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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
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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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[Dec 14, 2018] Looks like the USA is supplying half of the world soon at these growth rates. From were this growth can come? Do they sell Strategic reserve to keep prices low?

As big declines in legacy production are a characteristic of shale oil, then there will come a time when production from new wells cannot keep up with the decline from the legacy wells. It can happen in 2019 or 2020.
My suspicion is that the economics are not that good and most wells are not profitable from November 2018 or so. So there is something fishy that the shale oil industry ploughs on and continues to set new highs month after month.
Notable quotes:
"... We won't have much, or any growth in the first half of 2019, no matter what the hype is, unless prices spike. ..."
Dec 14, 2018 | peakoilbarrel.com

Eulenspiegel, 12/12/2018 at 12:44 pm

In other sources US growth is more 1.9 mb/year, source is Rystad:

https://oilprice.com/Energy/Crude-Oil/OPEC-Came-Up-Short-Heres-What-They-Should-Do.html

Looks like the USA is supplying half of the world soon at these growth rates.

As far I know Bakken is still pipeline limited the next time, so no growth from there?

So it falls most to GOM, Eagle ford and Permian, which can grow without pipelines?

GuyM, 12/12/2018 at 2:04 pm
EF does not have pipeline problems, but it is not going to grow at $55 or less oil price. If prices rise to $80, yes. But, the price will need to be consistent for a good long while.

GOM has hit its high back in August according to SLa and George.

We won't have much, or any growth in the first half of 2019, no matter what the hype is, unless prices spike.

[Dec 14, 2018] Yeah, seems highly unlikely at best that Eagle Ford will ever regain its high

Dec 14, 2018 | peakoilbarrel.com

ProPoly, 12/13/2018 at 12:35 pm

Yeah, seems highly unlikely at best that Eagle Ford will ever regain its high. Even the EIA forecast – notorious blue sky that it is – only gets it back to 1.5 million bpd. And that on a theory of producers shifting from Permian due to logistical constraints in the latter.

It's a mature area, only so many decent spots to drill.

[Dec 14, 2018] Small business is a tough place, not just in the oil industry, but all over

"Note that an oil price scenario between the AEO 2018 low oil price case and reference oil price case (average of the two scenarios) would mean that at current well cost, the Permian Basin would never become profitable. This is what Mike Shellman has been saying all along."
Notable quotes:
"... We basically lost $20 a barrel in the blink of an eye. In our case, that is over $100K per month of income loss. This after 2015-17, where the price was less than half what it had been 2011-14. ..."
"... Imagine what would happen if the boss walked into the tech campus of a firm in Silicon Valley and said everyone was taking a $12,000 per month pay cut immediately. Would be a lot of knashing of teeth. ..."
"... Now imagine the pay cut was pretty much in conjunction with an erratic President, supported almost 100% by the industry, ironically, who erroneously thinks .30 a gallon lower gasoline prices will be a boon to the US economy. ..."
Dec 14, 2018 | peakoilbarrel.com

shallow sand, 12/13/2018 at 9:49 am

Dennis.

I think the frustration of a small business oil producer should be obvious.

My family and I have pretty much decided producing oil in the US is not a real business anymore. How can one have a real business when there are so many fixed costs, that do not change much, with the price of the product sold moving up and down like a yo-yo? Add to that at least 50% of the voting public thinking what you are doing is evil. It is now much more preferred that one grow harvest and sell cannabis so people can get high, rather than produce oil for gasoline, diesel, plastics and the numerous other daily used consumer products.

You have done a lot of construction work, so I am sure you know the feeling when there is a recession and work drops way off. At least you might get some sympathy in that situation. Farmers get a government payment. Oil people get laughed at.

We basically lost $20 a barrel in the blink of an eye. In our case, that is over $100K per month of income loss. This after 2015-17, where the price was less than half what it had been 2011-14.

Take the family out here that is living on 20 BOPD, doing all the work themselves. Selling 600 BO per month. That family just saw a $12,000 hit to the top line. The expenses didn't change except for fuel, which has fallen some. Probably less than $1,000 per month savings there.

Imagine what would happen if the boss walked into the tech campus of a firm in Silicon Valley and said everyone was taking a $12,000 per month pay cut immediately. Would be a lot of knashing of teeth.

Now imagine the pay cut was pretty much in conjunction with an erratic President, supported almost 100% by the industry, ironically, who erroneously thinks .30 a gallon lower gasoline prices will be a boon to the US economy. With the alternative being a party openly hostile to the industry, who cannot differentiate between small business owners with small footprints and corporate titans who make no money on the product, but make billions off the corporate largess. We are all terrible polluters who need to get hit with a carbon tax and made to jump through environmental testing hoops despite we are emitting less than the tiny amounts of methane we were emitting 30 years ago.

It is incredibly frustrating.

Hickory, 12/13/2018 at 10:54 am
Shallow. Thanks for explaining how it looks from where you stand.

As much as I hate to think this way, it raises the idea that the government should have a price stability mechanism in place that shields producers from the volatility of the dysfunctional market. Maybe gets updated every 6 months depending on market conditions or something like that. I'm sure everyone would hate it.

Maybe the government should even have a longrange an energy policy. Like a ten yr plan. I know crazy thinking.

shallow sand, 12/13/2018 at 12:43 pm

Regarding my small oil business rant above. Small business is a tough place, not just in the oil industry, but all over.

I think of the grocery store owners. Those guys had a pretty good thing going in small towns 30 years ago. Now they are gone if there is a Walmart nearby.

Same with department stores. The mall in a mid sized town nearby is halfway a ghost town now.

Capitalism can be brutal. But it doesn't seem that another way has proven to be a better idea either. We tend to take freedom for granted in the USA. We are very lucky we have the freedom we do have.

I don't know that price controls are a good idea. I don't know what the answer is to market volatility. We benefitted from getting into oil when no one wanted to touch it, and really did well from 2005–14. Since then, not so good, but maybe our time will come once more.

Overall, shouldn't complain. Just trying to give a unique perspective. Also trying to let everyone know that there are a lot of hardworking small business owners in upstream oil and they aren't the terrible people some make them out to be.

Everything in the media these days is very urban centered and also very East Coast dominant. So different perspectives from different regions is always good, I think.

Longtimber, 12/13/2018 at 3:22 pm
!! Runners-up for Quote of the Year !!
from above:
"Shale oil is a by-product of easy monetary policies which are being withdrawn."
in a way kinda 🙁
https://www.zerohedge.com/news/2018-12-11/real-implications-new-permian-estimates
"Now, I know FOR A FACT that American energy dominance is within our grasp"
and it keeps getting more better
"Reilly stressed, "Knowing where these resources are located and how much exists is crucial to ensuring both our energy independence and energy dominance.""
Pretty Powerful results for just a by-product!

Was it JH Kunstler that pointed out that "energy dominance" is kinda kinky?

Synapsid, 12/13/2018 at 7:14 pm
shallow sand,

I always look forward to your posts. I think there's nothing more important here, and that's a high bar.

farmlad, 12/13/2018 at 10:04 pm
Shallow Sand
Neo Capitalism or Creditism might be better terms to describe our current monetary and economic system. When central banks can issue Credit and lend it to their pets by the billions and when those corporations go under they just issue more Credit to the corporations that take their place. This is not Capitalism where companies and individuals produce something valuable and return a profit that they can then reinvest as Capital.

This current economic system is destroying the sources of wealth and valuables. It encourages burning down the house to stay warm. I used to dream of being a big farmer but more and more I feel lucky when I see the stress and fear that so many of the bigger farmers are dealing with.

I appreciate your great contribution to this site. I've learned so much from your comments. They've increased my confidence that this shale business would not be here if it were not for the biggest ponzi scheme to date. And that the peak of Oil production per Capita that was reached in 1979 will never again be topped in my lifetime even with all this fraud on its side.

Some great musings from Charles Hugh Smith
https://www.oftwominds.com/blogoct18/zombies10-18.html

Dennis Coyne, 12/14/2018 at 12:35 am
shallow sand,

Your perspective is much appreciated. I continue to hope for higher oil prices as that is what will allow us to get through the energy transition.

Boomer II, 12/13/2018 at 1:52 pm
Oil consumption might head down.

This one on recession.

https://www.newsweek.com/recession-2020-cfo-economy-market-crash-general-motors-verizon-trump-2019-1255426

This one on automation.

https://www.nytimes.com/2018/12/13/opinion/robots-trump-country-jobs.html

Frugal, 12/13/2018 at 8:48 pm
Currently, legacy decline is just above 500,000 barrels per month. This means that if production is to be increased by 100,000 barrels per month then new wells must produce 600,000 barrels per month of new oil.

If US new oil production is indeed increasing by 600,000 barrels/day per month, this is a mind-blowing number -- 7.2 million barrels/day per year. Has new oil production ever increased by this much anywhere else in the World?

Watcher, 12/14/2018 at 12:00 am
Do we have a computation of what % of total US oil production is from wells < 1 year old? Or even < 3 mos old.
Dennis Coyne, 12/14/2018 at 12:29 am
Watcher,

Go to shaleprofile.com to get an idea. In August 2018 roughly 25% of US C+C is from wells which started producing in the first 8 months of 2018.

[Dec 13, 2018] Multipolar World Order In The Making Qatar Dumps OPEC

Dec 13, 2018 | www.zerohedge.com

Besides that, Saudi Arabia requires the organization to maintain a high level of oil production due to pressure coming from Washington to achieve a very low cost per barrel of oil. The US energy strategy targets Iranian and Russian revenue from oil exports, but it also aims to give the US a speedy economic boost. Trump often talks about the price of oil falling as his personal victory. The US imports about 10 million barrels of oil a day, which is why Trump wrongly believes that a decrease in the cost per barrel could favor a boost to the US economy. The economic reality shows a strong correlation between the price of oil and the financial growth of a country, with low prices of crude oil often synonymous of a slowing down in the economy.

It must be remembered that to keep oil prices high, OPEC countries are required to maintain a high rate of production, doubling the damage to themselves. Firstly, they take less income than expected and, secondly, they deplete their oil reserves to favor the strategy imposed by Saudi Arabia on OPEC to please the White House. It is clearly a strategy that for a country like Qatar (and perhaps Venezuela and Iran in the near future) makes little sense, given the diplomatic and commercial rupture with Riyadh stemming from tensions between the Gulf countries.

In contrast, the OPEC+ organization, which also includes other countries like the Russian Federation, Mexico and Kazakhstan, seems to now to determine oil and its cost per barrel. At the moment, OPEC and Russia have agreed to cut production by 1.2 million barrels per day, contradicting Trump's desire for high oil output.

With this last choice Qatar sends a clear signal to the region and to traditional allies, moving to the side of OPEC+ and bringing its interests closer in line with those of the Russian Federation and its all-encompassing oil and gas strategy, two sectors in which Qatar and Russia dominate market share.

In addition, Russia and Qatar's global strategy also brings together and includes partners like Turkey (a future energy hub connecting east and west as well as north and south) and Venezuela. In this sense, the meeting between Maduro and Erdogan seems to be a prelude to further reorganization of OPEC and its members.


LetThemEatRand , 9 hours ago link

It's crazy to think of all of the natural gas burned off by the world's oil producers. I think of those oil platforms that have a huge burning flame on top. This is the kind of **** that reminds us that the people who control the world care not for the people who live here. Can't make a buck from it? ******* burn it.

The Dreadnought , 8 hours ago link

Right fuckin' A

Koba the Dread , 7 hours ago link

Consider though that those oil producers are only in it for the money; it's not an avocation with them. I imagine if there was a way to salvage the natural gas, it would be done. Mo Muny would dictate it.

Ms No , 9 hours ago link

This could be the beggining of a level 5 popcorn event. It started a year or two ago and when I saw it everybody laughed. Well look at it now. Saudi wants to defect. They have had nothing but problems with the House of Sodomy for quite some time now.

I wonder what Mossad and the CIA are planning.

serotonindumptruck , 8 hours ago link

A False Flag operation to block the Strait of Hormuz?

Brazen Heist II , 8 hours ago link

They are planning on removing Salman junior if he doesn't stop embarrassing their sorry asses

Ms No , 9 hours ago link

If this leads to war in the Persian Gulf Edgar Cayce called it. The empire will burn that place down before losing it. They may fail but something is going to go down.

Are the Sauds still full heartedly pushing the Zionist mission in Yemen?

"...submissive allies as Saudi Arabia"

Is that what they call it now?

jmarioneaux , 9 hours ago link

I feel something big is coming with Iran.

PeaceForWorld , 6 hours ago link

As an Iranian-American I have been waiting for something big to happen with Iran. I am really tired of waiting. I hope that Iran will grow some balls and fight the coalition. I know that there are 80 million lives in danger, including my mom going back to Iran for a short term. But this has been like a long torture and unending nightmare.

TeraByte , 9 hours ago link

There is no multipolarity yet, but a bipolar hype of the world dominance run by US and its vassals. An awakening will be harsh, when these realize their emperor goes naked.

[Dec 09, 2018] Pompeo is a Deep State Israel-firster with a nasty neocon agenda

Trump lost control of foreign policy, when he appointed Pompeo. US voters might elect Hillary with the same effect on foreign policy as Pompeo.
Notable quotes:
"... It is to Trump's disgrace that he chose Pompeo and the abominable Bolton. At least Trump admits the ME invasions are really about Israel. ..."
"... Energy dominance, lebensraum for Israel and destroying the current Iran are all objectives that fit into one neat package. Those plans look to be coming apart at the moment so it remains to be seen how fanatical Trump is on Israel and MAGA. MAGA as US was at the collapse of the Soviet Union. ..."
"... As for pulling out of the Middle East Bibi must have had a good laugh. Remember when he said he wanted out of Syria. My money is on the US to be in Yemen before too long to protect them from the Saudis (humanitarian) and Iranian backed Houthis, while in reality it will be to secure the enormous oil fields in the North. ..."
"... The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF. ..."
Nov 30, 2018 | www.moonofalabama.org

jim slim | Nov 29, 2018 4:04:44 AM | 24

Pompeo is a Deep State Israel-firster with a nasty neocon agenda. It is to Trump's disgrace that he chose Pompeo and the abominable Bolton. At least Trump admits the ME invasions are really about Israel.

Peter AU 1 , Nov 28, 2018 9:44:50 PM | link

Pompeo is a Deep State Israel-firster with a nasty neocon agenda. It is to Trump's disgrace that he chose Pompeo and the abominable Bolton. At least Trump admits the ME invasions are really about Israel.

Trump, Israel and the Sawdi's. US no longer needs middle east oil for strategic supply. Trump is doing away with the petro-dollar as that scam has run its course and maintenance is higher than returns. Saudi and other middle east oil is required for global energy dominance.

Energy dominance, lebensraum for Israel and destroying the current Iran are all objectives that fit into one neat package. Those plans look to be coming apart at the moment so it remains to be seen how fanatical Trump is on Israel and MAGA. MAGA as US was at the collapse of the Soviet Union.

Pft , Nov 29, 2018 1:15:05 AM | link

As for pulling out of the Middle East Bibi must have had a good laugh. Remember when he said he wanted out of Syria. My money is on the US to be in Yemen before too long to protect them from the Saudis (humanitarian) and Iranian backed Houthis, while in reality it will be to secure the enormous oil fields in the North.

Perhaps this was what the Khashoggi trap was all about. The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF.

[Dec 09, 2018] Wannabe Zionists (Bolton) has been trying hard to show his loyalty to the Jewish State

Notable quotes:
"... Trump won't fire his son-in-law, so if Jared doesn't have the decency to resign on his own, he may well be responsible for Trump's downfall in addition to his own. Trump's silly daughter, Ivanka, needs to go to. ..."
"... Time for Bolton to send for the clairvoyant Theresa May who has managed to accuse Russia, and Mr. Putin personally, in the Skripals' poisoning n the absence of any evidence ..."
Nov 20, 2018 | www.unz.com

annamaria, November 13, 2018 at 6:43 pm GMT

@Z-man The "wannabe Zionists (Bolton)" has been trying hard to show his loyalty to the Jewish State.

The latest tragicomic attempt by the mustached "person of easy morals": "John Bolton Says "No Evidence" Implicating Crown Prince On Khashoggi Kill Tape" https://www.zerohedge.com/news/2018-11-13/john-bolton-says-no-evidence-implicating-crown-prince-khashoggi-kill-tape

Comment section (David Wooten): "According to the crown prince himself, Trump's [Jewish] son-in-law gave him a secret list of his enemies -- the ones like Al Aweed who were tortured and shaken down for cash. Khashoggi might even have been on that list.

One or more of the tortured ones likely tipped off Erdogan, which is why Turkey only needed to enter the consulate, retrieve the recorded audio device they planted, and walk out with the evidence. Turkey also has evidence that puts MbS' personal doctor and other staff arriving in Turkey at convenient times to do the job -- and probably more. Khashoggi was anything but a nice person but Trump cannot say that or he'll likely be accused of involvement in his murder.

Dissociation is made far more difficult by the fact that Jared is a long time friend of Netanyahu who, like Jared, has befriended MbS .

Trump won't fire his son-in-law, so if Jared doesn't have the decency to resign on his own, he may well be responsible for Trump's downfall in addition to his own. Trump's silly daughter, Ivanka, needs to go to.

Were it not for the Khashoggi affair, fewer Republican seats would have been lost in the election."

-- Time for Bolton to send for the clairvoyant Theresa May who has managed to accuse Russia, and Mr. Putin personally, in the Skripals' poisoning n the absence of any evidence .

These people -- Bolton, May, Gavin Williamson and likes -- are a cross of the ever-eager whores and petty brainless thieves. To expose themselves as the willing participants in the ZUSA-conducted farce requires a complete lack of integrity.

Of course, there is no way to indict the journalist's murderers since the principal murderer is a personal friend of Netanyahu and Jared.

Jump, Justice, jump, as high as ordered by the "chosen."

By the way, why do we hear nothing about Seth Rich who was murdered in the most surveilled city of the US?

Z-man , says: November 13, 2018 at 7:21 pm GMT
@annamaria A 1st grader can see that MbS was behind the murder of Kashoggi.

Trump won't fire his son-in-law, so if Jared doesn't have the decency to resign on his own, he may well be responsible for Trump's downfall in addition to his own. Trump's silly daughter, Ivanka, needs to go to.

I've been hoping for this since they moved to Washington with 'big daddy'.

annamaria , says: November 14, 2018 at 12:49 pm GMT
@Anon " crappy bedtime reading the woolyheadedness "

Hey, Anon[436], is this how your parents have been treating you? My condolences.

If you feel that you succeeded with your "see, a squirrel" tactics of taking attention from the zionists' dirty and amoral attempts at coverup of the murder of the journalists Khashoggi, which was accomplished on the orders of the clown prince (the dear friend of Bibi & Jared), you are for a disappointment.

One more time for you, Anon[436]: the firm evidence of MbS involvement in the murder of Khashoggi contrasts with no evidence of the alleged poisoning of Skripals by Russian government.

The zionists have been showing an amazing tolerance towards the clown prince the murderer because zionists need the clown prince for the implementation of Oded Yinon Plan for Eretz Israel.

The stinky Skripals' affair involves harsh economic actions imposed on the RF in the absence of any evidence , as compared to no sanctions in response to the actual murder of Khashoggi, which involved MbS according to the available evidence . Thanks to the zionists friendship with the clown prince, the firm evidence of Khashoggi murder is of no importance. What else could be expected from the "most moral" Bibi & Kushner and the treasonous Bolton.

Z-man , says: November 14, 2018 at 1:58 pm GMT
@annamaria

The stinky Skripals' affair involves harsh economic actions imposed on the RF in the absence of any evidence, as compared to no sanctions in response to the actual murder of Khashoggi, which involved MbS according to the available evidence. Thanks to the zionists friendship with the clown prince, the firm evidence of Khashoggi murder is of no importance. What else could be expected from the "most moral" Bibi & Kushner and the treasonous Bolton.

Bears repeating.

[Dec 08, 2018] Thoughts on the Future of World Oil Production

Notable quotes:
"... Great article, thanks. Author says US LTO will be done by 2040, which makes sense. The speed and acceleration of sinking oil production is critical since we have not been strongly pursuing alternatives. If the production is down 50 percent by 2030 to 2035 it's going to be a tough go. If it falls faster then we are in severe trouble. ..."
"... The uncertainties he notes are shocking. That we have spent the last ten years pissing away our remaining "pennies" on a driving spree, instead of using it to build a renewable future, really makes me think that the backside of the peak is going to be awful. ..."
"... As a working petroleum geologist in the Delaware Basin and others, I will say USGS and EIA assessments are considered a joke. They do little to take into account the actual geology, or changes in the thermal maturity of the rock across a basin, it is more multiply an average well performance for a certain amount of acres drilled, times the total area of the basin, minus the number of drilled wells. ..."
"... I would not doubt oil production peaks in the mid-2020s as people drill up the best rock, and have to keep shifting to less productive horizons. ..."
"... So the oil cut is out: 1.2 mb. Together with russia and others. So LTO is saved, the frenzy can go on soon. ..."
Dec 08, 2018 | peakoilbarrel.com

Survivalist, 12/06/2018 at 6:43 pm

My apology if this was posted on the last thread; an Interesting article from Jean Laherrere

Thoughts on the Future of World Oil Production

https://www.resilience.org/stories/2018-12-05/thoughts-on-the-future-of-world-oil-production/

I hope the oily side of the blog finds it interesting.

GoneFishing, 12/06/2018 at 7:07 pm
Great article, thanks. Author says US LTO will be done by 2040, which makes sense. The speed and acceleration of sinking oil production is critical since we have not been strongly pursuing alternatives. If the production is down 50 percent by 2030 to 2035 it's going to be a tough go. If it falls faster then we are in severe trouble.
Dennis Coyne, 12/07/2018 at 10:38 am
Gone Fishing,

Jean Laherrere knows a lot, but on LTO I think he may be wrong.
From the piece linked above:
The best approach for forecasting future production is the extrapolation of past production (called Hubbert linearization). For Eagle Ford the trend can be extrapolated toward an ultimate quantity of 3 Gb.

The USGS estimates about a 12.5 Gb mean for the TRR of the Eagle Ford, when economics is considered the URR might be reduced to 10Gb under a reasonable oil price scenario (AEO 2018 reference oil price scenario).

Recent USGS estimates for the Permian Delaware Basin have lead to a revision of my US tight oil estimate to a mean of 74 Gb with peak probably in 2025 to 2030. Decline will be relatively steep from 2030 to 2040, if the USGS estimates for the US tight oil resource prove correct.

Michael B, 12/06/2018 at 9:33 pm
This is a terrific article. It takes all the confusions around oil and articulates them beautifully. His review really makes me want to buy the book.

This is a delight to me because while I've always liked Laherrere's charts, I find his English writing atrocious (not all his fault as a native speaker of French). This could alienate lay readers, which is too bad because his message really needs to get out there.

The uncertainties he notes are shocking. That we have spent the last ten years pissing away our remaining "pennies" on a driving spree, instead of using it to build a renewable future, really makes me think that the backside of the peak is going to be awful.

Laherrere's knowledge is magisterial. Good on the editor who worked with him on this.

yvest, 12/07/2018 at 7:03 am
Indeed the amount of work that Jean is producing is truly quite amazing. By the way what about Kjell Aleklett ? According to his blog he didn't publish anything since 2017, the case ?

The "issue" with Jean is that he also is a climato skeptic (regarding CO2 effects) and this has been detrimental to his ressource studies.

But one exercice in comparing the urgencies (taking the IPCC models just as they are), and feeding them with the resource aspects of Laherrere, clearly shows that peak oil or even peak fossile is the most urgent matter (knowing that anyway the mitigation measures, dimishing fossile fuels burning, are usually the same, except stuff like CSS, that will most probably never happen anyway).

Some elements (and Laherrere charts) in below post about this, sorry in French, but should go ok in gg translate :
http://www.oleocene.org/phpBB3/viewtopic.php?p=2275983#p2275983

Also below ppt in English from B Durand and Laherrere :
http://aspofrance.viabloga.com/files/BD_Fossils_Fuels_Ultimate_2015.pdf

Jeff, 12/07/2018 at 7:07 am
Aleklett has retired.
yvest, 12/07/2018 at 7:11 am
Ok but the case also for Laherrere, and since 20 years or something !
yvest, 12/07/2018 at 7:09 am
And on this subject the most impressive chart is probably below one :

[img] https://iiscn.files.wordpress.com/2018/12/lahererre-et-scenarios-giec.png [/img]

Overall the terrible deficit of the "resource message" compared to the climate/CO2 one, could be seen as a key reason for no measures being taken for the two aspects

Dennis Coyne, 12/07/2018 at 10:42 am
Guym,

Laherrere also suggests a 3 Gb URR for Eagle Ford where the USGS TRR mean estimate is about 12.5 Gb and when economic assumptions are applied the ERR is probably about 10 Gb.

You are much more familiar with the Eagle Ford, at $80/b (2017$) does a 3 Gb URR estimate seem correct?

GuyM, 12/07/2018 at 11:20 am
Seems low.
Dennis Coyne, 12/07/2018 at 11:50 am
Guym,

Thanks. Does 10 Gb seem reasonable or is that too high? Average of USGS mean and Laherrere's estimate would be about 6.5 Gb, again you know the area so your estimates would probably be better than most.

GuyM, 12/07/2018 at 12:52 pm
It's pretty difficult to measure with strictly an $80 price. Some depends on gas price. There are three windows in the EF. Oil, gas/condensate, and mostly gas. Gas has barely been touched, and is the biggest window. Geologically older. It still will produce some oil and condensate. If any, it will be mostly condensate. But it is still production as yet mostly untouched. Gas/condensate has been drilled, and is responsible for the higher api coming out of the EF, but in the past few years, less has been drilled due to the api. Oil window is being drilled, but there is still plenty of tier two and three areas to go. Not so much tier one. How do you measure that, and at what oil and gas price. I would say 12 is possible, but it includes a lot of condensate and gas.

You could look at the USGS assessment of the Delaware in the same light. It may be there, but is it cost productive? You may only get gas and/or condensate, depending on geological age of the formation. Or, you may have to keep chasing after anything, as it moves quickly as wells are drilled.

Dennis Coyne, 12/07/2018 at 1:01 pm
Thanks for the correction. Yes Gas prices would also be needed. The 10 Gb was C+C and yes there is probably lots of condensate. I guess I would make it $4/ MCF for NG, you would probably need condensate and NGL prices to do a full analysis, way too many moving parts for me.
GuyM, 12/07/2018 at 1:21 pm
Got that right. Here's my cracker jacks geology assessment in the Permian. midland and Delaware basins are slightly different, but the both have a wolfcamp as the lower level. It's primarily a shale from my view of core samples. From the Bone Springs to the bottom wolfcamp, there is no clear formation that acts as a container, Bone Springs looks like it is closer to a sandstone, but closely formed from my view of the core samples. Not conducive to water flooding due to lack of "walls". But, because of the lack of walls, the oil/condensate/gas travels when wells are drilled. Indications are that EF has the same problems, but not as fast? Very simplistic, and possibly wrong viewpoint.

And there is a fairly wide variety of prices depending on what comes out. I'm still trying to figure out my pay Stubbs.

Doug Leighton, 12/06/2018 at 6:51 pm
LARGEST CONTINUOUS OIL AND GAS RESOURCE POTENTIAL EVER

Today, the U.S. Department of the Interior announced the Wolfcamp Shale and overlying Bone Spring Formation in the Delaware Basin portion of Texas and New Mexico's Permian Basin province contain an estimated mean of 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids, according to an assessment by the U.S. Geological Survey (USGS). This estimate is for continuous (unconventional) oil, and consists of undiscovered, technically recoverable resources.

https://www.sciencedaily.com/releases/2018/12/181206135643.htm

Michael B, 12/06/2018 at 9:35 pm
I'll be curious to hear others' assessments of this. Zinke is really jumping up and down with the pom-poms on this one.
GuyM, 12/06/2018 at 10:49 pm
The Easter Bunny, Santa Clause, Tooth Fairy, but no Trolls? Conventional? They are out of their Fxxng minds. Dept of the Interior is sharing the same hospital suite with the EIA. Both digging for that phantom oil.

Somebody ought to tell the oil companies to quit using all this fracking stuff. All they need to do is drill straight down. Sheesh!

Dennis Coyne, 12/07/2018 at 10:44 am
Guym,

Your estimate of Permian Basin URR is ? Generally the USGS does a pretty good job in my opinion.

GuyM, 12/07/2018 at 11:56 am
I'm not a geologist, but your original projections peaking in 2025 appear reasonable to me. Slow peak, not a huge peak like some. To add to that, JG Tulsa (below post), who is a working geologist in the area, agrees with a mid 2020's peak. I'm not stupid enough to argue with experts
Dennis Coyne, 12/07/2018 at 1:05 pm
Guym,

You are clearly smarter than me. I do tend to listen when geologists and geophysicists try to educate me.

Here is a preliminary estimate for US LTO assuming USGS mean estimates are correct, the Permian is up to date, but the older Bakken, EF, Niobrara, and US other LTO scenarios need to be revised to reflect the AEO reference oil price scenario. Peak about 9 Mb/d in 2025, also shown is an older estimate from June 2018 (before the recent Delaware Basin Wolfcamp and Bonespring assessment from the USGS.)

GuyM, 12/07/2018 at 1:50 pm
I think your original is closer to reality.
Coffeeguyzz, 12/06/2018 at 11:11 pm
This 46 billion barrels oil – along with 20 billion barrels NGLs and 281 Tcf gas – is for the Delaware Basin Wolfcamp and Bone Spring only.
Combined with the earlier Midland Basin assessments of the Wolfcamp and Spraberry of 24 billion barrels combined, the total so far Technically Recoverable Resource is over 70 billion barrels oil.

Just as the Haynesville jumped from 39 Tcf to over 300 Tcf as the Haynesville/Bossier, the Mancos from 1.6 to 66 Tcf, the Barnett from 26 to 52 Tcf, the Bakken/TF will jump next assessment and both the Utica and Marcellus will skyrocket.

Dennis Coyne, 12/07/2018 at 8:54 am
Coffeeguyzz,

I know less about Marcellus, but Bakken/Three Forks was recently assessed in 2013, the new assessment may be an increase, but I won't speculate in advance what it will be.

The 46 Gb mean undiscovered TRR for the Wolfcamp (Delaware Basin) and Bonespring is a surprise to me, based on this the Permian tight oil TRR would be about 74 Gb, before this assessment I had guessed 8 Gb for Delaware Wolfcamp based on output compared to Midland Wolfcamp (it was about 30% of Midland so I took the 20 Gb Midland Wolfcamp times 0.3 and rounded to 8 Gb). My previous mean estimate for Permian tight oil TRR was 38 Gb, so I was too low by more than a factor of 2. My F5 (5% probability TRR might be higher) estimate was 54 Gb before and the F95 estimate was 20 Gb, these are revised to F95=43 Gb and F5=113 Gb.

For the entire US I had a previous TRR estimate of 70 Gb for all of the US, this is revised to 107 Gb for the mean US tight oil TRR.

An interesting development that might push the US peak in tight oil a little later and/or a little higher. My F5 model had the Permian peak at about 7.5 Mb/d in 2027, a new model might result in 2029 at 9.5 Mb/d, for the US as a whole, other tight oil plays might be declining by 2029, so the overall US peak might be 2027 or 2028, based on current information.

Watcher, 12/07/2018 at 2:55 am
https://pubs.usgs.gov/fs/2018/3073/fs20183073.pdf

The formal report. The references are . . . a bit odd. There is a sense the whole thing is dependent on technology results assessment from IHS.

Meaning, I don't see anything here that suggests USGS sent teams out to look at rock for this whole area. They seem to have taken info from other IHS papers -- and the recent ones from USGS were for what looks like much more limited geographic areas. Looks like IHS encouraged extrapolation.

Watcher, 12/07/2018 at 3:19 am
Btw someone at Bloomberg has declared this is a X2 on previous estimates. That would suggest 46 billion barrels of oil we're not just added to the US resource database. It would be more like 23.

The Bloomberg guy didn't seem all that sharp, and so let's not take that as gospel.

Probably worth noting that it would not take much variance to move this resource into an API 45+ or even 50+ configuration, and given the NAT gas and NGL estimates, that would seem a pretty credible scenario. In which case it's not oil.

ProPoly, 12/07/2018 at 9:49 am
"Extrapolation" fits with it being undiscovered TRR.

This reminds me a lot of ANWAR (wasn't oil) and Monterey (not actual technically recoverable, our bad).

Dennis Coyne, 12/07/2018 at 10:17 am
The Monterrey estimate was a study done for the EIA which was poorly done (it was not a USGS estimate), the USGS estimates tend to be pretty good and have tended to be on the conservative side, though we won't know for sure until all the oil is produced and the last well is shut in. Every resource estimate involves extrapolation and/or modelling of future well output by definition.

Some estimates are better than others, for example the USGS estimates are better than the EIA estimates in most cases.

Dennis Coyne, 12/07/2018 at 9:58 am
Thanks Doug,

Previously I has guessed (incorrectly) that Permian mean TRR would be 38 Gb, this new assessment would lead to a revision to about 74 Gb for mean TRR of the Permian Basin tight oil resource.

In the scenario below I have a 253,000 well scenario (about 6 times more than my ND Bakken/Three Forks mean scenario with 42,000 wells completed.) I assume new well EUR starts to decrease in Jan 2023(about 3 years after my estimate of the future ND Bakken EUR decrease start as Permian ramp up started about 3 years after Bakken). This assumption is easily modified.

Peak is about 2028 with peak output at about 7000 kb/d (currently Permian tight oil output is about 2750 kb/d based on EIA tight oil production estimates by play).

Dennis Coyne, 12/07/2018 at 10:10 am
The scenario above does not consider economics. When we consider the discounted net revenue over the life of the well and assume this must equal the real well cost in order for the well to be completed using the assumptions below, then we find an economically recoverable resource (ERR) scenario.

Economic assumptions (all costs in constant 2017$) are:

real oil prices in 2017$ follow the EIA AEO 2018 Reference Brent Oil Price scenario
royalties and taxes are 32% of wellhead revenue
transport cost is $4/b
OPEX is $2.3/b plus $15000 per month per well
real annual discount rate is 7% (nominal rate is 10% at 3% annual inflation rate)
real well cost=9.5 million 2017US$

Peak output is unchanged but wells completed are reduced to 173,000 and ERR=60 Gb.

GuyM, 12/07/2018 at 10:25 am
The indications from drilling companies, so far, operating in the Delaware do not seem to jive with the assessment of grandiosity. So, I am more than skeptical. The government can create all the reserves they want, but if the oil companies can't get it out of the ground?? My understanding is that there is a core area in West Texas and NM. EOG is there. Extends a few Counties in West Texas and NM starting around Loving County. Even there, it is high api. Outside of that, it is highly sporadic. If you extrapolate what they are doing in tiny Loving County to the rest of the Delaware, you can come up with these numbers. But, you can't. As I read, there are over 800 Ducs outside of this area. You leave them as Ducs, because you pretty much know what the completion will look like after drilling. Basically, the report is hogwash. It's pretty easy to tell on the Texas side, as you can pull up completions by county.
Dennis Coyne, 12/07/2018 at 10:53 am
Guym,

It may require higher oil prices and the associated gas is a problem, not enough infrastructure to move it.

Also the USGS simply does a resource assessment, these are not reserves, no economic assessment was done, the USGS leaves that to others.

I have often been skeptical of USGS Assessments (such as Bakken Assessment in 2013), looking at proved reserves and cumulative production to data in the ND Bakken/Three Forks, the 11 Gb mean TRR estimate from 2013 looks pretty good.

This may look different in 2023.

JG Tulsa, 12/07/2018 at 11:10 am
As a working petroleum geologist in the Delaware Basin and others, I will say USGS and EIA assessments are considered a joke. They do little to take into account the actual geology, or changes in the thermal maturity of the rock across a basin, it is more multiply an average well performance for a certain amount of acres drilled, times the total area of the basin, minus the number of drilled wells.

Everything is more complex than that. Right now operators are drilling the best, most economic parts of the Delaware basin, at the going rate it will not be too many years before they have to shift over to other benches of the Wolfcamp or Bone Spring, which will be less productive. for deeper Wolfcamp benches you get more condensate, less oil, much more gas, you might go from a 10,000′ lateral making 1-2 MMBO in the Wolfcamp A, down to one making 300-500 MBO.

Still a decent well when you add in the gas, but if you take that across a large area that will lead to a substantial decline in new well performance. I would not doubt oil production peaks in the mid-2020s as people drill up the best rock, and have to keep shifting to less productive horizons.

GuyM, 12/07/2018 at 11:22 am
Thank you. That was my take on all, but I'm no geologist. Nice to have a professional opinion.
Dennis Coyne, 12/07/2018 at 1:21 pm
Thanks JG Tulsa,

Can you give us your estimate of the TRR or ERR of the Delaware Wolfcamp and Bonespring. There is a wide range in the USGS TRR estimate from 27 to 71 Gb with a mean of 46 Gb and a median of 45 Gb. Would you say that 27 Gb is too high? It seems clear you think that 46 Gb is far too optimistic. Note that the mean ERR would probably be around 38 Gb if the mean TRR estimate was correct and prices follow the AEO 2018 reference price scenario. For the F95 USGS TRR estimate the ERR would be around 21 Gb.

Maybe you could also comment on other USGS assessments for Eagle Ford, Wolfcamp Midland basin and Spraberry. Perhaps you could give us the "correct assessment".

I agree the EIA assessments are not good, economists do not know much about geophysics. The people at the USGS are scientists, though they have limited information and thus use statistical analysis to fill the data gaps.

GuyM, 12/07/2018 at 4:59 pm
Come on, Dennis. He may be a geologist, but my bet he is mortal, like you and I. I really believe your first graph with 8 million as the high is the best I have seen. The tail of that is probably not ever to be properly guessed, until it happens.
Watcher, 12/07/2018 at 2:53 pm
Dood, one of the most frequent points we deal with on this blog is the claim that technology in horizontal fracking has multiplied output tremendously -- excluding from consideration stage count/length.

The extra production "per well" seems to be from the well being longer in length and thus consuming more water and proppant. Is this true, or is there some magical improvement in proppant type or fracking pressure or whatever?

GuyM, 12/07/2018 at 3:57 pm
It's mostly the length of the lateral, although some is due to increased fracking stages within the lateral (more holes in the pipe). Better drilling is another, although extra lateral makes up most of it. The laterals, in general, are about twice as long.
Michael B, 12/07/2018 at 8:41 am
US becomes a net oil exporter.

Hanh? And this paragraph strikes this lay reader as utterly incoherent:

The U.S. sold overseas last week a net 211,000 barrels a day of crude and refined products such as gasoline and diesel, compared to net imports of about 3 million barrels a day on average so far in 2018, and an annual peak of more than 12 million barrels a day in 2005, according to the U.S. Energy Information Administration.

From EIA: "In 2017, the United States consumed about 19.96 million barrels per day." Let's call it 20.

Also from EIA: US weekly field production ending 11/30: 11.7 million barrels.

20-11.7=8.3????

True? Fudging? Lying? What am I missing?

Then, you read further into the article:

While the net balance shows the U.S. is selling more petroleum than buying, American refiners continue to buy millions of barrels each day of overseas crude and fuel. The U.S. imports more than 7 million barrels a day of crude from all over the globe to help feed its refineries, which consume more than 17 million barrels each day.

WTF.

Watcher, 12/07/2018 at 11:33 am
It's all measured in barrels.

The US refines a lot of imported oil -- for export. There is refinery gain in this. This means a barrel comes in. It is refined to various constituent parts like gasoline, diesel, kerosene, etc. The VOLUME of these parts are liquids of less density and this means their volume is greater. So a barrel of crude will yield a sum total of more than 1 barrel of liquids of lower density. Since these products are exported, the barrel count is in favor of exports vs the barrel count imported.

This is not a huge effect, but it's significant.

There's an EIA page for US sales volume consumed. If you add up all the products you get well over 15 million bpd. US production is rather less than that. Imports must exceed exports.

Michael B, 12/07/2018 at 1:38 pm
Thanks for trying to explain it to me. Maybe it's just too complicated for me to understand.

I still can't reconcile the headline, "US becomes a net oil exporter" with the EIA's numbers: The US consumes 20 million barrels a day. The US produces 12 million barrels a day. But, yes, they're net exporters. Whatever.

After 14 years, the niceties of peak oil still escape me.

kolbeinh, 12/07/2018 at 1:41 pm
I am not sure I follow you entirely, but for heavier crude oils there is waste to get to diesel (a bit higher than 30 API). And for extra light oil there is a huge waste to get to diesel, as much has to be segregated to petroleum gas and gasoline components due to length of carbon chain.

The case for diesel shortage in 2020 due to shipping legislation is still very much legit.

Watcher, 12/07/2018 at 2:50 pm
I was talking about imported crude (that would not be LTO and probably diesel rich) being refined into a larger number of barrels of product vs the barrels of input crude. They export. It's a bias towards export.

I think mostly the report derives from very noisy weekly data. The US is not a net exporter.

Eulenspiegel, 12/07/2018 at 8:55 am
So the oil cut is out: 1.2 mb. Together with russia and others. So LTO is saved, the frenzy can go on soon.

https://www.zerohedge.com/news/2018-12-07/oil-prices-climb-opec-reportedly-nearing-production-cut-agreement

[Dec 08, 2018] Hopefully, $50 oil will give sheil oil company brass enough cash flow for stationary. They need to write Christmas letters to their shareholders telling them everything will be better next year

Donald Trump could hardly have chosen a more treacherous economic moment to tear up the "decaying and rotten deal" with Iran. The world crude market is already tightening very fast. He estimates that sanctions will cut Iran's exports by up to 500,000 barrels this year. "It could well be twice more cut in 2019
North America has run into an infrastructure crunch. There are not yet enough pipelines to keep pace with shale oil output from the Permian Basin of west Texas, and it is much the same story in the Alberta tar sands. The prospect of losing several hundred thousand barrels a day of Iranian oil exports would not have mattered much a year ago. It certainly matters now.
Notable quotes:
"... The peak oil theme is very much forgotten in all the turmoil, but is very real still. ..."
"... How much more reserves to classify as probable (2p) is a movable target, it depends on the oil price. ..."
"... I agree that 2019 will show big declines in OECD inventory primarily because core OPEC wants it. (increasing KSA premiums to the US +3,5 dollars in Jan and lowering it to Asia). ..."
"... Or still more likely, a spike in oil prices in 2H 2019 and a recession soon thereafter. ..."
"... Who knows..the only thing certain is that oil is being pressured towards the final "spare capacity" (whatever that is) and that a recession will come anyway as a result of the low oil price environment the last 4 years. ..."
Dec 08, 2018 | peakoilbarrel.com

kolbeinh , says: 12/07/2018 at 9:45 am

Yes, it is all a big show!

The peak oil theme is very much forgotten in all the turmoil, but is very real still.

How much more reserves to classify as probable (2p) is a movable target, it depends on the oil price.

And how rapid the extraction rates of reserves can extend to difficult to say; technology and not at least the 3D maps of reservoirs coupled with improved seismic data, more precise drilling and lower costs due to excess oil service capacity (at least for offshore) have countered the inevitable declining quality of oil reservoirs and size of new ones coming online for some time now.

I agree that 2019 will show big declines in OECD inventory primarily because core OPEC wants it. (increasing KSA premiums to the US +3,5 dollars in Jan and lowering it to Asia).

The next question is how high oil prices will go before there is some reaction from the nations that have spare storage/capacity. I am thinking there is some relief in increased pipeline capacity in Texas in 2H 2019 and also Johan Sverdrup in Norway (since I follow things close to home) in the same time period to save the oil market in winter 2020.

Or still more likely, a spike in oil prices in 2H 2019 and a recession soon thereafter.

Who knows..the only thing certain is that oil is being pressured towards the final "spare capacity" (whatever that is) and that a recession will come anyway as a result of the low oil price environment the last 4 years.

Offshore is hit hard, so are supply in places "too risky" for cheap financing the hidden secret of the oil market (why so few news stories covering this?)

GuyM , says: 12/07/2018 at 5:18 pm
Saved from $40 oil, but I really doubt there will be much of a frenzy at $52 oil price. Hopefully, that will give them enough cash flow for stationary. They need to write Christmas letters to their shareholders telling them everything will be better next year.

[Dec 08, 2018] We will also have to see how long it takes for the shale frackers to cut output in the face of $50 oil

Dec 08, 2018 | oilprice.com

We will also have to see how long it takes for the shale frackers modify their behavior in the face of $50 oil. We haven't seen any signs so far, with a few rigs continued to be added each week. At some point the frackers will wake up and determine that oil at $50 doesn't go as far as oil at $75 and tap the brakes just a hair. We are also due for a seasonal pause in some of the U.S. Northern areas, as winter takes a bite out of drilling activity.

In practical terms we will probably be well into the first quarter before we see any impact from OPEC production cuts. However, once we do, it will be like June of 2017 all over again, and the price of oil could strongly respond to the upside.

By David Messler for Oilprice.com

[Dec 08, 2018] Iran nuclear deal Trump s oil gamble comes at just the wrong time by Ambrose Evans-Pritchard

This article is from May 2018 but it read as if it was written yesterday.
Notable quotes:
"... He estimates that sanctions will cut Iran's exports by up to 500,000 barrels a day later this year. "It could well be much more in 2019," he said. ..."
Dec 08, 2018 | smh.com.au

"U.S. political pressure is clearly a dominant factor at this OPEC meeting, limiting the scope of Saudi actions to rebalance the market," said Gary Ross, chief executive of Black Gold Investors and a veteran OPEC watcher. channelnewsasia.com 10 May 2018

Donald Trump could hardly have chosen a more treacherous economic moment to tear up the "decaying and rotten deal" with Iran. The world crude market is already tightening very fast. Joint production curbs by Opec and Russia have cleared the four-year glut of oil. There is no longer an ample safety buffer against supply shocks. The geopolitical "premium" on prices has returned. Tensions run high:

The Maduro regime in Venezuela is entering its last agonies, and the country's oil industry is imploding. North America has run into an infrastructure crunch. There are not yet enough pipelines to keep pace with shale oil output from the Permian Basin of west Texas, and it is much the same story in the Alberta tar sands. The prospect of losing several hundred thousand barrels a day of Iranian oil exports would not have mattered much a year ago. It certainly matters now.

World leaders respond to President Trump's move to reimpose economic sanctions on Iran while pulling the United States out of the international agreement aimed at stopping Tehran from obtaining a nuclear bomb.

Oil price shock is looming

It is the confluence of simmering political crises in so many places that has driven Brent crude to $US77 a barrel, up 60 per cent since last June. "We believe an oil price shock is looming as early as 2019 as several elements combine to form a 'perfect storm'," said Westbeck Capital. It predicts $US100 crude in short order, with $US150 coming into sight as the world faces a crunch all too reminiscent of July 2008. The fund warns that the investment collapse since 2014 is about to deliver its sting. Declining fields are not being replaced. Output from conventional projects has until now been rising but will fall precipitously by 1.5 million barrels a day next year. By then global spare capacity will be down to a lethally thin 1 per cent. US shale cannot plug the gap. "The mantra after 2014 of lower for longer has lulled oil analysts into a torpor," Westbeck said. Needless to say, a spike to $US150 would precipitate a global recession.

The US might hope to weather such a traumatic episode now that it is the world's biggest oil producer but it would be fatal for oil-starved Europe. Such a scenario would test the unreformed euro to destruction. Britain, France and Germany may earnestly wish to preserve the Iran deal but they can do little against US financial hegemony and the ferocity of "secondary sanctions". The US measures cover shipping, insurance, and the gamut of financial and logistical support for Iran's oil industry.
In the end, there are infinitely greater matters at stake than barrels of oil.
Any European or Asian company that falls foul of this will be shut out of the US capital markets and dollarised international payments system. The EU has talked of beefing up the 1996 Blocking Regulation used to shield European companies from extraterritorial US sanctions against Libya. But this is just bluster. No European company with operations in the US would dare flout the US Treasury. "A choice for corporate Europe between the US and Iran is unequivocally going to fall the way of the US," said Richard Robinson from Ashburton Global Energy Fund.

Rise in oil prices turns malign

He said Europe will have to slash its imports from Iran by 60 per cent because groups such as ENI or Total will refuse to ship the oil, whatever the strategic policy of the EU purports to be. This dooms the nuclear deal (JCPOA) since Iran will not abide by the terms if the EU cannot deliver on its rhetoric, let alone come through with the $US200 billion ($251 billion) of foreign investment coveted by Tehran.

David Fyfe from oil traders Gunvor said we do not yet have enough details from Washington to judge how quickly companies will have to act. He estimates that sanctions will cut Iran's exports by up to 500,000 barrels a day later this year. "It could well be much more in 2019," he said.

Late last year it was still possible to view rising oil prices as benign, the result of a booming world economy. This year it has turned malign. Global growth has rolled over. The broad IHS index of raw materials has been falling since February.

Europe's catch-up spurt fizzled out in the first quarter. Japan's GDP probably contracted. The higher oil price is itself part of the cause.

$US500 billion extra 'tax'

Even at current levels, it acts as an extra $US500 billion "tax" this year for consumers in Asia, Europe and America. Not all of the windfall enjoyed by the petro-powers is recycled quickly back into global spending.

One cause of the slowdown is the credit squeeze in China, which is ineluctably feeding through into the real economy with a delay. Proxy indicators suggest that true growth has fallen below 5 per cent.

My own view is that monetary tightening by the US Federal Reserve - and declining stimulus from the European Central Bank - is doing more damage than widely presumed.

Higher US interest rates are pushing up borrowing costs for much of the world. Three-month dollar Libor rates used to price $US9 trillion of global contracts have risen 76 basis points since January.

The Fed is shrinking its balance sheet, draining international dollar liquidity at a quickening pace. If the Fed is not careful, it will tip the US economy into a stall.

Ominously, we are seeing the first signs of a US dollar rally, tantamount to a "short squeeze" on Turkey, Argentina and Indonesia, among other emerging market debtors.

Toxic combination

The combination of a slowing economy and an oil supply shock is toxic, even if the "energy intensity" of world GDP is now half the level of 30 years ago.

Opec and Russia can of course lift their output cap at any time, though that alone will not restore the full 1.8m barrels a day of original curbs. Venezuela is now in unstoppable free-fall.

The Saudis have pledged to uphold the "stability of oil markets" and to help "mitigate the impact of any potential supply shortages". Kuwait and Abu Dhabi could add a little. Yet cyclical forces may be moving even beyond their control.

In the end, there are infinitely greater matters at stake than barrels of oil. Trump is throwing US power behind Saudi Arabia in the epic Sunni-Shia battle for dominance over the Middle East, and behind Israel in its separate battle with Iran.

What can go wrong?

Both conflicts are on a hair trigger. Israel attacked an Iranian air base in Syria last month and killed seven revolutionary guards. This is a dangerous escalation from proxy conflict to direct hostilities. The JCPOA nuclear deal may be all that restrains the Iranian side from lashing out.

Saudi Arabia's impetuous young leader Mohammad bin Salman is itching to settle the score of all scores with Iran, the Iranian revolutionary guard are in turn itching to launch a one-year dash for nuclear weapons, and Trump is itching for regime change. What can go wrong?

The Daily Telegraph, London

[Dec 06, 2018] World Bank Warns Of Extreme Volatility In Oil Markets

2019 might be the year when Western powers start paying the price for 2014-2017 oil price crash. Three years of subpar capital investment will bite them in the back.
Dec 06, 2018 | oilprice.com
Russia Economic Report said that OPEC was the single most important factor for oil price outlooks in the short term.

"As non-OPEC oil supply growth is expected to be greater than that of global demand, the outlook for oil prices depends heavily on supply from OPEC members," the report's authors noted. The level of spare capacity among OPEC members is estimated to be low at present, suggesting there are limited buffers in the event of a sudden shortfall in supply of oil, raising the likelihood of oil price spikes in 2019."

The World Bank is not alone in seeing OPEC's spare capacity as an important factor for oil prices going forward. Spare capacity provides a cushion against price shocks as evidenced most recently by the June decision of the cartel and Russia to start pumping more again after 18 months of cutting to arrest a too fast increase in oil prices. They had the capacity to do it and prices stopped rising, helped by downward revisions of economic forecasts.

Now, the oil market is plagued with concerns about oversupply, but this could change quite quickly if there is any sign that OPEC is nearing the end of its spare production capacity. As to the likelihood of such a sign emerging anytime soon, this remains to be seen.

The U.S. Energy Information Administration estimates OPEC's spare capacity at a little over 1 million bpd as of the fourth quarter of this year. That's down from 2.1 million bpd at the end of 2017, but with Venezuela's production in free fall and with Iran pumping less because of the U.S. sanctions, the total spare capacity of the group has declined substantially.

[Nov 29, 2018] If The Saudi s Oil No Longer Matters Why Is Trump Still Supporting Them

Notable quotes:
"... Washington Post ..."
"... Wall Street journal ..."
"... Everyone knows it's the US presence in the Middle East which creates terrorists, both as proxies of and in resistance to the US imperial presence (and often one and then the other). So reading Orwellian language, Pompeo is saying the US wants to maximize Islamic terrorism in order to provide a pretext for creeping totalitarianism at home and abroad. ..."
"... The real reason is to maintain the petrodollar system, but there seems to be a conspiracy of silence never to mention it among both supporters and opponents of Trump. ..."
"... everyone knows why the usa is in the middle east.. to support the war industry, which is heavily tied to the financial industry.. up is down and down is up.. that is why the usa is great friends with ksa and israel and a sworn enemy of iran... what they don't say is they are a sworn enemy of humanity and the thought that the world can continue with their ongoing madness... ..."
"... The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF ..."
Nov 29, 2018 | www.moonofalabama.org

Russ , Nov 28, 2018 3:28:31 PM | link

Why are U.S. troops in the Middle East?

In an interview with the Washington Post U.S. President Donald Trump gives an answer :

Trump also floated the idea of removing U.S. troops from the Middle East, citing the lower price of oil as a reason to withdraw.

"Now, are we going to stay in that part of the world? One reason to is Israel ," Trump said. "Oil is becoming less and less of a reason because we're producing more oil now than we've ever produced. So, you know, all of a sudden it gets to a point where you don't have to stay there."

It is only Israel, it is no longer the oil, says Trump. But the nuclear armed Israel does not need U.S. troops for its protection.

And if it is no longer the oil, why is the U.S. defending the Saudis?

Trump's Secretary of State Mike Pompeo disagrees with his boss. In a Wall Street journal op-ed today he claims that The U.S.-Saudi Partnership Is Vital because it includes much more then oil:

[D]egrading U.S.-Saudi ties would be a grave mistake for the national security of the U.S. and its allies.

The kingdom is a powerful force for stability in the Middle East. Saudi Arabia is working to secure Iraq's fragile democracy and keep Baghdad tethered to the West's interests, not Tehran's. Riyadh is helping manage the flood of refugees fleeing Syria's civil war by working with host countries, cooperating closely with Egypt, and establishing stronger ties with Israel. Saudi Arabia has also contributed millions of dollars to the U.S.-led effort to fight Islamic State and other terrorist organizations. Saudi oil production and economic stability are keys to regional prosperity and global energy security.

Where and when please has Saudi Arabia "managed the flood of refugees fleeing Syria's civil war". Was that when it emptied its jails of violent criminals and sent them to wage jihad against the Syrian people? That indeed 'managed' to push millions to flee from their homes.

Saudi Arabia might be many things but "a powerful force for stability" it is not. Just ask 18 million Yemenis who, after years of Saudi bombardment, are near to death for lack of food .

Pompeo's work for the Saudi dictator continued today with a Senate briefing on Yemen. The Senators will soon vote on a resolution to end the U.S. support for the war. In his prepared remarks Pompeo wrote:

The suffering in Yemen grieves me, but if the United States of America was not involved in Yemen, it would be a hell of a lot worse.

What could be worse than a famine that threatens two third of the population?

If the U.S. and Britain would not support the Saudis and Emirates the war would end within a day or two. The Saudi and UAE planes are maintained by U.S. and British specialists. The Saudis still seek 102 more U.S. military personal to take care of their planes. It would be easy for the U.S. to stop such recruiting of its veterans.

It is the U.S. that holds up an already watered down UN Security Council resolution that calls for a ceasefire in Yemen:

The reason for the delay continues to be a White House worry about angering Saudi Arabia, which strongly opposes the resolution, multiple sources say. CNN reported earlier this month that the Saudi crown prince, Mohammed bin Salman, "threw a fit" when presented with an early draft of the document, leading to a delay and further discussions among Western allies on the matter.

We recently wrote that pandering to the Saudis and keeping Muhammad bin Salman in place will hurt Trump's Middle East policies . The piece noted that Trump asked the Saudis for many things, but found that:

There is really nothing in Trump's list on which the Saudis consistently followed through. His alliance with MbS brought him no gain and a lot of trouble.

Trump protected MbS from the consequences of murdering Jamal Khashoggi. He hoped to gain leverage with that. But that is not how MbS sees it. He now knows that Trump will not confront him no matter what he does. If MbS "threws a fit" over a UN Security Council resolution, the U.S. will drop it. When he launches his next 'adventure', the U.S. will again cover his back. Is this the way a super power is supposed to handle a client state?

If Trump's instincts really tell him that U.S. troops should be removed from the Middle East and Afghanistan, something I doubt, he should follow them. Support for the Saudi war on Yemen will not help to achieve that. Pandering to MbS is not MAGA.

Posted by b on November 28, 2018 at 03:12 PM | Permalink

Comments Pompeo: "Saudi Arabia has also contributed millions of dollars to the U.S.-led effort to fight Islamic State and other terrorist organizations."

Everyone knows it's the US presence in the Middle East which creates terrorists, both as proxies of and in resistance to the US imperial presence (and often one and then the other). So reading Orwellian language, Pompeo is saying the US wants to maximize Islamic terrorism in order to provide a pretext for creeping totalitarianism at home and abroad.


lysias , Nov 28, 2018 3:35:15 PM | link

The real reason is to maintain the petrodollar system, but there seems to be a conspiracy of silence never to mention it among both supporters and opponents of Trump.
Ross , Nov 28, 2018 3:41:42 PM | link
There is really nothing in Trump's list on which the Saudis consistently followed through. His alliance with MbS brought him no gain and a lot of trouble.

He did get to fondle the orb - although fuck knows what weirdness was really going on there.

james , Nov 28, 2018 3:47:06 PM | link
thanks b... pompeo is a very bad liar... in fact - everything he says is about exactly the opposite, but bottom line is he is a bad liar as he is thoroughly unconvincing..

everyone knows why the usa is in the middle east.. to support the war industry, which is heavily tied to the financial industry.. up is down and down is up.. that is why the usa is great friends with ksa and israel and a sworn enemy of iran... what they don't say is they are a sworn enemy of humanity and the thought that the world can continue with their ongoing madness...

oh, but don't forget to vote, LOLOL.... no wonder so many are strung out on drugs, and the pharma industry... opening up to the msm is opening oneself up to the world george orwell described many years ago...

uncle tungsten , Nov 28, 2018 3:49:24 PM | link
Take a wafer or two of silicon and just add water. The oil obsession has been eclipsed and within 20 years will be in absolute disarray. The warmongers will invent new excuses.

https://www.youtube.com/watch?v=_Lk3elu3zf4

karlof1 , Nov 28, 2018 4:33:18 PM | link
A hypothetical: No extraordinary amounts of hydrocarbons exist under Southwest Asian ground; just an essential amount for domestic consumption; in that case, would Zionistan exist where it's currently located and would either Saudi Arabia, Iraq and/or Iran have any significance aside from being consumers of Outlaw US Empire goods? Would the Balfour Declaration and the Sykes/Picot Secret Treaty have been made? If the Orinoco Oil Belt didn't exist, would Venezuela's government be continually targeted for Imperial control? If there was no Brazilian offshore oil, would the Regime Change effort have been made there? Here the hypotheticals end and a few basic yet important questions follow.

Previous to the 20th Century, why were Hawaii and Samoa wrested from their native residents and annexed to Empire? In what way did the lowly family farmers spread across 19th Century United States further the growth of its Empire and contribute to the above named annexations? What was the unspoken message sent to US elites contained within Frederic Jackson Turner's 1893 Frontier Thesis ? Why is the dominant language of North America English, not French or Spanish?

None of these are rhetorical. All second paragraph questions I asked of my history students. And all have a bearing on b's fundamental question.

A. Person , Nov 28, 2018 5:20:13 PM | link
b says, "And it its no longer the oil, why is the U.S. defending the Saudis?"

The US has a vital interest in protecting the narrative of 9/11. The Saudis supplied the patsies. Mossad and dual-citizen neocons were the architects of the event. Hence, the US must avoid a nasty divorce from the Saudis. The Saudis are in a perfect blackmailing position.

Tobin Paz , Nov 28, 2018 5:50:19 PM | link
Maybe Trump is unaware, but the fracking boom is a bubble made possible by near zero interest rates:

U.S. SHALE OIL INDUSTRY: Catastrophic Failure Ahead

Of course, most Americans have no idea that the U.S. Shale Oil Industry is nothing more than a Ponzi Scheme because of the mainstream media's inability to report FACT from FICTION. However, they don't deserve all of the blame as the shale energy industry has done an excellent job hiding the financial distress from the public and investors by the use of highly technical jargon and BS.

Oil is the untold story of modern history.

NOBTS , Nov 28, 2018 6:08:53 PM | link
S.A. is a thinly disguised US military base, hence the "strategic importance" and the relevance of the new Viceroy's previous experience as a Four Star General. It's doubtful that any of the skilled personnel in the SA Air Force are other than former US/Nato. A few princes might fancy themselves to be daring fighter pilots. In case of a Anglo-Zio war with Iran SA would be the most forward US aircraft carrier. The Empire is sustained by its presumed military might and prizes nothing more than its strategically situated bases. Saud would like to capture Yemen's oil fields, but the primary purpose of the air war is probably training. That of course is more despicably cynical than mere conquest and genocide.
Pft , Nov 28, 2018 6:08:56 PM | link
Trump is the ultimate deceiver/liar. Great actor reading from a script. The heel in the Fake wrestling otherwise known as US politics. It almost sounds as if he is calling for an end of anymore significant price drops now that he has got Powell on board to limit interest rate hikes. After all if you are the worlds biggest producer you dont want prices too low. These markets are all manipulated. I cant imagine how much insider trading is going on. If you look at the oil prices, they started dropping in October with Iran sanctions looming (before it was announced irans shipments to its 8 biggest buyers would be exempt) and at the height of the Khashoggi event where sanctions were threatened and Saudi was making threats of their own. In a real free market prices increase amidst supply uncertainty.

Regardless of what he says he wants and gets now, he is already planning a reversal. Thats how the big boys win, they know whats coming and when the con the smaller fish to swim one way they are lined up with a big mouth wide open. Controlled chaos and confusion. For every winner there must be a loser and the losers assets/money are food for the Gods of Money and War

As for pulling out of the Middle East Bibi must have had a good laugh. My money is on the US to be in Yemen to protect them from the Saudis (humanitarian) and Iranian backed Houthis while in reality we will be there to secure the enormous oil fields in the North. Perhaps this was what the Khashoggi trap was all about. The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF

psychohistorian , Nov 28, 2018 6:35:06 PM | link
@ Pft who wrote: "The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF"

BINGO!!! Those that control finance control most/all of everything else.

Augustin L , Nov 28, 2018 6:37:43 PM | link

Saudi Arabia literally owns close to 8% of the United States economy through various financial instruments. Their public investment funds and dark pools own large chunks from various strategic firms resting at the apex of western power such as Blackstone. Trump and Pompeo would be stupid to cut off their nose to spite their face... It's all about the petrodollar, uncle sam will ride and die with saudi barbaria. If push comes to shove and the saudis decide to untether themselves from the Empire, their sand kingdom will probably be partitioned.
Pnyx , Nov 28, 2018 7:02:31 PM | link
The oil certainly still plays an important role, the u.s. cannot maintain the current frack oil output for long. For Tronald's term in office it will suffice, but hardly longer. (The frack gas supplies are much more substantial.)

Personal interests certainly also play a role, and finally one should not make u.s. foreign policy more rational than it is. Much is also done because of traditions and personal convictions. Often they got it completely wrong and the result was a complete failure.

Likklemore , Nov 28, 2018 7:07:15 PM | link
Let us watch what Trump does with this or if the resolution makes it to daylight:

Senate advances Yemen resolution in rebuke to Trump

The Senate issued a sharp rebuke Wednesday to President Trump, easily advancing a resolution that would end U.S. military support for the Saudi-led campaign in Yemen's civil war despite a White House effort to quash the bill.

The administration launched an eleventh-hour lobbying frenzy to try to head off momentum for the resolution, dispatching Defense Secretary James Mattis and Secretary of State Mike Pompeo to Capitol Hill in the morning and issuing a veto threat less than an hour before the vote started.

But lawmakers advanced the resolution, 63-37, even as the administration vowed to stand by Saudi Arabia following outcry over the killing of journalist Jamal Khashoggi.

"There's been a lot of rhetoric that's come from the White House and from the State Department on this issue," said Sen. Bob Corker (R-Tenn.), chairman of the Foreign Relations Committee. "The rhetoric that I've heard and the broadcasts that we've made around the world as to who we are have been way out of balance as it relates to American interests and American values." [/]
LINK TheHill

But Mattis says there is no smoking gun to tie the Clown Thug-Prince to Kashoggi's killing.
TheHill

And Lyias @ 2 is a bingo. Always follow the fiat.

Soon, without any announcements, if they wish to maintain selling oil to China, KSA will follow Qatar. It will be priced in Yuan...especially given the escalating U.S. trade war with China.

2019 holds interesting times. Order a truckload of popcorn.

Midwest For Truth , Nov 28, 2018 7:29:46 PM | link
You would have to have your head buried in the sand to not see that the Saudi "Kings" are crypto-Zionistas. Carl Sagan once said, "One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It's simply too painful to acknowledge, even to ourselves, that we've been taken. Once you give a charlatan power over you, you almost never get it back." And Mark Twain also wrote "It's easier to fool people than to convince them that they have been fooled."
karlof1 , Nov 28, 2018 7:59:31 PM | link
Gee, not one taker amongst all these intelligent folk. From last to first: 1588's Protestant Wind allowed Elizabeth and her cronies to literally keep their heads as Nature helped Drake defeat the Spanish Armada; otherwise, there would be no British Empire root to the USA, thus no USA and no future Outlaw US Empire, the British Isles becoming a Hapsburg Imperial Property, and a completely different historical lineage, perhaps sans World Wars and atomic weapons.

Turner's message was with the Frontier closed the "safety valve" of continental expansion defusing political tensions based on economic inequalities had ceased to be of benefit and future policy would need to deal with that issue thus removing the Fear Factor from the natives to immigrants, and from wide-open spaces to the inner cities. Whipsawing business cycles driving urban labor's unrest, populist People's Party politics, and McKinley's 1901 assassination further drove his points home.

Nationwide, family farmers demanded Federal government help to create additional markets for their produce to generate price inflation so they could remain solvent and keep their homesteads, which translated into the need to conduct international commerce via the seas which required coaling stations--Hawaii and Samoa, amongst others--and a Blue Water Navy that eventually led to Alfred T. Mahan's doctrine of Imperial Control of the Oceans still in use today.

As with Gengis Khan's death in 1227 that stopped the Mongol expansion to the English Channel that changed the course of European history, and what was seen as the Protestant Wind being Divine Intervention, global history has several similar inflection points turning the tide from one path to another. We don't know yet if the Outlaw US Empire's reliance on Saudi is such, but we can see it turning from being a great positive to an equally potential great negative for the Empire--humanity as a whole, IMO, will benefit greatly from an implosion and the relationship becoming a Great Negative helping to strip what remains of the Emperor's Clothing from his torso so that nations and their citizens can deter the oncoming financialized economic suicide caused by massive debt and climate chaos.

Vico's circle is about to intersect with Hegel's dialectic and generate a new temporal phase in human history. Although many will find it hard to tell, the current direction points to a difficult change to a more positive course for humanity as a whole, but it's also possible that disaster could strike with humanity's total or near extinction being the outcome--good arguments can be made for either outcome, which ought to unsettle everyone: Yes, the times are that tenuous. But then, I'm merely a lonely historian aware of a great many things, including the pitfall inherent in trying to predict future events.

robjira , Nov 28, 2018 8:08:58 PM | link
"The suffering in Yemen grieves me, but if the United States of America was not involved in Yemen, it would be a hell of a lot worse." And I'll bet Pompeo said that with a straight face, too. lmfao

And as for "...keep[ing] Baghdad tethered to the West's interests and not Tehran's," I'm guessing the "secretary" would have us all agree "yeah, fk Iraqi sovereignty anyway. Besides, it's not like they share a border with Iran, or anything. Oh, wait..."

p.s. Many thanks for all you have contributed to collective knowledge, b; I will be contacting you about making a contribution by snail mail (I hate PayPal, too).

imo , Nov 28, 2018 8:25:35 PM | link
"... a powerful force for stability in the Middle East."

"Instability" more like it.

Paid for military coup in Egypt. Funding anti-Syrian terrorists. Ongoing tensions with Iran. Zip-all for the Palestinians. WTF in Yemen. Wahhabi crazy sh_t (via Mosque building) across Asia. Head and hand chopping Friday specials the norm -- especially of their South-Asian slave classes. Ok, so females can now drive cars -- woohoo. A family run business venture manipulating the global oil trade and supporting US-petro-$ hegemony recently out of goat herding and each new generation 'initiated' in some Houston secret society toe-touching shower and soap ceremonies before placement in the ruling hierarchy back home. But enough; they being Semites makes it an offence to criticize in some 'free' democratic world domains.

karlof1 , Nov 28, 2018 8:52:24 PM | link
Likklemore @14--

Instead of the "rebuke to Trump" meme circulating around, I found this statement to be more accurate:

"'Cutting off military aid to Saudi Arabia is the right choice for Yemen, the right choice for our national security, and the right choice for upholding the Constitution,' Paul Kawika Martin, senior director for policy and political affairs at Peace Action, declared in a statement. ' Three years ago, the notion of Congress voting to cut off military support for Saudi Arabia would have been politically laughable .'" [My Emphasis]

In other words, advancing Peace with Obama as POTUS wasn't going to happen, so this vote ought to be seen as an attack on Obama's legacy as it's his policy that's being reconsidered and hopefully discontinued.

Peter AU 1 , Nov 28, 2018 9:44:50 PM | link
Trump, Israel and the Sawdi's. US no longer needs middle east oil for strategic supply. Trump is doing away with the petro-dollar as that scam has run its course and maintenance is higher than returns. Saudi and other middle east oil is required for global energy dominance.

Energy dominance, lebensraum for Israel and destroying the current Iran are all objectives that fit into one neat package.

Those plans look to be coming apart at the moment so it remains to be seen how fanatical Trump is on Israel and MAGA. MAGA as US was at the collapse of the Soviet Union.

Pft , Nov 29, 2018 1:15:05 AM | link
As for pulling out of the Middle East Bibi must have had a good laugh. Remember when he said he wanted out of Syria. My money is on the US to be in Yemen before too long to protect them from the Saudis (humanitarian) and Iranian backed Houthis, while in reality it will be to secure the enormous oil fields in the North. Perhaps this was what the Khashoggi trap was all about.

The importance of oil is not to supply US markets its to deny it to enemies and control oil prices in order to feed international finance/IMF .

james , Nov 29, 2018 1:57:51 AM | link
@16 karlof1.. thanks for a broader historical perspective which you are able to bring to moa.. i enjoy reading your comments.. i don't have answers to ALL your questions earlier.. i have answers for some of them... you want to make it easy on us uneducated folks and give us less questions, like b did in his post here, lol.... cheers james
b , Nov 29, 2018 2:33:04 AM | link
This came faster than assumed:

Yemen war: US Senate advances measure to end support for Saudi forces

The US Senate has advanced a measure to withdraw American support for a Saudi-led coalition fighting in Yemen.

In a blow to President Donald Trump, senators voted 63-37 to take forward a motion on ending US support.

Secretary of State Mike Pompeo and Defence Secretary Jim Mattis had urged Senators not to back the motion, saying it would worsen the situation in Yemen.

...

The vote in the Senate means further debate on US support for Saudi Arabia is expected next week.

However, correspondents say that even if the Senate ultimately passes the bipartisan resolution it has little chance of being approved by the outgoing House of Representatives.

That is quite a slap for the Trump administration. It will have little consequences in the short term (or for Yemen) but it sets a new direction in foreign polices towards the Saudis.
jim slim , Nov 29, 2018 4:04:44 AM | link
Pompeo is a Deep State Israel-firster with a nasty neocon agenda. It is to Trump's disgrace that he chose Pompeo and the abominable Bolton. At least Trump admits the ME invasions are really about Israel.
mina , Nov 29, 2018 4:14:20 AM | link
duterte...idris deby...so many democrats visiting Netanyahu lately!!
Rhisiart Gwilym , Nov 29, 2018 4:49:48 AM | link
@Uncle Tungsten, 5:

Take a look at some of the - informed - comments below the vid to which you linked. Then think again about an 'all electric civilisation within a few years'. Yes, and Father Christmas will be providing everything that everyone in the world needs for a NAmerican/European standard of living within the same time frame. Er - not.

'Renewables' are not going to save hitech industrial 'civilisation' from The Long Descent/Catabolic Collapse (qv). Apart from any other consideration - and there are some other equally intractable ones - there is no - repeat NO - 'renewable' energy system which doesn't rely crucially on energy subsidies from the fossil-hydrocarbon fuels, both to build it and to maintain it. They're not stand-alone, self-bootstrapping technologies. Nor is there any realistic prospect that they ever will be. Fully renewable-power hitech industrial civilisation is a non-deliverable mirage which is just drawing us ever further into the desert of irreversible peak-energy/peak-everythig-else.

Rancid , Nov 29, 2018 5:58:26 AM | link
@16 karlof1. I also find your historical references very interesting. We do indeed seem to be at a very low point in the material cycle, it will reverse in due course as is its want, hopefully we will live to see a positive change in humanity.
Russ , Nov 29, 2018 7:24:10 AM | link
John 28

For example we know Tesla didn't succeed in splitting the planet in half, the way techno-psychotics fantasize. As for that silly link, how typical of techno-wingnuts to respond to prosaic physical facts with fantasies. Anything to prop up faith in the technocratic-fundamentalist religion. Meanwhile "electrical civilization" has always meant and will always mean fracking and coal, until the whole fossil-fueled extreme energy nightmare is over.

Given the proven fact that the extreme energy civilization has done nothing but embark upon a campaign to completely destroy humanity and the Earth (like in your Tesla fantasy), why would a non-psychopath want to prop it up anyway?

bob sykes , Nov 29, 2018 7:37:37 AM | link
It is still the oil, even for the US. The Persian Gulf supplies 20% of world consumption, and Western Europe gets 40% of its oil from OPEC countries, most of that from the Gulf. Even the US still imports 10% of its total consumption.
y , Nov 29, 2018 7:47:36 AM | link
Peter AU 1 | Nov 28, 2018 9:44:50 PM | 20
b | Nov 29, 2018 2:33:04 AM | 23
USD as a world reserve currency could be one factor between the important ones. With non US support the saud land could crash under neighbours pressure, that caos may be not welcomed.
Guerrero , Nov 29, 2018 10:16:10 AM | link
Posted by: karlof1 | Nov 28, 2018 7:59:31 PM | 16

"Vico's circle is about to intersect with Hegel's dialectic and generate a new temporal phase in human history. Although many will find it hard to tell, the current direction points to a difficult change to a more positive course for humanity as a whole..."

Yes!

Humble people around where I live have mentioned that time is speeding up its velocity; there seems to be a spiritual (evolutionary)/physical interface effect or something...

Tolstoy, in the long theory-of-history exposition at the end of War and Peace, challenges 'the great man' of History idea, spreading in his time, at the dawning of the so-called: European Romantic period of Beethoven, Goerte and Wagner, when the unique person was glorified in the name of art, truth, whatever (eventually this bubble burst too, in the 20th C. and IMO because of too much fervent worship in the Cult of the Temple of the Money God. Dostoyevki's great Crime and Punishment is all about this issue.)

Tolstoy tries to describe a scientifically-determined historical process, dissing the 'great man of History' thesis. He was thinking of Napoleon Bonaparte of course, the run-away upstart repulican, anathema to the established order. Tolstoy describes it in the opening scene of the novel: a fascinating parlor-room conversation between a "liberal" woman of good-birth in the elite circles of society and a military captain at the party.

...only tenuously relevant to karlofi1's great post touching upon the Theory of History as such; thanks.

Now as to the question: ¿Why is Trump supporting Saudi Arabia? Let me think about that...

[Nov 28, 2018] JP Morgan Cuts Its Oil Price Outlook For 2019 by Irina Slav

Nov 28, 2018 | oilprice.com

JP Morgan has revising its outlook on Brent crude to US$73 per barrel on average, CNBC reports . The bank's earlier forecast was for an average Brent crude price of US$83.50 a barrel.

The head of the bank's Asia-Pacific oil and gas operations, Scott Darling, told CONB analysts had factored in the increase in supply in North America that will occur in the second half of 2019 and will eventually pressure prices even lower in 2020, to an average US$64 in that year.

[Nov 27, 2018] Sovereign Wealth Funds and Shale. Are they funding those shale loans?

Nov 27, 2018 | peakoilbarrel.com

Watcher , 11/24/2018 at 12:16 pm

And so . . . Sovereign Wealth Funds and Shale. Are they funding those loans?

Answer -- not really. There was a hyped announcement of Singapore's SWF sending money to Chesapeake. But that was in 2010.

Reporters who dare to look into this don't seem to find much. They retreat to the sanctuary of narrative. Something like this "With renewables smashing oil's future, SWFs that are mostly funded by oil and gas are reluctant to invest in anything related to oil or gas."

Uh huh.

Worth noting that China has 4 SWFs that clearly were not funded by oil or gas -- but they aren't really SWFs either. They are just money in accounts at the PBOC and of course that entity can declare itself to have whatever amount it wishes (just like the Fed's Balance Sheet). (Note surprisingly in this context that Hong Kong (listed as one of China's) has a "SWF" of about 1/2 trillion dollars, which is absurd). But . . . China's money isn't oil or gas derived and even they aren't pouring into profitable oil or gas so diversification may not be the motivator in this. (Venezuela doesn't count, there will be no profit there)

BTW narrative embracers, y'all might want to examine why Tesla's stock didn't fall. Answer, Saudi's SWF owns 5% of the company in total and they don't sell more or less any of their holdings. This is a common trait of SWFs. They seldom sell anything. tra la tra la

Last but not least, and wow this is intriguing, there is CONSIDERABLE talk of the UK creating a SWF funded by shale gas that hasn't flowed yet. Gotta be an agenda there.

Longtimber , 11/24/2018 at 8:01 pm
http://www.artberman.com/2018-oil-price-collapse-explained-macrovoices-interview-20-nov-2018/
Energy News , 11/25/2018 at 6:21 am
Brazilian oil exports, ANP (Units 1000 barrels per day)

6 month moving average of net exports (crude oil + products)
September is at 678
Average 2018 so far 446
Average 2017 full year 492
Chart https://pbs.twimg.com/media/Ds1_S8EXQAAmY0n.jpg

Crude oil – The recent spike highs in crude oil exports must be coming from inventory draws. As the sum of refinery processing plus net crude oil exports is higher than crude oil production.
Chart https://pbs.twimg.com/media/Ds2Aqz9WsAANjjJ.jpg

In the longer term, from 2014, crude oil net exports have increased due to an increase in production and a decrease in refinery processing
https://pbs.twimg.com/media/Ds2CmdiWwAEQrF2.jpg

Energy News , 11/25/2018 at 10:20 am
Twitter – Donald J. Trump
So great that oil prices are falling (thank you President T). Add that, which is like a big Tax Cut, to our other good Economic news. Inflation down (are you listening Fed)!
1:46 pm – 25 Nov 2018
https://twitter.com/realDonaldTrump
Watcher , 11/25/2018 at 11:12 am
He's right about the Fed and inflation. That's pretty serious stuff. If the Fed suspends its increases a lot of things are going to change globally.
HHH , 11/25/2018 at 12:49 pm
What exactly is going to change if the Fed suspends it's increases? Dollar liquidity is still going to be an issue globally. Low oil price means less dollar liquidity particularly outside USA. Market demands nothing less than full blown more QE and lower interest rates. There is globally about 20 times the amount of dollar denominated debt as there is physical dollars to service that debt. That is what happens when the FED drops interest rates from 5.25% to 0.25%. Everybody borrowed dollars. FED can't exit without putting us right back where we were in 2009. They also can't continue. Why can't they continue? Answer is simple, the amount they create to keep things going has to be an ever increasing amount at an ever lower interest rate. Otherwise debt deflation happens. They hit a brick wall and can do nothing. So they will try to deflate it a little at a time. By raising interest rates and unwinding QE a little at a time. Then something major happens and it deflates a bunch all at once.

[Nov 24, 2018] Will Crashing Oil bring out the Powell Put by inezfrans

Nov 23, 2018 | www.zerohedge.com

By AskBrokers.com

Oil continues collapsing. The 7% move today is probably magnified due to lack of liquidity post-Thanksgiving, but nevertheless the move is huge. Oil is down 34% from recent highs. Fundamentals and real economy do not change this quick, so expect to hear about more "hedge(ed) funds" blowing up. After all this is a 3 sigma move .

What´s next for oil nobody knows, but 50 USD is a rather big level to watch. For believers in Fibonacci, 50 is the 50% retracement from the 2016 lows.

Oil volatility, OIV index, is now in full explosion mode. This is pure panic and these levels won´t be sustainable longer term, but the rise in oil volatility is simply amazing.

As we outlined earlier, oil stress started spreading to credit several weeks ago. We have been pointing out, no bounce in equities until we possibly see some stabilization in credit . For the equity bulls, unfortunately credit continues imploding. European iTraxx main continues the move violently higher.

Similar chart is to be found for the US CDX IG index.

Below chart shows the CDX IG index (white) versus oil (inverted, orange). The relationship is rather clear. Add to this crowded positions and low liquidity and the moves continue feeding of each other, causing enormous p/l pain and further risk reduction among funds.

European iTraxx main (inverted white) is now "aggressively" under performing the Eurostoxx 50 index (orange). The moves in credit are starting to feel rather "panicky", helping VIX and other related volatilities higher.

Given the continuation in oil prices, we ask ourselves when will the market start to realize Fed can´t be tightening as aggressively as (still) priced in. Maybe time for the Powell put to revive?

For more related reading check out AskBrokers.com

Source: charts by Bloomberg

MaxFreedom , 6 hours ago link

Is every market massively manipulated?

New_Meat , 5 hours ago link

to ask the question is to provide the answer.

[Nov 24, 2018] The assassination, and evidence of MbS' ordering of it, might be used as leverage to achieve various objectives that MbS wasn't on board with (a resolution of the Yemen situation? Oil pricing? toning down jihadi support in the MENA? )

Notable quotes:
"... Snowden accuses Israeli cybersecurity firm of enabling Khashoggi murder ..."
"... You would not consider as viable the hypothesis that Trump is using the assassination, and evidence of MbS' ordering of it, as leverage to achieve various objectives that MbS wasn't on board with (a resolution of the Yemen situation? Oil pricing? toning down jihadi support in the MENA? Other?). ..."
Nov 24, 2018 | turcopolier.typepad.com

Snowden accuses Israeli cybersecurity firm of enabling Khashoggi murder: Play Hide

Vicky SD , 11 hours ago

What do people make of the fact that it seems Khashoggi apparently was recently married, the picture of him with his supposed fiancée was clearly photoshopped (used the same photo from his WaPo profile), and his family has indicated they knew nothing of this new fiancée?

It also seems interesting how the US has a tape of MBS ordering his silencing when we apparently knew little at the outset. Seems this turd is starting to stink a bit.

Pat Lang Mod -> Vicky SD , 11 hours ago
Automated SIGINT collection produces such volumes of material based on standing targets that it often takes a while to sift through it. MBS's phone would be such a target. In any event Trump doesn't want to hear it.
Eric Newhill -> Pat Lang , 9 hours ago
Sir,

You would not consider as viable the hypothesis that Trump is using the assassination, and evidence of MbS' ordering of it, as leverage to achieve various objectives that MbS wasn't on board with (a resolution of the Yemen situation? Oil pricing? toning down jihadi support in the MENA? Other?).

Pat Lang Mod -> Eric Newhill , 8 hours ago
It's viable but I don't think Trump is that subtle.

[Nov 24, 2018] Oil and commodity markets were used as a finishing move on the Soviet system.

Nov 24, 2018 | www.zerohedge.com

RioGrandeImports, 21 seconds ago link

Oil and commodity markets were used as a finishing move on the Soviet system. The book, "The Oil Card: Global Economic Warfare in the 21st Century" by James R. Norman details the use of oil futures as a geopolitical tool. Pipelines change the calculus quite a bit.

[Nov 24, 2018] Peak Oil Drastic Oil Shortages Imminent, Says IEA

Nov 24, 2018 | peakoilbarrel.com

Fred Magyar x Ignored says: 11/22/2018 at 11:34 am

https://cleantechnica.com/2018/11/22/peak-oil-drastic-oil-shortages-imminent-says-iea/

LOL!

Peak Oil & Drastic Oil Shortages Imminent, Says IEA

Ron Patterson x Ignored says: 11/22/2018 at 1:59 pm
LOL!

Sorry Fred, but that joke just went right over my head. Why am I not laughing?

Fred Magyar x Ignored says: 11/22/2018 at 4:18 pm
Twas a sarcastic laugh at the expense of the IEA
George Kaplan x Ignored says: 11/23/2018 at 2:21 am
That discovery chart shows the problem well, I hadn't seen it before. The big blip in deep water discoveries in the 2000s from improved technologies and higher prices contributed greatly to the subsequent glut and price collapse – and now what's left? There hasn't been much of an uptick in exploration despite the price rally, offshore drillers continue to go bust, leasing activity still fairly slow – the tranches get bigger as the last, less attractive bits are released but lease ratio falls, Permian dominates all news stories. Why would the recent decline curve turn around? And the biggest surprise might be that gas is just as bad as oil, so the recent boost in supplies from condensate and NGL might also have run its course.
Survivalist x Ignored says: 11/23/2018 at 9:33 am
So we need to bring on approx 40 million barrels a day by 2025 to stay flat?
Should be an interesting 7 years!
George Kaplan x Ignored says: 11/23/2018 at 12:31 pm
I tracked FIDs for oil through 2017, I've been a bit less diligent this year so may have missed some, but for greenfield conventional plus oil sands I have for the remainder of 2018 through 2025: 400, 1770, 1170, 800, 985, 70, 250, 400 kbpd added – about 6 mmbpd total, nothing after 2025, plus another 1 mmbpd from ramp ups from this year. Only pretty small projects could get done now before 2022, and there aren't many of those left. Anything else would need to come from brownfield (in-fill), LTO or new discoveries (including existing known resources that become reserves once a development decision is made).
Hugo x Ignored says: 11/23/2018 at 5:34 am
GDP and Energy consumption

The link between GDP and energy consumption is very clearly shown in the graph.

https://ourfiniteworld.com/2012/10/25/an-economic-theory-of-limited-oil-supply/comment-page-2/

High economic growth matched high growth in energy consumption and recessions saw fall in energy consumption.

Since 90% of the energy consumed comes from burning the stored energy in coal, oil, gas and wood. It is hardly surprising that during high economic growth CO2 emissions increase also.
Those who not not wish to see this link, obviously think Peak Oil is not a problem. GDP growth will continue even though oil becomes more scarce.

If oil production falls by just 1% per year, taking into account new vehicle production. The world would have to produce 90 million electric cars each year in order to prevent oil prices from destroying other users such as the aviation industry.

This year 1.5 million fully electric cars were made and according to several people here peak oil is no more then 4 years away.

Fred Magyar x Ignored says: 11/23/2018 at 5:46 am
Since 90% of the energy consumed comes from burning the stored energy in coal, oil, gas and wood. It is hardly surprising that during high economic growth CO2 emissions increase also

I have a hunch that we are about to see some major changes to that paradigm.

Hugo x Ignored says: 11/23/2018 at 7:40 am
Fred

I hope you are correct, but I have done some calculations on what is needed.

According to reports around $1.7 trillion was invested in energy supply in 2017. $790 billion on oil, gas and coal supply. $320 billion was spent on solar and wind.
During 2017 oil consumption increased by 1 million barrels per day. Gas consumption increased by 3% and even coal consumption went up.

The world needs to spend about $2.5 trillion per year on wind, solar and batteries in order to meet increased energy demand and reduce fossil fuel burning by about 1% per year. This obviously depends on GDP growth being about average.

Since recent scientific observations have discovered that Greenland, the Arctic and Antarctica melting much faster than anyone thought. The shift needs to be a minimum of 2.5%. Thus a spending of around £4 trillion per year is needed.

I do not see any country spending a minimum of 12 times more on solar and wind in the next 3-5 years. It would take every country doing so.

Hickory x Ignored says: 11/23/2018 at 12:21 pm
Agreed Hugo. The world is only making token moves towards installation of the necessary wind and solar.
This coming decade will see everyone scrambling to get the equipment built and installed.
Looks like centralized planning (China) is going to beat 'the market' on being the primary supplier. Our 'free' market has tariffs on PV imported. Brilliant.
Does having a 5 (or 10 yr) plan make you communist?
Or just smart.
GoneFishing x Ignored says: 11/23/2018 at 12:44 pm
"The world needs to spend about $2.5 trillion per year on wind, solar and batteries in order to meet increased energy demand and reduce fossil fuel burning by about 1% per year. This obviously depends on GDP growth being about average."
1% per year? You have got to be kidding.
The global oil consumption for transport is about 39.5 million barrels of oil per day. Using PV to drive EV transport would mean an investment of 2.2 trillion dollars in PV to provide global road transport energy.
So what do we use next year's money for?
.
HuntingtonBeach x Ignored says: 11/23/2018 at 5:14 pm
"The global oil consumption for transport is about 39.5 million barrels of oil per day"

39.5 million is only gasoline in the world. Add diesel and jet fuel and you get to about 75 million barrels a day for transportation or about 75% of oil produced.

GoneFishing x Ignored says: 11/23/2018 at 6:51 pm
I was specifically talking about road transport.
Argue with these guys.
https://www.statista.com/statistics/307198/forecast-of-oil-consumption-in-road-transportation/

Did you get the point? That Hugo overstated the cost of renewables to replace fossil fuels by a huge amount and understated their effect by another huge amount.
We have a couple of people that consistently do that on this site.

Hickory x Ignored says: 11/24/2018 at 12:33 am
You may have just been talking about transport energy, but the others of us were having some back and forth about fossil fuel replacement in general.

[Nov 23, 2018] The great oil crash of 2018 What's really going on - CNN

You can do all what you want with paper oil including to crash market prices once again to $40 level. You just can't refine paper oili and put the resulting gasoline in the car.
Nov 23, 2018 | www.cnn.com

New York (CNN Business) The meltdown in the oil market has caught almost everyone off guard. In the span of mere weeks, crude prices went from a four-year high to a full-blown bear market. The oil crash -- crude is down more than 30% from its recent peak -- was triggered by a series of factors that combined to spook traders who once saw $100 oil on the horizon. "The sheer scale of the move is triggering unpleasant memories of 2014 and 2015," said Michael Tran, director of global energy strategy at RBC Capital Markets, alluding to the last oil downturn. US oil prices plummeted another 7% on Friday, breaking below $51 a barrel for the first time in 13 months. President Donald Trump celebrated the oil crash. Read More "Oil prices getting lower, Great! Like a big Tax Cut for America and the World. Enjoy!" Trump tweeted on Wednesday. "Thank you to Saudi Arabia, but let's go lower!" But the oil slide can't be explained by a simple tweet.

... ... ...

American shale oil boom Although Trump praised Saudi Arabia, his tweet omitted the central role played by America in the oil plunge. Lifted by the shale oil boom, the United States recently overtook Russia and Saudi Arabia to become the world's largest oil producer for the first time since 1973. The International Energy Agency predicts US output will have soared by more than 2 million barrels per day in 2018. It's expected to climb further next year. No other country has ramped up production to that degree.

... ... ...

Demand Fear

Appetite for oil in the United States has been "very robust," but the IEA warned last week of "relatively weak" demand in Europe and developed Asian countries. And the IEA flagged a "slowdown" in demand in India, Brazil and Argentina caused by high prices, weak currencies and deteriorating economic activity .

Last month the International Monetary Fund downgraded its 2019 GDP estimates for both China and the United States because of the trade war. Global GDP is expected to slow from 2.9% in 2018 to 2.5% next year. That's never good news for oil, which powers the economy.

... ... ...

Fast money

Commodities, much like stocks, are influenced by large bets made by hedge funds and other traders. Analysts say the oil plunge was exacerbated by the unwinding of massive bullish bets by financial players.

The managed money community's long positions in crude plunged in late October to the lowest level since early 2016 when crude crashed to $26 a barrel, according to RBC.

[Nov 22, 2018] Wild Fluctuations in Oil Prices

Nov 22, 2018 | 247wallst.com

The future of oil prices is in great flux. The huge boom in American and Canadian shale output has added tremendously to the overall global supply of oil. The United States, as a matter of fact, has become almost energy independent. At the same time, data from the International Energy Agency shows that worldwide demand has flattened, to some extent because of a drop in supply from emerging markets. These factors would seem to argue for oil prices to range close to the current price of $58. However, crude was at $74 just a month ago, and the circumstances that drove it up have not entirely disappeared.

Venezuela, which has the world's largest proven oil reserves, is in political and economic turmoil. Iran's exports will be curtailed by sanctions. Tensions with Saudi Arabia have not been so high in years after the murder of journalist Jamal Khashoggi. The Saudis already have said they plan to cut production.

From what individuals pay for gasoline and heating oil to airline fuel prices to petrochemical products, a spike in crude would be damaging. (Ironically, a very sharp drop in oil prices is sometimes the sign of a falloff in global demand, and thus a signal of an overall slowdown in worldwide GDP.)

[Nov 22, 2018] CIA officials are signaling Saudi Crown Prince Mohammed bin Salman must be replaced

Nov 20, 2018 | thenewkremlinstooge.wordpress.com

Warren November 20, 2018 at 10:23 am

https://youtu.be/JBQZIJGmwPc

TheRealNews
Published on 20 Nov 2018
CIA officials are signaling Saudi Crown Prince Mohammed bin Salman must be replaced. Is this all about the killing of Jamal Khashoggi? Professor Asad AbuKhalil says there are other political reasons.

Mark Chapman November 20, 2018 at 5:03 pm

Fear not! I heard on the news on my way home that Trump has decided Saudi Arabia will not be punished for the killing of Khahsoggi with termination of current arms contracts. The Donald reasons that if that happens, the KSA will just buy its weapons elsewhere. And nobody in the military-industrial complex wants that. I am very confident Justin Trudeau will interpret that as a signal that Canada likewise should not cut off its nose to spite its face, and so Canada will not 'punish' its good friend, either. Therefore, Saudi Arabia will experience no punishment whatsoever for its admitted murder of an inconvenient American journalist. There are limits to western indignation, after all. So the west will content itself with revoking the KSA's invitation to the Spring Strawberry Social, and double down on its insistence that Crimea is Ukraine and must be returned to Kiev's control, and the west will never accept its 'annexation'. Never, never, never. There are some issues on which the west has spine to spare. So if you want a noisy western journalist removed, slip the Saudis a few bucks, and they can probably make it happen with no recriminations.
kirill November 20, 2018 at 5:23 pm
The recognition of Crimea as part of Ukraine by Washington and its minions is totally worthless. It is not based on law and justice, it is based on self-interest (as in the USA had big plans to acquire Crimea and build a massive naval base there). The use of the word annexation is propaganda drivel.

Ukraine annexed Crimea in 1991 and the ICJ has ruled that local ethnic majorities have a right to self determination. If independence is good enough for Kosovo, it is good enough for Crimea. No amount of special pleading by Washington and its bootlicks about Kosovo being "special" has any merit.

et Al November 21, 2018 at 9:38 am
I'm afraid you are wrong about the ICJ Kirill. The ICJ dodged the actual issue. They ruled that making a declaration of independence is not against international law, not whether anyone/whatever/blah blah blah actually has the right to independence. Possibly because they did not want to cross Pandora's Rubicon Box

https://en.wikipedia.org/wiki/International_Court_of_Justice_advisory_opinion_on_Kosovo%27s_declaration_of_independence

the adoption of the declaration of independence of the 17 February 2008 did not violate general international law because international law contains no 'prohibition on declarations of independence

####

Some call it 'unique', others call it a precedent , therefore 'not unique'. If the West argues that the ICJ said it was ok, then it is also ok for Crimea to declare independence. Or, if they claim that Crimea is not independent, that Kosovo cannot be either, hence, as you point out the use of the word ' annexation ' and other creative circumlocutions to avoid mentioning that secession was first and the clear comparison with Kosovo which would not serve them well at all.

https://nyujilp.org/icj-rules-on-kosovo-independence/

The Inter­na­tion­al Court of Jus­tice today held that inter­na­tion­al law did not pro­hib­it Kosovo's dec­la­ra­tion of inde­pen­dence, while side­step­ping the larg­er issue of Kosovo's state­hood

####

But, this is not the first time the West has decided what international law is for itself when back in 1991 the European Council ministers themselves appointed the Badinter Commission to give it a legal figleaf for recognizing the administrative borders of Yugoslavia as international. I've posted this link before, but once more with feeling:

How the Badinter Commission on Yugoslavia laid the roots for Crimea's secession from Ukraine
http://blogs.lse.ac.uk/europpblog/2015/02/20/how-the-badinter-commission-on-yugoslavia-laid-the-roots-for-crimeas-secession-from-ukraine/

kirill November 21, 2018 at 10:51 am
Thanks for the clarification. But it is all a house of cards. Given that empires and countries have continually fissioned into pieces through the whole of relevant history, the notion of "territorial integrity" is bogus and a corollary of "might makes right". As long as the country can suppress secessionists it has territorial integrity, when it becomes too weak everything falls apart. There is no international law. And if ware to assume a common law regime that is not maintained by legislatures, then secession is fully legal if the local majority wants it hard enough.
et Al November 21, 2018 at 12:17 pm
We know it is nothing but the Law of the Jungle. It's just that the fancy dress shop has expanded and has a lot more more costumes on offer to its clients.
Mark Chapman November 21, 2018 at 7:01 pm
Quite so; however, as I have frequently pointed out before – notably here –

https://marknesop.wordpress.com/2014/03/11/radoslaw-sikorski-is-a-handsome-urbane-well-educated-twat-the-ignominious-collapse-of-british-journalism/

when the west trots out its I-never-said that-exactly smokescreen, it is helpful to read what various western countries wrote as legal opinions, and the arguments they used to support their reasoning. Where Kosovo is concerned, a classic is the Polish opinion, written by (or more likely for) its then-Foreign Minister, Radek Sikorski. He wrote, in part;

" a state is commonly defined as a community which consists of a territory and a population subject to an organized political authority; that such a state is characterized by sovereignty the existence of the state is a question of fact, the effects of recognition by other states are purely declaratory. A declaration of independence is merely an act that confirms these factual circumstances, and it may be difficult to assess such an act in purely legal terms."

Legal opinions are usually replete with bafflegab to confuse the easily-bored and the pressed-for-time readers. But Mr. Sikorski made what he must have believed was a very convincing case that a sovereign state-within-a-state is characterized by an ethnic population, a pre-existing degree of autonomy (so that the entity demonstrates the capability to function autonomously), and its own functioning institutions such as banks and infrastructure.

Which of those is not descriptive of Crimea? It was even called "The Autonomous Republic of Crimea", for Christ's sake. Sikorski doubtless had an inkling that the Kosovo precedent might come back to bite NATO, and so tried to duck a justification which might read like a precedent, but it was unavoidable.

[Nov 21, 2018] Who Says Economic Sanctions Work by Scott Ritter

Looks like the recent oil price drop was engineered like in 2014 by the USA adminsitration...
" Concerns that strict sanctioning of Iranian oil would result in a spike in global oil prices prompted Trump to grant waivers to eight of Iran's largest purchasers of oil, creating a situation where Iran's oil-based income will increase following the implementation of sanctions. The bottom line is that the current round of U.S. sanctions targeting Iran will not achieve anything. "
Notable quotes:
"... With Iran, the issue of nuclear non-proliferation was an additional justification for sanctions. Here, disarmament concerns eventually trumped regime change desires, to the extent that when the U.S. was confronted by the reality that sanctions would not achieve the change in behavior desired by Tehran, and the cost of war with Iran being prohibitively high, both politically and militarily, it capitulated. It agreed to lift the sanctions in exchange for Iran agreeing to enhanced monitoring of a nuclear program that was fundamentally unaltered by the resulting agreement, known as the Joint Comprehensive Program of Action, or JCPOA. ..."
"... When Trump withdrew from the JCPOA, he did so in an environment that was radically different than the one that was in play when President Barack Obama embraced that agreement in July 2015. Today, the U.S. stands alone in implementing sanctions, while Iran enjoys the support of the rest of the world (support that will continue so long as Iran complies with the provisions set forth in the JCPOA.) Moreover, Iran is working with its new-found partners in Europe, Russia, and China to develop work-arounds to the U.S. sanctions. ..."
"... The coalition of support that the U.S. has assembled to confront Iran, built around Israel and Saudi Arabia, is not as solid as had been hoped -- Israel is tied down in Gaza, while Saudi Arabia struggles in Yemen, and is reeling from the fallout surrounding the murder of Jamal Khashoggi ..."
Nov 21, 2018 | www.theamericanconservative.com
The imposition of new, more stringent sanctions targeting Iranian oil sales by the Trump administration has once again raised the question: is this even a viable policy?

The Council on Foreign Relations defines sanctions as "a lower-cost, lower-risk, middle course of action between diplomacy and war." In short, sanctions do not represent policy per se, but rather the absence of policy, little more than a stop-gap measure to be used while other options are considered and/or developed.

Not surprising, sanctions have rarely -- if ever -- succeeded in obtaining their desired results. The poster child for successful sanctions as a vehicle for change -- divestment in South Africa during the 1980s in opposition to the Apartheid regime -- is in reality a red herring. The South Africa sanctions were in fact counterproductive , in so far as they prompted even harsher policies from the South African government. The demise of Apartheid came about largely because the Soviet Union collapsed, meaning the South African government was no longer needed in the fight against communism.

Another myth that has arisen around sanctions is their utility in addressing nonproliferation issues. Since 1994, the U.S. has promulgated non-proliferation sanctions under the guise of executive orders signed by the president or statutes passed by Congress. But there is no evidence that sanctions implemented under these authorities have meaningfully altered the behaviors that they target. Better known are the various sanctions regimes authorized under UN Security Council resolutions backed by the United States, specifically those targeting Iraq, North Korea, and Iran.

The Iraq sanctions were, by intent, a stop-gap measure implemented four days after the Iraqi invasion of Kuwait and intended to buy time until a military response could be authorized, organized, and executed. The nature of the Iraq sanctions regime was fundamentally altered after Operation Desert Storm, when the objective transitioned away from the liberation of Kuwait, which was achieved by force of arms, to the elimination of weapons of mass destruction, which was never the intent of the sanctions to begin with. The potential for sanctions to alter Iraqi behavior was real -- Iraq had made the lifting of sanctions its top priority, and thanks to aggressive UN weapons inspections, was effectively disarmed by 1995.

This potential, however, was never realized in large part to the unspoken yet very real policy on part of the U.S. that sanctions would not be lifted on Iraq, regardless of its level of disarmament, until which time its president, Saddam Hussein, was removed from power. Since the sanctions were not designed, intended, or capable of achieving regime change, their very existence became a policy trap -- as the sanctions crumbled due to a lack of support and enforcement, the U.S. was compelled to either back away from its regime change policy, which was politically impossible, or seek regime change through military engagement. In short, American sanctions policy vis-à-vis Iraq was one of the major causal factors behind the 2003 decision to invade Iraq.

One of the flawed lessons that emerged from the Iraq sanctions experience was that sanctions could contribute to regime change, in so far as they weakened the targeted nation to the point that a military option became attractive. This is a fundamentally flawed conclusion, however, predicated on the mistaken belief that Iraq's military weakness was the direct byproduct of sanctions. Iraq's military weakness was because its military had been effectively destroyed during the 1991 Gulf War. Sanctions contributed significantly to Iraq being unable to reconstitute a meaningful military capability, but they were not the cause of the underlying systemic problems that led to the rapid defeat of the Iraqi military in 2003.

The "success" of the Iraq sanctions regime helped guide U.S. policy regarding North Korea in the 1990s and 2000s. Stringent sanctions, backed by Security Council resolutions, were implemented to curtail North Korea's development of nuclear weapons and ballistic missile delivery systems. Simple cause-effect analysis shows the impotence of this effort -- North Korea's nuclear and ballistic missile capability continued unabated, culminating in nuclear-tipped intercontinental ballistic missiles capable of reaching U.S. soil being tested and deployed. The notion that sanctions could undermine the legitimacy of the North Korean regime and facilitate its collapse was not matched by reality. If anything, support for the regime grew as it demonstrated its willingness to stand up to the U.S. and proceed with its nuclear weapons and ballistic missile programs.

The Victims of Iran Sanctions Iran Deserves Credit for the Ruin of ISIS

The Trump administration labors under the fiction that it was the U.S. policy of "maximum pressure" through sanctions that compelled North Korea to agree to denuclearization. The reality, however, is that it is North Korea, backed by China and Russia, that has dictated the timing of the diplomatic breakthrough with the U.S. ( the so-called "Peace Olympics" ), and the pace of associated disarmament. Moreover, North Korea's insistence that any denuclearization be conducted parallel to the lifting of economic sanctions demonstrates that it is in full control of its policy, and that the promise of the lifting of economic sanctions has not, to date, prompted any change in Pyongyang's stance. While President Donald Trump maintains that the U.S. will not budge from its position that sanctions will remain in place until North Korea disarms, the fact of the matter is that the sanctions regime is already collapsing, with China opening its border, Russia selling gasoline and oil, and South Korea engaged in discussions about potential unification.

The U.S. has lost control of the process, if indeed it was ever in control. It is doubtful that the rest of the world will allow the progress made to date with North Korea to be undone, leaving the U.S. increasingly isolated. Insisting on the maintenance of a sanctions regime that has proven ineffective and counterproductive is not sustainable policy. As with Iraq, U.S. sanctions have proven to be the problem, not the solution. Unlike Iraq, North Korea maintains a robust military capability, fundamentally altering the stakes involved in any military solution the U.S. might consider as an alternative -- in short, there is no military solution. One can expect the U.S. to alter its position on sanctions before North Korea budges on denuclearization.

Iran represents a far more complex, and dangerous, problem set. The United States has maintained sanctions against Iran that date back to the 1979 Iranian Revolution that overthrew the Shah, and the seizure of the U.S. embassy and resultant holding of its staff hostage for 444 days. The U.S. policy vis-à-vis Iran has been one where the demise of the ruling theocracy has been a real, if unstated, objective, and every sanctions regime implemented since that time has had that outcome in mind. This is the reverse of the Iraqi case, where regime change was an afterthought to sanctions. With Iran, the issue of nuclear non-proliferation was an additional justification for sanctions. Here, disarmament concerns eventually trumped regime change desires, to the extent that when the U.S. was confronted by the reality that sanctions would not achieve the change in behavior desired by Tehran, and the cost of war with Iran being prohibitively high, both politically and militarily, it capitulated. It agreed to lift the sanctions in exchange for Iran agreeing to enhanced monitoring of a nuclear program that was fundamentally unaltered by the resulting agreement, known as the Joint Comprehensive Program of Action, or JCPOA.

When Trump withdrew from the JCPOA, he did so in an environment that was radically different than the one that was in play when President Barack Obama embraced that agreement in July 2015. Today, the U.S. stands alone in implementing sanctions, while Iran enjoys the support of the rest of the world (support that will continue so long as Iran complies with the provisions set forth in the JCPOA.) Moreover, Iran is working with its new-found partners in Europe, Russia, and China to develop work-arounds to the U.S. sanctions.

The coalition of support that the U.S. has assembled to confront Iran, built around Israel and Saudi Arabia, is not as solid as had been hoped -- Israel is tied down in Gaza, while Saudi Arabia struggles in Yemen, and is reeling from the fallout surrounding the murder of Jamal Khashoggi .

Concerns that strict sanctioning of Iranian oil would result in a spike in global oil prices prompted Trump to grant waivers to eight of Iran's largest purchasers of oil, creating a situation where Iran's oil-based income will increase following the implementation of sanctions. The bottom line is that the current round of U.S. sanctions targeting Iran will not achieve anything.

For the meantime, Iran will avoid confrontation, operating on the hope that it will be able to cobble an effective counter to U.S. sanctions. However, unlike Iraq, Iran has a very capable military. Unlike Korea, however, this military is not equipped with a nuclear deterrent.

If history has taught us anything, it is that the U.S. tends to default to military intervention when sanctions have failed to achieve the policy goal of regime change. Trump, operating as he is under the influence of Secretary of State Mike Pompeo and National Security Advisor John Bolton, is not immune to this trap. The question is whether Iran can defeat the sanctions through workarounds before they become too crippling and the regime is forced to lash out in its own defense. This is one race where the world would do well to bet on Iran, because the consequences of failure are dire.

Scott Ritter is a former Marine Corps intelligence officer who served in the former Soviet Union implementing arms control treaties, in the Persian Gulf during Operation Desert Storm, and in Iraq overseeing the disarmament of WMD. He is the author of Dealbreaker: Donald Trump and the Unmaking of the Iran Nuclear Deal (2018) by Clarity Press.

[Nov 19, 2018] We now learn that the person in the U.S. National Security Council who put al-Qahtani on the list was fired: Kirsten Fontenrose, the National Security Council official in charge of U.S. policy toward Saudi Arabia, resigned

Notable quotes:
"... Moon of Alabama ..."
"... The Nation ..."
"... The Treasury declaration blamed MbS advisor Saud al-Qahtani as mastermind behind the Khashoggi murder, while the Saudis carefully avoided that. We now learn that the person in the U.S. National Security Council who put al-Qahtani on the list was fired : ..."
"... Fontenrose had played a key role in the administration's decision about which Saudis to sanction in response to Khashoggi's killing, these people said. ..."
"... I suspect that MbS tried, via Trump's son-in-law Kushner, to save al-Qahtani (and himself). Trump clearly wanted to do that, but Fontenrose blew the plan by pushing for al-Qahtani to be sanctioned. The CIA also sabotaged the planned exculpation of MbS by 'leaking' its judgment about MbS' personal responsibility to the press. ( WaPo published the CIA conclusion in Arabic , another point the Saudis will hate.) ..."
Nov 19, 2018 | www.moonofalabama.org

Last week's posts on Moon of Alabama :

We were first to point out that the NYT's characterization of an old North Korean missile site as "deception" was pure nonsense. Newsweek , 38north.org , NKNews.org , The Nation and others now also condemned the neo-conned NYT propaganda.

The war let to the loss of Netanyahoo's majority in the Knesset. He is now trying to stall new elections in which he could lose his job.

Trump's Middle East policy is in total disarray. Nothing is working as planned. Netanyahoo will probebaly fall. Saudi Arabia will not make nice with Qatar. There will be no Arab NATO or anti-Iran alliance. MbS is despised but will stay on the job. Yemen is starving. The U.S. is at odds with Turkey over support for the Kurds. Trumps knows and hates this :

The adviser who talks to Trump said: "If the president had his way, he would stay entirely out of the Middle East and all of the problems."

The piece was the first to point out the difference between the Saudi investigation, which put blame on Major General Ahmed al-Asiri, and the names on the U.S. sanction list published at the same time. The Treasury declaration blamed MbS advisor Saud al-Qahtani as mastermind behind the Khashoggi murder, while the Saudis carefully avoided that. We now learn that the person in the U.S. National Security Council who put al-Qahtani on the list was fired :

On Friday evening, Kirsten Fontenrose, the National Security Council official in charge of U.S. policy toward Saudi Arabia, resigned, administration officials said. The circumstances of her departure weren't clear. But Fontenrose had previously been placed on administrative leave, according to people familiar with the matter.

Fontenrose had played a key role in the administration's decision about which Saudis to sanction in response to Khashoggi's killing, these people said.

I suspect that MbS tried, via Trump's son-in-law Kushner, to save al-Qahtani (and himself). Trump clearly wanted to do that, but Fontenrose blew the plan by pushing for al-Qahtani to be sanctioned. The CIA also sabotaged the planned exculpation of MbS by 'leaking' its judgment about MbS' personal responsibility to the press. ( WaPo published the CIA conclusion in Arabic , another point the Saudis will hate.) Trump is furious that the CIA (again) sabotaged his policy:

Asked about reports that the CIA had assessed involvement by Mohammed, the president said: "They haven't assessed anything yet. It's too early."

[Nov 17, 2018] OPEC Plus Putin's move to control energy market with Saudi partnership (Video)

Nov 17, 2018 | theduran.com

The Express UK reports that Russia and Saudi Arabia's 'long-term relationship' will not only survive, but grow, regardless of geopolitical turmoil and internal Saudi scandal as the energy interests between both nations bind them together.

... ... ...

But IHS Market vice chairman Daniel Yergin said the decision was unlikely to jeopardise the relationship between the two allies.

The Saudis have faced significant international criticism in the wake of the killing of journalist Jamal Khashoggi at the Saudi consulate in Turkey.

Speaking to CNBC, Mr Yergin made it clear that Moscow and Riyadh would continue to be closely aligned irrespective of external factors.

He explained: "I think it's intended to be a long-term relationship and it started off about oil prices but you see it taking on other dimensions, for instance, Saudi investment in Russian LNG (liquefied natural gas) and Russian investment in Saudi Arabia.

"I think this is a strategic relationship because it's useful to both countries."

Saudi Arabia and Russia are close, especially as a result of their pact in late 2016, along with other OPEC and non-OPEC producers, to curb output by 1.8 million barrels per day in order to prevent prices dropping too far – but oil markets have changed since then, largely as a result.

The US criticised OPEC, which Saudi Arabia is the nominal leader of, after prices rose.

Markets have fluctuated in recent weeks as a result of fears over a possible drop in supply, as a result of US sanctions on Iran, and an oversupply, as a result of increased production by Saudi Arabia, Russia and the US, which have seen prices fall by about 20 percent since early October.

Saudi Arabia has pumped 10.7 million barrels per day in October, while the figure for Russia and the US was 11.4 million barrels in each case.

Mr Yergin said: "It's the big three, it's Saudi Arabia, Russia and the US, this is a different configuration in the oil market than the traditional OPEC-non-OPEC one and so the world is having to adjust."

BP Group Chief Executive Bob Dudley told CNBC: "The OPEC-plus agreement between OPEC and non-OPEC producers including Russia and coalition is a lot stronger than people speculate.

"I think Russia doesn't have the ability to turn on and off big fields which can happen in the Middle East.

"But I fully expect there to be coordination to try to keep the oil price within a certain fairway."

Markets rallied by two percent on Monday off the back of the Saudi decision to cut production , which it justified by citing uncertain global oil growth and associated oil demand next year.

It also suggested waivers granted on US sanctions imposed on Iran which have been granted to several countries including China and Japan was a reason not to fear a decline in supply.

Also talking to CNBC, Russia's Oil Minister Alexander Novak indicated a difference of opinion between Russia and the Saudis, saying it was too soon to cut production, highlighting a lot of volatility in the oil market.

He added: "If such a decision is necessary for the market and all the countries are in agreement, I think that Russia will undoubtedly play a part in this.

"But it's early to talk about this now, we need to look at this question very carefully."

[Nov 16, 2018] "Peak oil consumption" for the next five to ten years remains a myth.

Nov 16, 2018 | peakoilbarrel.com

likbez says: 11/16/2018 at 1:42 am

Shallow sand mentioned EV as a sign that oil consumption might go down.

I view EVs as inefficient natural gas powered cars, or worse. And the key problem is its lithium battery. See http://www.epa.gov/dfe/pubs/projects/lbnp/final-li-ion-battery-lca-report.pdf

The cost of producing a large lithium battery is high and it is "perishable product", which will not last even 10 years. The average life expectancy of a new EV battery at about five (Tesla) to eight years. Or about 1500 cycles (assuming daily partial recharge, which prolongs the life of the battery) before reaching 80% of its capacity rating. https://www.quora.com/What-is-the-cycle-lifetime-of-lithium-ion-batteries

Battery performance and lifespan begins to suffer as soon as the temperature climbs above 86 degrees Fahrenheit. A temperature above 86 degrees F affects the battery pack performance instantly and often permanently. https://phys.org/news/2013-04-life-lithium-ion-batteries-electric.html

It is also became almost inoperative at below freezing point temperatures. For example it can't be charged.

So they need to be cooled at summer and heated at winter. Storing such a car on the street is out of question. You need a garage.

And large auto battery typically starts deteriorating after three years of daily use or 800 daily cycles.

Regular gas, and , especially, diesel cars can last 20 years, and larger trucks can last 30 years.

Recycling of lithium batteries is problematic
http://users.humboldt.edu/lpagano/project_pagano.html

In a way EVs can be called "subprime cars." Or "California cars", if you wish (California climate is perfect for this type of cars)

Switching to motorcycles for personal transportation can probably help more in oil economy aria then EVs.

That also suggest that "peak oil consumption" for the next five to ten years remains a myth.

[Nov 16, 2018] Oil, Power, and War A Dark History by Matthieu Auzanneau

Notable quotes:
"... Finally, unlike Yergin and other historians of the oil industry, Auzanneau frames his tale of petroleum as a life cycle, with germination followed by spring, summer, and autumn. There is a beginning and a flourishing, but there is also an end. This framing is extremely helpful, given the fact that the world is no longer in the spring or summer of the oil era. We take petroleum for granted, but it's time to start imagining a world, and daily life, without it. ..."
Nov 16, 2018 | www.amazon.com

Similarly, the real story of oil is of fortunes lost, betrayal, war, espionage, and intrigue. In the end, inevitably, the story of oil is a story of depletion. Petroleum is a nonrenewable resource, a precious substance that took tens of millions of years to form and that is gone in a comparative instant as we extract and burn it. For many decades, oil-hungry explorers, using ever-improving technology', have been searching for ever-deteriorating prospects as the low- hanging fin its of planet Earth's primordial oil bounty gradually dwindle. Oil wells have been shut in, oil fields exhausted, and oil companies bankrupted by the simple, inexorable reality of depletion.

It is impossible to understand the political and economic history of the past 150 years without taking account of a central character in the drama -- oil, the magical wealth-generating substance, a product of ancient sunlight and tens of millions of years of slow geological processes, whose tragic fate is to be dug up and combusted once and for all. leaving renewed poverty in its wake. With Oil, Power, and War, Matthieu Auzanneau has produced what I believe is the new definitive work on oil and its historic significance, supplanting even Daniel Yergin's renowned The Prize, for reasons I'll describe below.

The importance of oil's role in shaping the modern world cannot be overstated. Prior to the advent of fossil fuels, firewood was humanity's main fuel. But forests could be cut to the last tree (many were), and wood was bulky. Coal offered some economic advantages over wood. But it was oil -- liquid and therefore easier to transport; more energy-dense; and simpler to store -- that turbocharged the modern industrial age following the development of the first commercial wells around the year 1860.

John D. Rockefeller's cutthroat, monopolist business model shaped the early industry, which was devoted mostly to the production of kerosene for lamp oil (gasoline was then considered a waste product and often discarded into streams or rivers). But roughly forty years later, when Henry Ford developed the automobile assembly line, demand for black gold was suddenly as explosive as gasoline itself.

Speaking of explosions, the role of petroleum in the two World Wars and the armament industry' in general deserves not just a footnote in history books but serious and detailed treatment such as it receives in this worthy volume. Herein we learn how Imperial Japan and Nazi Germany literally ran out of gas while the Allies rode to victory in planes, ships, and tanks burning refined US crude. Berlin could be cut off from supplies in Baku or North Africa, and Tokyo's tanker route from Borneo could be blockaded -- but no one could interrupt the American war machine's access to Texas tea.

In the pages that follow, we learn about the origin of the decades-long US alliance with Saudi Arabia, the development of OPEC, the triumph of the petrodollar, and the reasons for both the Algerian independence movement and the Iranian Revolution of 1979. Auzanneau traces the postwar growth of the global economy and the development of consumerism, globalization, and car culture. He recounts how the population explosion and the Green Revolution in agriculture reshaped demographics and politics globally -- and explains why both depended on petroleum. We learn why Nixon cut the US dollar's tether to the gold standard just a year after US oil production started to decline, and how the American economy began to rely increasingly on debt. The story of oil takes ever more fascinating turns -- with the fall of the Soviet Union after its oil production hit a snag; with soaring petroleum prices in 2008 coinciding with the onset of the global financial crisis; and with wars in Iraq, Syria, and Yemen erupting as global conventional oil output flatlined.

As I alluded to above, comparisons will inevitably be drawn between Oil, Power, and War and Daniel Yergin's Pulitzer-winning "The Prize", published in 1990. It may be helpful therefore to point out four of the most significant ways this work differs from Yergin's celebrated tour de force.

The most obvious difference between the two books is simply one of time frame. The Prize's narrative stops in the 1980s, while Oil, Power, and War also covers the following critical decades, which encompass the dissolution of the Soviet Union, the first Gulf War, 9/11, the US invasions of Afghanistan and Iraq, the global financial crisis of 2008. and major shifts within the petroleum industry as it relies ever less on conventional crude and ever more on unconventional resources such as bitumen (Canada's oil sands), tight oil (also called shale oil), and deepwater oil.

Finally, unlike Yergin and other historians of the oil industry, Auzanneau frames his tale of petroleum as a life cycle, with germination followed by spring, summer, and autumn. There is a beginning and a flourishing, but there is also an end. This framing is extremely helpful, given the fact that the world is no longer in the spring or summer of the oil era. We take petroleum for granted, but it's time to start imagining a world, and daily life, without it.

Taken together, these distinctions indeed make Oil, Power, and War the definitive work on the history of oil -- no small achievement, but a judgment well earned.

Over the past decade, worrisome signs of global oil depletion have been obscured by the unabashed enthusiasm of energy analysts regarding growing production in the United States from low-porosity source rocks. Termed "light tight oil," this new resource has been unleashed through application of the technologies of hydrofracturing (tracking) and horizontal drilling.

US liquid fuels production has now surpassed its previous peak in 1970, and well-regarded agencies such as the Energy Information Administration are forecasting continued tight oil abundance through mid-century.

Auzanneau titles his discussion of this phenomenon (in chapter 30), "Nonconventional Petroleum to the Rescue?" -- and frames it as a question for good reason: Skeptics of tight oil hyperoptimism point out that most production so far has been unprofitable. The industry has managed to stay in the game only due to low interest rates (most companies are heavily in debt) and investor hype. Since source rocks lack permeability, individual oil wells deplete very quickly -- with production in each well declining on the order of 70 percent to 90 percent in the first three years. That means that relentless, expensive drilling is needed in order to release the oil that's there. Thus the tight oil industry can be profitable only if oil prices are very high -- high enough, perhaps, to hobble the economy -- and if drilling is concentrated in the small core areas within each of the productive regions. But these "sweet spots" are being exhausted rapidly. Further, with tight oil the energy returned on the energy invested in drilling and completion is far less than was the case with American petroleum in its heyday.

It takes energy to fell a tree, drill an oil well, or manufacture a solar panel. We depend on the energy payback from those activities to run society. In the miraculous years of the late twentieth century, oil delivered an averaged 50:1 energy payback. It was this, more than anything else, that made rapid economic growth possible, especially for the nations that were home to the world's largest oil reserves and extraction companies. As the world relies ever less on conventional oil and ever more on tight oil, bitumen, and deepwater oil, the overall energy payback of the oil industry is declining rapidly. And this erosion of energy return is reflected in higher overall levels of debt in the oil industry and lower overall financial profitability.

Meanwhile the industry is spending ever less on exploration -- for two reasons. First, there is less money available for that purpose, due to declining financial profitability; second, there seems comparatively little oil left to be found: Recent years have seen new oil discoveries dwindle to the lowest level since the 1940s. The world is not about to run out of oil. But the industry that drove society in the twentieth century to the heights of human economic and technological progress is failing in the twenty-first century.

Today some analysts speak of "peak oil demand." The assumption behind the phrase is that electric cars will soon reduce our need for oil, even as abundance of supply is assured by fracking. But the world is still highly dependent on crude oil. We have installed increasing numbers of solar panels and wind turbines, but the transition to renewable is going far too slowly either to avert catastrophic climate change or to fully replace petroleum before depletion forces an economic crisis. While we may soon see more electric cars on the road, trucking, shipping, and aviation will be much harder to electrify. We haven't really learned yet how to make the industrial world work without oil. The simple reality is that the best days of the oil business, and the oil-fueled industrial way of life, are behind us. And we are not ready for what comes next.

[Nov 15, 2018] OPEC October Production Data

Nov 15, 2018 | peakoilbarrel.com

Mike Sutherland x Ignored says: 11/14/2018 at 10:19 pm

This fracking can't go on much longer. They've drilled out much of the sweet spots already, and from what I hear, there are already 7 'child' wells being drilled for every 'parent' well. (as I understand it, a 'child' well is drilled in close proximity to the 'parent' without – hopefully-hitting and drawing from the same formation') If fracking were to stop tomorrow, you'd lose over 600k bbls/day in production immediately and the whatever is leftover tapering off to zero over the course of two-three years.
Stephen Hren x Ignored says: 11/14/2018 at 10:06 am
The question is: Just how long will the USA be able to continue to increase production in order to hold off peak oil?

Yes will it go bankrupt first or continue to run on until peak and depletion. Meanwhile it drags down the oil price artificially making most other oil development less likely, and increasing volatility.

Eulenspiegel x Ignored says: 11/14/2018 at 10:42 am
The FED is reducing money supply by 50 billions per month at the moment. The first feeling it will be comanies needing to sell junk bonds.

This is a big ploblem for the relentless "drill baby drill" programs of several LTO companies.

And a global economic crises, even if only a few years long, will crash oil prices AND credit supply. This will hurt LTO more than the oil price crash from 2015.

Stephen Hren x Ignored says: 11/14/2018 at 10:50 am
Oil bonds appear to be starting to feel the burn at $55/barrel.

https://seekingalpha.com/article/4222006-oil-plunges-energy-junk-bonds-turn-dangerous

Mike Sutherland x Ignored says: 11/14/2018 at 10:38 pm
Yes Ron, thank you for an excellent post.

On the shale topic; it is marvelously stupefying to observe a heavily indebted shale industry supplying increasing volumes of oil, to an extent that the price/bbl never hits a level where any debt reduction can be realized. (to say nothing of profit)

Its' almost as if they have no intention of becoming solvent.

Watcher x Ignored says: 11/14/2018 at 11:40 pm
Some time ago presented estimate of oil used to create and move food in the US. My recall is the number wasn't huge.

Recently came across new data. Will get around to laying it out.

25% of total US consumption. Tractors, insecticides, some fertilizer(transport of those to the field), transport of animal food to hogs, beef, etc, transport of human food to shelves, transport of people to the shelf and home. 15% pre transport of human food, 10% transport human food.

Pretty efficient agriculture in the US. No squeezing that 5 mbpd.

[Nov 14, 2018] Installing an Arabic speaking Arab American general as the new ambassador to the kingdom sounds like the Borg is becoming concerned with kingdom stability when changes come.

Nov 14, 2018 | turcopolier.typepad.com

Kooshy , 11 hours ago

Colonel Salam , what do you think of retired general Abizad becoming new US' ambassador to KSA. To me installing an Arabic speaking Arab American general as the new ambassador to the kingdom sounds like the Borg is becoming concerned with kingdom' stability when changes come. They probably don't want to repeat the mistake of keeping Sullivan during IRI. So sorry for OT.
Pat Lang Mod -> Kooshy , 6 hours ago
Abizaid is a good man but he is Lebanese American and the Saudis will try to buy him off and if that doesn't work will undermine him. I wish him luck.

[Nov 14, 2018] Oil, Power, and War A Dark History by Matthieu Auzanneau

Notable quotes:
Oil, Power, and War is a story of the dreams and hubris that spawned an era of economic chaos, climate change, war, and terrorism -- as well as an eloquent framing from which to consider our options as our primary source of power, in many ways irreplacable, grows ever more constrained.
Nov 14, 2018 | www.barnesandnoble.com

In this sweeping, unabashed history of oil, Matthieu Auzanneau takes a fresh, thought-provoking look at the way oil interests have commandeered politics and economies, changed cultures, disrupted power balances across the globe, and spawned wars. He upends commonly held assumptions about key political and financial events of the past 150 years, and he sheds light on what our oil-constrained and eventually post-oil future might look like.

Oil, Power, and War follows the oil industry from its heyday when the first oil wells were drilled to the quest for new sources as old ones dried up. It traces the rise of the Seven Sisters and other oil cartels and exposes oil's key role in the crises that have shaped our times: two world wars, the Cold War, the Great Depression, Bretton Woods, the 2008 financial crash, oil shocks, wars in the Middle East, the race for Africa's oil riches, and more. And it defines the oil-born trends shaping our current moment, such as the jockeying for access to Russia's vast oil resources, the search for extreme substitutes for declining conventional oil, the rise of terrorism, and the changing nature of economic growth.

We meet a long line of characters from John D. Rockefeller to Dick Cheney and Rex Tillerson, and hear lesser-known stories like how New York City taxes were once funneled directly to banks run by oil barons. We see how oil and power, once they became inextricably linked, drove actions of major figures like Churchill, Roosevelt, Stalin, Hitler, Kissinger, and the Bushes. We also learn the fascinating backstory sparked by lesser-known but key personalities such as Calouste Gulbenkian, Abdullah al-Tariki, and Marion King Hubbert, the once-silenced oil industry expert who warned his colleagues that oil production was facing its peak.

Oil, Power, and War is a story of the dreams and hubris that spawned an era of economic chaos, climate change, war, and terrorism -- as well as an eloquent framing from which to consider our options as our primary source of power, in many ways irreplacable, grows ever more constrained.

The book has been translated from the highly acclaimed French title, Or Noir .

[Nov 13, 2018] Crude Crashes As Saudi Abandons OPEC Production Curbs

Nov 13, 2018 | www.zerohedge.com

Saudi Arabia has fully complied with OPEC+ agreement in every month through May. Since then it has cut supply, but by less than it pledged to curb. October is 1st time it has increased output above the starting point.

WTI has now retraced 60% of the two-year uptrend...

WTI Crude is now down over 6% YTD to its lowest since Dec 2017.

[Nov 12, 2018] I guess it's time to break out the champagne! U.S. crude oil production reached 11.3 million barrels per day (b/d) in August 2018, according to EIA

There are a lot of things that you can running one trillion deficit ;-)
Notable quotes:
"... U.S. crude oil production reached 11.3 million barrels per day (b/d) in August 2018, according to EIA's latest Petroleum Supply Monthly, up from 10.9 million b/d in July. This is the first time that monthly U.S. production levels surpassed 11 million b/d. U.S. crude oil production exceeded the Russian Ministry of Energy's estimated August production of 11.2 million b/d, making the United States the leading crude oil producer in the world. ..."
"... Why isn't Continental's credit rating better than 1 notch above junk? ..."
"... All of this bullshit is straight, I mean straight off Continental's self servicing investor presentation bullshit, Coffee. You need to wrap your head around some SEC filings, use some common sense and think for yourself. As opposed to letting someone else do your thinking for you. ..."
"... Watcher is correct, CLR's credit rating, its credit score, so to speak, is so bad it could not in the real world buy a pickup truck without its mama co-signing the note. If its wells are sooooooo much better, why don't they pay some of that $6 billion plus dollars of debt back? I mean really, who in their right mind would actually WANT to pay $420MM a year in interest on long term debt if it didn't have to? Never mind, you can't answer that. ..."
"... "If its wells are sooooooo much better, why don't they pay some of that $6 billion plus dollars of debt back? I mean really, who in their right mind would actually WANT to pay $420MM a year in interest on long term debt if it didn't have to?" ..."
"... We had 5-6 years of the highest, sustained oil prices in history and the shale oil industry could NOT make a profit. People seem to think now things have changed for some reason, that the shale oil industry has now become more ethical, and temporarily higher productivity of wells, and some imaginary oil price off in the future (for most shale guys its now down in the mid to low $50's) will allow them to pay down debt. Its absurd logic, but keeps people occupied, I guess, speculating about it. ..."
"... One thing to add. The shale companies did all this in the lowest interest rate environment we have had in a long time. They could not pay off their debt or even put a dent in it. What is going to happen when their interest costs increase 30-50% over the next 2-3 years? ..."
"... I was a former employee of Newfield, when we were drilling gas wells in the Arkoma Basin in 2007 and gas prices were the highest they had ever been, it was not cash flow positive. ..."
"... On the price, I understand why you use different scenarios. However, the average price over the next three years could be $100 or $50 WTI. Pretty much close to what we saw 2011-14 and 2015–17. ..."
"... However, the price is far too volatile to model anything very far into the future, just like we cannot budget past one year, and usually have to make adjustments to that. ..."
"... Our price has dropped over $10 in less than one month. That makes a huge difference, yet that level of volatility is common and has been for many years. ..."
"... What oil prices were you modeling in June, 2014 for 2015-17? Our timing was very fortunate to say the least. Many leases bought 1997-2005. Had we bought the same leases 2011-14 for the market prices of 2011-14, we would be bankrupt, absent having hedged everything for four years, which is very difficult to do. ..."
"... Few companies with zero debt ever go BK. We would with WTI at $30 for about three years. Is that likely? No, but oil did drop below that level in 2016. ..."
Nov 12, 2018 | peakoilbarrel.com

islandboy says: 11/01/2018 at 10:22 am

I guess it's time to break out the champagne!

U.S. monthly crude oil production exceeds 11 million barrels per day in August

U.S. crude oil production reached 11.3 million barrels per day (b/d) in August 2018, according to EIA's latest Petroleum Supply Monthly, up from 10.9 million b/d in July. This is the first time that monthly U.S. production levels surpassed 11 million b/d. U.S. crude oil production exceeded the Russian Ministry of Energy's estimated August production of 11.2 million b/d, making the United States the leading crude oil producer in the world.

dclonghorn says: 11/02/2018 at 8:29 pm
Dennis, Coffee's comment did not turn me into a shale cheerleader. I suppose I am more in the shale sceptic camp for the reasons you mention and others.

Nevertheless, I think Coffee's comment was correct, it does appear that shale producers in the Bakken have expanded the area that produces exceptional wells. As one who underestimated shale's viability before, I don't want to repeat the same mistake.

As you note, it is difficult to predict when average well productivity in the Bakken (or anywhere) will occur. I had thought that current drilling levels would be inadequate to sustain 1.15 million bpd production levels, but somehow they are increasing production there. It does appear that for now, the shale operators are having some success.
How long that success will last depends not only on the operational decisions made, but macro factors such as debt, interest rates, and the economy will play out, and eventually Bakken production will decline. But for now

Coffeeguyzz says: 11/02/2018 at 10:16 pm
And in a brief follow up

I have not read Continental's conference call transcript yet (Seeking Alpha provides them), but it seems the suit from Continental now feels they will recover – from present completions – 15 to 20 per cent of the OOIP.
That is huge as the norm was 3 to 5 per cent a few years back.

Watcher says: 11/01/2018 at 11:35 pm
Why isn't Continental's credit rating better than 1 notch above junk?
Mike says: 11/02/2018 at 8:05 pm
All of this bullshit is straight, I mean straight off Continental's self servicing investor presentation bullshit, Coffee. You need to wrap your head around some SEC filings, use some common sense and think for yourself. As opposed to letting someone else do your thinking for you.

Watcher is correct, CLR's credit rating, its credit score, so to speak, is so bad it could not in the real world buy a pickup truck without its mama co-signing the note. If its wells are sooooooo much better, why don't they pay some of that $6 billion plus dollars of debt back? I mean really, who in their right mind would actually WANT to pay $420MM a year in interest on long term debt if it didn't have to? Never mind, you can't answer that.

If you are not in the oil business and have never balanced an oil well's checkbook in your life, which Coffee hasn't, then you don't know that higher productivity comes with a higher cost in the shale biz. The bottom line then is that the bottom line does not change if it did the shale oil industry would be paying down some debt, right? Its not. Private debt is skyrocketing.

Are things getting better for the shale biz? Right. Case in point, the largest pure Permian Basin oil and associated gas producer, Concho, the genius behind a recent $8 billion dollar acquisition from RSP, LOST $199MM 3Q2018. Inventories are going back up, prices are down 18% the past month and what does the shale oil industry do?

It adds more rigs.

Productivity is not the same as profitability. In the real oil biz you learn that on about day six.

Boomer II says: 11/03/2018 at 3:03 am
"If its wells are sooooooo much better, why don't they pay some of that $6 billion plus dollars of debt back? I mean really, who in their right mind would actually WANT to pay $420MM a year in interest on long term debt if it didn't have to?"

I wonder about debt service, too.

When Dennis runs his scenarios he says that at a certain oil price, these companies will be quite able to pay down debt.

But will they? Or will they just pay themselves as much as they can as long as they can get away with it, and then declare bankruptcy and walk away.

Mike says: 11/03/2018 at 7:59 am
I'll take door two.

We had 5-6 years of the highest, sustained oil prices in history and the shale oil industry could NOT make a profit. People seem to think now things have changed for some reason, that the shale oil industry has now become more ethical, and temporarily higher productivity of wells, and some imaginary oil price off in the future (for most shale guys its now down in the mid to low $50's) will allow them to pay down debt. Its absurd logic, but keeps people occupied, I guess, speculating about it.

I urge folks to ignore the guessing, and the lying, (Hamm's 20% of OOIP in the Bakken is a big 'ol whopper) and look at the shale industry's financial performance over the past 10 years and decide for yourselves if it is sustainable or not.

Reno Hightower says: 11/04/2018 at 9:37 am
One thing to add. The shale companies did all this in the lowest interest rate environment we have had in a long time. They could not pay off their debt or even put a dent in it. What is going to happen when their interest costs increase 30-50% over the next 2-3 years?
JG Tulsa says: 11/07/2018 at 3:31 pm
I was a former employee of Newfield, when we were drilling gas wells in the Arkoma Basin in 2007 and gas prices were the highest they had ever been, it was not cash flow positive. It actually ate all the revenue from the rest of the company. Getting to be in the black for the play was always a year off. a decade later it never got there, they just got more and more debt sold more producing assets to pay for it to keep the shell game going and just got bought by Encanna. I have seen the same at every public company I have worked for, many of them survived the downturn only because costs dropped and so did the cost of debt. Now with increasing costs and cost of debt there will likely be many bankruptcies.
GuyM says: 11/02/2018 at 12:41 am
Yeah, I agree with Mike, Rystads announcements are mainly just self serving hogwash. Yes, oil production in the US looks to be close to 11.3 million for August. EIA's reported production for Texas is only about 50k over my high estimate, so I see nothing to argue about. GOM is the main surprise, and George and others are better suited to comment on that. The understanding I had was that it was temporary. As far as Texas goes, I'm pretty sure it is the high, for awhile. Completions dictate how much oil comes out of the ground, not drilling rigs. That is for unconventional wells, not conventional. That is why I think the EIA's DPR is a ridiculous measurement assessment. Apples and oranges. Articles that I have read indicate a significant decrease in completions in the Permian by the end of August. Texas production is not all about the Permian. A significant amount was contributed by the Eagle Ford and other areas. All completions have slowed to the point that by the end of September, they were at slightly over 60% of June's completion numbers according to RRC statistics. Significant drop, and it will show up in following months. First years decline rates will assure that it will drop slightly from this point. $64 WTI won't motivate it to expand to any extent. The next year will see US wavering along the 11.1 million barrel level, I still think. Unless, George thinks the GOM increase is somewhat permanent, which I doubt.

June completions
http://www.rrc.state.tx.us/media/46402/ogdc0618.pdf
July completions
http://www.rrc.state.tx.us/media/46805/ogdc0718.pdf
August completions
http://www.rrc.state.tx.us/media/47577/ogdc0818.pdf
Sept completions
http://www.rrc.state.tx.us/media/47968/ogdc0918.pdf
This is a very definite trend. From 914 oil completions in June to 553 oil completions in September.

Of course, no one needs to take my word for it. They can compare Texas production numbers:
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/production-data/texas-monthly-oil-gas-production/
To historical completion numbers here:
http://www.rrc.state.tx.us/oil-gas/research-and-statistics/well-information/monthly-drilling-completion-and-plugging-summaries/archive-monthly-drilling-completion-and-plugging-summaries-archive/

And try to locate a time in history when production is trending up, while completions are trending down. There is usually a several month lag by the time production slows. Takes a while to get out of the ground if they are completed towards the end of the month.

Don't you just love simple logic? Like: fire burns, water is wet, stuff like that?

Hickory says: 11/02/2018 at 9:59 am
How do these projections (hogwash) help Rystad? By preaching the 'good' word to their paying audience? I don't know their business.
GuyM says: 11/02/2018 at 1:47 pm
They are a consulting business. How much business will they generate if they tell negative stuff?
kolbeinh says: 11/02/2018 at 1:55 pm
I second that. Being from Norway myself, and having actually been working in consulting some years ago. It looks nice on paper, but the world is changing and it is wise to look out for deception and that is often the case in consulting (customer/revenue first and reality second).
Hickory says: 11/02/2018 at 10:11 pm
Yeh, but they don't score a lot of points with customers by being far off the mark on projections.
ECAS says: 11/02/2018 at 1:55 pm
Based on the shaleprofile data it looks as if well productivity increased alot in 2016 and 2017 due to longer laterals and increased proppant intensity. 2018 well productivity looks to be trending pretty close to 2017, so the productivity gains from longer lats and increased proppant might have been exhausted by now. Therefore, comparing 2018 well completion numbers to any pre 2017 completion numbers won't tell you much, but a comparison of 2018 and 2017 numbers should. In the 4 months ending in September 2018 completions grew year over year by almost 70% from 2017, hence the large assumed increase in production in the last four months of 2018. What is interesting though is that it looks like the free lunch from increased lats and proppant looks to be almost over, and any future increases in production must be the result of an increase in completion activity, which should result in some inflation for the service providers going forward. And, according to Schlumberger, if you adjust for the longer lats and increased proppant it actually appears that productivity is starting to trend down (and the increased usage of poor quality in basin sand will likely contribute to this as well)
Mike says: 11/02/2018 at 8:13 pm
I take your word for it. Thank you, BTW. You are the only one left on this site that has any common sense regarding shale oil economics and the burden all that massive, massive amount of debt has on running a business where your assets decline at the rate of 28-15% annually. Everybody else seems mesmerized by productivity.

If folks think I am biased (my "parade" was over 20 years ago) look see what Rune Likvern says here: https://www.oilystuffblog.com/single-post/2018/11/01/Cartoon-Of-the-Week .

shallow sand says: 11/03/2018 at 12:22 pm
Dennis.

Paying the debt off will depend very much on future oil and natural gas prices.

Once growth slows the companies will be companies operating many low volume wells. Investors will want these companies to pay dividends because they will not be in a position to grow. The operating costs will be higher, even though CAPEX will drop.

You are very confident prices will be high in the future. I suspect they will be volatile in the future, as they have been for the past 20 years.

So, on a company by company basis, timing will be critical, IMO.

Dennis Coyne says: 11/04/2018 at 6:36 pm
Shallow sand,

The prices can be thought of as 3 year average prices, yes there will be volatility, my "low price scenario" has Brent Oil Price in 2017 $ never rising above $80/b. I cannot hope to predict the exact oil price and of course oil prices will be volatile, but the average over time allows a pretty good estimate.

Also a company by company model is a little too much work. I just do the industry average, some companies will be better and some worse than average.

It certainly is the case that oil prices have been volatile and I agree this will continue, but the three year trend in prices (centered 3 year average) has been up $7/b for the past year, my expectation is that this trend will continue and the 3 year centered average price will reach $80/b (in 2017$) by 2021 or 2022. The trend of oil prices will be higher, if the peak arrives by 2025 as I expect prices (3 year centered average oil price in 2017$) are likely to reach $100/b by 2024 or 2025.

shallow sand says: 11/04/2018 at 11:03 pm
Dennis.

I think company by company because I have an investment in a private company. I know how important timing is in the upstream industry to individual companies.

Likewise, I understand you aren't all that interested in individual companies. No problem there.

On the price, I understand why you use different scenarios. However, the average price over the next three years could be $100 or $50 WTI. Pretty much close to what we saw 2011-14 and 2015–17.

I was recently in a major city and saw more Tesla's than I ever had, including my first Model 3 sighting.

Our little area now has two Model S, with the early adopter trading his 2012 for a 2018.

Dennis Coyne says: 11/05/2018 at 2:23 pm
Shallow sand,

Pretty doubtful it will be $50/b over the next three years, in my opinion. If you believe that you should find another business 🙂 More likely is a gradual increase in oil prices as we approach peak oil, the futures strip is likely to be wrong on oil price (today's future strip). For Brent futures the current strip goes from $73/b (Jan 2019) to $61 (Dec 2026). By Contrast the EIA's AEO 2018 reference oil price scenario for Brent crude has the spot price at $87.50/b in 2026, chart below has their scenario (which I think may be too low.)
As always clicking on the chart give a larger view.

shallow sand says: 11/05/2018 at 6:33 pm
Dennis.

The price could be $50 from 2019-2021, and then $125 from 2022-2025. (Averages, of course).

So in that scenario I'd feel pretty bad if I sold out in say 2020.

Your models are ok, I have no problem with you doing them. We try to make a budget for every year.

However, the price is far too volatile to model anything very far into the future, just like we cannot budget past one year, and usually have to make adjustments to that.

Our price has dropped over $10 in less than one month. That makes a huge difference, yet that level of volatility is common and has been for many years.

What oil prices were you modeling in June, 2014 for 2015-17? Our timing was very fortunate to say the least. Many leases bought 1997-2005. Had we bought the same leases 2011-14 for the market prices of 2011-14, we would be bankrupt, absent having hedged everything for four years, which is very difficult to do.

On a flowing barrel basis, I have seen leases sell as low as $2,000 per barrel and as high as $180,000 per barrel in our basin from 1997-2018. That is what an oil price range of $8-140 per barrel will do.

Few companies with zero debt ever go BK. We would with WTI at $30 for about three years. Is that likely? No, but oil did drop below that level in 2016.

Dennis Coyne says: 11/06/2018 at 9:59 am
Shallow Sand,

The volatility is a big problem, there is no doubt of that. When imagining the "big picture". I use the estimates of the EIA's AEO as a starting point then add my personal perspective (that at some point oil output will peak.) Below is a chart with my guess from Dec 2014 for future Brent oil prices in constant 2014$, nominal Brent spot price is give for comparison.

Clearly my guess was not very good, the EIA guess from the AEO 2015 was also not great, but better than my guess. Future guesses will be equally bad.

What was your forecast in Dec 2014 for WTI?

shallow sand says: 11/08/2018 at 4:44 pm
Dennis.

In 2013 we assumed prices in a range of $60-120 WTI moving forward.

In June of 2014 when oil spiked up and we received $99.25 in the field, we suspected oil would fall and it began to. We again continued to assume $60 WTI would be a low.

We were dead wrong, of course.

Oil dropped again today. We will get $67 in the field for October sales paid in November. However, our price today is down to $56.50. That is about a $60,000 per month revenue hit to a small company which employs 8 full time employees, one part time employee office manager and utilized numerous contractors (rigs, electricians, etc.).

Corn here is $3.51 per bushel today. Less than a month ago it was $2.96 per bushel.

Yes, yes, a hedging program would mitigate the price volatility.

Until you actually try to hedge with money at risk, don't talk to me about that. It's about as easy as trading stocks. It is also very expensive due to the volatility. Or, if you do SWAPS or Collars, you need to put up a lot of margin money.

Dennis Coyne says: 11/08/2018 at 6:10 pm
Shallow sand,

Hedging seems a risky business, not sure I would come out ahead by hedging. You are in a tough business, the volatility sucks. The silver lining is that prices will be increasing.

TechGuy says: 11/07/2018 at 2:25 pm
Shallow Sand Wrote:
"Paying the debt off will depend very much on future oil and natural gas prices."

I don't think so. When energy prices rise, so do prices of everything else, included interest rates. The only way the shale drillers could play off there debt is if the left large number of completed wells untapped (ie leave it in the ground) while taking advantage of cheap debt & low labor\material costs. Then selling the oil when prices & costs have soared above investment costs.

The issue is that as soon as a well is completed, they start producing, at market prices. Thus when oil prices rise most of the oil is already produced & drilling new wells (using more debt) does not pay down the old debt.

Also consider the costs shale drillers will need for decommissioning older\depleted well. I believe the cleanup cost is between $50K & $100K per drill site. To date have any shale drillers spent money on clean up for depleted wells yet, or is it all deferred (ie never going to happen)?

FWIW: I don't believe any of the shale companies are in game for the long term. They are simply a modern Ponzi scam, taking investor money & providing an illusion of profitabity by selling a product below cost. They will continue to play the game until investor capital dries up.

I suspect that most shale drillers will go bust in the next 5 years when the bulk of their bonds come due & they won't have the ability to refinance it or pay it off. If I recall correctly Shale drillers will need to payoff or refinance about $270B in high-yield bonds between 2020 & 2022.

[Nov 12, 2018] Saudi royals internal fight looks probably like the Austrians in 1913 arguing about who their next Habsburg Ruler is going to be

Nov 12, 2018 | peakoilbarrel.com

Survivalist says: 11/03/2018 at 12:13 am

To put it mildly, I'm not an expert on where to find info Ghawar. Perhaps brighter minds will chime in.
http://peakoilbarrel.com/closer-look-saudi-arabia/
http://crudeoilpeak.info/category/saudi-arabia

My guess is that much of KSA will look a lot like the shabby end of Yemen before too long. This will perhaps strand some assets. Once the House of Saud fragments further among competing clans/factions (Faisal, Sudairi, Abdullah, Bin Sultans) things will hasten. Collapse is preceded by intra-elite rivalry over a shrinking pie, so to speak.
Caspian Report has a nice set on KSA if you look for them. Here's one-
https://youtu.be/9tHwvZ9XDLU
And another-
https://youtu.be/hh8isVX3H9w

Hightrekker once commented something quite apt, along the lines of~ 'And all this is probably like the Austrians in 1913 arguing about who their next Habsburg Ruler is going to be'.

From what I understand there are 4000 Saudi princes (a suspiciously round number, so likely an approximate). It all should make for a very bloody affair. Hopefully Iran will do the right thing and kick 'em while they're down.

  1. Mushalik 10/31/2018 at 8:25 pm
    Saudi Update October 2018
    http://crudeoilpeak.info/saudi-update-october-2018

[Nov 11, 2018] Trump's Iran Policy Cannot Succeed Without Allies The National Interest by James Clapper & Thomas Pickering

Highly recommended!
It's interesting that Clapper is against abandoned by Trump Iran deal.
Tramp administration is acting more like Israeli marionette here, because while there a strategic advantage in crushing the Iranian regime for the USA and making a county another Us vassal in the middle East, the cost for the country might be way to high (especially if we count in the cost of additional antagonizing Russia and China). Trump might jump into the second Afghanistan, which would really brake the back of US military -- crushing Iran military is one thing, but occupying such a county is a very costly task. And that might well doom Israel in the long run as settlers policies now created really antagonized, unrecognizable minority with a high birth rate.
Vanishing one-by-one of partners are given due to collapse of neoliberalism as an ideology. Nobody believes that neoliberalism is the future, like many believed in 80th and early 90th. This looks more and more like a repetion of the path of the USSR after 1945, when communist ideology was discredited and communist elite slowly fossilized. In 46 years from its victory in WWII the USSR was dissolved. The same might happen with the USA in 50 years after winning the Cold War.
Notable quotes:
"... a vanishing one by one of American partners who were previously supportive of U.S. leadership in curbing Iran, particularly its nuclear program. ..."
"... The United States risks losing the cooperation of historic and proven allies in the pursuit of other U.S. national security interests around the world, far beyond Iran. ..."
Nov 09, 2018 | nationalinterest.org

Only well calibrated multilateral political, economic and diplomatic pressure brought to bear on Iran with many and diverse partners will produce the results we seek.

"Then there were none" was Agatha Christie's most memorable mystery about a house party in which each guest was killed off one by one. Donald Trump's policy toward Iran has resulted in much the same: a vanishing one by one of American partners who were previously supportive of U.S. leadership in curbing Iran, particularly its nuclear program.

Dozens of states, painstakingly cultivated over decades of American leadership in blocking Iran's nuclear capability, are now simply gone. One of America's three remaining allies on these issues, Saudi Arabia, has become a central player in American strategy throughout the Middle East region. But the Saudis, because of the Jamal Khashoggi killing and other reasons, may have cut itself out of the action. The United Arab Emirates, so close to the Saudis, may also fall away.

Such paucity of international support has left the Trump administration dangerously isolated. "America First" should not mean America alone. The United States risks losing the cooperation of historic and proven allies in the pursuit of other U.S. national security interests around the world, far beyond Iran.

... ... ...

European allies share many of our concerns about Iran's regional activities, but they strongly oppose U.S. reinstitution of secondary sanctions against them. They see the Trump administration's new sanctions as a violation of the nuclear agreement and UN Security Council resolutions and as undermining efforts to influence Iranian behavior. The new sanctions and those applied on November 5 only sap European interest in cooperating to stop Iran.

... ... ...

The United States cannot provoke regime change in Iran any more than it has successfully in other nations in the region. And, drawing on strategies used to topple governments in Iraq and Afghanistan, the United States should be wary of launching or trying to spur a military invasion of Iran.

Lt. Gen. James Clapper (USAF, ret.) is the former Director of National Intelligence. Thomas R. Pickering is a former U.S. ambassador to the United Nations, Russia and India.

[Nov 10, 2018] Russian State-Owned Bank VTB Funded Rosneft Stake Sale To Qatari Fund

Notable quotes:
"... Later, it emerged that QIA and Glencore planned to sell the majority of the stake they had acquired in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its sights on CEFC and launched an investigation that saw the removal of its chief executive. The investigation was reportedly part of a wide crackdown on illicit business practices on the part of private Chinese companies favored by Beijing. ..."
Nov 10, 2018 | www.zerohedge.com

Authored by Irina Slav via Oilprice.com,

Russian VTB, a state-owned bank, funded a significant portion of the Qatar Investment Authority's acquisition of a stake in oil giant Rosneft , Reuters reports , quoting nine unnamed sources familiar with the deal.

VTB, however, has denied to Reuters taking any part in the deal.

"VTB has not issued and is not planning to issue a loan to QIA to finance the acquisition," the bank said in response for a request for comment.

The Reuters sources, however, claim VTB provided a US$6 billion loan to the Qatar sovereign wealth fund that teamed up with Swiss Glencore to acquire 19.5 percent in Rosneft last year. Reuters cites data regarding VTB's activity issued by the Russian central bank that shows VTB lent US$6.7 billion (434 billion rubles) to unnamed foreign entities and the loan followed another loan of US$5.20 billion (350 billion rubles) from the same central bank.

The news first made headlines in December, taking markets by surprise, as Rosneft's partial privatization was expected by most to be limited to Russian investors. The price tag on the stake was around US$11.57 billion (692 billion rubles), of which Glencore agreed to contribute US$324 million. The remainder was forked over by the Qatar Investment Authority, as well as non-recourse bank financing.

Russia's budget received about US$10.55 billion ( 710.8 billion rubles ) from the deal, including US$ 270 million (18 billion rubles) in extra dividends. Rosneft, for its part, got an indirect stake in Glencore of 0.54 percent.

Later, it emerged that QIA and Glencore planned to sell the majority of the stake they had acquired in Rosneft to China's energy conglomerate CEFC, but the deal fell through after Beijing set its sights on CEFC and launched an investigation that saw the removal of its chief executive. The investigation was reportedly part of a wide crackdown on illicit business practices on the part of private Chinese companies favored by Beijing.

solidtare , 30 minutes ago link

Took z/h almost 2 years, and of course from a tertiary source - Reuters

John Helmer nailed this scam 2 years ago, and got hammered for it

[Nov 09, 2018] Russia will see oil only is euro by Yoel Minkof

Nov 09, 2018 | seekingalpha.com

Seeking protection against possible new U.S. sanctions, Russian energy majors are heaping pressure on Western oil buyers to use euros instead of dollars for payments, as well as penalty clauses in contracts.

Russia supplies over 10% of global oil, so severe sanctions could affect crude prices.

Global oil majors further rely on Russia to feed their refineries, especially in Europe and Asia, so they cannot just walk away from annual contract negotiations.

[Nov 07, 2018] Why oil prices fall when Iran production also falls?

That suggest oil price manipilation...
The event remind preparation to Iraq war.
Also if administration really wants war, Iran is not Ieaq and will fight more efficiently, while the US army despite technological supreiority is demoralized. nobody believe into the the building of global neoliberal empire any longer.
Notable quotes:
"... The administration's policy seems sure to fail on its own terms, and it is also the wrong thing to do. ..."
"... If a foreign power waged an economic war against your country, would you be likely to respond to that foreign coercion by effectively taking their side against your own government? Of course not. The idea that Iranians will do the work of their country's enemies by rising up and toppling the regime has always been far-fetched, but it is particularly absurd to think that Iranians would do this after they have just seen their economy be destroyed by the actions of a foreign government. ..."
"... People normally do not respond to economic hardship and diminishing prospects by risking their lives by starting a rebellion against the state. ..."
"... Making Iranians poorer and more miserable isn't going to encourage them to be more politically active, much less rebellious, but will instead force them to focus on getting by. That is likely to depress turnout at future elections, and that is more likely to be good news for hard-line candidates in the years to come. ..."
"... Iran hawks typically don't understand the country that they obsess over, so perhaps it is not surprising that they haven't thought any of this through, but their most glaring failure is not taking into account the importance of nationalism. ..."
Nov 07, 2018 | www.theamericanconservative.com
Originally from: The Futility of Trump's Iran Policy By Daniel Larison November 6, 2018, 10:54 AMThe administration's policy seems sure to fail on its own terms, and it is also the wrong thing to do.

The Trump administration's plan to throttle the Iranian economy is as poorly-conceived as it is cruel:

"For ordinary people, sanctions mean unemployment, sanctions mean becoming poor, sanctions mean the scarcity of medicine, the rising price of dollar," said Akbar Shamsodini, an Iranian businessman in the oil and gas sector who lost his job six months ago as European companies started to pull out of Iran in fear of US sanctions.

" By imposing these sanctions, they want to force Iranians to rise up in revolt against their government but in practice, they will only make them flee their country [bold mine-DL]," he said, adding that ironically it would be Europe that would have to bear the burden of such a mass migration.

"We're being squashed here as an Iranian youth who studied here, worked here, the only thing I'm thinking about now is how to flee my country and go to Europe."

If a foreign power waged an economic war against your country, would you be likely to respond to that foreign coercion by effectively taking their side against your own government? Of course not. The idea that Iranians will do the work of their country's enemies by rising up and toppling the regime has always been far-fetched, but it is particularly absurd to think that Iranians would do this after they have just seen their economy be destroyed by the actions of a foreign government.

People normally do not respond to economic hardship and diminishing prospects by risking their lives by starting a rebellion against the state. As Mr. Shamsodini says above, it is much more likely that they will leave to find a way to make a living elsewhere. All that strangling Iran's economy will manage to do is push young and ambitious Iranians to go abroad while inflicting cruel collective punishment on everyone that remains behind. Making Iranians poorer and more miserable isn't going to encourage them to be more politically active, much less rebellious, but will instead force them to focus on getting by. That is likely to depress turnout at future elections, and that is more likely to be good news for hard-line candidates in the years to come.

Iran hawks typically don't understand the country that they obsess over, so perhaps it is not surprising that they haven't thought any of this through, but their most glaring failure is not taking into account the importance of nationalism. When a foreign power tries dictating terms to another nation on pain of economic punishment, this is bound to provoke resentment and resistance. Like any other self-respecting nation, Iranians aren't going to accept being told what to do by a foreign government, and they are much more likely to band together in solidarity rather than start an uprising against their own government. The stronger the nationalist tradition there is in a country, the more likely it is that the reaction to foreign threats will be one of defiance and unity. It simply makes no sense to think that the U.S. can pressure a proud nation to capitulate like this.

The administration's policy seems sure to fail on its own terms, and it is also the wrong thing to do. President Washington exhorted his countrymen in his Farewell Address : "Observe good faith and justice towards all nations; cultivate peace and harmony with all." The administration's Iran policy represents the total rejection of that advice. If the U.S. followed Washington's recommendations, it would not be abrogating an agreement that it had just negotiated a few years earlier, and it would not be punishing an entire country for the wrongs of a few. Instead, the U.S. would have built on the success of the earlier negotiations and would have sought to reestablish normal relations with them.

Sid Finster November 6, 2018 at 11:56 am

The Administration's Iran policy is identical to the Iraq policy from 1990 – 2003, in that is it is designed to provide an excuse for a war.

[Nov 06, 2018] The economic sanctions on Iran will be much tighter, beyond what they were, before the nuclear agreement was signed. "Hit them in their pockets", Netanyahu advised Trump: "if you hit them in their pockets, they will choke; and when they choke, they will throw out the ayatollahs"".

Nov 06, 2018 | www.moonofalabama.org

mauisurfer , Nov 5, 2018 1:07:05 PM | link

Alastair Crooke (former UK dip and MI6) knows more about ME than any other white man. He describes how Jared Kushner became Trump's stovepipe of disinformation on behalf of Netanyahu and MBS.

The economic sanctions on Iran will be much tighter, beyond what they were, before the nuclear agreement was signed. "Hit them in their pockets", Netanyahu advised Trump: "if you hit them in their pockets, they will choke; and when they choke, they will throw out the ayatollahs"".

This was another bit of 'stovepiped' advice passed directly to the US President. His officials might have warned him that it was fantasy. There is no example of sanctions alone having toppled a state; and whilst the US can use its claim of judicial hegemony as an enforcement mechanism, the US has effectively isolated itself in sanctioning Iran: Europe wants no further insecurity. It wants no more refugees heading to Europe.

real full article here

https://www.strategic-culture.org/news/2018/11/05/unraveling-netanyahu-project-for-middle-east.html

[Nov 06, 2018] Iran Sanctions Unlikely to Boost Oil ETFs in 2019 by Sanghamitra Saha,

Trump gambit with Iran might backfire via high oil prices. losing 1 MBD might raise prices to $100.
Why Russia would support crazy hawks in Trump administration is unclear, although the article author consider this given
Notable quotes:
"... Iran could lose nearly 600,000 bpd of exports by the end of the year, relative to October levels." ..."
Nov 06, 2018 | www.nasdaq.com
Iran Sanctions Unlikely to Boost Oil ETFs in 2019? November 06, 2018, 01:00:00 PM EDT Zacks.com

The United States formally levied tough sanctions on Iran from Nov 5. The United States' sanctions against Iran were first put into place in August. That sanctions were on cars, metals and minerals as well as U.S. and European aircraft.

The second part of the sanctions that bans import of Iranian energy was enacted starting Nov 5. These sanctions are part of President Donald Trump's initiative to put an embargo on Iran's missile and nuclear programs and diminish its influence in the Middle East , per CNBC.

However, Washington has also offered temporary waivers to eight key buyers, China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea, allowing them to continue to import oil from Iran. This in turn kept oil market steady. Iran's oil exports were 1.7 million barrels per day in October , per oilprice.com (read: Oil ETFs: What You Need to Know ).

But Goldman Sachs revealed in a research note that "as more Iranian supply goes offline, the market will continue to tighten. Iran could lose nearly 600,000 bpd of exports by the end of the year, relative to October levels." So, Goldman expects the oil market to record deficit in the fourth quarter of this year, as quoted on oilprice.com.

Against this backdrop, along with many analysts we believe that oil prices may not shoot up in 2019. We'll tell you why.

U.S., Russia & Saudi to Scale Up Supplies

As soon as Iranian output is out of the market, high chances are that key producers like Saudi Arabia and Russia will start pumping more. The United States and Russia have both scaled up production to a record level of about 11.3 million barrels a day, while members of the Organization of the Petroleum Exporting Countries (OPEC) boosted production to the highest levels in two years despite drop-offs in Venezuela and Iran.

The trio - Russia, the United States and Saudi Arabia - increased output above 33 million bpd for the first time in October, up 10 million bpd since 2010 (read: 3 Country ETFs That Are Beneficiary of Higher Oil Prices ).

Iranian Supplies to Phase Out Slower Than Expected?

Investors should note that following the sanctions, there were not much changes in the market sentiments. This was because of the fact that Iranian oil exports plunged to around 1.3 million barrels a day from 2.4 million last spring, as customers resorted to other suppliers in expectation of the sanctions, nytimes.com. Though the sanctions are likely to cut about 2% of global oil supplies, administration's waivers hinted at a patient approach by Washington toward European and Asian customers so that they could find other suppliers.

Dwindling Demand?

Moreover, economic growth in China is slowing down. It recorded the lowest year-over-year growth rate in the third quarter of 2018 since the first quarter of 2009. The situation in the Eurozone in Q3 was the same, marking the feeblest growth rate since the second quarter of 2014 . Such dwindling growth profile points at weaker demand.

What's in Store for 2019?

Goldman expects backwardation in the oil market. It expects Brent to trade around $80 per barrel by the end of the year and slip to $65 per barrel by the end of 2019 as midstream Permian constraints are likely to be relieved .

ETFs in Focus

Against this backdrop, investors should keep a track of oil ETFs in the coming days. These funds include the likes of United States Oil Fund USO , Invesco DB Oil Fund DBO , ProShares Ultra Bloomberg Crude Oil UCO and United States 12 Month Oil Fund USL .

Want key ETF info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

[Nov 06, 2018] Crude prices will eventually spike back up to a break-even for the frackers

And breakeven for the frackers is around $70--$80 or higher.
Nov 06, 2018 | www.moonofalabama.org
karlof1 , Nov 6, 2018 2:54:21 PM | link

Iran's Foreign Minister Javad Zarif provides Iran's response to the Outlaw US Empire's unilateral, illegal sanctions that target the Iranian citizenry in an articulate 3 minute video.

Apparently, The Financial Times has published an article, "Europe should work with Iran to counter US unilateralism," but you must be a subscriber to read the item. Looking about for a synopsis, I discovered the item's an op/ed by Iranian President Rouhani, with what seems a good recap here .

Given the number of waivers issued to its sanctions, the sanctions won't destabilize the oil market as prices have trended downward the past several days, although what they do restrict will cause great harm to the Iranian public.

Anton Worter , Nov 6, 2018 3:45:26 PM | link

@6

As you certainly know, the oil producers and frackers are technically insolvent, also China filled up a vast strategic oil reserve, USA filled a vast strategic oil reserve, so Trump-Pence's intent is the exact same as Bush-Cheney's with Iraq: destroy oil supply to below demand, and as soon as reserves are depleted this winter heating season, crude prices will spike back up to a break-even for the frackers, Canucks and Venezuelans, whereupon supply will rip again, and prices fall to trade within a range of right around $100 a bbl, ...plus €2 a liter petrol surcharge for your IPCC Carbon Catholic tithe.

Would you like turnips with that?

[Nov 05, 2018] Will US Sanctions Sway Iran to Enter Oil Deal with Russia

Nov 05, 2018 | russia-insider.com

However, the primary problem would not even be the doubtful profitability, but rather logistics. Iran's oil fields are in the south. To reach Russia, the oil would have to make its way to Caspian ports in the north. Iran has no main pipelines connecting its southern oil fields with northern ports. These ports do have the infrastructure for oil, but they were built to receive oil from swap deals with Kazakhstan, Russia and Azerbaijan. They were never meant to export oil.

Consequently, before any exports could begin, Moscow and Tehran would have to invest in creating the necessary storage and loading infrastructure at the Iranian ports. Iran would also need to upgrade its transport infrastructure to deliver oil from the south to the Caspian seashore -- that would also present a challenge.

Finally, Russia and Iran would have to substantially increase their tanker fleets in the landlocked Caspian Sea to exchange large quantities of oil, as the local geography does not allow for the use of large tankers. In this situation, a planned railroad connection between Russia and Iran via Azerbaijan could increase the volume of oil moved from Iran to Russia, but this project has not been completed.

Under these circumstances, Russian officials are demonstrating far greater interest in resuming the so-called oil-for-products program, under which Russia would broker Iranian oil abroad in exchange for Iran buying Russian industrial machinery and providing investment opportunities to Moscow.

Russia and Iran have discussed an oil-for-products initiative for years. Initially, it was supposed to help Tehran evade the oil trade embargo imposed by the United States, European Union (EU) and their partners. When those sanctions were lifted as part of the 2015 nuclear deal, the initiative was expected to compensate for Iran's lack of financial reserves, which kept Tehran from paying for imports of Russian equipment in hard currency. However, after US President Donald Trump withdrew from the deal in 2018 and began reimposing sanctions, the oil-for-products deal again gained importance as a way to evade sanctions.

In November 2017, Moscow received 1 million barrels from Iran as payment for railroad equipment imported from Russia, and arrangements were in the works for Russia to buy an additional 5 million tons of oil in 2018. Indeed, in January and February there were reports of some oil dispatches transferred from Iran to Russian companies. Yet, by March, they stopped . Moscow still plans to revive the deal in 2019, though it might never happen.

On the one hand, Russia has had problems finding buyers for Iranian oil. Concerned about the US sanctions, potential clients refused to purchase it. On the other hand, Iran's main hopes for sanctions relief are more connected to the EU than Russia. There is a strong belief in Tehran that Europeans will be able to offset the negative influence of US economic pressure on Iran. The EU wants to salvage as much of the nuclear deal as possible. Yet the strength of Tehran's belief is hard to explain: Large EU companies have already pulled out of Iran. The EU officials Al-Monitor interviewed openly said that Tehran should not expect a lot from Brussels.

Though Russian and Iranian officials have an on-again, off-again marriage of convenience, Iran's general public and its elite strongly oppose any substantial deals with Moscow. Russia is not trusted or welcomed by Iranians and the countries have a long history of differences . A well-informed and respected Iranian expert on Tehran's foreign policy told Al-Monitor on condition of anonymity that a Russian oil-for-products initiative would be difficult to implement.

"A large part of Iranian society believes that giving our oil to Russia -- especially at the discounted prices -- is no better than agreeing to Trump's demands," he said.

[Nov 05, 2018] New Iran Sanctions Risk Long-Term US Isolation

Nov 05, 2018 | www.zerohedge.com

Authored by Patrick Lawrence via ConsortiumNews.com,

The U.S. is going for the jugular with new Iran sanctions intended to punish those who trade with Teheran. But the U.S. may have a fight on its hands in a possible post- WWII turning-point...

The next step in the Trump administration's "maximum pressure" campaign against Iran has begun, with the most severe sanctions being re-imposed on the Islamic Republic. Crucially, they apply not only to Iran but to anyone who continues to do business with it.

It's not yet clear how disruptive this move will be. While the U.S. intention is to isolate Iran, it is the U.S. that could wind up being more isolated. It depends on the rest of the world's reaction, and especially Europe's.

The issue is so fraught that disputes over how to apply the new sanctions have even divided Trump administration officials.

The administration is going for the jugular this time. It wants to force Iranian exports of oil and petrochemical products down to as close to zero as possible. As the measures are now written, they also exclude Iran from the global interbank system known as SWIFT.

It is hard to say which of these sanctions is more severe. Iran's oil exports have already started falling. They peaked at 2.7 million barrels a day last May -- just before Donald Trump pulled the U.S. out of the six-nation accord governing Iran's nuclear programs. By early September oil exports were averaging a million barrels a day less .

In August the U.S. barred Iran's purchases of U.S.-dollar denominated American and foreign company aircraft and auto parts. Since then the Iranian rial has crashed to record lows and inflation has risen above 30 percent.

Revoking Iran's SWIFT privileges will effectively cut the nation out of the dollar-denominated global economy. But there are moves afoot, especially by China and Russia, to move away from a dollar-based economy.

The SWIFT issue has caused i nfighting in the administration between Treasury Secretary Mnuchin and John Bolton, Trump's national security adviser who is among the most vigorous Iran hawks in the White House. Mnuchin might win a temporary delay or exclusions for a few Iranian financial institutions, but probably not much more.

On Sunday, the second round of sanctions kicked in since Trump withdrew the U.S. from the 2015 Obama administration-backed, nuclear agreement, which lifted sanctions on Iran in exchange for stringent controls on its nuclear program. The International Atomic Energy Agency has repeatedly certified that the deal is working and the other signatories -- Britain, China, France, Germany and Russia have not pulled out and have resumed trading with Iran. China and Russia have already said they will ignore American threats to sanction it for continuing economic relations with Iran. The key question is what will America's European allies do?

Europeans React

Europe has been unsettled since Trump withdrew in May from the nuclear accord. The European Union is developing a trading mechanism to get around U.S. sanctions. Known as a Special Purpose Vehicle , it would allow European companies to use a barter system similar to how Western Europe traded with the Soviet Union during the Cold War.

Juncker: Wants Euro-denominated trading

EU officials have also been lobbying to preserve Iran's access to global interbank operations by excluding the revocation of SWIFT privileges from Trump's list of sanctions. They count Mnuchin,who is eager to preserve U.S. influence in the global trading system, among their allies. Some European officials, including Jean-Claude Juncker, president of the European Commission, propose making the euro a global trading currency to compete with the dollar.

Except for Charles de Gaulle briefly pulling France out of NATO in 1967 and Germany and France voting on the UN Security Council against the U.S. invading Iraq in 2003, European nations have been subordinate to the U.S. since the end of the Second World War.

The big European oil companies, unwilling to risk the threat of U.S. sanctions, have already signaled they intend to ignore the EU's new trade mechanism. Total SA, the French petroleum company and one of Europe's biggest, pulled out of its Iran operations several months ago.

Earlier this month a U.S. official confidently predicted there would be little demand among European corporations for the proposed barter mechanism.

Whether Europe succeeds in efforts to defy the U.S. on Iran is nearly beside the point from a long-term perspective. Trans-Atlantic damage has already been done. A rift that began to widen during the Obama administration seems about to get wider still.

Asia Reacts

Asian nations are also exhibiting resistance to the impending U.S. sanctions. It is unlikely they could absorb all the exports Iran will lose after Nov. 4, but they could make a significant difference. China, India, and South Korea are the first, second, and third-largest importers of Iranian crude; Japan is sixth. Asian nations may also try to work around the U.S. sanctions regime after Nov. 4.

India is considering purchases of Iranian crude via a barter system or denominating transactions in rupees. China, having already said it would ignore the U.S. threat, would like nothing better than to expand yuan-denominated oil trading, and this is not a hard call: It is in a protracted trade war with the U.S., and an oil-futures market launched in Shanghai last spring already claims roughly 14 percent of the global market for "front-month" futures -- contracts covering shipments closest to delivery.

Trump: Unwittingly playing with U.S. long-term future

As with most of the Trump administration's foreign policies, we won't know how the new sanctions will work until they are introduced. There could be waivers for nations such as India; Japan is on record asking for one. The E.U.'s Special Purpose Vehicle could prove at least a modest success at best, but this remains uncertain. Nobody is sure who will win the administration's internal argument over SWIFT.

Long-term Consequences for the U.S.

The de-dollarization of the global economy is gradually gathering momentum. The orthodox wisdom in the markets has long been that competition with the dollar from other currencies will eventually prove a reality, but it will not be one to arrive in our lifetimes. But with European and Asian reactions to the imminent sanctions against Iran it could come sooner than previously thought.

The coalescing of emerging powers into a non-Western alliance -- most significantly China, Russia, India, and Iran -- starts to look like another medium-term reality. This is driven by practical rather than ideological considerations, and the U.S. could not do more to encourage this if it tried. When Washington withdrew from the Iran accord, Moscow and Beijing immediately pledged to support Tehran by staying with its terms.If the U.S. meets significant resistance, especially from its allies, it could be a turning-point in post-Word War II U.S. dominance.

Supposedly Intended for New Talks

All this is intended to force Iran back to the negotiating table for a rewrite of what Trump often calls "the worst deal ever." Tehran has made it clear countless times it has no intention of reopening the pact, given that it has consistently adhered to its terms and that the other signatories to the deal are still abiding by it.

The U.S. may be drastically overplaying its hand and could pay the price with additional international isolation that has worsened since Trump took office.

Washington has been on a sanctions binge for years. Those about to take effect seem recklessly broad. This time, the U.S. risks lasting alienation even from those allies that have traditionally been its closest.

[Nov 01, 2018] If the Khashoggi Affair was planned as a warning to Crown Prince Mohamed bin Salman, then the US knew exactly what was going to happen in the consulate. It was coupled with an immediate and orchestrated MSM reaction that was curiously detailed, and delivered at high volume.

Notable quotes:
"... The key point from my POV was the immediate MSM blanket coverage with every detail explained. No investigation, research, doubts or questions. ..."
"... The US MSM is a propaganda tool and they were pre-prepared, so some US deep state group knew that Bin Salman's bodyguard was heading to the consulate and what they planned to do there (and maybe even set them up to do it). ..."
Nov 01, 2018 | www.unz.com

Miro23 says: October 30, 2018 at 5:45 am GMT 600 Words

The Saudis also support the system of petrodollars, which basically requires nearly all international purchases of petroleum to be paid in dollars. Petrodollars in turn enable the United States to print money for which there is no backing knowing that there will always be international demand for dollars to buy oil.

I would emphasize this aspect, except that MbS doesn't so much support the PetroDollar as the PetroYuan, and this is more than troubling for the US since the PetroDollar is essential to the dollar's world reserve currency status.

Many American economists have expressed alarm at Saudi Arabia's willingness to borrow in Chinese yuan, as Riyadh's decision could cause other oil-exporting countries to abandon the U.S. dollar in favor of the "petro-yuan." A marked decline in the use of the U.S. dollar as the preferred credit-issuing currency by oil-producing countries would greatly weaken the U.S. dollar's long-term viability as a global reserve currency.

As the United States views its alliance with Saudi Arabia as the lynchpin of its Middle East strategy, Washington will likely react strongly if Riyadh uses its influence within OPEC to strengthen the Chinese yuan. As Saudi Arabia remains dependent on U.S. arms sales to pursue its geopolitical objectives in the Middle East and counter Iran, intense U.S. pressure would likely cause Riyadh to distance itself from Beijing, limiting economic integration between the two countries.

https://thediplomat.com/2018/02/the-risks-of-the-china-saudi-arabia-partnership/

It is no coincidence that these statements from the Crown Prince come days after the official launch of China's Petroyuan. As every historical trend indicates, the world's most powerful economy dictates which currency will be used in most international transactions. This continues to be the case with the US in respect of Dollar, but as China gets set to fully overtake the US as the world's leading economy, the Dollar will inevitably be replaced by the Yuan.

China's issuing of oil futures contracts in Petroyuan is the clearest indication yet that China is keen to make its presence as the world's largest energy consumer known and that it would clearly prefer to purchase oil from countries like Saudi Arabia in its own currency in the future, quite possibly in the near future.

Saudi Arabia's Crown Prince appears to understand this trajectory in the global energy markets and furthermore, he realises that in order to be able to leverage the tremendous amount of US pressure that will come down on Riaydh in order to force Saudi Arbia to avoid the Petroyuan, Riyadh will need to embrace other potential partners, including China.

More than anything else, the Petroyuan will have an ability to transform Saudi Arabia by limiting its negative international characteristics that Muhammad bin Salman himself described. As a pseudo-satellite state of the US during the Cold War, Muhammad bin Salman admitted that his country's relationship to the US was that of subservience. China does not make political let alone geopolitical demands of its partners, but China is nevertheless keen to foster de-escalations in tensions among all its partners based on the win-win principles of peace through prosperity as articulated on a regular basis by President Xi Jinping.

Thus one could see China's policies of political non-interference rub off on a potential future Saudi partner, in the inverse way that the US policies of ultra-interventionism are often forced upon its partners. Thus, whatever ideological views Muhammad bin Salman does or does not have, he clearly knows where the wind is blowing: in the direction of China.

https://astutenews.com/2018/03/29/saudi-crown-prince-muhammad-bin-salman-blames-america-for-spread-of-wahhabism-as-petro-yuan-beckons/

If the Khashoggi Affair was planned as a warning to Crown Prince Mohamed bin Salman, then the US knew exactly what was going to happen in the consulate. It was coupled with an immediate and orchestrated MSM reaction that was curiously detailed, and delivered at high volume.

chris , says: October 30, 2018 at 11:02 am GMT

Yeah, the US will never get rid of the Saudi regime but will always be dangling the sword right above their necks, and not just figuratively.

Besides the tangible benefits of the 'strategic' control of oil resources, which the US believes it needs to control in order to dominate Western Europe and its Asian allies, the Saudis also function as the CIA's private slush fund for off-the-books operations like Iran-Contra and many others which surface in the news from time to time. Thus, the CIA controls such vast sums through the Saudis as to make their budgets effectively limitless.

During his triumphant tour of the US earlier this year, the Saudi King said something which I found shocking and incredibly revealing in the way the story dropped like a stone making absolutely no ripples anywhere in the MSM, nor in the alternative media for that matter.

When asked about Saudi funding of Wahhabism around the world, he said that 'the allies (presumably US and UK) had 'asked' the Saudis to 'use their resources' to create the Madrassas and Wahhabi centers to prevent prevent inroads in Muslim countries by the Soviets (a premise which is very questionable in the ME context after the fall of Nasser).

Now that seems to be the story of the century because it reveals the operating method of the CIA wrt the Saudis. And even though MBS was trying to only reveal the distant roots of the system they put in place, there is absolutely no logical reason why any part of this system would have been subsequently dismantled; 911 notwithstanding. The continuing US/Israeli support for and generous use of jihadis in Libya, Syria, etc. only reinforces this point.

This is ultimately the greatest impediment to anything changing the status quo.

virgile , says: Website October 30, 2018 at 12:02 pm GMT
If the consulate was bugged , the Turks must have known the plan to abduct kashooggi.
They let it happen, and now that the abduction turned into a murder, they are accomplice.
Miro23 , says: October 30, 2018 at 12:06 pm GMT
@Mark James

US knew exactly what was going to happen in the consulate.

I doubt the US knew "exactly", but they likely knew something bad (a kidnapping perhaps?) was a strong probability. Alas I wish Khashoggi had been warned. Too it seems very odd he was willing to set foot in a Saudi embassy anywhere? Maybe Director Haspel can explain.

Supposedly Khashoggi's smart phone picked it all up and filmed his own murder ??

More likely the room was prepared, and Khashoggi was following US instructions/assurances in going there. The key point from my POV was the immediate MSM blanket coverage with every detail explained. No investigation, research, doubts or questions.

The US MSM is a propaganda tool and they were pre-prepared, so some US deep state group knew that Bin Salman's bodyguard was heading to the consulate and what they planned to do there (and maybe even set them up to do it).

One question is whether the Halloween show was aimed at removing Bin Salman or just getting him back in line.

Amanda , says: October 30, 2018 at 1:58 pm GMT
Sibel Edmonds has been following this story from Turkey (she speaks Turkish) and posting her thoughts and findings on twitter. She seems to think this is about some kind of soft coup (get rid of MBS b/c getting too cozy with Russia/China, Euroasia). Sibel also says Khashoggi was actually in Istanbul working with some kind of Soros NGO, maybe for future Color Revolution/Arab Spring in the Middle East.

Sibel Edmonds @sibeledmonds As Predicted (OnRecord) One Of 3 Objectives in #Scripted #Khashoggi Case: Get #Trump- Replace BS #RussiaGate with #SaudiGate. (Screenshot Coming In Reply)- – "Khashoggi fiancee hits at Trump response, warns of 'money' influence"

Sibel Edmonds‏ @sibeledmonds Oct 27
Very Important #Khashoggi Continued: #Khashoggi Relocated To #Turkey To Be a Part of a Business-ThinkTank-NGO. He set up a business here. He opened Bank Accounts. He bought a house/expansive Flat. He traveled to #London from #Istanbul paid handsomely by #Neoliberal #DeepState

AnonFromTN , says: October 30, 2018 at 5:58 pm GMT
Jamal Khashoggi did not die for nothing. His murder was part of the plot to push current de-facto ruler of the Saudi royal crime family aside.

On the moral side, considering who Khashoggi was, one can only say "serves him right". However, all the other players involved, the Saudis, Israel, Turkey, and the US, are by no means morally superior to him. His murder and essential non-reaction by others are useful, as these events unmasked the hypocrites, who are showing their true colors even as we speak.

Mike P , says: October 30, 2018 at 5:58 pm GMT
UK Was Aware of Saudi Plot Against Khashoggi Weeks in Advance: Report
ChuckOrloski , says: October 30, 2018 at 7:12 pm GMT
@SolontoCroesus Hi again, S2C,

Should have added that the Kashoggi murder & extremely strange aftermath, dulled US political response, smacks of a scene from the film "V for Vendetta."

Thanks!

JLK , says: October 30, 2018 at 7:41 pm GMT
If I were the Saudis, I'd watch my wallet.
Anon [159] Disclaimer , says: October 31, 2018 at 1:46 am GMT
"There is every indication that the U.S. is not in fact seeking to punish the Saudis for their alleged role in Khashoggi's apparent murder but instead to punish them for reneging on this $15 billion deal to U.S. weapons giant Lockheed Martin, which manufactures the THAAD system.

S-400 gamechanger. / Saudi Plan to Purchase Russian S-400:

https://www.mintpressnews.com/angered-by-saudi-plan-to-purchase-russian-s-400-trump-admin-exploiting-khashoggi-disappearance-to-force-saudis-to-buy-american/250717/

Miro23 , says: October 31, 2018 at 3:41 am GMT
@Colin Wright Thanks for the link. Now we can see that Empire had previously turned against MbS, and that the scripted Khashoggi affair conveniently arrived on cue – with MbS getting the full MSM treatment.

In other words the deep state knew exactly what was going to happen in the consulate that day, set it up and recorded it themselves (nothing to do with Khashoggi's smart phone).

https://www.middleeasteye.net/news/exclusive-saudi-dissident-prince-flies-home-tackle-mbs-succession-58983364

Prince Ahmad bin Abdulaziz, the younger brother of King Salman, has returned to Saudi Arabia after a prolonged absence in London, to mount a challenge to Crown Prince Mohammed bin Salman or find someone who can.

The source said that the prince returned "after discussion with US and UK officials", who assured him they would not let him be harmed and encouraged him to play the role of usurper.

Meanwhile, in Washington disquiet grows.

Writing in the New York Times, former national security advisor to the Obama administration and US ambassador to the UN Susan Rice said: "Looking ahead, Washington must act to mitigate the risks to our own interests. We should not rupture our important relationship with the kingdom, but we must make clear it cannot be business as usual so long as Prince Mohammed continues to wield unlimited power.

"It should be United States policy, in conjunction with our allies, to sideline the crown prince in order to increase pressure on the royal family to find a steadier replacement," she added.

Erebus , says: October 31, 2018 at 5:36 am GMT
@Miro23 The mainstream narrative has had "Psyop" written all over it from the first. It wouldn't surprise me to learn that Khashoggi is still alive and languishing in an undisclosed location with only the Skripals for company.
ChuckOrloski , says: October 31, 2018 at 2:44 pm GMT
@Bill Jones An interesting bullet-sentence, Bill Jones said to me: "The strange and dulled aftermath in the US is, I believe, because the lesson was not really meant for US audiences."

Greetings, Bill!

Lessons on dramatic world events are cunningly spun to insouciant & government-trusting Americans. The weird Jamal Kashoggi murder is an excellent example among hundreds to choose from!

Fyi, along with FDR administration's cooperation, Zionists helped gin-up war fervor in order to get the US into World War 2. Such deception resulted in unnecessarily sending-off another round of American "doughboys" into world war.

Fyr, as recovered from America's Memory Hole Knowledge Disposal / Sewer System," below is a great Pat Buchanan article titled, "Who forged it?"

http://www.informationclearinghouse.info/article4065.htm

[Oct 31, 2018] Angry Bear " Business As Usual Running on Empty

Oct 31, 2018 | angrybearblog.com
  1. likbez , October 31, 2018 1:03 am

    The key question not addressed by the author is how long the period of "plato oil production" (the last stage of the so called "oil age", which started around 1911) might last -- 10, 20 or 50 years. And the oil age is just a very short blip in Earth history.

    Let's assume that this means less the $100 per barrel; in the past, it was $70 per barrel that considered the level that guarantees the recession in the USA, but financial system machinations now probably reached a new level, so that might not be true any longer. The trillion dollars question is "How long this period can be extended?"

    It is important to understand the US shale oil is not profitable and never will be for prices under $80 or so. At prices below that level, it actually produces three products, not two – oil, gas and junk bonds.

    I view it as a very sophisticated, very innovative gamble to pressure oil prices down and get compensation for the losses due to large amount of imported oil (the USA export mainly lightweight oil which is kind of "subprime oil" often used for dilution of heavy oil in countries such as Canada and Venezuela, but imports quality oil).

    If the hypothesis that Saudis and Russians are close to Seneca Cliff (Saudi prince recently said that Russian are just 10-15 years from it) and that best days of the US shale and Gulf of Mexico deep oil is in the past if true, then "Houston we have a problem".

    That means that in 20 years, or so the civilization might experience some kind of collapse, and the population of the Earth might start rapidly shrinking.

[Oct 28, 2018] US Shale Oil Industry Catastrophic Failure Ahead

Oct 27, 2018 | www.zerohedge.com

Authored by Steve St.Angelo via SRSRoccoReport.com,

While the U.S. Shale Industry produces a record amount of oil, it continues to be plagued by massive oil decline rates and debt. Moreover, even as the companies brag about lowering the break-even cost to produce shale oil, the industry still spends more than it makes. When we add up all the negative factors weighing down the shale oil industry, it should be no surprise that a catastrophic failure lies dead ahead.

Of course, most Americans have no idea that the U.S. Shale Oil Industry is nothing more than a Ponzi Scheme because of the mainstream media's inability to report FACT from FICTION. However, they don't deserve all of the blame as the shale energy industry has done an excellent job hiding the financial distress from the public and investors by the use of highly technical jargon and BS.

For example, Pioneer published this in the recent Q2 2018 Press Release:

Pioneer placed 38 Version 3.0 wells on production during the second quarter of 2018. The Company also placed 29 wells on production during the second quarter of 2018 that utilized higher intensity completions compared to Version 3.0 wells. These are referred to as Version 3.0+ completions. Results from the 65 Version 3.0+ wells completed in 2017 and the first half of 2018 are outperforming production from nearby offset wells with less intense completions. Based on the success of the higher intensity completions to date, the Company is adding approximately 60 Version 3.0+ completions in the second half of 2018.

Now, the information Pioneer published above wasn't all that technical, but it was full of BS. Anytime the industry uses terms like "Version 3.0+ completions" to describe shale wells, this normally means the use of "more technology" equals "more money." As the shale industry goes from 30 to 60 to 70 stage frack wells, this takes one hell of a lot more pipe, water, sand, fracking chemicals and of course, money .

However, the majority of investors and the public are clueless in regards to the staggering costs it takes to produce shale oil because they are enamored by the "wonders of technology." For some odd reason, they tend to overlook the simple premise that

MORE STUFF costs MORE MONEY.

Of course, the shale industry doesn't mind using MORE MONEY, especially if some other poor slob pays the bill.

Shale Oil Industry: Deep The Denial

According to a recently released article by 40-year oil industry veteran, Mike Shellman, "Deep The Denial," he provided some sobering statistics on the shale industry:

I recently put somebody very smart on the necessary research (SEC K's, press releases regarding private equity to private producers, etc.) to determine what total upstream shale oil debt actually is. We found it to be between $285-$300B (billion), both public and private . Kallanish Energy Consultants recently wrote that there is $240B of long term E&P debt in the US maturing by 2023 and I think we should assume that at least 90 plus percent of that is associated with shale oil. That is maturing debt, not total debt.

By year end 2019 I firmly believe the US LTO industry will then be paying over $20B annually in interest on long term debt.

Using its own self-touted "breakeven" oil price, the shale oil industry must then produce over 1.5 Million BOPD just to pay interest on that debt each year. Those are barrels of oil that cannot be used to deleverage debt, grow reserves, not even replace reserves that are declining at rates of 28% to 15% per year that is just what it will take to service debt.

Using its own "breakeven" prices the US shale oil industry will ultimately have to produce 9G BO of oil, as much as it has already produced in 10 years just to pay its total long term debt back .

Using Mike's figures, I made the following chart below:

For the U.S. Shale Oil Industry just to pay back its debt, it must produce 9 billion barrels of oil. That is one heck of a lot of oil as the industry has produced about 10 billion barrels to date. Again, as Mike states, it would take 9 billion barrels of shale oil to pay back its $285-300 billion of debt (based on the shale industry's very own breakeven prices).

Furthermore, the shale industry may have to sell a quarter of its oil production (1.5 million barrels per day) just to service its debt by the end of 2019. According to the EIA, the U.S. Energy Information Agency, total shale oil (tight oil) production is now 6.2 million barrels per day (mbd):

The majority of shale oil production comes from three fields and regions, the Eagle Ford (Blue), the Bakken (Yellow) and the Permian (light, medium & dark brown). These three fields and regions produce 5.2 mbd of the total 6.2 mbd of shale production.

Unfortunately, the shale industry continues to struggle with mounting debt and negative free cash flow. The EIA recently published this chart showing the cash from operations versus capital expenditures for 48 public domestic oil producers:

You will notice that capital expenditures ( brown line ) are still higher than cash from operations ( blue line ). So, it doesn't seem to matter if the oil price is over $100 (2013-2014) or less than $70 (2017-2018), the shale oil industry continues to spend more money than it's making. The shale energy companies have resorted to selling assets, issuing stock and increasing debt to supplement their inadequate cash flow to fund operations.

A perfect example of this in practice is Pioneer Resources the number one shale oil producer in the mighty Permian. While most companies increased their debt to fund operations, Pioneer decided to take advantage of its high stock price by raising money via share dilution. Pioneer's outstanding shares ballooned from 115 million shares in 2010 to 170 million by 2017. From 2011 to 2016, Pioneer issued a staggering $5.4 billion in new stock :

So, as Pioneer issued over $5 billion in stock to produce unprofitable shale oil and gas, Continental Resources racked up more than $5 billion in debt during the same period. These are both examples of "Ponzi Finance." Thus, the shale energy industry has been quite creative in hoodwinking both the shareholder and capital investor.

Now, there is no coincidence that I have focused my research on Pioneer and Continental Resources. While Continental is the poster child of what's horribly wrong with the shale oil industry in the Bakken, Pioneer is a role model for the same sort of insanity and delusional thinking taking place in the Permian.

Pioneer Spends A Lot More Money With Unsatisfactory Production Results

To be able to understand what is going on in the U.S. shale industry, you have to be clever enough to ignore the "Techno-jargon" in the press releases and read between the lines. As mentioned above, Pioneer stated that it was going to add a lot more of its "high-tech" Version 3.0+ completion wells in the second half of 2018 because they were outperforming the older versions.

Well, I hope this is true because Pioneer's first half 2018 production results in the Permian were quite disappointing compared to the previous period. If we compare the increase of Pioneer's shale oil production in the Permian versus its capital expenditures, something must be seriously wrong .

First, let's look at a breakdown of Pioneer's Permian energy production from their September 2018 Investor Presentation:

Pioneer's Permian oil and gas production is broken down between its horizontal shale and vertical convention production. I will only focus on its horizontal shale production as this is where the majority of their capital expenditures are taking place. The highlighted yellow line shows Pioneer's horizontal shale oil production in the Permian Basin.

You will notice that Pioneer's shale oil production increased significantly in Q3 & Q4 2017 versus Q1 & Q2 2018. Furthermore, Pioneer's shale gas production surged in Q2 2018 by nearly 50% (highlighted with a red box) compared to oil production only increasing 5%. That is a serious RED FLAG for natural gas production to jump that much in one quarter.

Secondly, by comparing the increase of Pioneer's quarterly shale oil production in the Permian with its capital expenditures, the results are less than satisfactory:

The RED LINE shows the amount of capital expenditures spent each quarter while the OLIVE colored BARS represent the increase in Permian shale oil production. To simplify the figures in this chart, I made the following graphic below:

Pioneer spent $1.36 billion in the second half of 2017 to increase its Permian shale oil production by 30,232 barrels per day (bopd) compared to $1.7 billion in the first half of 2018 which only resulted in an additional 10,832 bopd . Folks, it seems as if something seriously went wrong for Pioneer in the Permian as the expenditure of $340 million more CAPEX resulted in two-thirds less the production growth versus the previous period.

Third, while Pioneer (stock ticker PXD) proudly lists that they are one of the lowest cost shale producers in the industry, they still suffer from negative free cash flow:

As we can see, Pioneer lists their breakeven oil price at approximately $22, which is downright hilarious when they spent $132 million more on capital expenditures than the made in cash from operations:

The public and investors need to understand that "oil breakeven costs" do not include capital expenditures. And according to Pioneer's Q2 2018 Press Release, the company plans on spending $3.4 billion on capital expenditures in 2018. The majority of the capital expenditures are spent on drilling and completing horizontal shale wells.

For example, Pioneer brought on 130 new wells in the first half of 2018 and spent $1.7 billion on CAPEX (capital expenditures) versus 125 wells and $1.36 billion in 2H 2017. I have seen estimates that it cost approximately $9 million for Pioneer to drill a horizontal shale well in the Permian. Thus, the 130 wells cost nearly $1.2 billion.

However, the interesting thing to take note is that Pioneer brought on 125 wells in 2H 2017 to add 30,000+ barrels of new oil production compared to 130 wells in 1H 2018 that only added 10,000+ barrels. So, how can Pioneer add five more wells (130 vs. 125) in 1H 2018 to see its oil production increase a third of what it was in the previous period?

Regardless, the U.S. shale oil industry continues to spend more money than they make from operations. While energy companies may have enjoyed lower costs when the industry was gutted by super-low oil prices in 2015 and 2016, it seems as if inflation has made its way back into the shale patch. Rising energy prices translate to higher costs for the shale energy industry. Rinse and repeat.

Unfortunately, when the stock markets finally crack, so will energy and commodity prices. Falling oil prices will cause severe damage to the Shale Industry as it struggles to stay afloat by selling assets, issuing stock and increasing debt to continue producing unprofitable oil.

I believe the U.S. Shale Oil Industry will suffer catastrophic failure from the impact of deflationary oil prices along with peaking production. While U.S. Shale Oil production has increased exponentially over the past decade, it will likely come down even faster.

* * *

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[Oct 27, 2018] The EU Russia China Plan to Avert Iran Oil Sanctions by F. William Engdahl

Notable quotes:
"... The fact that the US dollar remains the overwhelming dominant currency for international trade and financial transactions gives Washington extraordinary power over banks and companies in the rest of the world. That's the financial equivalent of a neutron bomb. That might be about to change, though it's by no means a done deal yet. ..."
"... German Foreign Minister Heiko Maas told Handelsblatt, a leading German business daily, "Europe should not allow the U.S. to act over our heads and at our expense. For that reason, it's essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent SWIFT system ." ..."
"... In addition to the recent statements from the German Foreign Minister, France is discussing expanding the Iran SPV to create a means of insulating the EU economies from illegal extraterritorial sanctions like the secondary sanctions that punish EU companies doing business in Iran by preventing them from using the dollar or doing business in the USA. ..."
"... F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine "New Eastern Outlook." https://journal-neo.org/2018/10/23/the-eu-russia-china-plan-to-avert-iran-oil-sanctions/ ..."
Oct 27, 2018 | journal-neo.org

It may well be that the unilateral wrecking ball politics of the Trump Administration are bringing about a result just opposite from that intended. Washington's decision to abandon the Iran nuclear agreement and impose severe sanctions on companies trading Iran oil as of 4 November, is creating new channels of cooperation between the EU, Russia, China and Iran and potentially others. The recent declaration by Brussels officials of creation of an unspecified Special Purpose Vehicle (SPV) to legally avoid US dollar oil trade and thereby US sanctions, might potentially spell the beginning of the end of the Dollar System domination of the world economy.

According to reports from the last bilateral German-Iran talks in Teheran on October 17, the mechanisms of a so-called Special Purpose Vehicle that would allow Iran to continue to earn from its oil exports, will begin implementation in the next days. At end of September EU Foreign Policy chief Federica Mogherini confirmed plans to create such an independent trade channel, noting, "no sovereign country or organization can accept that somebody else decides with whom you are allowed to do trade with ."

The SPV plan is reportedly modelled on the Soviet barter system used during the cold war to avert US trade sanctions, where Iran oil would be in some manner exchanged for goods without money. The SPV agreement would reportedly involve the European Union, Iran, China and Russia.

According to various reports out of the EU the new SPV plan involves a sophisticated barter system that can avoid US Treasury sanctions. As an example, Iran could ship crude oil to a French firm, accrue credit via the SPV, much like a bank. That could then be used to pay an Italian manufacturer for goods shipped the other way, without any funds traversing through Iranian hands or the normal banking system.A multinational European state-backed financial intermediary would be set up to handle deals with companies interested in Iran transactions and with Iranian counter-parties. Any transactions would not be transparent to the US, and would involve euros and sterling rather than dollars.

It's an extraordinary response to what Washington has called a policy of all-out financial war against Iran, that includes threats to sanction European central banks and the Brussels-based SWIFT interbank payments network if they maintain ties to Iran after November 4. In the post-1945 relations between Western Europe and Washington such aggressive measures have not been seen before.It's forcing some major rethinking from leading EU policy circles.

New Banking Architecture

The background to the mysterious initiative was presented in June in a report titled, Europe, Iran and Economic Sovereignty: New Banking Architecture in Response to US Sanctions. The report was authored by Iranian economist Esfandyar Batmanghelidj and Axel Hellman, a Policy Fellow at the European Leadership Network (ELN), a London-based policy think tank .

The report proposes its new architecture should have two key elements. First it will be based on "gateway banks" designated to act as intermediaries between Iranian and EU commercial banks tied to the Special Purpose Vehicle. The second element is that it would be overseen by an EU-Office of Foreign Asset Controls or EU-OFAC, modeled on the same at the US Treasury, but used for facilitating legal EU-Iran trade, not for blocking it. Their proposed EU-OFAC among other functions would undertake creating certification mechanisms for due diligence on the companies doing such trade and "strengthen EU legal protections for entities engaged in Iran trade and investment ."

The SPV reportedly is based on this plan using designated Gateway Banks, banks in the EU unaffected by Washington "secondary sanctions," as they do not do business in the US and focus on business with Iran. They might include select state-owned German Landesbanks, certain Swiss private banks such as the Europäisch-Iranische Handelsbank (EIH), a European bank established specifically to engage in trade finance with Iran. In addition, select Iran banks with offices in the EU could be brought in.

Whatever the final result, it is clear that the bellicose actions of the Trump Administration against trade with Iran is forcing major countries into cooperation that ultimately could spell the demise of the dollar hegemony that has allowed a debt-bloated US Government to finance a de facto global tyranny at the expense of others.

EU-Russia-China

During the recent UN General Assembly in New York, Federica Mogherini said the SPV was designed to facilitate payments related to Iran's exports – including oil –so long as the firms involved were carrying out legitimate business under EU law. China and Russia are also involved in the SPV. Potentially Turkey, India and other countries could later join.

Immediately, as expected, Washington has reacted. At the UN US Secretary of State and former CIA head Mike Pompeo declared to an Iran opposition meeting that he was "disturbed and indeed deeply disappointed" by the EU plan. Notably he said ""This is one of the of the most counterproductive measures imaginable for regional and global peace and security." Presumably the Washington plan for economic war against Iranis designed to foster regional and global peace and security?

Non-US SWIFT?

One of the most brutal weapons in the US Treasury financial warfare battery is the ability to force the Brussels-based SWIFT private interbank clearing system to cut Iran off from using it. That was done with devastating effect in 2012 when Washington pressured the EU to get SWIFT compliance, a grave precedent that sent alarm bells off around the world.

The fact that the US dollar remains the overwhelming dominant currency for international trade and financial transactions gives Washington extraordinary power over banks and companies in the rest of the world. That's the financial equivalent of a neutron bomb. That might be about to change, though it's by no means a done deal yet.

In 2015 China unveiled its CIPS or China International Payments System. CIPS was originally viewed as a future China-based alternative to SWIFT. It would offer clearing and settlement services for its participants in cross-border RMB payments and trade. Unfortunately, a Chinese stock market crisis forced Beijing to downscale their plans, though a skeleton of infrastructure is there.

In another area, since late 2017 Russia and China have discussed possible linking their bilateral payments systems bypassing the dollar. China's Unionpay system and Russia's domestic payment system, known as Karta Mir, would be linked directly .

More recently leading EU policy circles have echoed such ideas, unprecedented in the post-1944 era. In August, referring to the unilateral US actions to block oil and other trade with Iran, German Foreign Minister Heiko Maas told Handelsblatt, a leading German business daily, "Europe should not allow the U.S. to act over our heads and at our expense. For that reason, it's essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent SWIFT system ."

A Crack in the Dollar Edifice

How far the EU is willing to defy Washington on the issue of trade with Iran is not yet clear. Most probably Washington via NSA and other means can uncover the trades of the EU-Iran-Russia-China SPV.

In addition to the recent statements from the German Foreign Minister, France is discussing expanding the Iran SPV to create a means of insulating the EU economies from illegal extraterritorial sanctions like the secondary sanctions that punish EU companies doing business in Iran by preventing them from using the dollar or doing business in the USA. French Foreign Ministry spokeswoman, Agnes Von der Muhll, stated that in addition to enabling companies to continue to trade with Iran, that the SPV would, "create an economic sovereignty tool for the European Union beyond this one case. It is therefore a long-term plan that will protect European companies in the future from the effect of illegal extraterritorial sanctions ."

If this will be the case with the emerging EU Special Purpose Vehicle, it will create a gaping crack in the dollar edifice. Referring to the SPV and its implications, Jarrett Blanc, former Obama State Department official involved in negotiating the Iran nuclear agreement noted that, "The payment mechanism move opens the door to a longer-term degradation of US sanctions power."

At present the EU has displayed effusive rhetoric and loud grumbling against unilateral US economic warfare and extraterritorial imposition of sanctions such as those against Russia. Their resolve to potently move to create a genuine alternative to date has been absent. So too is the case so far in other respects for China and Russia. Will the incredibly crass US sanctions war on Iran finally spell the beginning of the end of the dollar domination of the world economy it has held since Bretton Woods in 1945?

My own feeling is that unless the SPV in whatever form utilizes the remarkable technological advantages of certain of the blockchain or ledger technologies similar to the US-based XRP or Ripple, that would enable routing payments across borders in a secure and almost instantaneous way globally, it won't amount to much. It's not that European IT programmers lack the expertise to develop such, and certainly not the Russians. After all one of the leading blockchain companies was created by a Russian-born Canadian named Vitalik Buterin. The Russian Duma is working on new legislation regarding digital currencies, though the Bank of Russia still seems staunchly opposed. The Peoples' Bank of China is rapidly developing and testing a national cryptocurrency, ChinaCoin. Blockchain technologies are widely misunderstood, even in government circles such as the Russian Central Bank that ought to see it is far more than a new "South Sea bubble." The ability of a state-supervised payments system to move value across borders, totally encrypted and secure is the only plausible short-term answer to unilateral sanctions and financial wars until a more civilized order among nations is possible.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine "New Eastern Outlook."
https://journal-neo.org/2018/10/23/the-eu-russia-china-plan-to-avert-iran-oil-sanctions/

[Oct 26, 2018] Oil Under Threat As Global Economy Struggles by Nick Cunningham

Notable quotes:
"... This is Naked Capitalism fundraising week. 1584 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in the financial realm. Please join us and participate via our donation page , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser and what we've accomplished in the last year, and our current goal, more original reporting ..."
"... By Nick Cunningham, freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice ..."
"... Evidence of a slowdown in China is also becoming apparent. 3M saw sales dip in China, as did PPG Industries, which makes paint and coatings. "We see other signs of slowing in China; the automotive build rates are down significantly and that has a knock-on effect," Michael Roman, CEO of 3M, said. Sales of cars in China fell 12 percent in September from a year earlier. ..."
"... A strong dollar is another source of trouble for the global economy. Harley-Davidson said that international sales of its motorcycles were hit by a strong greenback. The Federal Reserve has hiked interest rates multiple times in the last year, and is expected to continue on that course. ..."
"... The array of problems raise the prospect of peak industrial earnings . Strong GDP figures and a massive corporate tax cut temporarily juiced profits, and earnings could fall to more pedestrian levels, ..."
"... The housing market is also starting to flash warning signs. For the week ending on October 12, the volume of mortgage applications fell by 7.1 percent . Higher interest rates are clearly being felt in housing, pushing homes out of reach for some prospective buyers. ..."
"... The next steps are unclear. There will be a tension between the supply losses from Iran, which will serve to tighten the oil market, and the supply gains from U.S. shale and Saudi Arabia. The demand side is decidedly more negative, with economic problems potentially forcing a rethink among forecasters. ..."
Oct 25, 2018 | www.nakedcapitalism.com
This is Naked Capitalism fundraising week. 1584 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in the financial realm. Please join us and participate via our donation page , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser and what we've accomplished in the last year, and our current goal, more original reporting

By Nick Cunningham, freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice

Warning signs about the slowing of the global economy continue to crop up, and market jitters are taking the steam out of oil prices.

U.S. corporate earnings are no longer sky-high, with a range of factors starting to cut into margins. The U.S.-China trade war has not made headlines in the same way it did a few weeks and months ago, but the reality is that the impact of tariffs is only growing as costs work their way through supply chains.

"These trade tensions are coming home to roost and they are impacting the fundamentals of the market," Tally Leger, equity strategist at OppenheimerFunds, told Reuters . "Thanks to trade tariffs we are facing the headwinds of a stronger dollar, higher oil prices, and rising interest rates."

This week, a slew of disappointing earnings came in. Caterpillar said that tariffs cost the company $40 million in the third quarter, and its share price fell roughly 7.6 percent after it reported its figures. Poor figures also came from 3M and Harley-Davidson , prompting selloffs in their stocks as well. 3M said that tariffs could cost the company $20 million this year, a figure that will balloon to $100 million next year. The results spooked the markets, dragging down equities more broadly. The S&P machinery index was down more than 4 percent in the last two days.

Evidence of a slowdown in China is also becoming apparent. 3M saw sales dip in China, as did PPG Industries, which makes paint and coatings. "We see other signs of slowing in China; the automotive build rates are down significantly and that has a knock-on effect," Michael Roman, CEO of 3M, said. Sales of cars in China fell 12 percent in September from a year earlier.

A strong dollar is another source of trouble for the global economy. Harley-Davidson said that international sales of its motorcycles were hit by a strong greenback. The Federal Reserve has hiked interest rates multiple times in the last year, and is expected to continue on that course.

The array of problems raise the prospect of peak industrial earnings . Strong GDP figures and a massive corporate tax cut temporarily juiced profits, and earnings could fall to more pedestrian levels, particularly as costs start to creep up. Some analysts think the fears of weaker earnings are overblown , but investors have clearly grown worried about the trajectory of the U.S. economy. And it has been the U.S. that has stood out while much of the rest of the world already began to lose steam. The U.S. cannot defy gravity forever.

The housing market is also starting to flash warning signs. For the week ending on October 12, the volume of mortgage applications fell by 7.1 percent . Higher interest rates are clearly being felt in housing, pushing homes out of reach for some prospective buyers.

President Trump recognizes the political threat he faces if interest rate hikes spoil the party. "Every time we do something great, he raises the interest rates," Trump said of Fed Chairman Jerome Powell in an interview with the Wall Street Journal on Tuesday. He "almost looks like he's happy raising interest rates." Trump added that it was "too early to say, but maybe" he regrets nominating Powell. Trump complained that "Obama had zero interest rates."

The economic headwinds are deflating the oil market, where supply tightness has dominated attention for the past few months. Recently, however, some of the supply fears have eased. Saudi Arabia has vowed to cover any supply gap, should it emerge. Inventories continue to rise. The outages in Iran are seem to be less of a concern to traders.

Now demand is becoming a concern. As the global economy slows, particularly in China, consumption could moderate. Brent crude fell by 4 percent on Tuesday amid a broader market selloff.

"The crude oil price action yesterday was clearly impacted by bearish equity markets, falling ten-year interest rates, rising gold prices and a clear risk adverse sentiment," said Bjarne Schieldrop, chief commodities analyst at SEB.

The next steps are unclear. There will be a tension between the supply losses from Iran, which will serve to tighten the oil market, and the supply gains from U.S. shale and Saudi Arabia. The demand side is decidedly more negative, with economic problems potentially forcing a rethink among forecasters.

[Oct 24, 2018] US shale has a glaring problem

Oct 24, 2018 | oilprice.com

Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of US shale companies are still struggling to turn a profit. A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute detail the "alarming volumes of red ink" within the shale industry.

"Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting negative free cash flows through June," the report's authors write. The 33 small and medium-sized drillers posted a combined $3.9 billion in negative cash flow in the first half of 2018.

The glaring problem with the poor financial results is that 2018 was supposed to be the year that the shale industry finally turned a corner. Earlier this year, the International Energy Agency painted a rosy portrait of US shale, arguing in a report that "higher prices and operational improvements are putting the US shale sector on track to achieve positive free cash flow in 2018 for the first time ever."

The improved outlook came after years of mounting debt and negative cash flow. The IEA estimates that the US shale industry generated cumulative negative free cash flow of over $200 billion between 2010 and 2014. The oil market downturn that began in 2014 was supposed to have changed profligate spending, pushing out inefficient companies and leaving the sector as a whole much leaner and healthier.

"Current trends suggest that the shale industry as a whole may finally turn a profit in 2018, although downside risks remain," the IEA wrote in July. " Several companies expect positive free cash flow based on an assumed oil price well below the levels seen so far in 2018 and there are clear indications that bond markets and banks are taking a more positive attitude to the sector, following encouraging financial results for the first quarter."

But the warning signs have been clear for some time. The Wall Street Journal reported in August that the second quarter was a disappointment. The WSJ analyzed 50 companies, finding that they spent a combined $2 billion more than they generated in the second quarter.

Read more on Oilprice.com: What Killed The Oil Price Rally?

The new report from IEEFA and the Sightline Institute add more detail the industry's recent performance. Only seven out of the 33 companies analyzed in the report had positive cash flow in the first half of the year, and the whole group burned through a combined $5 billion in cash reserves over that time period.

Even more remarkable is the fact that the negative financials come amidst a production boom. The US continues to break production records week after week, and at over 11 million barrels per day, the US could soon become the world's largest oil producer. Analysts differ over the trajectory of shale, but they only argue over how fast output will grow.

Yet, even as drillers extract ever greater volumes of oil from the ground, they still are not turning a profit. "To outward appearances, the US oil and gas industry is in the midst of a decade-long boom," IEEFA and the Sightline Institute write in their report. However, "America's fracking boom has been a world-class bust."

The ongoing struggles raises questions about the long-term. If the industry is still not profitable – after a decade of drilling, after major efficiency improvements since 2014, and after a sharp rebound in oil prices – when will it ever be profitable? Is there something fundamentally problematic about the nature of shale drilling, which suffers from steep decline rates over relatively short periods of time and requires constant spending and drilling to maintain?

Read more on Oilprice.com: Oil's $133 Billion Black Market

Third quarter results will start trickling in over the next few days and weeks, which should provide more clues into the shale industry's health. There is even more pressure on drillers to post profits because the third quarter saw much higher oil prices.

"Until the industry as a whole improves, producing both sustained profits and consistently positive cash flows, careful investors would be wise to view fracking companies as speculative investments," the authors of the report concluded.

This article was originally published on Oilprice.com

[Oct 24, 2018] Any guess what the price of crude would be today if we had no fracking in N. America? Wild guess is all I've got, but I'm saying $142

Notable quotes:
"... US tight oil output was about 6200 kb/d in August 2018 according to the EIA, not that the DPR includes oil from the region of tight oil plays that is conventional oil, also it is a model that is not very good so I ignore the DPR ..."
Oct 24, 2018 | peakoilbarrel.com

Hickory x Ignored says: 10/22/2018 at 9:49 pm

Any guess what the price of crude would be today if we had no fracking in N. America?
Wild guess is all I've got, but I'm saying $142 (and much lower economic growth over the past 9 yrs- maybe even flat averaged for the whole period).
Any other speculations on this?
ProPoly x Ignored says: 10/23/2018 at 6:36 am
USA LTO is ~7.5 million bpd. That exceeds global spare capacity over demand as-is today by at least four times. So if the world was still trying to consume what it is today, we would be several million short and would have been short by seven figures for several years.

I think we would have found out if there really are any huge but uneconomical fields out there by now as the panic from that set in a few years ago. A shortage on that scale means arbitrary prices pending demand cap/destruction.

Dennis Coyne x Ignored says: 10/23/2018 at 10:26 am
US tight oil output was about 6200 kb/d in August 2018 according to the EIA, not that the DPR includes oil from the region of tight oil plays that is conventional oil, also it is a model that is not very good so I ignore the DPR .

WAG on oil price with zero LTO output is $120/b in 2017$, plus or minus $20/b.

Energy News x Ignored says: 10/22/2018 at 1:12 pm
Canada (offshore), Hebron is expected to produce around 150,000 barrels a day, from about 40,000 barrels a day now.

2018-10-22 (The Globe and Mail) It's been one year since ExxonMobil's long-awaited Hebron platform off the southeast coast of Newfoundland started pumping crude from its first well. It took four years, $14 billion, 132,000 cubic metres of concrete and a few thousand workers to bring it online, and so far, it's churning out about 40,000 barrels a day, with the crude bound for markets in the U.S. Gulf states, Europe and much of eastern North America. Eventually, Hebron will drill 20 to 30 wells, and is expected to produce around 150,000 barrels a day.
With an expected reserve of 700 million barrels of recoverable crude, the Hebron project is expected to operate for 30 years. As Newfoundland's fourth offshore platform, it will play a key role in the province's plan to double overall production to more than 650,000 barrels a day by 2030.
https://www.theglobeandmail.com/business/article-why-hebron-has-a-leg-up-on-albertas-oil-sands/

George Kaplan x Ignored says: 10/23/2018 at 1:28 am
Hebron is already at 70 kbpd and has been for a few months. I thinks its expected annual average for oil only is 135 and it will take a year or so to get there as the coming wells will be less productive that the first ones. In the mean time the three other platforms are in decline (Terra Nova was originally due to be taken off line next year – not sure what the latest thinking is). They dropped about 35 kbpd last year but that may accelerate as Hibernia is coming off a secondary plateau.
Energy News x Ignored says: 10/23/2018 at 6:18 am
Yes a more realistic impression of the situation than just reading the article 🙂

[Oct 24, 2018] OPEC has difficulties increasing production. Never worry, as IEA says peak oil is just a figment of our imagination

Oct 24, 2018 | peakoilbarrel.com

ProPoly x Ignored says: 10/19/2018 at 9:22 am

OPEC is, for reasons many expected (involuntary declines in Venezuela and elsewhere), having difficulty delivering on their promised output hike.

https://www.reuters.com/article/us-opec-oil-exclusive/exclusive-opec-allies-struggle-to-fully-deliver-pledged-oil-output-boost-internal-document-idUSKCN1MT1G0

Guym x Ignored says: 10/19/2018 at 11:30 am
Yeah, that's going to get a lot worse. It's counting Iran production, and not what it can sell. A lot in floating storage, and being stored close to China and elsewhere. US is the only one with an increase, and that increase is on a hiatus until new pipelines come on, regardless of the EIA overstated production numbers. So, we would be short before any demand increase, or non-OPEC declines. But, never worry, as IEA says peak oil is just a figment of our imagination 🤡
Survivalist x Ignored says: 10/21/2018 at 12:40 am
"The Saudi government said it would take another month to complete a full investigation, which would be overseen by Mohammed.
Mohammad will find that Mohammad had nothing to do with the issue."

Perhaps an anti-KSA Boycott, Divestment, Sanctions (BDS) Movement will get started. Consumers and competitors might find the idea appealing.

Nice ideas for new KSA flag designs at this link here (I most like the chainsaw instead of the current sword design- reminds me of Scarface- Mo Bin Clownstick™ is about as legitimate and sophisticated as a coke runner):
https://www.moonofalabama.org/2018/10/saudis-admit-khashoggi-murder.html

The Sultan is playing his hand well (drip drip drip Turkish Int. leaks to the news with an intensifying puke factor- one recent read that Khashoggi was dismembered alive and dissolved in acid). Has Mo Bin Clownstick™ met his match?
https://lobelog.com/the-geopolitics-of-the-khashoggi-murder/

Watcher x Ignored says: 10/21/2018 at 2:51 am
I can't help but wonder about all those guys he threw into a hotel prison and shook down for billions of dollars. They can afford a lot of media with the money they had remaining.
Survivalist x Ignored says: 10/21/2018 at 5:45 pm
The House of Saud appears to be fragmenting quite severely.
Saudi Arabia's missing princes
https://www.bbc.com/news/magazine-40926963
Energy News x Ignored says: 10/20/2018 at 2:22 pm
The last article he wrote before his death

Jamal Khashoggi: What the Arab world needs most is free expression
By Jamal Khashoggi – October 17, 2018 – Washington Post
https://www.washingtonpost.com/amphtml/opinions/global-opinions/jamal-khashoggi-what-the-arab-world-needs-most-is-free-expression/2018/10/17/adfc8c44-d21d-11e8-8c22-fa2ef74bd6d6_story.html ?

Lightsout x Ignored says: 10/21/2018 at 3:43 am
China demand for diesel only appears to be heading in one direction. Should please Watcher!

https://mobile.twitter.com/PDChina/status/1053843063003525120?p=v

Dennis Coyne x Ignored says: 10/22/2018 at 1:59 pm
Shallow Sand,

No, not familiar, did you mean article linked below?

http://ieefa.org/ieefa-u-s-more-red-flags-on-fracking-focused-companies/

Link to full report

http://ieefa.org/wp-content/uploads/2018/10/Red-Flags-on-U.S.-Fracking_October-2018.pdf

From the report:
The $3.9 billion in negative cash flows in the first two quarters of 2018 represented an improvement over the first halves of 2016 and 2017, when red ink totaled $11 billion and $7.2 billion, respectively.

These 33 companies have had positive net income since 2017Q4 and long term debt reached its peak for these companies in 2018Q1 at 138 billion with a gradual decrease to 126 billion in 2018Q2. As prices continue to rise debt will gradually be paid down,

When I look at that report I see an improving situation for these companies. I would prefer it if they broke the data into two groups, oil focused and natural gas focused companies. There has been a better recovery in oil prices than natural gas prices though it looks like we might see a spike in natural gas prices if we have a colder than normal winter.

Energy News x Ignored says: 10/22/2018 at 5:27 am
India's crude oil imports, the average for the first 9 months of 2018 is up +279 kb/day compared to first 9 months of 2017
Seasonal chart: https://pbs.twimg.com/media/DqGtWDoX4AAYDwJ.jpg
India's crude oil refinery processing, the average for the first 9 months of 2018 is up +231 kb/day compared to first 9 months of 2017
Seasonal chart: https://pbs.twimg.com/media/DqGttFOW4AAr0Uy.jpg
Energy News x Ignored says: 10/22/2018 at 5:57 am
Saudi Arabia spare capacity, there seems to be a consensus that Saudi Arabia can produce 11 million b/day. I guess that producing above that level would be subject to maintenance, outages and natural decline? (Also I'm guessing that the Khurais field expansion might not be ready until later in 2019?)

2018-10-22 Saudi Arabia Energy Minister Al Falih speaks to TASS
Saudi Arabia now in October is producing 10.7 million b/day.
And is likely to go up, in the near future, to 11 million b/day on a steady basis.
Our total production capacity is currently 12 million b/day.
And that could be increased to 13 million b/day with an investment of $20 to $30 billion.
Interview with TASS: http://tass.com/economy/1026924

Reuters summary of interview
https://www.reuters.com/article/us-oil-opec-saudi/saudi-arabia-has-no-intention-of-1973-oil-embargo-replay-tass-idUSKCN1MW0JU

Energy News x Ignored says: 10/22/2018 at 10:53 am
Exxon in Brazil holds potential 41 billion barrels based on preliminary studies

2018-10-18 RIO DE JANEIRO and HOUSTON (Bloomberg) -- In a single year, Exxon Mobil has gone from being a tiny bit player in Brazil to the second-largest holder of oil exploration acreage, trailing only state-controlled Petroleo Brasileiro.
The last 24 concessions the U.S. giant bought with its partners may hold 41 billion bbl, based on preliminary studies, according to Eliane Petersohn, a superintendent at Brazil's National Petroleum Agency, or ANP. While the existence of the oil still needs to be confirmed, along with whether its extraction will be cost-effective, it's a huge figure -- almost double Exxon's current reserves.
The Irving, Texas-based company is betting big in particular on Brazil's offshore, where a single block is currently producing more than all of Colombia and profitability compares to the best U.S. tight oil, according to Decio Oddone, the head of ANP.
It should take six to eight years for oil to start flowing if economically viable deposits are discovered, according to ANP.
https://www.worldoil.com/news/2018/10/18/exxon-makes-major-bet-on-brazil-as-petrobras-eases-its-grip

GuyM x Ignored says: 10/22/2018 at 12:41 pm
Other than the plethora of constraints in the Permian, I think this is going to develop into a bigger obstacle of shale growth for awhile. Especially, for those mostly Permian players for the next four quarters.
https://oilprice.com/Energy/Energy-General/US-Shale-Has-A-Glaring-Problem.html

Almost 30% of gross production may go to service debt.
https://www.oilystuffblog.com/single-post/2018/10/19/Deep-The-Denial

I think huge shale growth is possible, but only way north of $100 a barrel. At the current price, it is close to max.