. In an interview before Trump's Saudi trip, Mohammed bin Salman said he would never talk to Iran and even threatened to unleash violence on Iranian territory. That threat was followed by the deadly terror attack in Tehran on June 7 in which up to 17 people were killed by Daesh suicide squads.

The hiked-up hostile policy towards Iran has, in turn, led to Saudi Arabia blockading Qatar and causing a bitter rift in the Persian Gulf because Qatar is perceived as being too soft on Iran.

The power-struggle antics among the absolute rulers of the House of Saud have promoted a prince who has a reckless outsized ego and lust for dominance. President Donald Trump seems cut from the same cloth. Courting the young Saudi heir may be lucrative for American weapons-dealing and no doubt the Trump business brand in the oil-rich region. But the consequences of such capricious and clueless "leadership" are throwing the region and the world into increasing conflict.

This week the US State Department flatly contradicted Trump's policy of supporting the Saudi-led blockade on Qatar . It said it was mystified that the Saudis had not presented any evidence to justify the blockade. This is just one example where Trump is being made to look a total fool by following stupid Saudi policy – policy that is made by a prince who has gathered a record for disaster in several other spheres.

What a double act. Saudi despotism marries Trump cluelessness. And the world is reaping the calamity of clowns.

This article was first published by Sputnik

Gustavo Caldas · 5 days ago

An attack from Saudi Arabia to Iran will mean the demise of the Kingdom of Saudi Arabia . And the intervention of the USA in support of Saudi Arabia would mean a war of the USA against the SCO (Shangai Cooperation Organization). Those are BAD odds.

guest01 · 5 days ago

Quote from article: "America's deepening and reckless military involvement in Syria is a result of Trump cozying up with the Saudi despots."

America's deepening and reckless military involvement in Syria is a result of Trump obeying Israel's orders. America's military was recklessly involved in Syria long before Trump became president. The chaos in Syria was instigated by USA. US military trained, armed and supported terrorists, bombed Syrian military and civilians and established military base in Syria during Obama presidency.

Trump is "cozying up with the Saudi despots" because he got his orders from Netanyahu and Israelis. Before he began "cozying up with the Saudi despots", Trump ordered shooting missiles into Syrian military airport because his Zionist Jewish daughter and son-in-law told him to do so. If Netanyahu and/or his Zionist Jew son-in-law Jared Kushner were to order Trump to bomb Saudi Arabia, Trump would bomb Saudi Arabia.

All along, Trump was blaming Saudis for 9/11 inside job attacks and was threatening Saudis that they should be coming up with more money to USA just as he expected NATO members to pay for US wars costs. He was badmouthing Saudis until he got his orders from Netanyahu and Israel.

Saudis are puppets of USA; Saudis do exactly what USA wants them to do and USA does exactly what Israel wants it to do. Note that the Saudi demands against Qatar are to distance itself from all who resist Israel, namely, Lebanese Hezbollah, Hamas, Iran and Syria. Also, Israel was very pleased that Trump signed billions of dollars worth of weapons agreement with Saudi Arabia because these weapons will be used against Israel's perceived enemies and some will be given to terrorists Israel supports in that region.

Israel rules and Trump wants to make Israel great.

[Jun 25, 2017] The story about about the legendary Qatari pipeline is probably British fake

Notable quotes:
"... A pipeline through Syria would have been a great boost to national economy for a number of years & could raise a port of the country to one of global importance, just at a time that Turkey started turning the spigot of Euphrates off ..."
"... Consider that Qatar would have been a captive ally for Syria, a commodity rather in short supply for that country. The best part of it is, perhaps, that Syria presumably had a natural aversion to the transit fees. ..."
"... There is another interesting story in this regard, which is to do with (at least) three rounds of exploration for gas in Saudi Arabia, all failed, and the special need for gas to service its petrochemical industry. If memory serves, the reason is they want to upgrade the heavy crude portion of their production, which has steadily been growing, and which the Saudis might have to sell as bunker oil at great discount, if they fail to find gas. ..."
"... the Qataris were told in no uncertain terms that their gas 'had to remain in the peninsula' (Arabian subcontinent) for consumption, to serve the oil sector. ..."
"... If this is right (honestly, I do not know), it might explain quite a bit about the rivalries of the extremist Moslem clergy, and their activities both within the Moslem world and abroad, why not, even developments in Europe & the States. ..."
Jun 25, 2017 | www.moonofalabama.org

atVec | Jun 23, 2017 10:14:39 PM 52

|Jen@31 writes about the legendary Qatari pipeline. That story made its appearance early in the conflict, and if anybody knows its origin, I would be keen to be let know.
That story goes that Assad would not let Qatar have its pipeline because, presumably, Russians wanted to retain their stranglehold on European gas supplies.

The subtext is that those Russians must be very hard task masters and Assad, the lowliest of low lives, a terrified thug. And when the troubles started, Assad did not go back to the Qataris to discuss the matter over.

Sorry, I cannot square that.

A pipeline through Syria would have been a great boost to national economy for a number of years & could raise a port of the country to one of global importance, just at a time that Turkey started turning the spigot of Euphrates off (this is a sense I have, do not know if it is right) & a protracted drought and economic hardship all hit the country at the same time.

Consider that Qatar would have been a captive ally for Syria, a commodity rather in short supply for that country. The best part of it is, perhaps, that Syria presumably had a natural aversion to the transit fees.

There is another interesting story in this regard, which is to do with (at least) three rounds of exploration for gas in Saudi Arabia, all failed, and the special need for gas to service its petrochemical industry. If memory serves, the reason is they want to upgrade the heavy crude portion of their production, which has steadily been growing, and which the Saudis might have to sell as bunker oil at great discount, if they fail to find gas.

The story was run in the English papers of the Gulf circa 2012, whereby the Qataris were told in no uncertain terms that their gas 'had to remain in the peninsula' (Arabian subcontinent) for consumption, to serve the oil sector.

Once I chanced on an article on the educational proclivities of the thousands of the Saudi princes. Any guess? Yes, a good portion of them goes in for religious studies! Somehow I do not think they aspire to be lowly priests; but if not, where might they wish to have their sees? What if the other principalities of the Gulf have nobilities with similar outlooks & hopes?

If this is right (honestly, I do not know), it might explain quite a bit about the rivalries of the extremist Moslem clergy, and their activities both within the Moslem world and abroad, why not, even developments in Europe & the States.

Regards, Vec.

Lozion | Jun 23, 2017 10:24:34 PM | 53

@36 & @31 I think you are both right. The Pipelinistan angle is a major part of this feud.

A probable change of heart from Qatar who has seen the light that no regime change will happen in Syria therefore making a Fars --> Iraq --> Syria -> Lebanon LNG pipeline a realistic endeavor is causing panic in KSA/US/IS who are trying to pressure Qatar to back-off from any deals with Iran..

If Turkey is firm on protecting Qatar then the ultimatum will come to pass and be null and void..

Don Bass | Jun 24, 2017 1:34:34 AM | 57

@ Vic

Y'know, when I read a comment such as yours: "~ I don't reckon its got anything to do with a pipeline ~" I immediately think of that old trope: Better to remain silent and be thought a fool, than to open ones mouth and remove all doubts"

Vic: instead of visiting here to blatantly display your ignorance, how about more usefully spending that typing time to research the topic, hmmm?

The Imperial drive to crush Syria has been in play since the early 1980s, when Assad senior was in power.

Here's a link: http://www.globalresearch.ca/1983-cia-document-reveals-plan-to-destroy-syria-foreshadows-current-crisis/5577785

And another http://www.washingtonsblog.com/2014/07/57-years-ago-u-s-britain-approved-use-islamic-extremists-topple-syrian-government.html

And another http://www.newyorker.com/magazine/2007/03/05/the-redirection

And here's your bonus link, cause I'm feeling the karma burst of sharing http://humansarefree.com/2014/09/exposing-covert-origins-of-isis.html

Now, go and do your homework: you may be able to raise your F to a C, for a pass grade, once you've done some actual reading on the topic.

[Jun 24, 2017] The Saudi-Qatar spat - the reconciliation offer to be refused>. Qater will move closer to Turkey

Highly recommended!
Notable quotes:
"... "In my view this is a deep power struggle between Qatar and Saudi Arabia that has little to do with stated reasons regarding Muslim Brotherhood and Iran. The action to isolate Qatar was clearly instigated during US President Trump's recent visit in Riyadh where he pushed the unfortunate idea of a Saudi-led "Arab NATO" to oppose Iranian influence in the region. ..."
"... Moreover, Qatar was acting increasingly independent of the heavy Wahhabite hand of Saudi Arabia and threatening Saudi domination over the Gulf States. Kuwait, Oman, as well as non-Gulf Turkey were coming closer to Qatar and even Pakistan now may think twice about joining a Saudi-led "Arab NATO". Bin Salman has proven a disaster as a defense strategist, as proven in the Yemen debacle. ..."
"... Kuwait and Oman are urgently trying to get Saudi to backdown on this, but that is unlikely as behind Saudi Arabia stands the US and promises of tens of billions of dollars in US arms. ..."
"... This foolish US move to use their proxy, in this case Riyadh, to discipline those not "behaving" according to Washington wishes, could well be the turning point, the point of collapse of US remaining influence in the entire Middle East in the next several years." ..."
"... KSA could not have taken this course of action all by itself. Someone somewhere must be egging them on. But who? The US seems to have no interest in a Saudi-Qatari conflict. Israel might, but only if said conflict is resolved in Saudi favor. ..."
"... I am therefore coming to the conclusion that there is no longer clear leadership of US policy and there are different factions within the US government. The white house and CIA are supporting the Saudis while the Pentagon supports Qatar. This is just a hunch, but it seems like it could make sense. Perhaps this is what happens when a government is in a state of decompensation. ..."
"... It is mind boggling that a fundamental reshaping of the Middle East was most likely put in motion by Trump completely oblivious of what he was doing shooting from the hip on his Saudi trip. ..."
"... Outside of an outright invasion of Qatar by Saudi Arabia, it is hard to see this as a once in a life time geopolitical gift to Russia, Iran, Turkey, Syria, and Iran. ..."
"... Now when July 3 comes and goes, Saudi Arabia will look completely impotent in the eyes of the countries in the region. ..."
"... Gaddafi's speech to the Arab League in Syria 2008 was so prescient ..."
"... "We [the Arabs] are the enemies of one another I'm sad to say, we deceive one another, we gloat at the misfortune of one another, and we conspire against one another, and an Arab's enemy is another Arab's friend. ..."
"... I quite like the WWI parallel. Trump as Kaiser Wilhelm? There certainly are some striking similarities in character. ..."
"... "...gifted, with a quick understanding, sometimes brilliant, with a taste for the modern,-technology, industry, science -- but at the same time superficial, hasty, restless, unable to relax, without any deeper level of seriousness, without any desire for hard work or drive to see things through to the end, without any sense of sobriety, for balance and boundaries, or even for reality and real problems, uncontrollable and scarcely capable of learning from experience, desperate for applause and success, -- as Bismarck said early on in his life, he wanted every day to be his birthday-romantic, sentimental and theatrical, unsure and arrogant, with an immeasurably exaggerated self-confidence and desire to show off, a juvenile cadet, who never took the tone of the officers' mess out of his voice, and brashly wanted to play the part of the supreme warlord, full of panicky fear of a monotonous life without any diversions, and yet aimless, pathological in his hatred against his English mother." ..."
"... It also stands to reason if you simply consider Saudi's importance regionally: A lot is made of Iran's threat to Saudi influence, but Turkey - thanks in part to considerable investment by Qatar currently while investment from elsewhere has reduced massively -- is also very threatening to Saudi's influence, especially on the religious front. ..."
"... Iran representing Shia interests in the region and Turkey representing Sunni interests is not a difficult future to imagine. It would of course grate with Saudi Arabia given that it had poured vast amounts of money into the Turkish economy and the diyanet. ..."
"... Hassan Nasrallah has given his annual International Al-Quds Day speech with plenty of fire aimed at the usual suspects. The Daily Star reports: 'Nasrallah accused Saudi Arabia of "paving way for Israel" in the region. ..."
"... Actually, I hope for many more benefits will show up from this quarrel than improved profits for Iranian produce growers. It is worthwhile to observe that Dubai, a component emirate of UAE, has gigantic economic links with Iran, which must be tolerated by overlords from Abu Dhabi: they had to bail out their cousins after real estate collapse, so they have big money stake in Dubai being prosperous. Potentially, Dubai and especially the hapless vegetable and dairy producers in KSA can lose a bundle (the latter had to invest a lot in farms for Qatari market, it is not like letting cows graze on abundant grasslands plus planting cucumbers and waiting for the rain to water them). Aljazeera and Muslim Brotherhood are more irritating to KSA and UAE than an occasional polite missive to Iran. ..."
"... Qatar opened the Middle East's first centre for clearing transactions in the Chinese yuan on Tuesday, saying it would boost trade and investment between China and Gulf Arab economies. ..."
"... The only hope for Saudi Arabia is to re-denominate oil sales in multiple currencies such as the WTO drawing rights, of course based on another formula, perhaps based on the countries that purchase the most oil. This would be the only way for the royalty to gain longevity as rulers of the country. Any other scenario spells disaster. ..."
Jun 23, 2017 | www.moonofalabama.org
Pft | Jun 23, 2017 8:43:28 PM | 45
William Engdahls views. "In my view this is a deep power struggle between Qatar and Saudi Arabia that has little to do with stated reasons regarding Muslim Brotherhood and Iran. The action to isolate Qatar was clearly instigated during US President Trump's recent visit in Riyadh where he pushed the unfortunate idea of a Saudi-led "Arab NATO" to oppose Iranian influence in the region.

The Saudi move, clearly instigated by Prince Bin Salman, Minister of Defense, was not about going against terrorism. If it were about terrorism, bin Salman would have to arrest himself and most of his Saudi cabinet as one of the largest financiers of terrorism in the world, and shut all Saudi-financed madrasses around the world, from Pakistan to Bosnia-Herzgovina to Kosovo. Another factor according to informed sources in Holland is that Washington wanted to punish Qatar for seeking natural gas sales with China priced not in US dollars but in Renminbi. That apparently alarmed Washington, as Qatar is the world's largest LNG exporter and most to Asia.

Moreover, Qatar was acting increasingly independent of the heavy Wahhabite hand of Saudi Arabia and threatening Saudi domination over the Gulf States. Kuwait, Oman, as well as non-Gulf Turkey were coming closer to Qatar and even Pakistan now may think twice about joining a Saudi-led "Arab NATO". Bin Salman has proven a disaster as a defense strategist, as proven in the Yemen debacle.

As to the future, it appears that Qatar is not about to rollover and surrender in face of Saudi actions. Already Sheikh Tamim bin Hamad al-Thani is moving to establish closer ties with Iran, with Turkey that might include Turkish military support, and most recently with Russia.

Kuwait and Oman are urgently trying to get Saudi to backdown on this, but that is unlikely as behind Saudi Arabia stands the US and promises of tens of billions of dollars in US arms.

This foolish US move to use their proxy, in this case Riyadh, to discipline those not "behaving" according to Washington wishes, could well be the turning point, the point of collapse of US remaining influence in the entire Middle East in the next several years."

lysander | Jun 23, 2017 7:43:17 PM | 42
KSA could not have taken this course of action all by itself. Someone somewhere must be egging them on. But who? The US seems to have no interest in a Saudi-Qatari conflict. Israel might, but only if said conflict is resolved in Saudi favor.

I am therefore coming to the conclusion that there is no longer clear leadership of US policy and there are different factions within the US government. The white house and CIA are supporting the Saudis while the Pentagon supports Qatar. This is just a hunch, but it seems like it could make sense. Perhaps this is what happens when a government is in a state of decompensation.

R Winner | Jun 23, 2017 1:41:04 PM | 4

It is mind boggling that a fundamental reshaping of the Middle East was most likely put in motion by Trump completely oblivious of what he was doing shooting from the hip on his Saudi trip.

Outside of an outright invasion of Qatar by Saudi Arabia, it is hard to see this as a once in a life time geopolitical gift to Russia, Iran, Turkey, Syria, and Iran.

Juggs | Jun 23, 2017 2:24:33 PM | 9
Now when July 3 comes and goes, Saudi Arabia will look completely impotent in the eyes of the countries in the region.

I wonder if there is some sort of interest between Russia, Turkey, Qatar, and Iran on a coup in Saudi Arabia. I can't imagine it would be that difficult. I know it is not Putin's policy to play these types of games like the US Regime, but one has to assume that people are just fucking done with the clowns running Saudi Arabia.

harrylaw | Jun 23, 2017 2:36:39 PM | 10
Gaddafi's speech to the Arab League in Syria 2008 was so prescient..

"We [the Arabs] are the enemies of one another I'm sad to say, we deceive one another, we gloat at the misfortune of one another, and we conspire against one another, and an Arab's enemy is another Arab's friend.

Along comes a foreign power, occupies an Arab country [Iraq] and hangs its President,and we all sit on the sidelines laughing. Any one of you might be next, yes.

https://www.youtube.com/watch?v=VZZvPlGCt_8

okie farmer | Jun 23, 2017 2:37:39 PM | 11
https://www.theguardian.com/world/2017/jun/23/close-al-jazeera-saudi-arabia-issues-qatar-with-13-demands-to-end-blockade
Qatar given 10 days to meet 13 sweeping demands by Saudi Arabia
Gulf dispute deepens as allies issue ultimatum for ending blockade that includes closing al-Jazeera and cutting back ties with Iran
Juggs | Jun 23, 2017 2:41:55 PM | 13
Peter AU "Is Qatar, like Turkey, already heading for a multi-polar world? For 25 years, the US was the only game in town, but with Russia's move into Syria there are now options."

Hard to see the world heading in that direction:

I wonder if Qatar is already in talks with China about joining the Silk Road Initiative now that it is openly moving into the Russia and Iran sphere.

karlof1 | Jun 23, 2017 3:06:36 PM | 16
Juggs 13--

"I wonder if Qatar is already in talks with China about joining the Silk Road Initiative..."

You'll find the answer's yes as Pepe explains, https://sputniknews.com/columnists/201706161054701807-west-cannot-smell-what-eurasia-cooking/ and http://www.atimes.com/article/blood-tracks-new-silk-roads/

dh | Jun 23, 2017 3:20:35 PM | 19
@17 The best is yet to come. There's a chance Netanyahu will fly into Riyadh to tell everybody what to do. I'm sure he wants what's best for the region.
L'Akratique | Jun 23, 2017 3:29:54 PM | 20
I quite like the WWI parallel. Trump as Kaiser Wilhelm? There certainly are some striking similarities in character.

Quote from Thomas Nipperdey:

"...gifted, with a quick understanding, sometimes brilliant, with a taste for the modern,-technology, industry, science -- but at the same time superficial, hasty, restless, unable to relax, without any deeper level of seriousness, without any desire for hard work or drive to see things through to the end, without any sense of sobriety, for balance and boundaries, or even for reality and real problems, uncontrollable and scarcely capable of learning from experience, desperate for applause and success, -- as Bismarck said early on in his life, he wanted every day to be his birthday-romantic, sentimental and theatrical, unsure and arrogant, with an immeasurably exaggerated self-confidence and desire to show off, a juvenile cadet, who never took the tone of the officers' mess out of his voice, and brashly wanted to play the part of the supreme warlord, full of panicky fear of a monotonous life without any diversions, and yet aimless, pathological in his hatred against his English mother."

cankles | Jun 23, 2017 4:05:49 PM | 25
@Laguerre #23
I have difficulty in seeing a relationship with the Silk Road Initiative, other than that Qatar exports a lot of LNG to China.

China Eyes Qatar in its Quest to Build a New Silk Road

Last month at the China-Arab Cooperation Forum in Doha, Chinese Foreign Minister Wang Yi postulated that Qatar should take part in the realization of China's Silk Road Initiatives.
Laguerre | Jun 23, 2017 4:42:05 PM | 27
@cankles | Jun 23, 2017 4:05:49 PM | 25

Yeah, you're right. I hadn't looked into the question sufficiently. Of course the Chinese are looking for more external finance for the project. They don't want to be the only ones who pay. Fat chance, though. The Qataris have been in austerity since the decline in the oil price. Someone I know who works in the Qatar Museum has seen all her colleagues let go. And now the crisis with Saudi.

The Qataris may even have signed contracts with China. But if you know anything about the Gulf, there's a wide gap between signing a contract, and actually getting paid. It depends upon how the prince concerned feels about the project when the question of payment comes up. A company I worked for in the 80s took two years to get payment, even though they were experts in Gulfi relations.

AtaBrit | Jun 23, 2017 4:51:40 PM | 28
Great piece.

The issue of the threat regarding the Turkish base didn't surprise me much, though. I think it's clear that if MB is the target, then of course Turkey has to become a target, and Qatar - Turkey ties have to be broken. It stands to reason.

It also stands to reason if you simply consider Saudi's importance regionally: A lot is made of Iran's threat to Saudi influence, but Turkey - thanks in part to considerable investment by Qatar currently while investment from elsewhere has reduced massively -- is also very threatening to Saudi's influence, especially on the religious front.

Iran representing Shia interests in the region and Turkey representing Sunni interests is not a difficult future to imagine. It would of course grate with Saudi Arabia given that it had poured vast amounts of money into the Turkish economy and the diyanet.

On a slightly different note there's a scandal going on in western Turkey, in Duzce, at the moment because the local authority has unveiled a statue of Rabia - the four fingered Muslim Brotherhood salute! :-)

Mina | Jun 23, 2017 5:09:45 PM | 29
http://english.ahram.org.eg/NewsContent/2/8/271450/World/Region/UN-blames-warring-sides-for-Yemens-cholera-catastr.aspx
let's blame underfed guys in skirts for fun
karlof1 | Jun 23, 2017 5:16:47 PM | 30
Hassan Nasrallah has given his annual International Al-Quds Day speech with plenty of fire aimed at the usual suspects. The Daily Star reports: 'Nasrallah accused Saudi Arabia of "paving way for Israel" in the region.

'"It's unfortunate that Saudi Arabia is the head of terrorism and today it's holding its neighbors accountable for supporting terrorism," Nasrallah said, hinting to the recent economic sanctions against Qatar.' https://www.dailystar.com.lb/News/Lebanon-News/2017/Jun-23/410688-nasrallah-says-regional-conflicts-seek-to-serve-israel-interest.ashx

Al-Manar provides this report, http://english.almanar.com.lb/292250

Unfortunately, I cannot locate an English language transcript, although one might become available eventually as is usually the case.

Piotr Berman | Jun 23, 2017 6:42:14 PM | 36
Piotr Berman

Aljazeera evil? Are you joking? ....

@Anon | Jun 23, 2017 3:47:56 PM | 24

You did not address the argument I made, namely, that Aljazeera editors apparently belong to "Muslims, who immediately set out to support it [Darwinian theory of evolution] unaware of the blasphemy and error in it." These guys pretend to be nice Wahhabis, dressing in dishdashas, their womenfolks in abayas, but in fact they spread heretical and blasphemous doctrines. However, I am more of a Khazar than a Wahhabi and I do not treat this argument seriously.

It is the fact that compared to other government supported TV/online venues, say RT or PressTV, Aljazeera is well written and edited, has plenty of valuable material, etc. It is a worthwhile place to check when you want to get a composite picture on some issues. And it irritates KSA potentates in a myriad of ways, precisely because it targets "politically engaged Muslim".

It is a good example that pluralism has inherent positive aspects, devils that quarrel are better than "One Ring to rule them all, One Ring to find them, One Ring to bring them all, and in the darkness bind them."

====

Actually, I hope for many more benefits will show up from this quarrel than improved profits for Iranian produce growers. It is worthwhile to observe that Dubai, a component emirate of UAE, has gigantic economic links with Iran, which must be tolerated by overlords from Abu Dhabi: they had to bail out their cousins after real estate collapse, so they have big money stake in Dubai being prosperous. Potentially, Dubai and especially the hapless vegetable and dairy producers in KSA can lose a bundle (the latter had to invest a lot in farms for Qatari market, it is not like letting cows graze on abundant grasslands plus planting cucumbers and waiting for the rain to water them). Aljazeera and Muslim Brotherhood are more irritating to KSA and UAE than an occasional polite missive to Iran.

One pattern in Syrian civil war were persistent and bloody feuds between jihadists that formed roughly four groups:

  1. "salafi", presumably funded by KSA,
  2. "brothers", presumably funded by Qatar and Turkey,
  3. al-Qaeda/al-Nusra/something new that was forcing the first two groups to surrender some weapons (and money?),
  4. and ISIS that had more complex sources (or more hidden).

Medium term strategy of Syrian government and allies for the near future is to "de-escalate" in the western part of the country and finish off ISIS, partitioning hitherto ISIS territories in some satisfactory way, while maintaining some type of truce with the Kurds. Then finish off the jihadists, except those most directly protected by Turkey. Finally, take care of the Kurds. Some sufficiently safe federalism can be part of the solution, but nothing that would lead to enclaves with their own military forces and their own foreign policy, like Iraqi Kurdistan.

That requires the opposing parties to exhibit somewhat suicidal behavior. A big time official feud between "brothers" and "salafi + Kurds" (a pair that shares some funding but with scant mutual affection" can help a lot. Most of all, a big time feud between Turkey and KSA can stabilize the situation in which jihadists from Idlib and northern Hama observe a truce/de-escalation, while their colleagues from south Syria get clobbered, and definitely will induce them to refrain from attacking Syrian government while it is busy against ISIS. After Erdogan was prevented from marching onto Raqqa, he has two options: "Sunnistan" in eastern Syria under domination of YPG or a much smaller YPG dominated territory that can be subsequently digested. Option one is a true nightmare for Erdogan, more than a mere paranoia. However, Erdogan is also "pan-Sunni" Islamist, so he could be tempted to backstab infidels from Damascus, as he was doing before. An open feud with Sunnistan sponsors should help him to choose.

likklemore | Jun 23, 2017 6:49:14 PM | 37
Cankles @ 25 Is that really you? If so, you should know -

Look behind the curtain. This has to do with maintaining the price of oil in US$.

Qatar launches first Chinese yuan clearing hub in Middle East .

Qatar opened the Middle East's first centre for clearing transactions in the Chinese yuan on Tuesday, saying it would boost trade and investment between China and Gulf Arab economies.

"The launch of the region's first renminbi clearing center in Doha creates the necessary platform to realise the full potential of Qatar and the region's trade relationship with China," Qatar's central bank governor Sheikh Abdullah bin Saud al-Thani said at a ceremony.

"It will facilitate greater cross-border renminbi investment and financing business, and promote greater trade and economic links between China and the region, paving the way for better financial cooperation and enhancing the pre-eminence of Qatar as a financial hub in MENA (Middle East and North Africa)."
Industrial and Commercial Bank of China's (ICBC) Doha branch is the clearing bank for the centre, which intends to serve companies from around the Middle East.

A clearing bank can handle all parts of a currency transaction from when a commitment is made until it is settled, reducing costs and time taken for trading.

The centre "will improve the ease of transactions between companies in the region and China by allowing them to settle their trade directly in renminbi, drawing increased trade through Qatar and boosting bilateral and economic collaboration between Qatar and China," said ICBC chairman Jiang Jianqing.

At present, Qatar and the Gulf's other wealthy oil and gas exporters use the U.S. dollar much more than the yuan. Most of their currencies are pegged to the dollar, and most of their huge foreign currency reserves are denominated in dollars.

Laguerre @27

Date of article April 24, 2017

In April 2015, Qatar opened Qatar Renminbi Centre (QRC), the region's first clearing centre for the Chinese currency. This allows for trades priced in RMB to be cleared locally in Qatar rather than in other centres such as Shanghai or Hong Kong.ICBC has since become the designated clearance bank servicing the QRC, which has handled more than 350bn yuan ($52.6bn) since its inception.
http://emerge85.io/blog/the-middle-kingdoms-big-four-and-the-gulf

~ ~ ~ ~
Trending and not very far to seeing what is now held under the table. Oil will also be priced in RMB because KSA, to maintain their share of exports to China, will need to get on board. For now, it's been reaffirmed, SA does the whipping and USA protects the Royals.

rawdawgbugfalo | Jun 23, 2017 6:54:19 PM | 38
Well said, I still think this is all dreamlike. Having natural gas and sharing it with Iran is a mf.

Qatar: Is it about Trump, Israel or Nascent Influence? http://wsenmw.blogspot.com/2017/06/qatar-is-it-about-trump-israel-or.html

Piotr Berman | Jun 23, 2017 7:34:43 PM | 40
About Sunni-Shia split. My impression is that this is mostly KSA + UAE obsession. For example, there is a substantial Shia minority in Pakistan, but the dominant thinking among the Sunnis seems to be "Muslim solidarity". There is a minority that is virulently anti-Shia, but they are politically isolated and despised exactly on the account of breaking that solidarity. After all, Pakistan forms the boundary of the Umma with non-Muslim India. I base that opinion on comments in online Pakistani newspapers, and what I have heard from an acquaintance who was a religiously conservative Sunni Pakistani. To him, the attack on Yemen by KSA was wrong "because they are Muslim". So even if Pakistan is to a certain extend in Saudi pocket, and its deep state has an extremist Sunni component, overt siding against "fellow Muslim" is out of the question.

Egypt is another case. One can find rather isolated anti-Shia outbursts, like writings of some fossils in Al-Azhar (who are responsible for the state religion), but the government steers away from that, and in spite of hefty subsidies, it joined Yemen war only symbolically and for a very short time (unlike Sudan that really needs the cash for its mercenaries). As you move further away from the Persian Gulf, the indifference to the "split" increases. As far as Qatar and Aljazeera are concerned, probably no one detests them more than Egyptian elite, as they were valiantly fighting Muslim Brotherhood for the sake of progress with some occasional large massacres (killing several hundreds of protesters, issuing hundreds of death penalties to participants in a single protest, in absentia! incredible idiocy+cruelty). That explains why al-Sisi joined KSA against Qatar.

However, the civil war in Libya that embroils Egypt is a classic case of unexpected alliances. Egypt with a help from Russia, KSA and UAE supports the "eastern government" that bases legitimacy on democratic parliament re-assembled in Tobruq on Egyptian border, and dominated by military strongman Haftar. The latter has the best chance of all people to become a military strongman of all Libya, but apparently has meager popularity and thus, too few troops. He patched that problem by an alliance with a Salafi group that had a numerous militia, currently partitioned into smaller units and incorporated into Haftar's brigades. Even with that, his progress on the ground is very, very gradual. Against him is the government in Tripolis, legitimized by a more fresh parliament and UN/EU, plus a military force that includes several militias. Part of the parliamentary support stems from Muslim Brotherhood, and some part of military support comes from Salafi militias. There are also aspects of a "war of all against all", seems that Saharan tribes collected a lot of fresh blood feuds.

Thus Qatari+Turkish support for Tripoli government is aligned with EU, and Egyptian support for Tobruq government is aligned with Russia and KSA.

Dusty | Jun 23, 2017 7:38:26 PM | 41
I thought I might just throw this out there and see what sticks. US policy is based on power and control. Saudi Arabia has been a good ally but it does not serve use policy or strategic goals any longer. Not really. I think the grand prize for destabilizing the middle east is Saudi Arabia. It would be the only way to truly control the development of other nations or more specifically, to control their rivalries and save the the US from complete economic breakdown. The Saudi's are being plumbed by the best of them, telling them they are you friends, we have your back and so long as Saudi Arabia loses more money and keeps lossing money in needless wars etc.

The only hope for Saudi Arabia is to re-denominate oil sales in multiple currencies such as the WTO drawing rights, of course based on another formula, perhaps based on the countries that purchase the most oil. This would be the only way for the royalty to gain longevity as rulers of the country. Any other scenario spells disaster. Of course, it would be a rough go for them for a while, but in the end, a slight change in outlook and the unfair advantage given to the US would go a long way, economically to stabilizing large blocks of countries. They also could of course change their outlook on the world, but that is certainly a difficult challenge. If the Muslim world came together based on their similarities, they could be a very powerful block.

The US no longer has the financial velocity it once maintained and this is much more due to insane ideas about being a hegemon. I never thought revolution would be possible in the US, but it is coming and it won't take much. The country does not appear to have intelligence peddle back a number of policies, drunk on its own poison, it makes capitalism look disgusting. A new business model is needed, one that developes mutual trade based on respect from within the exchange itself. Saudi Arabia needs to cultivate multi-channel support for its biggest resource so that when the returns are no longer there, they will have also developed multiple avenues to prosperity. Just a thought.

[Jun 15, 2017] Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption

Jun 14, 2017 | economistsview.typepad.com

im1dc, June 14, 2017 at 03:54 PM

The Reducing Ocean Shipping CO2 Paradox

Hey, maybe they should go back to sails...

http://maritime-executive.com/article/big-ships-account-for-most-of-shippings-co2

"Big Ships Account for 80 Percent of Shipping's CO2"

By Paul Benecki...2017-06-13...20:16:44

"At Nor-Shipping 2017, researchers with DNV GL released a study that points to the difficulty of reducing the industry's CO2 output below current levels. The problem is structural: big cargo vessels emit 80 percent of shipping's greenhouse gases, but they're also the industry's most efficient ships, and squeezing out additional improvements may be a challenge.

Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption, according to Christos Chryssakis, DNV GL's group leader for greener shipping. Unfortunately, these are already the fleet's most efficient vessels per ton-mile. "This is a paradox, but if we want to reduce our greenhouse gas emissions, we actually have to improve the best performers," Chryssakis says."...

libezkova - , June 14, 2017 at 05:58 PM
That's a valid observation.

Similar situation with trucking, but in the USA around one half of gas consumption goes into private cars. So by improving efficiency of private fleet by 100% you can cut total consumption only by 25%. All this talk about electrical cars like Tesla Model 3 right now is mostly cheap talk. They by-and-large belong to the luxury segment.

[Jun 14, 2017] The Saudi War Against Qatar by Justin Raimondo

Notable quotes:
"... Which leads us to a larger question: who benefits? Clearly both the Saudis and the Israelis – whose semi-clandestine alliance has been documented in this space – had everything to gain from this intra-Arab spat. United by fear and hatred of Iran, Riyadh and Tel Aviv have been quietly cooperating to unite the Sunni Arabs against Iran – and draw the United States into open conflict with Tehran. Both abhorred and denounced the Iran deal, and are seeking to actively undermine it: that's another item at the top of the FDD/UAE meet up. ..."
"... Another factor is the relationship between Mr. Al-Taiba and Jared Kushner, Trump's son-in-law and a powerful figure in the administration: the ambassador has been described as Kushner's " mentor " when it comes to schooling him on all matters Middle Eastern. Kushner, for his part, is a strong advocate for Israel. ..."
"... There are no innocents, no "good guys" in this part of the world: the reality is that all of these Middle Eastern actors have been subsidizing terrorist outfits, in Syria and elsewhere. The Saudis are perhaps the worst offenders : their worldwide network of radical Wahabist mosques and "educational" outfits has been pushing a terrorist agenda for decades. ..."
"... The UAE has also been a lucrative source of funding for radical Islamic terrorism, notably in Afghanistan and Pakistan . And while Qatar has not been stingy in this regard, its stance has been notably non-sectarian: while they've given support to the Muslim Brotherhood – perhaps the least radical Sunni organization – they are also capable of sending official congratulations to recently re-elected Iranian President Hassan Rouhani. ..."
"... This is their great "sin" in the eyes of the Saudi-led Sunni Axis: they have tried to mediate the Sunni-Shi'ite religious war, which threatens the entire region with the kind of bloody turmoil that occasioned Europe's Thirty Years' War between Catholics and Protestants. ..."
"... The crazy notion that Iran is the world's leading exporter of terrorism is a page right out of the Israeli-Saudi playbook ..."
"... The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it. ..."
www.moonofalabama.org

Despite the Qataris' claim – since verified by the FBI, according to Qatar's foreign minister – that the Qatar News Agency site had been hacked, and that the Emir had given no such speech, both the Saudis and the UAkE, through their official media outlets, launched a campaign targeting Qatar. Overflight rights were revoked: diplomatic contacts ended: Qatar citizens were forbidden to enter Saudi/UAE territory even to change planes. And in a public statement delivered in the rose garden of the White House President Trump clearly sided with the Saudi/UAE consortium, complementing a series of remarkably stupid tweets that basically said the same thing.

The US news media managed to get a Russian angle on all this, claiming that "Russian hackers" were behind the targeting of the Qatar News Agency: as usual they offered no evidence for this assertion. Yet just who was behind this hacking incident seems crucial to understanding the real genesis of – and motive behind – the Qatar controversy, which could augur a new regional crisis possibly dragging in Iran.

So let's look at the timeline in the context of yet another hacking incident, this one involving the hotmail account of Yousef Al-Otaiba, the UAE's well-connected ambassador to the US. The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it. he hackers, who call themselves "GlobalLeaks," released a tranche of emails between Al-Taiba and individuals connected to the Foundation for the Defense of Democracies (FDD). The Foundation is a pro-Israel thinktank originally called "Emet: An Educational Initiative, Inc.," founded in 2001 by a group of pro-Israel billionaires and designed to blunt growing American sympathy for the Palestinians. FDD has since expanded its mission, under chief honcho Clifford May, to encompass a full-scale projection of Israeli propaganda in the US. The Otaiba-FDD emails reveal extensive cooperation between the ostensibly ultra-Islamic UAE – which, like its Saudi allies and much of the Arab world, has never recognized the state of Israel - and the staunchly Zionist FDD. (See some of the emails here, here, here, and here.) A great deal of the back and forth is between FDD general counsel and former Bush era National Security Advisor John Hannah and Mr. Al-Otaiba.

The emails detail FDD's efforts to show Al-Otaiba that UAE companies doing business with Iran need to be sanctioned: a "target list" is included. The correspondence also details plans for a June 11-14 meeting with FDD personnel and UAE political and military officials, including the ambassador, FDD CEO Mark Dubowitz, and former US defense secretary Robert Gates. And most significantly, on the agenda was "discussion of possible U.S./UAE policies to positively impact Iranian internal situation" including "political, economic, military, intelligence, and cyber tools" designed to "contain and defeat Iranian aggression."

Hmmmm "cyber tools," eh?

Now add to the timeline this reporting by the New York Times:

"[T]hree days after the Trump meeting in Riyadh, the Foundation for the Defense of Democracies held a conference in Washington dedicated to criticism of Qatar, titled 'Qatar and the Muslim Brotherhood's Global Affiliates.'

"Robert M. Gates, the former defense secretary and a friend of Mr. Otaiba, gave the keynote. Attendees included many of the authors of the critical op-ed articles and senior Obama administration officials. Organizers encouraged Mr. Otaiba to attend, and his staff sent Abu Dhabi, the Emirati capital, a detailed report.

"No representative of Qatar was invited. The hack of the Qatari news agency took place after midnight that night."

What a coincidence!

As this piece in the Washington Post puts it, the speculation that "Russian hackers" under Russian state control are behind the Qatar hack is "unlikely." Emails from the hackers bearing Russian "(.ru) addresses seem designed to put detectives off the trail. The Post piece avers that hackers-for-hire were the responsible parties, but the question is: who were they working for?

Which leads us to a larger question: who benefits? Clearly both the Saudis and the Israelis – whose semi-clandestine alliance has been documented in this space – had everything to gain from this intra-Arab spat. United by fear and hatred of Iran, Riyadh and Tel Aviv have been quietly cooperating to unite the Sunni Arabs against Iran – and draw the United States into open conflict with Tehran. Both abhorred and denounced the Iran deal, and are seeking to actively undermine it: that's another item at the top of the FDD/UAE meet up.

Another factor is the relationship between Mr. Al-Taiba and Jared Kushner, Trump's son-in-law and a powerful figure in the administration: the ambassador has been described as Kushner's "mentor" when it comes to schooling him on all matters Middle Eastern. Kushner, for his part, is a strong advocate for Israel.

There are no innocents, no "good guys" in this part of the world: the reality is that all of these Middle Eastern actors have been subsidizing terrorist outfits, in Syria and elsewhere. The Saudis are perhaps the worst offenders: their worldwide network of radical Wahabist mosques and "educational" outfits has been pushing a terrorist agenda for decades.

The UAE has also been a lucrative source of funding for radical Islamic terrorism, notably in Afghanistan and Pakistan. And while Qatar has not been stingy in this regard, its stance has been notably non-sectarian: while they've given support to the Muslim Brotherhood – perhaps the least radical Sunni organization – they are also capable of sending official congratulations to recently re-elected Iranian President Hassan Rouhani.

This is their great "sin" in the eyes of the Saudi-led Sunni Axis: they have tried to mediate the Sunni-Shi'ite religious war, which threatens the entire region with the kind of bloody turmoil that occasioned Europe's Thirty Years' War between Catholics and Protestants.

The idea that Qatar is solely responsible for the growth and development of Middle Eastern terrorism is laughable on its face: that narrative simply won't stand even the most careless scrutiny. And the proposition that Saudi Arabia is any kind of anti-terrorist bulwark is a cruel joke. That the Trump administration is taking this line is absolutely criminal: it amounts to appeasing and succoring the epicenter of radical Islamic terrorism.

The crazy notion that Iran is the world's leading exporter of terrorism is a page right out of the Israeli-Saudi playbook: for the Trump administration to echo this nonsense contradicts the facts and contravenes American interests in the region. For it is the Saudis who have been funding and arming ISIS, and al-Qaeda, in Syria. And the Israelis have openly proclaimed their preference for ISIS over Syrian strongman Bashar al-Assad. It is radical Sunni fundamentalists, not pro-Iranian Shi'ites, who have been conducting a global jihad against American and European targets. Iran is fighting ISIS in Syria – while the US in bombing Syrian government troops, the main obstacle to the ISIS/al-Qaeda forces.

The Saudi-Qatari conflict has all the hallmarks of a joint Saudi-Israeli operation, complete with cyber-hacking, a full-scale propaganda war, and a clueless Uncle Sam stupidly falling for a brazen deception. What's amazing is that, despite the plethora of evidence that the whole thing is a pretty transparent put up job, the usual suspects continue to get away with it.

... ... ...

[Jun 03, 2017] Energy production and GDP

www.counterpunch.org

pgl , June 03, 2017 at 11:03 AM

Jun 03, 2017 | economistsview.typepad.com
Menzie Chinn:

http://econbrowser.com/archives/2017/06/why-did-the-president-rely-upon-a-consultants-report-for-his-decision-on-the-paris-accord

"the President cited this NERA study, commissioned by the American Council for Capital Formation, and the U.S. Chamber of Commerce. Why didn't the President rely upon his own experts within the White House?"

Because his CEA is not yet staffed. The NERA "study":

http://assets.accf.org/wp-content/uploads/2017/03/170316-NERA-ACCF-Full-Report.pdf

NERA uses its "model" to forecast that the cost to real GDP by2040 will be a 9% shortfall and the cost to employment will by 31.6 million jobs. Now that sounds BAD, BAD. But it sort of reminds me of the kind of "quality analysis" we might expect from the Heritage Foundation. Of course that is what the American Council for Capital Formation, and the U.S. Chamber of Commerce paid NERA to do.

libezkova - , June 03, 2017 at 01:29 PM
Any 2040 forecast of GDP needs to be based on the forecast of the price of fossil fuels.

http://corporate.exxonmobil.com/en/energy/energy-outlook

libezkova - , June 03, 2017 at 01:44 PM
They predict:

"World GDP doubles from 2015 to 2040, with non-OECD GDP increasing 175 percent and OECD GDP growing 60 percent"

im1dc - , June 03, 2017 at 02:16 PM
I learned much reading this about Russia's taxing of its crude oil...you may find it interesting as well...

Careful though, Irina Slav neglected to mention that Russia never stopped producing as much oil as it could during OPEC's deal to cut production so this is hardly a balanced article

Putin and the Russian Oligarchs are not going to cut production, Mother Russia (Putin) needs the cash flow (as do the other OPEC cheaters)

http://oilprice.com/Energy/Energy-General/OPEC-Cuts-Send-Russias-Oil-Heartland-Into-Decline.html

"OPEC Cuts Send Russia's Oil Heartland Into Decline"

By Irina Slav...Jun 03, 2017,...2:00 PM CDT

"Western Siberia is to Russia what the Permian is to the U.S. Well, kind of. Kind of in a sense that it's one of the longest-producing oil regions and there's still a lot of oil in it. Yet, thanks to the production cut deal with OPEC, Russian companies have had additional motivation to move to new territories in the east and the north, where taxes are lower.

In Russia, the older the fields, the higher the taxes operators have to pay. Now that the country has pledged to continue cutting 300,000 bpd for another nine months, the most obvious choices for the cut are the mature Western Siberian fields. In the first quarter of 2017, for example, output at Rosneft's Yugansk field fell by 4.2 percent, Bloomberg reported.

Production at other Western Siberian fields is set for a decline as well, with the daily output rate from lower-tax deposits in the Caspian Sea, Eastern Siberia, and the North seen to rise to 866,000 bpd by the end of the year, or 74 percent on the year. The shift away from mature fields to new ones will continue over the medium term, according to BofA analyst Karen Kostanian, as overall Russian output grows. No wonder, as tax relief on new projects sometimes reaches 90 percent.

Lukoil's output from the Filanovsky field in the Caspian, for instance, is taxed at 15 percent at a price per barrel of US$50. The average for mature fields is 58.1 percent, in a combination of mineral resource tax and export duty.

And this is not the end of it: in 2018, the Kremlin will test a new tax regime for the oil industry as it seeks to maintain production growth and the respective revenues, contributing a solid chunk of federal budget revenues. The new regime, Deputy Energy Minister Alexei Texler told Reuters, will first be introduced for a selection of 21 fields with a combined output of 300,000 bpd for a period of five years.

In case the government is happy with the results from the test, the new regime would be expanded to the whole industry. Hopes are for a substantial increase in output thanks to the new tax regime: up to 20 percent over the five-year period. These hopes seem to be limited to the Energy Ministry, however, the Finance Ministry worries that the new regime will make it harder to control the flow of tax money. The treasury is also against combining the new regime with already existing tax incentives for the industry.

So, the move away from what Bloomberg calls the oil heartland of the world's top producer is all but inevitable. It will come at a cost for the state coffers of some US$25 a barrel of Western Siberian oil, or US$2.7 billion annually, according to a Renaissance Capital analyst, but the cost will be worth it. The cost would increase, too, if the current output cut arrangement with OPEC fails to push up prices, which for now is exactly what we are seeing, while the ramp-up in the U.S. oil heartland continues."

libezkova - , June 03, 2017 at 04:18 PM
"With enough thrusts pigs can fly. It is just dangerous to stand were they are going to land." This quote is perfectly applicable to OPEC and Russia oil production now.

Neglecting maintenances and using "in fill" drilling just shorten the life of the traditional oil fields. And new large oil fields are difficult to come by.

My impression is that most of "cuts" in production by Russia and OPEC are "forced moves". Production was declining from mid 2016 when old investment were already all put into production and few new investments were made since late 2014.

If we assume the lag period of two years, than in mid 2018 we will feel the results of decisions to cut investments made in 2016.

In this situation announcing cuts allow to save face.

The net result is the same -- the oil price should rise to the level when it is economical to develop "more expensive oil" (deep see drilling, Arctic oil and such) as replacement rate in traditional fields is insufficient to maintain the production.

As long as The US government allow shale companies to generate junk bonds (which will never be repaid representing kind of hidden subsidy) along with "subprime oil", shale can slightly compensate the decline in production, but my impression is that this card was already played. Despite all hoopla from WSJ and other major MSM.

The fact that oil production for some time was artificially kept flat or slightly rising is strange and might be politically motivated (Saudi) which put other producers in situation when they were force to follow Saudi lead or lose customers. China played Russians against Saudi pretty well and got what they want at lower prices.

Those "intensification of production" were short term measures which in a long run are detrimental to old oil fields output.

They might even lessen the total amount of oil that can be extracted from a given field.

The key question here is: Does Russian oil firms has the amount of money needed to maintain production on the current level (at the current oil price levels ) or not.

Obama has a chance to move the US personal fleet to hybrid and more economical cars. He lost this chance. SUV is now dominant type of personal cars int he USA, the trend opposite to what it should be. Even hybrid SUVs like RAV4 hybrid get only around 33 miles highway, less in city traffic.

Transition to Prius type cars (with their around 50 miles per gallon) would allow US consumers to save almost half of oil spend on personal transportation (which probably represent around 60% of total US consumption http://needtoknow.nas.edu/energy/energy-use/transportation/ )

[May 30, 2017] Saudi nobility might escape leaving the peasantry behind to sort things out

May 30, 2017 | peakoilbarrel.com
Eulenspiegel says: 05/24/2017 at 3:20 am
Saudi Arabia and independend from oil? Good joke.

They are that wasteful, they never had to look for costs, they need foreign workers for anything they do – that won't work out.

At the moment they have zero income without energy sector, if you don't count the Hadsch around Mekka as income.
And they are too big to copy the Dubai model, just to build real estate as an industry to live from.

They could go solar – but then they should start to invest billions in infrastructure to sell the stuff to Europe and China now.

George Kaplan says: 05/24/2017 at 10:00 am
I'll bet some money is going into upgrading their escape pod fleet of jets.
Caelan MacIntyre says: 05/24/2017 at 6:31 pm
My chips in for that bet too. Leave the peasantry behind to sort things out.

Perpetual Fall to the Sun

[May 30, 2017] US shale production increase scenarios at different WTI prices and cost inflation levels assuming no new debt

May 30, 2017 | peakoilbarrel.com

Energy News says: 05/29/2017 at 7:06 am

US shale production increase scenarios at different $WTI prices and cost inflation levels assuming no new debt (no mention of paying down existing debt?)

May 24, 2017 – Leslie Wei – Rystad Energy
Figure 3 shows the estimated Y/Y growth in NA liquids shale production for different WTI oil prices and cost inflation scenarios compared to 2016 cost levels. The "Call on shale" highlighted section represents the 1.3 million bbl/d average taken from figure 2. The key assumption for this analysis is that the E&P companies will balance the investments with operational free cash flow (cash neutrality). For example, in a 70 USD/bbl oil price range, cost inflation within the range of 0% to 25% is required to meet the 1.3 million bbl/d y/y growth in the "call on shale." In a 50 USD/bbl scenario, the liquids production may only grow as much as 0.5 million bbl/d on a yearly basis even if the costs remain flat. To reach the call on shale of a yearly growth of about 1.3 million bbl/d, the oil price needs to move into the range of 70 to 80 USD/bbl for the companies to stay cash flow neutral.
https://www.rystadenergy.com/NewsEvents/PressReleases/the-call-on-shale

Jeff says: 05/29/2017 at 8:04 am
Thank you for the link.

"call on shale" – they may return the call if the price is >70 to 80 USD/bbl.
"call on OPEC" – what will it take for them to return the call?

AlexS says: 05/29/2017 at 9:14 am
Energy News,

Thanks for the link.

I particularly liked these calculations:

"Figure 2 shows the necessary yearly growth in shale production to balance supply and demand from 2017 to 2021. To achieve this, shale has to grow by 1.6 million bbl/d in 2017, and more than 2 million bbl/d in 2021. This implies a total shale oil production of 14.1 million bbl/d in 2021. To achieve such growth in shale production, the number of spudded shale oil wells has to reach ~20,000 wells in 2021, or two times the number of spudded wells in 2016."

Eulenspiegel says: 05/29/2017 at 9:58 am
Now we have roundabout 4-5 million b/d shale production – how can only the double number of new wells bring the triple production?

On the other hand, is shale now unlimited in resources and can supply the whole world with oil, enough wallstreet silly money (TM) provided?

Oh, and another thing: Do the shale oil wells no more decline rapidly after drilled, but add up nice to such production numbers.

PS: Here in financtial newspapers the typical shale break even price is now at 23$/barrel. There are only a few oil wells left production cheaper than US shale oil.

Kolbeinh says: 05/29/2017 at 1:17 pm
Let us see the well completion numbers from Texas for May first (RRC), and step by step judge if enough wells are actually completed. The trend is not going right through the roof when looking at the April oil well completion numbers tbh.

I don´t like the expression "call on shale" as it implies that there is a vast base of resources there to be exploited, which could turn out to not be true. I also do not like the term "call on OPEC" as it implies the same.

The countries in OPEC are very different and just some of them can ramp up I can imagine. Who knows actually with all the secrecy and lack of accurate oil field data coming from some of the participants in the organisation.

Glenn E Stehle says: 05/29/2017 at 6:34 pm
1. The areal extent of the Permian Basin shale oil plays is quite large in comparison to other plays.

http://www.shaleexperts.com/images/Permian-Basin-Geology.png

2. The shale column in the Permian Basin is about 4,000 feet thick, whereas in the Eagle Ford and Williston Basin it is only a few tens or hundreds of feet thick.

3. There are at least seven productive shale zones (which have already been tested), and several more that have not been tested, stacked like pancakes, one right on top of the other, in the Permian Basin.

http://www.aogr.com/assets/images/content/4_0616_fig3_sp16.png

4. The stacked plays in the Permian Basin allow for economies of scale not offered by the other shale plays.

5. Improved drilling techniques have cut the number of drilling rig days needed from spud to finishing of drilling operations (that is, the cementing of production casing) substantially.

6. Post-2015 fracking techniques (Fracking 2.0 and Fracking 3.0) are producing far more prolific wells. Offsetting wells, with identical lateral lengths, and completed with Fracking 3.0 are producing almost twice as much oil as the pre-2015 wells completed with Fracking 1.0.

7. The Permian Basin, being a mature oil and gas basin, already has a great deal of existing infrastructure already in place, and is not too terribly far from the refinery complex on the Gulf Coast, as the Williston Basin is.

[May 30, 2017] In the business outlook section, the Keane Group states they are seeing higher pricing for fracking services

May 30, 2017 | peakoilbarrel.com
shallow sand says: 05/26/2017 at 7:29 am
The only public company that is solely focused on fracking services in the US shale basins in Keane Group, ticker symbol FRAC. The company just went public at the end of 2016.

Keane's 10Q for 1/17 is interesting. The company lost $72 million. Their costs of services, which excludes depreciation, selling, general and administrative expenses and interest, was just $16 million less than revenues. The margin between revenues and costs of services was just 6%. This was an improvement over 2016, where costs of services were actually more than revenues.

In the business outlook section, the company states they are seeing higher pricing for services. In particular, due to greatly increasing volumes of sand per well, the company has seen certain grades of sand doubling in price since the second half of 2016.

This is not a small company, they are in all shale basins and do work for some of the big names. Clearly, as more fracking crews are utilized, costs are headed up.

Of course, they still do not have all of their frack crews working. There is still overcapacity in all service areas, as active rigs are still far below the peak in 2014. Well costs have fallen several million dollars since 2014. It is interesting that even with the price recovery in Q1, 2017, most upstream US shale companies showed losses or small earnings per share. ExxonMobil, Chevron, Pioneer, Marathon and EOG all either showed small positive or negative EPS in Q1 from US upstream.

There were outliers, such as Diamondback(FANG), which showed high EPS. However, a close look shows FANG's CAPEX is still significantly higher than D,D&A.

Looking back since 2014, very interesting how the US shale industry battled to maintain production. Saudi Arabia surely didn't anticipate the ability of US firms to operate at a loss for such a long time. 2 1/2 years later, US service firms are still operating at a loss, if Keane's example is accurate. US financial markets are very deep, interest rates remain very low on a historic basis, and executives earning 7-8 figures annually are not simply going to shut down, as no growth equals lower bonuses.

The numbers reported in 2015 and 2016 in aggregate by US shale firms clearly show that the vast majority of 2015 and 2016 shale oil wells were operated at a loss. Almost all will not reach payout in 36-60 months at the current futures strip. Hopefully, when this shale phenomenon has concluded, there will be some in depth studies conducted of the financial side. Those reports should make for very interesting reading.

Our small family business was not immune from cutting, such that 2016 was in the black, despite well head prices for the year it just $36. True, we are not drilling still, and production is slowly declining. This will continue until prices solidly rise into the $55-65 WTI band we desire. However, we can take several more years of $45-53 WTI, if that is what the future holds. The consensus in our small oil patch is that we need to be more worried about future demand, than future supply. As US shale continues to climb the wall, taking total US C+C to 10, 11 or even 12 million BOPD, that climb will get tougher, and more expensive per barrel. Maintaining 10-12 million BOPD for a few years will take more CAPEX than is currently being spent. Maybe Dennis knows how much more?

It seems more of the public is pushing for EV, ride sharing, autonomous vehicles, etc. I have tough time envisioning this, living in the middle of nowhere, in the middle of "fly over territory". But, even though these initiatives are also generally hemorrhaging cash, just as shale has, dollars and cents do not seem to matter. Kind of like how a company like Facebook can be worth $450 billion, yet I have not used it once and see it as nothing but online gossip and a complete waste of time. I can't understand it, but it is reality.

Watcher says: 05/26/2017 at 10:59 am
> In particular, due to greatly increasing volumes of sand per well, the company has seen certain grades of sand doubling in price since the second half of 2016.

Son of a gun. Imagine that. Here's my fave photo of fracking in the Bakken. It's from 2012:

http://www.businessinsider.com/youve-never-seen-anything-like-the-williston-oil-boom-2012-3#here-is-a-load-of-proppant-from-china-used-to-frac-a-well-sitting-at-the-rail-head-25

Look real careful. Bags of ceramic proppant. From China. It's better at holding fractures open than sand. Sand was the downshift because of cost. hahahahahaha

We never do hear about the lower ultimate recoveries simply accepted from use of inferior proppant. Not part of the narrative.

[May 30, 2017] Occidental story suggest that it might be bought

peakoilbarrel.com
coffeeguyzz says: 05/29/2017 at 10:41 pm
There seems to be increasing mention of Occidental being bought out by someone with extremely deep pockets. Owning over 2 million net acres, Oxy is the biggest leaseholder in the Permian.

Two points in following up on Glen's post
The productive footprint of the Permian continues to expand up into New Mexico.
The output from wells in many of the basins has significantly increased in the past 12 months.
More precise targeting, staying in zone near 100%, and diversion processes are the biggest reasons.

aaannd, speaking of Oxy, they just loaded the first VLCC – Very Large Crude Carrier, capacity 2.2 million barrels – at their dock at Corpus Christi.
66 foot draft is too deep, presently, for the channel so 60% loading at dock and balance from smaller vessel when out in deeper water.

Cowboyistan.

Watcher says: 05/30/2017 at 2:25 am
That's really exciting. So was their latest earnings report.

OXY -$0.69 / share
Oh and btw, EOG -$1.08/share

The plan would be to sell the acreage to some shale operator with more expertise at achieving profit, like Continental Resources.

CLR -$0.54/share

Eulenspiegel says: 05/30/2017 at 2:55 am
Red balance sheet ink doesn't matter for shale companies – as long as there is a story. They'll get new loans, or enough investors buying new stock.

Shale companies are like .coms in the 2000s – they are about the story, not paying big dividents. That's what old oil is for.

If now everyone of big oil drills in perminal and abandones deep water and other long run projects – it's a 0 sum game in global supply. Perhaps permian can get really 15 millions or more barrels a day, but without deep see and Alaska + other difficult projects, that's not 1 barrel more in global supply.

And it will be the mother of all oil rushes, with not being able to see a piece of Texas without drilling towers.

Glenn E Stehle says: 05/30/2017 at 9:03 am
Watcher,

Read it and weep.

HOUSTON - May 4, 2017 - Occidental Petroleum Corporation (NYSE:OXY) today announced reported net income of $117 million, or $0.15 per diluted share, compared with a reported loss of $272 million, or $0.36 per diluted share, for the fourth quarter of 2016 .

"Our focus remains on areas that generate the best returns and we are seeing improvements in margins across all of our businesses," said President and Chief Executive Officer Vicki Hollub.

"Permian Resources continues to be a growth engine for our company, with a 5 percent improvement in production this quarter, reflecting increased drilling activity and well productivity in the Delaware Basin."

I know the information I am providing is anathema for those who have been waiting around with baited breath for the last forty years, hoping to see the last gasps of the Age of Oil. But it looks like you might have to wait a bit longer for that longed-for event, maybe quite a bit longer.

It is also anathema to those like Mike and shallow sands, and OPEC and Russia, who with their conventional oil portfolios had hoped for the quick demise of shale. After all, if the cost to produce that marginal barrel is now $50 to $60, and it remains at that cost, there is little hope for an oil price recovery much above that price. Shale killed the price of oil, and may continue to do so for some time in the future. This is not what those vested in conventional oil had hoped for, and continue to hope for.

When Khalid Al-Falih arrived at Davos in late January, the Saudi oil minister was exultant .

Almost five months later, U.S. production is rising faster than anyone predicted and his plan has been shredded .

[S]hale has defied the naysayers. By the time OPEC meets in Vienna on May 25, U.S. output will be approaching the 9.5 million barrels a day mark - higher than in November 2014 when OPEC started a two-year price war. The rebound has been powered by turbocharged output in the Permian basin straddling Texas and New Mexico.

Forced to adjust to lower prices, shale firms reshaped themselves into leaner operations that can thrive with oil just above $50 a barrel.

Since OPEC agreed to cut output six months ago, U.S. shale production has risen by about 600,000 barrels a day, wiping out half of the cartel's cut of 1.2 million barrels a day and turning the rapid victory Saudi Arabia foresaw is turning into a stalemate .

On Thursday, OPEC's own monthly oil market report said that production from non-members would rise 64 percent faster than previously forecast this year, driven mainly by U.S. shale fields.

So far, OPEC hasn't been able to "cut supplies faster than shale oil can increase," said Olivier Jakob of consultant Petromatrix GmbH .

[T]he cartel faces big risks. The most prominent is that extending cuts lifts the oil price high enough for shale to hedge again, as it did earlier this year .

Increasingly, the oil market believes the real battle between OPEC and Russia, on one side, and shale, on the other, will take place in 2018, when an increasing number of observers predict U.S. production will flood the market as it did in 2014 .

U.S. shale producers used the price spike that OPEC triggered earlier this year to lock-in revenues for 2017, 2018 and, in some cases, even 2019. With their financial future relatively secure, they started deploying rigs. Since the count of active rigs in the U.S. reached a low last, producers have added an average seven units per week, the strongest recovery in 30 years .

According to the U.S. Energy Information Administration, American crude production will surpass the 10 million barrel a day mark by late next year, breaching the record high set in 1970. The shale boom will propel non-OPEC output up 1.3 million barrels a day next year, effectively filling up almost all the expected growth in demand.

"The supply and demand balance for 2018 looks very bad," said Fared Mohamedi, chief economist at consultant The Rapidan Group in Washington. "That's when the big fight is going to happen."

In Fight Against US Shale Oil, OPEC Risks Lower for Longer
http://www.rigzone.com/news/article.asp?a_id=150118

Boomer II says: 05/30/2017 at 10:38 am
Occidental profit beats; shares fall on weak output forecast | Reuters : "Occidental Petroleum Corp's quarterly profit beat estimates on Thursday but the company's shares fell to a near eight-year low as the oil and gas producer forecast lower-than-expected production for the current quarter."
AlexS says: 05/30/2017 at 12:07 pm
Oxy is still largely a conventional producer.
Permian EOR is conventional, not sure about South Texas. Non-US accounts for almost half of total output.
So Oxy's 1Q results are not representative for the shale sector in general
AlexS says: 05/30/2017 at 1:28 pm
In fact, during the years of the shale boom, in 2011-14, OXY was one of the very few publicly traded U.S. E&Ps with positive free cash flow. All of those 3 or 4 companies had large non-shale operations. On the contrary, all pure shale players had significant negative free cash flows.
AlexS says: 05/30/2017 at 2:56 pm
Glenn,

I agree that "negative free cash flow is not bad in itself". The question is for how long
negative free cash flow is not bad?
Most shale companies had negative free cash flows since 2011 (already 6 years), having accumulated large debts. There was a short period in 2H16 when, due to sharply reduced capex, the shale sector was
free cash flow neutral. But recovering investments since 2017 will result in renewed period of burning cash (as evident from 1Q17 results). So how many more years the markets will tolerate shale companies' negative free cash flows?

I personally think that the shale sector could remain cash flow neutral or even slightly free cash flow positive, especially with gradually rising oil prices. But that would imply very modest growth in capex, and hence in production. And that still does not solve the problem of repaying accumulated debt, unless shale companies sell part of their assets and/or issue new shares, diluting existing shareholders.

AlexS says: 05/30/2017 at 1:39 pm
Exposure to shale operations has actually proven a burden for the U.S. oil companies' financials

In Oxy's case,from 2014 to 1Q17, domestic upstream operations were a negative contributor to the company's earnings (unlike international oil and gas). Positive 1Q17 earnings were due to non-shale operations that offset a $122 million loss from the US oil and gas segment. For 2016 as a whole, U.S. oil and gas had a net loss of $999 million, while all other segments, combined, have shown net earnings of $493 million. The same is true for the large US integrateds, like Exxon, which consistently had negative earnings in its US upstream segment in the past few years due to shale exposure.

That's the reality!

OXY's segment earnings
click to enlarge:

Ves says: 05/30/2017 at 5:25 pm
"Most of the giant oil companies seem to think they're not, as they write off or sell their crown jewels of 2011 – 2014 (Shell, Conoco and Exxon have all done so with their Canadian sands, and as you point out Oxy did with its Bakken shale) and pivot towards the Permian shale. It's called creative destruction, as older producing properties and techniques can no longer compete with the new ones."

Glenn,
To make a sale someone must buy. Logic does not apply that the sellers are smart and the buyers are dumb at this point. There was a seller and there was a buyer and that is all that we can say about oil sand deals. We don't know the real reasons for these sales. It is just interesting that all deals with oil sands with majors happened in downturn and that all buyers are Canadian companies.
And there is nothing creative about Shell, Exxon, Conoco acquiring all these oil sands properties at inflated prices when oil was at north of $100 during 10 years span and selling all at ultimate bottom when price at one point was $26.

shallow sand says: 05/30/2017 at 1:02 pm
Oxy breaks down EPS by segments.

For Q1, 2017:
US upstream -$191 million
Foreign upstream $418 million
Chemicals $170 million
Marketing and Midstream -$47 million.

The above are pre-interest and pre-tax. Oxy paid quite a bit in foreign taxes, received a large US tax benefit due to US losses, and paid over $70 million in interest, a good chunk being on debt incurred by spending in excess of cash flow on US unconventional in 2010-2014. OXY lost a good chunk of change in the Bakken and completely left the area including a multi-million $ regional headquarters they had just built in Dickinson, ND. Took a big write down on it.

I have looked a OXY Permian unconventional wells. Many pre-2016 were bad, sub 100K BO to date. I assume they are getting better, like the rest of the Permian.

shallow sand says: 05/30/2017 at 1:13 pm
If I am not mistaken, XOM, CVX and COP made positive EPS other than in US upstream in Q1, 2017. CLR broke even, PXD posted a small loss, EOG posted small net income.

FANG and XEC were outliers with strong EPS, but upon closer look, these numbers were aided greatly by low DD&A per BOE, as both elected to not place substantial CAPEX on DD&A yet.

Although I'd like $55-65 WTI, can live with $45-53. We will see how many years it takes for Permian to top out, akin to Bakken and EFS. Could take awhile, given land area. Will take awhile to see how much of the Permian is "good".

[May 30, 2017] Us shale companies ponsi

May 30, 2017 | peakoilbarrel.com
Energy News says: 05/26/2017 at 9:53 am
I've not seen any recent news on energy debt, no doubt Bloomberg will write an update sooner or later

jed says: 05/26/2017 at 5:36 pm
Had to laugh, earlier in the week I noticed zero hedge suddenly started reporting in "Lower 48 production" after US production dropped last week.

Noticed today some other guy in the comments picked it up too.

http://www.zerohedge.com/news/2017-05-26/us-crude-production-hits-21-month-highs-rig-count-rises-19th-straight-week

jed says: 05/28/2017 at 11:43 pm
My issue isn't about production. It's the underhanded methods to switch from one measurement to another to suit their narrative.

When US production was declining last year they stopped posting US production charts. The moment that changed and production had consistent increases the charts reappeared. I don't understand their issue with being honest.

They have some good stuff there, but for anyone paying attention it really detracts and casts a dark light on them.

Dennis Coyne says: 05/30/2017 at 7:03 am
Hi Glenn,

The EIA makes lots of predictions and many of them are wrong. Conventional output will decline, GOM will be flat or declining and LTO may increase by as much as 2 Mb/d from the previous peak by 2023 and will then decline sharply (peak LTO will be about 6.5 Mb/d at most, but other US C+C output will decrease by 1 Mb/d at 3%/year annual decline). US output might reach 10.5 Mb/d, but not until 2022 rather than 2018, note that this does not satisfy 2016 crude inputs to refineries and blenders which was about 16 Mb/d, unless demand decreases by 5 Mb/d from 2017 to 2022.

I doubt that will be the case, by June 2019 we will probably see $80/b (2016$) for Brent crude. and by June 2020 the price may be North of $100/b (2016$).

Mike Tate says: 05/27/2017 at 6:42 am
Texas oil production has increased in Districts 5,7c,and 8 since October 2014. All the other 10 districts have dropped by a total of 714,406 bbls per day. I am using Texas RRC District production October 14 to January 17.

[May 30, 2017] Looks like the Chinese have been filling their SPR over the last two years

May 30, 2017 | peakoilbarrel.com
George Kaplan says: 05/24/2017 at 9:57 am
There's a plausible sounding theory, even though posted on Zero Hedge, that the Chinese have been filling their SPR over the last two years, and that is about to stop. This would mostly account for why OECD storage levels only took about 35% of the supply-demand imbalance. If they do stop then about 1 mmbpd of demand would suddenly be lost, but it might also imply that the real economy demand growth in the period since January 2015 has only been half what it looks to have been. Taking account of the sudden drop and a slower growth in demand would mean a longer time would be needed to draw down OECD stocks. However if the China SPR scenario is correct then almost all the drawdown would come from OECD. By my reckoning this would push a balancing out to late 2018 (although by then we may be seeing some bigger supply drops as the pipeline for new project start-ups will be drying up). But if the balancing is pushed out then the chances of many FIDs this year or next will decline and the possibility of a sudden supply crunch in 2019 through 2022 would be greater. The green curve below gives possible drawdown under this scenario. The red one was a previous assumption that the OECD stocks would be drawn down at only about 35% of the imbalance (as happened when they were rising). I seemed a bit iffy when I fitted it that way, and I think the China SPR filling is a better explanation.

Watcher says: 05/24/2017 at 6:00 pm
SPRs in general try to have 90 days of domestic consumption in them. This was a standard put into place mostly in Europe. China has embraced it.

The US at 750ish million barrels and having a consumption (net of production) of about 11 million bpd (remember, this is real stuff . . . consumption, no refinery gain BS allowed) and so not quite 70 days domestic consumption.

China, at net consumption of about 7 million bpd X 90 needs an SPR of 630 million barrels. That's about what they have, but of course with 5% consumption growth they'll have to adjust up, but for now . . . all is well.

There probably is no flow in or out of China for SPR reasons. Already full. Have been for a while.

Dennis Coyne says: 05/25/2017 at 12:30 pm
Hi Watcher,

Crude inputs to refineries and blenders was 16.2 Mb/d for the 2016 average.

https://www.eia.gov/dnav/pet/pet_pnp_inpt_dc_nus_mbblpd_a.htm

So 700/16.2 is 43 days for SPR alone. For commercial crude stocks plus SPR it is 1200 Mb so 1200/16.2=74 days.

https://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_m.htm

George Kaplan says: 05/25/2017 at 2:29 pm
This is the chart Zero Hedge had, or linked to – the key is Xinhua CFC, who have Chinese data not otherwise available and charge a lot of money for it. I don't know how you'd go about checking if it's correct.

Energy News says: 05/26/2017 at 4:26 am
Hello, don't forget that Xinhua doesn't publish China's SPR figures. The SPR figure in the chart is an estimate based on (Production + Imports – Refinery Inputs). I'm not sure if all the teapots are included in the official refinery data.

I think Zero Hedge borrowed the chart from here:
Scotiabank pdf file: http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/SCPI_2017-04-12.pdf

Latest figures from Xinhua news agency
2017-05-26 Chinese oil inventories month/month April changes: crude +1.64%, oil products -7.87% (gasoline -0.27%, diesel -14.4%) – OGP/BBG

Chart showing March

Energy News says: 05/26/2017 at 8:49 am
China's April diesel stocks fall for second straight month -Xinhua
http://af.reuters.com/article/energyOilNews/idAFL4N1IS2EJ
George Kaplan says: 05/26/2017 at 1:54 pm