A victory for the US diplomacy. Using KSA as a Trojan horse again and again.
Moscow isn't sowing Middle East chaos to drive up oil prices.
Russia's leaders certainly do care about oil prices, and with good reason. Plunging oil prices
decrease the ruble's value, which closely follows oil prices. Oil exports are important to Russia's
federal budget and to its overall balance of trade. Indeed, when monthly average Brent oil prices
peaked at about $125 per barrel in March 2012, the ruble was close to its own peak, at approximately
twenty-nine rubles to every U.S. dollar. When Brent prices fell to $30.70 per barrel in January 2016,
the ruble had fallen to about eighty rubles to the dollar. It is easy to examine this currency-resource
correlation by comparing U.S. Energy Information Administration oil price data with Russian Central
Bank ruble values. As a result, the Russian government has imposed sweeping budget cuts that will
now affect defense expenditures as well as social programs and other areas.
... ... ...
On the contrary, Russia has been working with Riyadh to contain prices and announcing a withdrawal
from Syria and a new focus on peace talks there. If Russia were determined to play the oil card,
it could do so in many different ways. For example, one option might be to step up support for Assad's
government to win a comprehensive military victory over its foes. If Russia looked seriously at this
option, the changing conditions could draw Saudi Arabia and other supporters of the Syrian opposition
more deeply into the conflict and perhaps expand it. This is much more likely to raise oil prices
than what Moscow has done in the past. But Syria is not a major oil producer or exporter. So perhaps
Russia's policy in Syria is not oil centric, but its approach to other problems could. Unfortunately,
there is not much evidence to support this argument either.
One of the strongest counterarguments to the oil-price theory of Russian foreign policy is
the recent Iran nuclear agreement, known as the Joint Comprehensive Plan of Action (JPCOA). If higher
oil prices were Russia's principal goal in dealing with Iran-which has the world's fourth-largest
proven oil reserves-why facilitate the JPCOA at all? It would be far better to block the agreement
in hopes of forcing a showdown between Washington and Tehran, possibly including U.S. military action.
Alternatively, Russia could have agreed to Western proposals to tighten sanctions on Iran's
energy sector, further limiting oil supplies. Or Moscow could have delayed the talks, hoping that
this would create sufficient uncertainty to raise oil prices. Instead, at a time when Russia was
already suffering economically from low oil prices and from Western economic sanctions, President
Vladimir Putin decided to support an agreement that would only further decrease oil prices.
... ... ...
...Russia did much less to oppose U.S. and NATO air strikes in Libya in 2011-so maybe this proves
that Moscow wanted disorder there to increase oil prices? It doesn't look that way. First, then-president
Dmitry Medvedev agreed to accept the strikes after intense pressure from President Obama and appeared
to do so in large part to appease the United States. Second-perhaps more importantly-then-prime minister
Putin criticized Medvedev's decision to order Russian diplomats to abstain in United Nations Security
Council vote, prompting a rebuke from Medvedev. Since Putin has been controlling Russian foreign
policy for most of the last sixteen years, Medvedev's move was likely an exception rather than the
rule. Finally, oil prices were already quite high in early 2011 when Medvedev made his choice. Even
if moving oil prices upward was a top priority in Russian foreign policy, it would have been much
less necessary at this specific time.
While oil prices are important for Russia, they are generally not a driving factor of Russian
leaders' key decisions. Thus, Russia does seek to shape oil prices, but does so through routine diplomatic
processes. There are many reasons for this, but one of the most significant is that Russia sees
critical national-security interests in the Middle East that override its concerns over oil prices.
In fact, in each of the above cases-Syria, Iran and Iraq-President Putin has pursued policies that
appear intended to produce stability. So Russia's supposed secret plans to boost oil prices
may produce entertaining conversation, but they don't lead to much else.
Paul J. Saunders is Executive Director at the Center for the National Interest and a Research
Scientist at CNA Corporation.
Borgþór Jónsson > Guest
You are correct,except the US wars are not so secret.
They are there for everyone to see.Sinbad2 > Borgþór Jónsson
Americans don't see their wars. The US Government keeps the American people in a cocoon of
ignorance.
O_Pinion > Guest
Who needs secret wars when you can have secret bank accounts?
http://www.dailymail.co.uk/new...
O_Pinion > Sinbad2
So the US fracking oil boom never happened, iraq's oil output didn't increase to an all time
high, there are no macroeconomic forces cooling demand and the law of supply and demand is a fiction.
it is all simply a grand conspiracy cooked up by Saudi Arabia and the US.
Serge Krieger > Sinbad2
It is very complex topic. I think too many things came together to create this perfect
storm. Frankly, new oil reserves are not profitable at anything below $70.
I guess it was both market overproduction with Canadian sands and US fracking and Saudis and
possibly even Russian oil production that caused this. I do not think Saudis alone would be capable
of such fit.
Anthony Papagallo
,
7 days ago
Sensible analysis, its much more likely Russia is just preparing the way to make sure it doesn't
end up with an American boot stamping on its face forever.
International Thinker ->
Guest ,
7 days ago
Because of this Russia is in the cross hairs of the Anglo-Zionists who can only survive if they
tear apart Russia and take control of its vast resources.
bob bear ->
Guest ,
7 days ago
So?
China and the US who are the 2 biggest purchasers of energy in the world, have been doubling
their investments in renewable energy!
Castlerock58
The US,Turkey and Saudi Arabia are promoting the instability in the Middle East.
Bankotsu
"Moscow isn't sowing Middle East chaos...."
I think the writer confused Russia with U.S.
Pacemaker4
Russia oil and gas industry accounts for 15% of their GDP.... that fact is lost on the
author.
Kalinin Yuri > HotelQuebec
All the vessels in the ocean instead of Diesel should use some nuclear reactors, right? The
trucks that move all the goods - also batteries? Has anybody calculated emissions from power
stations in order to charge a car that runs 80 km? Also how much does it cost to recycle the
batteries?
Sinbad2 > Kalinin Yuri
The silicon used in solar panels, is one of the dirtiest refining processes on the planet.
Hippies are well meaning critters, but not very smart.
Gregory Anbreit
Oh wow, so it was Russia who started all the chaos in the Middle East? Is this a joke? Who
invaded Iraq in 2003? Who has destroyed Libya? Who was supporting "Arab springs"? Who sends
weapons to AQ and ISIS in Syria?
But yeah, blame Russia.....how typical.
deadman449
Russia exports two things. Oil and weapons. If you think about it, it makes sense to cause
mischief in other countries near oil production. Question is, then why is the oil price so
low?
Andre
If Russia really wanted to use conflict to raise oil prices and achieve irridentist
ambitions at the same time, it would launch a Crimean/Donbas-type dirty war in northern
Kazakhstan with a view to annexing the Russian-inhabited areas. Kazakhstan occupies a similar
position with respect to oil production as Libya did in 2011 and its cost of production is not
too much more than many Gulf Arab states. Kazakhstan is also non-aligned and quite frankly
indefensible. From a geopolitical standpoint I see this move as much more likely than some
dangerous play in the Baltics which would yield little in terms of added Russian citizens or
resources.
Andre
If Russia really wanted to use conflict to raise oil prices and achieve irridentist ambitions at
the same time, it would launch a Crimean/Donbas-type dirty war in northern Kazakhstan with a view
to annexing the Russian-inhabited areas. Kazakhstan occupies a similar position with respect to
oil production as Libya did in 2011 and its cost of production is not too much more than many
Gulf Arab states. Kazakhstan is also non-aligned and quite frankly indefensible. From a
geopolitical standpoint I see this move as much more likely than some dangerous play in the
Baltics which would yield little in terms of added Russian citizens or resources.
Roman Lvovskiy > Andre
you're like Tom Clancy reborn, honestly
Andre > Roman Lvovskiy
Tom Clancy was remarkably prescient among techno-thriller writers, although some works were much
better than others, particularly "The Hunt for Red October", "Red Storm Rising" and "SSN".
You may consider my opinions fanciful, but look at the academic debate: there is an assumption
that Russian military intervention in Georgia and Ukraine poses a threat to NATO, and that the
Syrian adventure merely compounds this.
In comparison, I maintain the view that while Putin can be reckless - a common human flaw - his
aggression has been highly targeted to interests that have been articulated for many years,
including prior to his presidency e.g. absorbing the ethnic Russian diaspora bordering the RF,
halting NATO expansion, regaining global prestige.
Both Georgia and Ukraine were non-aligned countries when he invaded, and there is every
indication that he is aware of the distinction between NATO and non-NATO members. Therefore, if
he is planning on intervening anywhere, I would expect that country to: (a) be a "core interest",
(b) be non-aligned and (c) feature developments that challenge Russian interests. Belarus and
Kazakhstan both meet all these criteria, as each is drifting away from Russia. In Kazakhstan's
case, the recent policies concerning the official use of Kazakh and Russian are increasingly
discriminatory toward Russian-speakers, more so than any policies even contemplated by the
post-Maidan Ukrainian government. Unlike Belarus, Kazakhstan features immense natural resources
and many more ethnic Russians...
Roman Lvovskiy > Andre
i suspect it, that 'Red Storm Rising' is your fave. i like it as well, despite the fact that it's
hardly accurate when it comes to wording out actual features possessed by the Soviet hardware of
that period, described thereby.one thing that eludes you always is that Putin can not afford to subjugate anyone. that would be
stretching beyond capacity, both financially and politically. also, there's hardly that much of
anyting that is in Kazakhstan's possession presently or in short-to-midterm perspective to make
Putin even think about considering the risks.
so i'm guessing it's just your wishful thinking. i'd also suggest reading something more
profound, like something by Vonnegut or Trumbo. there's more to American culture than your garden
variety of trash usually presented on TV, sadly - less and less with each passing year.
Andre > Roman Lvovskiy
You're correct that Putin can't afford a grinding counter-insurgency, and he seems to have taken
in the Soviet experience in occupying East-Central Europe, as well as the quagmires in
Afghanistan and Chechnya. Interestingly, as soon as it became apparent that support for union
with Russia was not as warm in Donbas as Crimea, the Novorossiya project was quietly buried.
But Putin certainly has his eye on Belarus and Kazakhstan, and Astana's been taking an
increasingly independent line. There is a demographic and economic case, as I've laid out in
prior comments. But this is not a "call", after all, Crimea was annexed 20 years after analysts
were worried about it.
I'll be honest with you - I've never read a Clancy book all the way through - I've read many
papers on military technology and strategy, but I still find Clancy too dry. There are more
contemporary American authors that are great, McCarthy being one.
dennis powell
There seems to be a lot of russian supporters , who are seeing the world thru rose colored
glasses , commenting here. Russia would love nothing more then to see oil higher. Inside their
own country the fall of the ruble isn't as much a big deal as it is when they try and conduct
business outside of russia.They are paying for their actions in the ukraine. The annexation of
crimea was a just move to take back what should have never been given away. Their mistake was in
how it was done. Their move into syria wasn't about right and wrong but about protecting their
military interests. Any one who says anything different is being foolish. Their subsequent
withdrawal is an indication that they have satisfied that end. It also , I suspect , is to
contain the costs of such an operation. Russia is a gas station parading as a country.
Their only
claim to significance is their nuclear arsenal. They have an overblown view of themselves which
masks their deep paranoia. Take away their nuclear arsenal and they wouldn't be anymore
significant then brazil.
Frank Blangeard > dennis powell • 6 days ago
The last three lines of your comment seem to apply more to the United States than to Russia.
Randal > dennis powell • 7 days ago
"They are paying for their actions in the ukraine."
How
have Russia's actions in the Ukraine caused the oil price to fall
dramatically? The US sphere sanctions are an irrelevant pinprick in
comparison.
"The annexation of crimea was a just move to take back what
should have never been given away. Their mistake was in how it was
done."
I'd love to hear how you think it could possibly have been done
any other way.
"Their move into syria wasn't about right and wrong but about
protecting their military interests. Any one who says anything
different is being foolish."
What military interests? Surely you aren't talking about the
Tartus base? Have you actually seen it? Apart from that they had
almost zero military interests in Syria before the commencement of
the regime change attempt there.
"Their subsequent withdrawal is an indication that they have
satisfied that end. It also , I suspect , is to contain the costs
of such an operation."
Given the trivial costs in Russian budgetary terms of their
relatively small operation in Syria, how do you justify claiming
that would be an overwhelming factor in their decision making?
"Russia is a gas station parading as a country."
That pretty much discredits you terminally as any kind of
objective observer on Russia, I think.
"Their only claim to significance is their nuclear arsenal.
They have an overblown view of themselves which masks their deep
paranoia. Take away their nuclear arsenal and they wouldn't be
anymore significant then brazil."
Oh, really? Do feel free to explain exactly how their nuclear
arsenal enabled them to intervene successfully in Syria, in stark
contrast to the US regime's repeated failures. And while you are
about it, feel free also to explain the utility of their nuclear
arsenal in recovering the Crimea, or any of Russia's other recent
activities.
Presumably you think Brazil could have done both, if it only had
a nuclear arsenal like Russia's.
Borgþór Jónsson > dennis powell
Of course Putin went to Syria to protect the bases,but there are also several other
reasons.
- Putin wanted to protect the sovereignty of Syria.
- He did not want a state similar to Libya so close to his boarders.
That is exactly what would have happened if he did not intervene.
It would have happened ,because that is what the US wanted. They wanted to grow a terrorist
state close to Russia borders.
Putin also went to Syria because he wanted to fight terrorism in area where they would be
easier to defeat than in Caucasus.
Imagine the trouble it had cost him if he had a terrorist state in Syria constantly supplying
terrorists and weapons to the Caucasus.
That was one of the aims of the US,that is the reason they fed the terrorists with weapons.
The final goal was that they would later use those weapons against Russian people.
Same goes for the Ukraine.
The final goal there is that the Ukrainian Nasis will finally attack Russia.That is the
reason for the Us cooperation with Ukrainian nationalists. Ukrainian nationalists are violent
idiots on par with ISIS as you know.
You are not the only person that are obsessed with that misunderstanding that Russia is a
gas station. This misunderstanding is the reason the US sanctioned Russia. But it does not
work,because after all, the oil is only 12% of the Russian GDP. It is uncomfortable because it
is so big part of the export, but Russia is in no way going to collapse because of it.
In fact the Russian economy is exceptionally strong,I believe that no other nation on
earth would have been able to withstand such hardship as the sharp fall of their export and at
the same time sanctions from the western powers.
Later this year or next year their economy will most likely start growing again. Well
done Russia.
Borgþór Jónsson > Borgþór Jónsson
I forgot to address another misunderstanding of yours. Russia has not left Syria.
In the beginning Russia used SU 24 and SU 25 plains for strategic bombing. What it means is
that they were used for taking out the oil business of the terrorists and also their weapons
depots,their control stations and training facilities. That is now over and those plains are
sent home.
Now they have the SU 34 And SU 35 that are more suitable for assisting the Syrian Army in
their offence. On top of that they have the MI 28 attack helicopters and of course the
the dreaded KA 52. All those plains and helicopters played a vital role in the liberation of
Palmyra.
The Russians are not home yet,they will stay in Syria and fight the terrorists till the end.
Valhalla rising
its not the jewish NeoCohens and liberal Hawks that destabilized the Middle East.Nope the
Russians are goyim -- The Russians are evil goyim -- Czar Putin shuts us down --
The Russians disposed Muhammad Gaddafi --
The Russians supported the Muslim Brotherhood in egypt --
The Russians supported the islamic onslaught against Assad --
... ... ...
http://www.dailystormer.com/gl...
The Russian energy ministry sees the very real possibility that Russian oil production enters
long-term decline, possibly even falling by half by 2035. Russia's major oil fields are decades
old, so it will be increasingly difficult to prevent output from falling. At the same time,
Russian oil companies are not discovering new sources of supply that could replace that lost
output. The Arctic offers one area where very large reserves could be exploited, but western
sanctions have blocked the participation of major international oil companies, which could help
Russian companies pull off the expensive and tricky Arctic drilling operations.
Meanwhile, Russia's natural resources minister said in late March – with an eye on the Doha
meeting – that Rosneft will likely lower its output this year. Rosneft actually did not comment
on his remarks, but the minister's comments were likely meant to demonstrate Russia's willingness
to cooperate with OPEC in Doha.
... ... ....
Russian output is expected to decline by 20,000 barrels per day on average this year,
according to OPEC's latest assessment.
likbez,
04/03/2016
at 4:35 pm
See an interesting interview (slightly edited Google translation). Looks like the new oil reserves
in Russia are very expensive, on par with the US shale and the old are mostly depleted.============================================
izvestia.ru
The President of the Union of oil and gas Industrialists of Russia Gennady Shmal told "Izvestia"
about what oil price is needed for Russia and when the industry will overcome dependence on imported
equipment
Q: OPEC believe that soon the price of oil should stabilize at a "normal", but not a too
high level. What do you think, what level of oil prices can be considered normal for Russia today?
A: If we are talking about a fair price of oil globally, I believe this is $80 per barrel.
Keep in mind that a significant part of oil – about a third – is produced offshore, where the
cost can be high. And there is a deep-water shelf, for example, in Brazil, where one of the first
well cost more than $300 million. Subsequent wells would of course cost less, around the half
the price, but still very expensive. Therefore, the capex of this oil extraction is high enough.
The breakeven price of our oil production without taxes is around $10 per barrel, nationally.
But when we include taxes, we get around $30 per barrel. But this cost is not no tragedy for us.
I remember a time when a barrel of oil was less than $10. Then we dreamed about the price rising
to $20.
When the three-year average cost of oil was above $100 per barrel, we got too used to
it. But the high price has one big drawback – it can negatively affect demand and stimulates production. And that's
what basically happened.
Therefore, now our oil companies might be now content with the price around $50-60
per barrel.
And I think in general, globally it would be OK price for both producers and consumers. Even
for the United States that would be an acceptable price. Canadians with their oil sands would
need a higher price – up to $80. But as the Canadian oil going to the United States, anyway,
losses can
be compensated with the domestic shale production and they would have to come to a common denominator.
Q: You're talking about this level of prices, without taking into account the Arctic shelf
projects?
A: Arctic shelf – it is quite another matter. My point of view on this issue is different from
the most popular view that exists today. I believe that we need to engage the shelf in terms of
prospecting, exploration. We generally do not even know that there, how much oil we have on the
shelf. We have so far only preliminary estimates of reserves – C2, C3 (preliminary estimated reserves,
potential reserves). And in order to have A, B, C1 (proven reserves), it is necessary to drill.
I am sure that we are not ready to work on the Arctic shelf both technically and technologically,
nor economically.
We do not have qualified people for that too. First of all, we need several platforms. One
platform for "Prirazlomnoe" that we now have been built for more than 15 years, and we sank into
it about $4 billion
And this one is not a new one, this is a second hand equipment. In order to seriously develop
the shelf, we need not one, but dozens of platforms, support vessels. Also offshore operations
must have the regulatory framework.
That means all the necessary technical regulations, standards. We have nothing. But the main
thing – the cost effectiveness of this oil: it is necessary to consider how profitable in today's
environment to produce Arctic oil. So, I think we now have enough things to do on land – in Eastern
Siberia, for example, before we need to jump with two legs into arctic oil extraction.
Q: How record oil production that Russian oil companies demonstrate in the past few years,
affects the structure of the Russian economy?
A: First of all, I believe that there are no records. Yes, we produced 534 million tons. But
in 1987 the Russian Federation has produced 572 million tons. Compared to the 1990s there is a
certain growth in recent years, but I would not talk about records. Second, the question about
optimal production volumes is a very complex one. The main question to which I have no answer
today: how much oil we need to extract?
Without answer on this question it is impossible to say whether we produced too little oil
or too much. If we consider that in 2015 we extracted more then 246 million tons, then, I would
say
we produced too much. This is not the way this business should be run. The fact is that Russia
can not influence the world oil price too much because we make only 19-20% of the market. But
we can and should make the country less dependent on raw oil price fluctuations. We could process
all extracted oil and export mainly gasoline and diesel fuel, as well as products with high added
value in the form of chemicals, petrochemicals, composite materials.
That means that we need to adopt a different approach to the structure of our industrial production.
For example, China in the last twenty years has built a series of petrochemical plants, and
today they have the chemical products sector with total value of production about $1.4 trillion,
or around 20% of China GDP. It should be noted that China's GDP is eight times more than ours.
Our chemical sector production is around $80 billion – 1.6% of Russia's GDP. In 2014 alone BASF
Chemicals (which is a single German company) produced 1.5 times more than all the chemical enterprises
of Russia. Petrochemicals may be the critical link, pulling which we could change the whole structure
of industrial production in Russia.
Q: If we talk about production prospects, what we levels of production we can expect in
the future, based on our today's oil reserves
structure?
A: Unfortunately, today we do not have a reliable statistics. According to some estimates,
of
those oil reserves that are under development, about 70% are so-called hard-to-extract oil. That
is, stocks, where oil production is complicated mining and geological, geographical conditions.
In these fields there might be tight reservoirs, reservoirs with low permeability, viscous
oil, etc. By the way, today we have no any clear definition of hard-to-extract inventory, although
this defines the benefits that can be granted to companies to work on the fields with such
reserves. Therefore we need serious work on the classification and definition of reserves that
will be put into the hard-to-extract category.
By the way, the current production mostly (about
70%) relies on the old fields, which now have a high water content, high percentage of
depletion of reserves. Of course, they will not last forever. Therefore, sooner or later, will
have to enter the development of the fields with hard to recover reserves.
Q: Extraction of hard inventory requires new technologies, which in Russia does not fully
have. What are the tools the government has to encourage their development?
A: The state has a lot of tools to stimulate those technological developments. Our tax
system can perform stimulating role along with fiscal and re-distributive functions. However,
our tax system currently performs mostly fiscal function and only slightly – re-distributive
function. Simulative
function is not yet here. As an illustration, take Texas, USA: if the well there gives 500 liters
of oil per day, it is considered a cost-effective – this way the tax system is built. For us a
well, which gives 4000 liters per day, is already viewed as unprofitable, and is moved into the
idle fund. Now, of course, some work is being done in respect of incentives for low producing
wells – MET rates introduced.
But I believe that the future of our oil industry is largely dependent on whether we are
able to create the technology of oil production from the Bazhenov Formation or not. Because the
geological reserves of the Bazhenov Formation in Western Siberia are more than 100 billion tons
of oil. Even at a conservative estimate, if it is possible to extract around 40-60 billion tones
of oil with the current technologies.
And please remember that all we have in Russia today, all C2 stocks, are just around 28
billion tons So if we find the necessary technology that can be applied to the
Bazhenov Formation,
the peak oil production issue for Russia can be resolved for a sufficiently long period of time.
And in respect of the help from the state it could be such measures such as tax holidays, tax
exemption, reduction in mineral extraction tax, etc.
But currently the Ministry of Finance is interested only in filling the budget. We need to
make sure that taxes are fair. For this, they must be applied to the end result of production.
In our country today we have taxes on earnings – up to 65-70% of the average withdrawal. Norway,
for example, has high taxes too, but they are levied on profits.
Taxes should be applied to profits, not revenue, the latter for us looks like the absolutely
wrong approach.
Q: According to various estimates, in the Russian oil and gas industry today up to 45-50%
of the equipment are imported. Will Russian oil companies to move away from this dependence
in view of sanctions. And what should be role of the state in achieving this results?
A: At the request of "Lukoil" we did last year such a study. We've got that on average
53% of drilling equipment in Russia is imported. Of course, we must bear in mind that, for
example, pipes, with rare exceptions, we can produce domestically. But today there are some
technological segments where there is a high dependence of Russian oil from foreign suppliers.
Those segments include: software control, automation and remote control.
Today, the Ministry of Energy to the Ministry of Industry set up working groups that
are engaged in import substitution. And we have already been there for some equipment that is
competitive with foreign models. So, one of the factories in Perm began to produce excellent pumps,
which match in quality the best foreign analogues. Some factories in Bashkortostan started the
production of valves, cut-offs switches and other fittings for any type of drilling. But it is
not necessary to replace all the foreign oil production equipment. And, of course, we can not
do this.
We make good tanks, but we do not produce luxury cars like Mercedes. We just don't produce
them. I believe that if we had a dependence on imports in the range of 20-25%, it would be acceptable
and probably close to optimal.
Today we can get rigs from China. Our experts say that they are of a sufficient level of quality.
We also have a factory, which in 1990 produced drilling rigs – "Uralmash". Then, the plant produced
365 sets of drilling equipment per year. In the past year – only 25.
Therefore we need to rely on the Chinese oil extracting equipment, as they have learned to
make a decent drilling equipment. And for the price, no one can match them. I believe that we
need to very clearly define few areas of oil extraction equipment, which are critical for us.
and then pay close attention and allocate resources to those areas. We do not need to cover everything.
And I am sure that before the end of 2020 Russia could reduce this dependence on foreign equipment
to 25-30%.
Notable quotes:
"... That honestly sounds like a difficult way to make a living, but I guess oil-industry networking is so lucrative that it drives people to crime. ..."
"... Right now there is an aura of fear among the general population and even the expats in Saudi. The police throw people in jail for the slightest provocation. No one dares to protest or even speak against the regime. They could be jailed or even publically whipped. But if things get really bad and enough people lose their fear of the police, then all hell could break loose. ..."
"... Then there are the mullahs. They have authority over the populace which the authorities allow in order to keep the peace, and to keep the people in their place. I have seen them hit people with a cane for window shopping during prayer time. All stores must close during prayer time. ..."
"... Saudi Arabia is basically a police state with the mullahs acting as if they are part of the police. But there is a deep resentment among the people with little money and no power. It is a powder keg that could blow if things get really bad. And when oil production starts to slide things could get bad very fast. ..."
aws. ,
04/01/2016 at 9:53 am
Oilpro
From BloombergView
Saudi Arabia may be preparing for a post-oil world now, but back in 2014 the oil industry
was so hot that the founder of an oil-industry networking site allegedly hacked into another
oil-industry networking site (that he had also founded!) to steal customer information, solicit
new customers, and ultimately sell his new company to his old company. That honestly sounds
like a difficult way to make a living, but I guess oil-industry networking is so lucrative
that it drives people to crime.
Alleged crime. Was so lucrative. Anyway here is the criminal
case against the founder, David Kent, who founded Rigzone in 2000, sold it to DHI Group in
2010 "for what ended up being about $51 million," founded Oilpro after his non-compete expired,
and allegedly hacked into Rigzone to get customers.
Outside of the oil industry - by which
I mean, "on Finance Twitter" - Oilpro is perhaps best known for its delightful Instagram account,
which I hope will be maintained regardless of the outcome of this case.
Ron Patterson ,
04/01/2016 at 12:41 pm
Thanks for the link AWS. I found the full story at:
Saudi Arabia Plans $2 Trillion Megafund for Post-Oil Era: Deputy Crown Prince
Saudi Arabia is getting ready for the twilight of the oil age by creating the world's
largest sovereign wealth fund for the kingdom's most prized assets.
Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision
for the Public Investment Fund, which will eventually control more than $2 trillion and help wean
the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco's
parent company and transform the oil giant into an industrial conglomerate. The initial public
offering could happen as soon as next year, with the country currently planning to sell less than
5 percent.
"IPOing Aramco and transferring its shares to PIF will technically make investments the source
of Saudi government revenue, not oil," the prince said in an interview at the royal compound in
Riyadh that ended at 4 a.m. on Thursday. "What is left now is to diversify investments. So within
20 years, we will be an economy or state that doesn't depend mainly on oil."
Almost eight decades since the first Saudi oil was discovered, King Salman's 30-year-old son is
aiming to transform the world's biggest crude exporter into an economy fit for the next era. As
his strategy takes shape, the speed of change may shock a conservative society accustomed to decades
of government handouts.
Buying Buffett and Gates
The sale of Aramco, or Saudi Arabian Oil Co., is planned for 2018 or even a year earlier,
according to the prince. The fund will then play a major role in the economy, investing at home
and abroad. It would be big enough to buy Apple Inc., Google parent Alphabet Inc., Microsoft Corp.
and Berkshire Hathaway Inc. - the world's four largest publicly traded companies.
I would bet that Deputy Crown Prince Mohammed bin Salman is a believer in peak oil.
Fernando Leanme
,
04/01/2016 at 1:20 pm
I bet they think the political risk of being invested in a nation loaded with would be terrorists
is too high. They plan to park a chunk of cash offshore and wait for the shoe to drop. I wouldn't
invest in Aramco given this reality.
aws. ,
04/01/2016 at 1:40 pm
I figured you'd already be all over the Saudi mega fund story!
It was the Oilpro story that I thought some here might find of interest.
aws. ,
04/01/2016 at 1:45 pm
Ron,
From your experience in Saudi Arabia wouldn't you say that the Saudi's have left it at a little
too late for transition?
Ron Patterson ,
04/01/2016 at 3:18 pm
There can never be a transition from oil in Saudi Arabia. When the oil starts to seriously decline
there will be turmoil in Saudi.
Right now there is an aura of fear among the general population and even the expats in Saudi.
The police throw people in jail for the slightest provocation. No one dares to protest or even
speak against the regime. They could be jailed or even publically whipped. But if things get really
bad and enough people lose their fear of the police, then all hell could break loose.
Then there are the mullahs. They have authority over the populace which the authorities allow
in order to keep the peace, and to keep the people in their place. I have seen them hit people
with a cane for window shopping during prayer time. All stores must close during prayer time.
Saudi Arabia is basically a police state with the mullahs acting as if they are part of the
police. But there is a deep resentment among the people with little money and no power. It is
a powder keg that could blow if things get really bad. And when oil production starts to slide
things could get bad very fast.
Notable quotes:
"... Maybe they know they're peaking and this is a big psy-op/economic warfare to confuse the competition, maybe it's a tumultuous power transition that lacks strategic continuity and the new king/clique is not a good strategist ..."
"... This hypothesis along with "hurt Russia" hypothesis (which simultaneously hurt their main regional rival Iran) are the most plausible IMHO. Please note that KSA is a vassal of the USA. So by extension it looks like "team Obama" is not a good strategist either. ..."
"... A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores. ..."
"... "Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes. ..."
"... To paraphrase the old song, oil makes the world go round… ..."
Survivalist ,
03/30/2016 at 11:18 am
Does anybody have any insight or interesting ideas on Saudi Arabia? I believe they are disingenuous
with their 'market share' explanation…. I'm just using made up numbers here but my point is that
they have sacrificed 90 billion in profit to get 30 billion in market share. Last time I checked
business was about profits not about market share. If the IMF report I saw is correct then SA
needs $106/barrel to balance the national budget (not sure how that works at $106/barrel when
their 2015 budget was $229 billion but expenditures in 2015 ended up being $260 billion
http://www.bloomberg.com/news/articles/2015-12-28/a-breakdown-of-the-2016-saudi-budget-and-its-implications
). For the sake of argument lets call their national budget 'corporate overhead'. I suspect
SA is at a crossroads of some kind. Drilling rigs are up quite a bit the last couple years but
production is up slightly/wobbly.
Maybe they know they're peaking and this is a big psy-op/economic warfare to confuse the
competition, maybe it's a tumultuous power transition that lacks strategic continuity and the
new king/clique is not a good strategist….. I could go on. The intrigue could be deep or
shallow. Anybody have a good theory or read on where SA is at and going to? My guess is 30 million
people soon to be on foot headed for Europe.
A couple things on my mind:
World C+C minus North America is Flat since 2005:
http://crudeoilpeak.info/world-outside-us-and-canada-doesnt-produce-more-crude-oil-than-in-2005
World conventional is flat since 2005:
http://euanmearns.com/a-new-peak-in-conventional-crude-oil-production/
Dennis Coyne
,
03/30/2016 at 11:38 am
Hi Survivalist,
The World C+C output has either peaked (in 2015) or will do so within 10 years, we will have
to wait 10 years to find out. Oil guys such as Fernando Leanme have claimed that a rise in oil
prices to $150/b (in 2015$) will make a lot more of existing oil resources profitable to produce,
whether this is enough to offset depletion is an open question as is the level of oil prices that
the World economy can afford.
On oil prices we can do the following back of napkin estimate. World real GDP at market exchange
rates about $80T 2015$ and assume 2% real GDP growth for the next 5 years which would bring us
to about $88T real GWP in 2015$ in 2020. Let's assume the world can only spend 4% of GWP on oil
without causing a recession and that C+C output remains at 80 Mb/d in 2020 (29 Gb/year).
The 4% of 88T is $3520B and we divide by 29B and get $121/b in 2020. An oil price of $150/b would
be close to 5% of GWP and would likely cause a recession.
I will let the oil guys comment on whether $120/b is enough to bring on adequate oil supply
to avoid a recession, a crisis will eventually occur as I expect that demand will eventually outrun
supply in the short term (next 10 years) and oil prices will spike above $150/b and lead to a
global recession. At that point the peak may finally be clear to all and a transition away from
oil will begin in earnest.
likbez ,
03/30/2016 at 5:29 pm
maybe it's a tumultuous power transition that lacks strategic continuity and the new king/clique
is not a good strategist
This hypothesis along with "hurt Russia" hypothesis (which simultaneously hurt their main
regional rival Iran) are the most plausible IMHO. Please note that KSA is a vassal of the USA.
So by extension it looks like "team Obama" is not a good strategist either.
sputniknews.com
A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive
telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn
barrels, or by nearly 40%!" the American political analyst underscores.
Butler refers to a phenomenon called "peak oil." According to M. King Hubbert's theory,
peak oil is the point in time when the maximum rate of extraction of petroleum is reached and
the crude capacity will only decline.
Whether one likes it or not, peak oil has been reached, the analyst underscores.
However, while the global oil reserves are decreasing steadily, Riyadh has been pumping
its crude faster than anyone.
And here is the root cause of Saudi Arabia's warmongering. To maintain its status quo, the
Saudi kingdom has established an alliance with
Turkey , planning to
seize Syria and Iraq's
oil fields.
Still, it's only half the story, since the global economy also remains petroleum-centered.
"Where Americans' interests are concerned, while President Obama has been parlaying
trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum
still powers 96% of all transportation in America," Butler emphasizes.
To paraphrase the old song, oil makes the world go round…
The question then arises, whether we are on the doorstep of new "energy wars."
George Kaplan ,
03/31/2016 at 2:08 pm
In terms of a C&C peak pushed out for 10 years my question would be "Where's the oil?" even at
$120 per barrel.
Apologies that the following is too long, with no charts for many (or any) to read all the
way but some parts may be of interest.
The last few years have shown declining oil discoveries since 2010. What has been found is
more often than not deep water and relatively small. Such fields generally have short plateaus
and steep decline rates (not much better of those seen in LTO for fields less than about 150 million
barrels). The larger basins found offshore have been in the 5 to 10 mmboe range rather than around
50 found in the earlier days.
I don't have access to IHS or Rystad databases but picking amongst recent press releases I'd
say 2013 was about eight billion, 2014 nine or so and 2015 four or five. This year maybe only
three discoveries with a significant amount of oil – Kuwait might be significant. More gas than
oil is being found
http://www.oilandgasinternational.com/directories/exploration_discoveries.aspx
There has been a noticeable reduction in development times for projects in GoM and North Sea
in recent years from around 7 years down to as low as 3. That to me indicates a dearth of good,
large projects to choose from.
Of some of the main producers:
Saudi; 50% increase in rig count since 2012 to keep production just about steady, announced
"the most fields discovered" in 2012 or 2013 but a combination of oil and gas and they didn't
give quantities, have spoken of developing tight gas and solar to allow increased oil exports.
Russia; some conflicting announcements but it looks like a decline next year, largest recent
find was by Repsol at about 240 mmboe. Sanctions have had an impact and may continue to do so,
especially offshore.
http://uk.reuters.com/article/uk-russia-oil-rosneft-idUKKCN0WV1I3
Canada; very little drilling activity, four fields coming on over the next 2 to 3 years will
add up to 400,000 bpd, but then nothing planned and at least 4 year lead times for tar sands projects.
Tar sands projects have long plateaus but it appears some of the earliest mining operations are
starting to see thinner seams so decline will become more evident.
Brazil; cut backs in developments and may start to decline next year, they have mostly deep
water production with high decline rates and rely on continuous stream of new projects to maintain
production – the oil price, 'carwash' scandal, debt/bankruptcy problems and (maybe) just running
out of suitable projects have stopped this, expect 6 to 10% decline through 2017.
http://oilprice.com/Energy/Crude-Oil/Future-Of-Brazils-Oil-Industry-In-Serious-Doubt.html
Mexico; EOR developments seem to have run out of steam and not much interest in their opening
up the industry to outsiders, expect at least 4% per year decline.
http://www.bloomberg.com/news/articles/2015-05-21/mexico-lowers-2015-growth-forecast-after-oil-production-decline
USA; discussed a lot here, some expansion in GoM through 2017, unknown response to LTO drillers
depending on price and credit availability, liquids from gas have been another significant and
rapid boost to production recently which EIA indicate are still rising (mostly for NGLs), but
surely must run out of steam sometime soon. Possibly some shut in stripper wells won't be worth
restarting.
http://www.theenergycollective.com/u-s-production-of-hydrocarbon-gas-liquids-expected-to-increase-through-2017/
China; reliant on EOR recently to maintain plateau (including a lot of steam flood from the
EIA report) but predicting 5% decline next year, no great success on offshore discoveries.
http://www.bloomberg.com/news/articles/2016-03-24/-no-hope-oil-fields-spur-1st-petrochina-output-cut-in-17-years
https://www.eia.gov/beta/international/analysis.cfm?iso=CHN
North Sea; saw a spate of projects recently, mostly heavy oil, with a few more to come over
the next two years and then Johan Sverdrup and Johan Castberg but these only delay decline for
2 or 3 years, recent discoveries especially in UK sector have been very poor.
http://fractionalflow.com/2016/03/29/norwegian-crude-oil-reserves-and-extraction-per-2015/
http://www.rystadenergy.com/AboutUs/NewsCenter/PressReleases/northsea-ep-decline-coming-to-an-end
http://www.OilVoice.com/n/United-Kingdom-increases-oil-production-in-2015-but-new-field-development-declines/39dbcb23d382.aspx
http://www.rystadenergy.com/AboutUs/NewsCenter/PressReleases/breakeven-ncs-new-fields
Offshore Africa; Nigeria and Angola have a number of projects this year and next ( a bit more
oil than gas), but after that I'm not clear, political unrest might be particularly important
here as well. That said recent exploration success has been relatively good in Africa overall
(e.g. Kenya, Ghana).
http://www.offshore-technology.com/projects/region/africa/
Venezuela; not sure if their numbers can be trusted but they seem to be in decline, I know
little of their particular technical issues but assume that in order to increase extra heavy oil
production they would need new upgraders and possibly a source of natural gas, like Canada, and
possibly dedicated refineries to handle the heavy metal content (and assuming they can find willing
creditors and EPC partners).
Iran and, possibly, Iraq and Kuwait look like the only likely areas that can show some increase,
but Iran is developing South Pars gas field more than oil and Iraq/Kurdistan might have run out
of impetus. Burgan field in Kuwait looks in better shape than other aging super giants and Kuwait
has an active exploration and development program. And of course maybe US LTO takes off again,
$80 appears a threshold but that is for WTI, ND oil has a $10 discount, the lighter LTO oil everywhere
may be lower still and overall away from the sweet spots above $100 might be nearer the mark.
The seven largest oil majors have shown declining reserves of 1 and then 2 billion barrel equivalent
over the last two years – this may be purely price related, but I'm not so sure especially with
BP, Shell and Chevron looking to sell assets, also I don't have the figures but I'd guess that
they have lost more in oil reserves as some of their big finds have been for gas.
http://www.forbes.com/sites/rrapier/2015/12/28/prepare-for-a-dramatic-decline-in-oil-reserves/#4e0ce4ed75cc
http://www.mrt.com/business/oil/top_stories/article_173026e6-743c-11e5-9883-bb5c1f414082.html
http://www.houstonchronicle.com/business/energy/article/Oil-companies-face-difficulties-replacing-reserves-6562231.php
To ramp up of production is going to be dependent on a work force which was aging and retiring
in 2014 and now has been decimated by layoffs and recruitment cut backs. Increasing prominence
of environmental issues may hinder both future recruitment efforts and the pace at which projects
can be developed. Significant new oil, including reserve growth, has to come from deep water –
those rigs are complicated and very expensive to run, a lot are currently being stacked.
Ramp up also needs the main stakeholders to regain their acceptance of financial risk, which
is currently as low as I can remember, and significantly higher sustained prices. The other side
to the equation for prices is demand. The world economy doesn't look great to me, we're due a
recession based on approximate 8 year cycles, TPTB have chucked everything but the kitchen sink
at it and industrial output is definitely in decline or growing only slowly (I don't know how
energy use is split for service versus manufacturing but I'd guess it's of smaller relative importance
in the service sector). A relatively small oil price increase might be enough to kick a recession
off properly.
Dennis Coyne
,
03/31/2016 at 7:07 pm
Hi George,
Hubbert Linearization of C+C less oil sands suggests about 2500 Gb for a URR, in the past this
method has tended to underestimate the URR, we have produced about half of this so far. There
is also about 600 Gb of URR in the oil sands of Canada and Venezuela. The USGS estimates TRR of
C+C less oil sands at about 3100 Gb, I use the average of the HL estimate and USGS estimate with
a URR of 2800 for C+C less oil sands and oil sands URR of 600 Gb. Total C+C URR is 3400 Gb in
my medium scenario. If extraction rates continue to grow at the rate of the past 6 years and then
level off we get the scenario below.
Model based on Webhubbletelescope's Oil Shock Model.
See
http://peakoilbarrel.com/oil-shock-models-with-different-ultimately-recoverable-resources-of-crude-plus-condensate-3100-gb-to-3700-gb/
Brian Rose ,
03/30/2016 at 10:18 pm
I personally believe Saudi Arabia's oil production strategy since 2014 has 3 pillars:
1. Maintaining market share: This is Saudi Arabia's primary asset – the ability to exert power
over other countries via its oil supply. Saudi Arabia has the power to cripple rivals by flooding
the market, and can also cripple OECD countries by limiting supply. Without the PERCEPTION that
this is true Saudi Arabia's only genuine political leverage evaporates.
2. Group Think: The behavior of the new Saudi King Salman, the revolt within the Royal Family
as a result of his policies, and the breaking of tradition to name his "ambitious" 31 year old
son as the heir apparent all suggest a breakdown of technocratic, informed policy. Say what you
will about Saudi Arabia, but its political structure was technocratic until January 2015. Since
then I believe there is a significant influence of Group Think, and there's consensus that the
young son if currently deciding policy, and often chooses against the advice of experienced council.
This 31 year old who doesn't listen to expert advice, who has caused a revolt within the House
of Saud, may very well believe that Saudi oil fields can produce any quantity of oil, for however
long he demands without consequence or depletion issues. It's important to note that the previous
King and Council decided on the current "market share" strategy, and deep animosity toward Iran
as it re-enters the market may influence SA's strategy to their own detriment.
3. There were several long-term projects such as Manifa and Khurais that were coming online
regardless of a glut. These mega-projects were guaranteed to put a floor under production numbers.
In concert with the sustained high rig counts to win the "maintain market share" strategy SA's
production reached record levels.
It is important to note that it took a truly herculean effort, record rig counts, and re-developing
several mathbolled fields to raise production from 9.5 mbpd in 2008 to 10.25 mbpd in 2015. They
threw in the kitchen sink and got 750,000 bpd of extra production.
That is telling in and of itself.
SA has followed an explicit strategy of maintaining market share i.e. producing every barrel
they possibly can. SA took on a multi-year effort to push their production as high as possible.
We now know SA's maximum possible production, and the incredible effort required to maintain it.
I personally do not believe SA will ever be capable of producing 11 mbpd.
Oldfarmermac ,
03/31/2016 at 10:20 am
It is not at all unknown for an aggressive minded political leader to bite off more than he can
chew, and choke on it, due to being unwilling to listen to expert advice.
Hitler almost for sure could have won a substantial empire and Germany could probably have
kept control of it for a quite a long time, if he had been ten percent as talented in military
terms as he was in political terms ( not to mention being a world class evil character of course)
IF he had LISTENED to his very capable senior military guys.
Brian is probably right. This young SA guy, King Salman , may be in the process of making the
same mistake, namely failing to listen to his technical guys.
Even if Salman realizes he is not going to be able to increase production much if any, or even
maintain it at current levels mid to long term, he may still be full of testosterone, and willing
to bet his kingship, and potentially his entire country, on his current policies.
It is well known, a trusim or cliche, that one of the best ways a leader in trouble can maintain
and consolidate his power is to go to war, and SA is (obviously in the opinion of many observers
) fighting an economic war with rival oil producing countries.
I have long believed that SA is a powder keg awaiting a spark. One serious mistake on the part
of the leadership could set it off. One random event could set it off. The House of Saud has made
many a bargain with the devil in the guise of the super conservative priesthood which enables
it ( SO FAR! ) to maintain control of the country without resorting to the business end of rifles.
Radical change is coming to SA, because it information moves too freely in the modern world
to keep the people in the dark much longer. Too many privileged young folks are traveling, and
doing to suit themselves, and too many poor people are growing more radical by the day. Too many
outsiders are working in the country.
If it weren't for oil, and to a much lesser extent, some other mineral wealth, the rest of
the world would barely notice even the existence of that mostly desolate patch of sand.
TonyPDX ,
03/31/2016 at 11:25 am
This is purely anecdotal. For the past three years, we have rented our unused bedrooms to several
Saudi students, here to study in the US. They first go to a language school, and then on to a
university. In just this brief time, they speak of the Saudi government no longer footing the
bill for this. This means that the student's families must send money. For some, this is clearly
not a problem, but for many it is.
Synapsid ,
03/31/2016 at 6:25 pm
OFM,
The young guy is Mohammed bin Salman, second in line to the throne last I looked, Defense Minister,
in charge of an overlook body for Saudi Aramco, and other things. He may, as you say, not be listening
to his technical advisors–may in fact be a loose cannon–and he is widely considered to be the
power behind the throne.
He isn't the king, though. That's Salman himself, and he is often said not always to know where
he is or what he has just said. Scary situation there, you bet.
Techsan ,
03/30/2016 at 11:17 pm
There was an interesting documentary on Saudi Arabia last night on Frontline.
Lots of Saudis living in poverty, women begging in the street to feed their families, while
very nice cars drive by. Shiite minorities in the eastern (oil-producing) region protesting and
being repressed by the government.
There was hidden-camera footage inside a shopping mall - much like a mall in the US, with a
Cinnabon, Victoria's Secret, high-end makeup counter, etc, but very few people. But what the mall
also had was religious police beating people who buy the stuff, and it showed them beating what
appeared to be a plump middle-aged housewife, covered head-to-toe in a black burqa, who was buying
makeup. So the government is simultaneously allowing the mall to sell this stuff and paying religious
police to beat those who buy it.
It very much looked like a powder keg that could blow at any time.
Brian Rose ,
03/31/2016 at 11:27 am
Techsan,
Frontline documentaries are a personal favorite of mine. Always stellar, genuine investigative
news journalism. Even on subjects I think I am fairly knowledgeable about I always come away having
learned a lot.
It is 2nd only to Ken Burns' documentaries, but it's hard to compare since his documentaries
are history documentaries and Frontline is investigative news.
For anyone looking for a link:
http://www.pbs.org/wgbh/frontline/film/saudi-arabia-uncovered/
Submitted by
Tyler Durden
on 03/31/2016 - 19:00
For just and obvious reasons, it's illegal under U.S. law for
foreign governments to finance individual candidates or political
parties.
Unfortunately, this doesn't stop them from
bribing politicians and bureaucrats using other opaque channels.
Those confirmed so far are Saudi Arabia, Russia, Kuwait, the United Arab Emirates, Venezuela,
Nigeria, Algeria, Indonesia, Ecuador, Bahrain, Oman and Qatar.
Notable quotes:
"... The problem for the international community is while destroying ISIS is their stated priority, both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp believes it is an existential threat, so the priority for both camps is fighting each other. ..."
likbez,
03/29/2016 at 10:51 pm
Looks like Libya' civil war is far from over. From Richard Galustian (
https://twitter.com/bd_richard )
The problem for the international community is while destroying ISIS is their stated priority,
both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp
believes it is an existential threat, so the priority for both camps is fighting each other.
Russia's oil output hit a post-Soviet record of 10.9 mb/d in January 2016, but that could be a
ceiling as the country's massive oil fields face decline. The bulk of Russia's oil output
comes from its aging West Siberian fields, which require ever more investment just to keep output
stable. The depreciation of the ruble has helped a bit, lowering the real cost of spending on
production and allowing Russian companies to increase investment by one-third this year. However,
some long-term projects are being pushed off due to the financial squeeze from western sanctions
and low oil prices. An estimated 29 projects, amounting to 500,000 barrels per day in new
production, have been delayed. With most of Russia's large oil fields having been under
production since the Soviet era, and with precious few new sources of supply, Russia is facing
long-term decline.
Notable quotes:
"... But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share in some places, it is also taking stakes in large refineries around the world, helping it to lock in customers for its crude. ..."
OilPrice.com
Over the past three years, Saudi Arabia has lost market share in nine out of the top 15 countries
to which it exports oil, according to the
FT. That comes despite a ramp up in production since November 2014. For example, Saudi Arabia's
share of China's oil imports declined from 19 percent in 2013 to near 15 percent in 2015. Likewise,
Saudi Arabia saw its market share in the U.S. drop from 17 to 14 percent over the same timeframe.
But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes
to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share
in some places, it is also taking stakes in large refineries around the world, helping it to lock
in customers for its crude.
Meanwhile, according to the latest data, Saudi Arabia's cash reserves
dwindled to $584 billion as of February as the oil kingdom tries to keep its economy afloat and
preserve its currency. That is down from a peak of $737 billion in August 2014.
Notable quotes:
"... Iraq war and its aftermath failed to stop the beginning of peak oil in 2005 ..."
"... I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company and weapons complex interests. But the overriding interest seems to have been the neocon strategy to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli puppet the conflict will intensify. ..."
"... What I outlined above is a distilled version of writings/books by former CIA analyst Michael Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated recent material written about ISIS and its birthing at the US Army's Camp Bucca. ..."
Matt Mushalik,
03/24/2016 at 3:37 pm
Tony Blair is right: without the Iraq war there would be no Islamic State
http://www.theguardian.com/world/2015/oct/25/tony-blair-is-right-without-the-iraq-war-there-would-be-no-isis
16/3/2013
Iraq war and its aftermath failed to stop the beginning of peak oil in 2005
http://crudeoilpeak.info/iraq-war-and-its-aftermath-failed-to-stop-the-beginning-of-peak-oil-in-2005
Uploaded 5/7/2007
Government admits oil is the reason for war in Iraq
https://www.youtube.com/watch?v=j7t_u641NyM
Reply
Fernando Leanme
,
03/25/2016 at 4:58 am
I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company
and weapons complex interests. But the overriding interest seems to have been the neocon strategy
to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase
animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads
to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli
puppet the conflict will intensify.
What I outlined above is a distilled version of writings/books by former CIA analyst Michael
Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated
recent material written about ISIS and its birthing at the US Army's Camp Bucca.
Notable quotes:
"... I have grave reservations about the alleged spare capacity of Iran. The assumption is that the big, bad sanctions resulted in a huge drop in Iran's oil production. I am not buying it. I think the sanctions were a joke. For starters many nations refused to take part in the sanctions. Nations like India, china, japan and South Korea for starters. It would not be difficult to then reexport this oil to the rest of the world on the sly. Would you please comment on this important matter. Does anyone have any inside information about this? nuassembly 20 Mar 2016, 11:25 AM Comments (13) | + Follow | Send Message Agree, most of us follow news as herd effect, but devil is in the detail. Before the sanction, Iran was export 2.5 million barrels of oil per day but had to import almost 0.5million barrels of processed fuel, gasoline and diesel. ..."
"... Now, 4 years after the sanction starts, Iran already built up the refinery capacity, so it will no longer need import of refined fuels; instead it will be exporting, how much is yet to be decided. So, right there, we will see over 0.5 million barrels of reduction in the oil to be exported from Iran. Yes, the sanction reduced the Iranian oil export from 2.5million to 1.5million per day, but the net effect after sanction now will be less than 0.5 million per day to the world market. ..."
Forty Years
a Speculator 21 Mar 2016, 07:06 PM
Comments
(50) |+
Follow |Send
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I have grave reservations about the alleged spare capacity of Iran.
The assumption is that the big, bad sanctions resulted in a huge drop in
Iran's oil production. I am not buying it. I think the sanctions were a
joke. For starters many nations refused to take part in the sanctions. Nations
like India, china, japan and South Korea for starters. It would not be difficult
to then reexport this oil to the rest of the world on the sly.
Would you please comment on this important matter. Does anyone have
any inside information about this?
nuassembly
20 Mar 2016, 11:25 AM
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Agree, most of us follow news as herd effect, but devil is in the detail.
Before the sanction, Iran was export 2.5 million barrels of oil per
day but had to import almost 0.5million barrels of processed fuel, gasoline
and diesel.
Now, 4 years after the sanction starts, Iran already built up the refinery
capacity, so it will no longer need import of refined fuels; instead it
will be exporting, how much is yet to be decided. So, right there, we will
see over 0.5 million barrels of reduction in the oil to be exported from
Iran. Yes, the sanction reduced the Iranian oil export from 2.5million to
1.5million per day, but the net effect after sanction now will be less than
0.5 million per day to the world market.
Michael Filloon, 20 Mar 2016, 01:47 PM
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40 years, I would be surprised if you didn't have reservations. You aren't
the only one. Iran's infrastructure wasn't that great before the sanctions
so I would guess they are abysmal now.
I don't think they can get to 4 million this year, but the problem with
that is I am speculating so we will just have to track its exports and see
what happens. Right now, I think it would be ok to reduce that number by
400K BO/d.
I think the biggest issue is Iran thinks its possible, so maybe there
is something going on we haven't thought about. Probably not, but it is
still something to consider. I wasn't a big fan of the sanctions either,
but some politicians would say they worked. I think it is very possible
to re-export the oil the only problem is the very large volumes Iran can
produce. If this was a small producer it is probably easy if you sell it
cheap enough (like ISIS does).
<
A typical disinformation bunged with the obvious attempt to amplify differences
within the OPEC. In spite of all this noise about oversupply i t will be difficult
to return to the lows of the year. Oil prices have surged more than 50 percent from
12-year lows since the OPEC floated the idea of a production freeze, boosting Brent
up from around $27 a barrel and U.S. crude from around $26. 15 oil-producing nations
representing about 73% of oil production have agreed to take part.
Notable quotes:
"... Qatar, which has been organizing the meeting, has invited all 13 OPEC members and major outside producers. The talks are expected to widen February's initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC Russia. ..."
"... Iran produced about 2.9 million bpd in January and officials are talking about adding a further 500,000 bpd to exports. So far though, Iran has sold only modest volumes to Europe after sanctions were removed. ..."
finance.yahoo.com (Reuters)
...Libya has made its wish to return to pre-conflict oil production rates
clear since four countries reached a preliminary deal on freezing output in
February. Other producers understand this, the delegate said. "They appreciate
the situation we are in."
Qatar, which has been organizing the meeting, has invited all 13 OPEC
members and major outside producers. The talks are expected to widen February's
initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC
Russia.
The initiative has supported a rally in oil prices, which were about $41
a barrel on Tuesday, up from a 12-year low near $27 in January, despite doubts
over whether the deal is enough to tackle excess supply in the market.
Iran has yet to say whether it will attend the meeting. But Iranian officials
have made clear Tehran will not freeze output as it wants to raise exports following
the lifting of Western sanctions in January.
The potential volume Libya and Iran could add to the market is significant.
But conflict in Libya has slowed output to around 400,000 barrels per day since
2014, a fraction of the 1.6 million bpd it pumped before the 2011 civil war.
Iran produced about 2.9 million bpd in January and officials are talking
about adding a further 500,000 bpd to exports. So far though, Iran has sold
only modest volumes to Europe after sanctions were removed.
Notable quotes:
"... Crude Mystery: Where Did 800,000 Barrels of Oil Go? Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. ..."
"... "The most likely explanation for the majority of the missing barrels is simply that they do not exist," said Paul Horsnell, an oil analyst at Standard Chartered. ..."
Sarko ,
03/19/2016 at 3:13 pm
Nobody talk about this?
Crude Mystery: Where Did 800,000 Barrels of Oil Go?
Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy
Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels
ended up, or if they even existed, is key to an oil market that remains under pressure from the
glut in crude.
Some analysts say the barrels may be in China. Others believe the barrels were created by flawed
accounting and they don't actually exist. If they don't exist, then the oversupply that has driven
crude prices to decade lows could be much smaller than estimated and prices could rebound faster.
Whatever the answer, the discrepancy underscores how oil prices flip around based on data that
investors are often unsure of.
…
"The most likely explanation for the majority of the missing barrels is simply that they do not
exist," said Paul Horsnell, an oil analyst at Standard Chartered.
http://www.wsj.com/articles/crude-mystery-where-did-800-000-barrels-of-oil-go-1458207004
Notable quotes:
"... It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian government. The implication of this difference is that a return of Libyan oil production to prior levels is highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my breathe for that. ..."
"... The people are hungry and without hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse. ..."
"... Arab spring is a variant of a "color revolution". From Google search of the term: ..."
Hickory,
03/15/2016 at 11:13 am
Minor quibble Dennis.
You commented- "Libya is struggling with their own Arab Spring"
I think that characterization of what is going there on is off base.
It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian
government.
The implication of this difference is that a return of Libyan oil production to prior levels is
highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my
breathe for that.
Ron Patterson
,
03/15/2016 at 11:49 am
It's Ron, not Dennis. It all depends on your definition of "Arab Spring" And I see you have provided
your own definition, "a popular uprising to remove an authoritarian government."
Definition of the Arab Spring
Bold mine.
The Arab Spring was a series of anti-government protests, uprisings and armed rebellions
that spread across the Middle East in early 2011. But their purpose, relative success and outcome
remain hotly disputed in Arab countries, among foreign observers, and between world powers looking
to cash in on the changing map of the Middle East….
But the events in the Middle East went in a less straightforward direction.
Egypt, Tunisia and Yemen entered an uncertain transition period, Syria and Libya were
drawn into a civil conflict, while the wealthy monarchies in the Persian Gulf remained largely
unshaken by the events. The use of the term the "Arab Spring" has since been criticized for
being inaccurate and simplistic.
The Arabs themselves cannot agree on the definition of "Arab Spring". It is basically just
an uprising of the general population protesting the hardships of their lives. I would say that
the Arab Spring, in any country, is just the first stages of a failed state. I think there is no doubt that what is happening in Libya was caused by the same conditions
that has caused similar uprisings throughout the Arab world. The people are hungry and without
hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse.
Hickory ,
03/15/2016 at 12:34 pm
Hi Ron. Good points made. Agreed.
likbez ,
03/15/2016 at 5:33 pm
Ron,
Arab spring is a variant of a "color revolution". From Google search of the term:
Submitted by
Tyler Durden
on 03/20/2016 - 21:15
The dream of transition to a 'consuming' economy just crashed into
the wall of excess debt and leverage. 2016 has started with a
44% collapse in China passenger car sales
. This is
the
biggest sequential crash and is 50% larger than any
other plunge in history.
Coming at a time when vehicle
inventories are near record highs relative to sales, the world's
automakers - all toeing the narrative line that growth will be from
China - now face a harsh reality of massie mal-investment deja vu.
Notable quotes:
"... Iran's condensate production is increasing along with production of natural gas. Gains followed completion a few months ago of several development phases at giant offshore South Pars field, including phases 12, 15-16, and 17-18, which added 120,000 b/d of condensate ready for export. Most of the condensate is being stored at sea, occupying two thirds of Iran's current floating capacity and awaiting a buyer. Iran's condensate production is expected rise even further in 2016. ..."
"... It is thus conceivable that Iran can raise its crude oil production about 500,000-700,000 b/d within 3 months, and up to 800,000 b/d within 6 months. ..."
"... Most of Iran's competitors supplying similar crude oil to the same markets, mainly Saudi Arabia and Kuwait, have secured their sales by signing term agreement with customers. These commitments are usually for at least 1 year. ..."
"... Since Iran lacks a huge capacity to store unsold oil, it could increase crude oil production only slowly and cautiously. ..."
"... The outlook for Iranian condensate is different. High in sulfur, Iran's condensate is considered a light crude and is traded at prices higher than those of its heavy oil. Iran has fewer competitors for condensate-for which demand, particularly in Asia, is high-than for oil. ..."
"... Condensate flow will increase with gas production, particularly from South Pars field, an extension of Qatar's supergiant North field. The field has been Zangeneh's highest priority for development. ..."
Oil & Gas Journal
Iran's mature oil fields are in advanced stages of decline. The US Energy
Information Administration estimates that Iranian oil fields have natural
decline rates of 8-11% and recovery rates of 20-25%.
Iran had planned to employ water and gas injection for enhanced oil recovery.
Gas injection in mature field was to have reached 330 million cu m/day by
the end of 2016. Since 2011, however, Iran hasn't been able to reach more
than 60% of its gas-injection goals. The average of actual gas injected
between March 2006 and March 2011 never increased more than 75% of what
was originally planned.
... ... ...
After the European Union-imposed embargos on exports and shipping insurance
in 2012, Iranian oil exports fell to almost half their level of a year earlier,
forcing National Iranian Oil Co. (NIOC) to cut production and shut down
some of its fields. The cuts of course focused on very mature, inefficient
fields and wells, especially those producing heavy and extra-heavy crude
oil.
In all, Iran's production and production capacity have been hammered.
Since Iran cannot produce crude oil at maximum potential rates, and because
it has had to halt production from some of its older fields, analysts cannot
precisely estimate Iran's production capacity. Estimating potential recovery
from idle fields would be guesswork.
The Iranian oil ministry estimates the country's crude oil production
capacity at 3.5-3.7 million b/d. With condensate considered to be light
crude oil, production capacity rises to perhaps 4 million b/d.
Production rebound
Aside from real uncertainties about oil production capacity, Iran's ability
to increase production in case of sanctions relief is another major question.
If sanctions are lifted, how much and for how long will it take Iran to
increase its production?
Oil Minister Bijan Zangeneh announced that Iran's production could increase
by up to 1 million b/d quickly. The International Energy Agency estimates
that Iran's production capacity is 3.6 million b/d and that the country
can increase output by 600,000-800,000 b/d within 3 months. In May, the
IEA reported Iranian production in April of 2.88 million b/d, up 90,000
b/d from March.
Two main uncertainties hamper predictions about Iran's oil production
rebound. The first is Iran's technical ability to raise output. The second
is the country's ability to export oil.
Some observers argue that production cuts in old fields have enabled
reservoir pressures to increase and might allow production to resume at
high rates. Gas injection also might boost output in mature fields within
3-6 months.
Iran's condensate production is increasing along with production
of natural gas. Gains followed completion a few months ago of several development
phases at giant offshore South Pars field, including phases 12, 15-16, and
17-18, which added 120,000 b/d of condensate ready for export. Most of the
condensate is being stored at sea, occupying two thirds of Iran's current
floating capacity and awaiting a buyer. Iran's condensate production is
expected rise even further in 2016.
It is thus conceivable that Iran can raise its crude oil production
about 500,000-700,000 b/d within 3 months, and up to 800,000 b/d within
6 months.
But the other question, access to the market, remains unanswered. The
sanctions target Iranian exports. It might take at least 3-6 months from
the time of a nuclear agreement for sanctions to be lifted significantly.
And removal of the ban on imports of Iranian oil in Europe requires a consensus
of EU members. This might be hard to achieve quickly.
There is no doubt that any nuclear deal will have an immediate psychological
effect on the market. Sales negotiations will start, and Iran at least could
slightly increase its crude oil and condensate exports, particularly by
the last quarter of this year when a seasonal demand increase in Iran would
absorb some of the incremental production.
Regaining market share
Beyond sanctions, Iran's other challenge for raising its oil exports
is regaining lost market share. This problem is particularly acute at a
time of oversupply and low oil prices.
Most of Iran's competitors supplying similar crude oil to the same
markets, mainly Saudi Arabia and Kuwait, have secured their sales by signing
term agreement with customers. These commitments are usually for at least
1 year.
So Tehran has no choice other than to sell most of its oil in the spot
market for the next year. It will have to create incentives for signing
term contracts to regain long-term market share. Since Iran lacks a
huge capacity to store unsold oil, it could increase crude oil production
only slowly and cautiously. With prices low, it doesn't make sense
for Iran to rent tankers as floating storage and sell oil at further discounts.
Oil stored at sea will encourage Iran's customers to push for further discounts.
The outlook for Iranian condensate is different. High in sulfur,
Iran's condensate is considered a light crude and is traded at prices higher
than those of its heavy oil. Iran has fewer competitors for condensate-for
which demand, particularly in Asia, is high-than for oil.
Condensate flow will increase with gas production, particularly from
South Pars field, an extension of Qatar's supergiant North field. The field
has been Zangeneh's highest priority for development.
Condensate makes up much of the 30 million bbl of oil Iran currently
holds in floating storage, which will provide the first cargos ready for
immediate export when sanctions are lifted. This offloading would reduce
rental costs while Iran prepared to boost production. Therefore, we can
expect an immediate release of oil from floating storage upon any possible
deal at the end of June or in early July.
If negotiations lead to a comprehensive deal on Iran's nuclear program
by the end of June or early July, Iranian production and exports will rise
about 200,000 b/d by the end of 2015 because at least some of the sanctions
might then have been eased and because global demand will be seasonally
high. The rest of the country's production and export increase would enter
the market gradually through mid-2016.
An open question is how extra Iranian supply would affect the global
oil market. While predictions vary for production from shales and other
low-permeability formations in 2016, most analysts expect low oil prices
at least to suppress growth rates from these sources if not to cause declines
in the next year or two. Decline forecasts have been as high as 1 million
b/d of so-called tight oil.
A gradual rise of crude and condensate from Iran thus might be offset
by a decline from shale next year and have a modest impact on the price
of oil. That balance, of course, has a broader geopolitical context as crises
in Yemen and Iraq keep upward pressure on the crude price.
The author
Sara
Vakhshouri is founder and president of SVB Energy International, a strategic
energy consulting firm based in Washington, DC. She advises international
corporations, think tanks, investment banks, and law firms on global energy
markets, geopolitics of energy, and investment patterns. During 2000-08,
she worked in the public and private sectors of the Iranian energy industry.
From 2004 to 2005, she worked as an advisor to National Iranian Oil Co.
International, a division responsible for marketing and sale of Iranian
crude oil and products. Vakhshouri holds a PhD in energy security and Middle
Eastern studies and was a visiting fellow at Oxford Institute for Energy
Studies. She has MA degrees in business management (international marketing)
and international relations.
For last month, OPEC's crude oil production dropped 90,000 barrels per day, on some small losses
in Iraq, Nigeria and the United Arab Emirates, but new production from Iran and the maintenance of
the production status quo in Saudi Arabia has kept losses to an overall minimum. Production from
Iraqi, Nigeria and UAE combined fell by 350,000 barrels per day in February.
We could also expect continued declines of exports coming from Iraq in March
Notable quotes:
"... "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." ..."
"... Phil Butler, is a policy investigator and analyst, a political scientist and expert on Eastern Europe, exclusively for the online magazine "New Eastern Outlook" . http://journal-neo.org/2016/03/10/key-crisis-point-is-saudi-arabia-running-out-of-gas/ ..."
Saudi Arabia's ever increasingly hostile stance toward neighbors may not be as secular as some have
suggested. Given the nature of the country's oil reserves, and almost unlimited production for decades,
it's possible the Saudis could simply be running out of gas. Here's a candid look at the Saudi situation,
one which should be thought provoking. If the world has really reached the "peak oil" threshold,
a Middle East war may be inevitable.Saudi Arabia has been a sort of model country for much internal
progress since the oil embargo of 1973 catapulted the members of the organization of petroleum exporting
countries (OPEC) into immeasurable profitability. Not the least of "progress" aspects derived from
oil money has been the elevated living standard of the nation's people. For a bit of a history lesson
on this, I revert to the bid by OPEC in the mid 70's.
The 1970's Happened
Be the end of the oil embargo imposed by OPEC, the price of oil had risen from $3 per
barrel to nearly $12 globally. In the US we felt the sting even more significantly as I recall.
The crisis literally shocked America, and later the 1979 "second oil shock" was to do even more catastrophic
damage. This was in the aftermath of several key events, but the Nixon administration's discovery
America could no longer keep up production of oil was the most significant. The story is a deep one,
but Saudi Arabia coming out on top as a world energy power was the end result. It was at about this
time Saudi production went into overdrive, and Saudi leaders soon became billionaires. Here's where
my story gets interesting.
Americans will remember an economic theory of the US President Ronald Reagan at about this time.
The so-called "Trickle Down Theory" was the catch phrase that captivated the masses then. Part joke,
part real economics, the idea of the fabulously wealthy getting richer, and their win filtering down
to poor people – well, it caught on big time. Reagan was one of the most popular presidents ever,
and for a time his economics worked. Trickle Down worked in Saudi Arabia too, in fact all the oil-exporting
nations accumulated vast wealth. That is until the bubble busted recently. I'll address the Saudi
social empowerment in a moment, but the effects of OPEC on the Cold War bear scrutiny here as well.
The United States' hegemony prior to the oil crisis was solely focused on the Soviet Union and China,
but with OPEC's bid at emergence, Washington faced a new "third world" threat. Drastic measures were
undertaken as a result, measures we see the effects of now in Syria, Ukraine, with regard to Russia
and Iran, and worldwide. For one thing, NATO and the rest of the leagues of nations were forced to
be far more "pro-Arab" than ever before. While this was a very good thing in many respects, nations
of these coalitions refocused strategies accordingly. The Saudis and others became increasingly dependent
on defense by the United States, which in turn led us to the veritable vassal state situation in
Europe.
Sputtering Oil Fields
Returning to my original argument, Saudi Arabia is now going broke via an American bid to reshuffle
the economic and policy deck. America's last shale reserves are being pumped dry in an effort to
break Russia and other nations dependent on exporting energy resources for their economies. And while
Russia could probably overcome any hardship out of sheer necessity, Saudi Arabia has nothing but
oil to rely on. Saudi royalty has for decades built a civil system relying on lavish schemes and
placating the masses, paid for by an unsustainable commodity. While the western press touts Wahhabi
desires to eliminate vestiges of Shia religiosity within Saudi's sphere of influence as a causal
point in Saudi aggressiveness of late, going broke would seem the greater fear to me. Assuming my
theory has merit, let's turn to Saudi oil reserves, and to recent austerity moves by the leadership.
New VAT and other taxes are in the wind, funding for external projects has slumped, and business
in Riyadh has screeched to a halt in some sectors. New projects like the lavish architectural creations
looming in the deserts have halted, the Saudis are not happy people like they were. Even the filthy
rich there have their own forms of austerity, which involve emptying their swimming pools, swapping
gas-guzzling SUVs for more economical transport, and even turning off the AC. Last month the Wall
Street Journal reported that dashed oil prices have already wiped out the Saudi budgetary plan.
RT reports
of debt defaults already looming large, so one can only imagine what will happen if the oil truly
runs out. By way of an illustration the Ghawar Field, largest in the world, is running out after
about 65 years of continuous production. Reports the Saudi Aramco will be starting the CO2-EOR process
to extract the last of the field's oil, they tell us this field will be depleted totally soon. Once
this happens, Saudi Arabia will return to an almost medieval third world status. Either this or those
billions horded by Saudi princes will have to be used to placate or to subdue the people.
Click on the picture to enlarge
This August, 2015 The Telegraph piece by author
Ambrose Evans-Pritchard notwithstanding, Saudi Arabia going broke due to low oil prices may not
be the issue really. To the point, a recent Citigroup study suggested that Saudi Arabia may actually
run out of óil by the year 2030. Furthermore, a recent WikiLeaks revelation cited a warning from
a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been
overstated by as much as 300bn barrels, or by nearly 40%! With the world having reached a threshold
known as "peak oil" already, we can easily ascertain "why" the Saudis, the US hegemony, and other
players seem desperate for war nowadays. For those unaware of what I am talking about, let me frame
what "peak oil" really means.
Peak oil refers to an event based on M. King Hubbert's theory, where the maximum
rate of extraction of oil is reached. After this date, oil capacity will fall into irreversible decline.
Hubbert was one of those genius types who was a significant geoscientist noted for his important
contributions to geology, geophysics, and petroleum geology. He worked with Shell Oil at their labs
back in Houston, and is quoted as saying about our overall dependency:
"We are in a crisis in the evolution of human society. It's unique to both human and geologic
history. It has never happened before and it can't possibly happen again. You can only use oil
once. You can only use metals once. Soon all the oil is going to be burned and all the metals
mined and scattered."
Hubbert's "peak oil" prognosis was actually supposed to take hold back in 1995, and it is my sincere
belief that it did. His science is essentially irrefutable. If you run down his theory of "peak oil"
you'll inextricably come to a graphic of a bell curve of world oil production. For my part, I have
taken Hubbert's math and overlaid other "depletive" curves for production and resource allocation
simply to satisfy my own scientific curiosity. I studied environmental geography under one of the
world's most renowned former Shell geologist,
Dr. Mitch Colgan. That said, the graph you see from Hubbert's
1956 report to the
American Petroleum Institute, on behalf of Shell Oil, shows Ohio oil production, which mirrors Texas,
or any other region where such a resource is depleted. The "fact" the world will run out of oil is
incontestable, like I said. And the Saudis have been pumping massive quantities of oil longer, and
faster than anyone.
There's not space here for an exhaustive study of whether or not we've achieved the "peak oil"
threshold. I would like to leave off on M. King Hubbert here with an ironic note,
a case I discovered
concerning his association in World War II with the US Board of Economic Warfare. Hubbert was evidently
a candidate for helping this Washington D. C. agency, but was somehow deemed "ineligible" or undesirable,
which in turn caused some controversy. You will no doubt find the letter from the chairman of the
economic warriors interesting. I'll wager most people never even knew America has such departments.
But I need to sum up.
Now What, More War?
Where Americans' interests are concerned, while President Obama has been parlaying trendy terms
like "renewable energy" and his supposed climate change agenda, the fact is petroleum still powers
96% of all transportation in America. Furthermore, fossil fuels 44% of the industrial sector, and
coal provides 51% of the nation's electricity still. Nuclear provides this biggest chunk of electricity
after coal, just to be clear here. Denial that peak oil has been reached is not only idiotic, it
may end up being catastrophic. The Saudi leadership is drawing back with austerity measure against
the people. Saudi militarism is on a gigantic upswing, as we see in Yemen and with the Turkey innuendo.
Evidence Obama and other western leaders know of the "peak oil" crisis abounds. A recent Department
of Energy request to expert Robert Hirsch in 2005 revealed a damning truth. I quote
from the report, which mysteriously disappeared in PDF and other forms from the web:
"The peaking of world oil production presents the U.S. and the world with an unprecedented
risk management problem. As peaking is approached, liquid fuel prices and price volatility will
increase dramatically, and, without timely mitigation, the economic, social, and political costs
will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but
to have substantial impact, they must be initiated more than a decade in advance of peaking."
Within the various reports by
Hirsch (PDF) and other, we find statements like the one from Dr. Sadad al-Husseini, a retired
senior Saudi Aramco oil exploration executive, who went on record saying, "that the world is heading
for an oil shortage." The world consumes 85 billion barrels of oil each day. That's about 40,000
gallons per hour, and demand is not slowing, but increasing exponentially. Geologists have already
determined that more than 95% of all the recoverable oil has already been found.
Saudi aggression in Yemen, the recent siding with Turkey, and the withdrawal of aid earmarked
for military purchases by
Lebanon are all clear signs of a nation in big trouble. If my theory is correct and if these
Saudi oil fields are running out, then rumors of a
re-Islamification of Turkey make the Saudi alliance meaningful. Oil fields in Syria and Northern
Iraq may in fact be a vision of continued Saudi wealth gathering. So the deepening of strategic ties
in between Turkey and Saudi Arabia, and against the Russian and Iranian interests in Syria, may reveal
another unseen plan. Or at least the only feasible way any nation totally dependent on oil exports
might survive in tact. Washington likes to make religion the source of all conflict, or Vladimir
Putin one, but the reality is, Saudi Arabia is "probably" running out of gas.
Like I said, it's all food for thought.
Phil Butler, is a policy investigator and analyst, a political scientist and expert
on Eastern Europe, exclusively for the online magazine
"New Eastern Outlook".
http://journal-neo.org/2016/03/10/key-crisis-point-is-saudi-arabia-running-out-of-gas/
Notable quotes:
"... A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores. ..."
"... "Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes. ..."
"... To paraphrase the old song, oil makes the world go round… ..."
A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive
telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels,
or by nearly 40%!" the American political analyst underscores.
Butler refers to a phenomenon called "peak oil." According to M. King Hubbert's theory, peak oil
is the point in time when the maximum rate of extraction of petroleum is reached and the crude capacity
will only decline.
Whether one likes it or not, peak oil has been reached, the analyst underscores.
However, while the global oil reserves are decreasing steadily, Riyadh has been pumping its crude
faster than anyone.
And here is the root cause of Saudi Arabia's warmongering. To maintain its
status quo, the Saudi kingdom has established an alliance with
Turkey, planning to seize
Syria and Iraq's oil fields.
Still, it's only half the story, since the global economy also remains petroleum-centered.
"Where
Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable
energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation
in America," Butler emphasizes.
To paraphrase the old song, oil makes the world go round…
The question then arises, whether we are on the doorstep of new "energy wars."
Chinese crude imports hit a record of 8 million b/d in February despite severe economic
problems and contracting imports and exports. One reason for the surge may have been the
extremely low oil prices in January which attracted more buying for strategic stocks and to
refine for exports. China's small independent refiners were only recently allowed to import oil
for their needs rather than procuring it domestically.
Notable quotes:
"... A US judge ordered Iran to pay over $10 billion in damages to families of victims who died on September 11, 2001 – even though there is no evidence of Tehran's direct connection to the attack. The same judge earlier cleared Saudi Arabia from culpability. ..."
"... The default judgement was issued by US District Judge George Daniels in New York on Wednesday. Under the ruling, Tehran was ordered to pay $7.5 billion to 9/11 victims' families, including $2 million to each victim's estate for pain and suffering, and another $6.88 million in punitive damages. Insurers who paid for property damage and claimed their businesses were interrupted were awarded an additional $3 billion in the ruling. ..."
"... Saudi Arabia was legally cleared from paying billions in damages to families of 9/11 victims last year, after Judge Daniels dismissed claims that the country provided material support to the terrorists and ruled that Riyadh had sovereign immunity. Saudi attorneys argued in court that there was no evidence directly linking the country to 9/11. ..."
"... "absurd and ridiculous." ..."
"... "I never heard about this ruling and I'm very much surprised because the judge had no reason whatsoever to issue such a ruling… Iran never took part in any court hearings related to the events of September 11, 2001," ..."
"... "Even if such an absurd and ridiculous decision has been made, the charges simply hold no water because Iran has never been mentioned at any stage of the investigation and the trials that followed." ..."
"... While Sheikholeslam argued that Iran didn't take part in related hearings, that lack of participation may have contributed to the decision. A default judgment is typically issued when one of the parties involved in a case does not respond to court summons or appear in court to make their case. ..."
"... "advice and training" ..."
"... "provided material support" ..."
"... "direct support" ..."
"... "There was no direct connection between Iran and the attacks of September 11." ..."
"... "The people who committed those terrorist attacks were neither friends nor allies of Iran," ..."
"... "They were our sworn enemies, members of Al-Qaeda, which considers Iran as their enemy. Fifteen out of the 19 terrorists were Saudi citizens, which happens to be America's best friend. The remaining four terrorists lived in Saudi Arabia and enjoyed Saudi support. Therefore the perpetrators of the 9/11 attacks had nothing to do with Iran." ..."
Mar 10, 2016 | RT USA
© Eduardo Munoz / Reuters
A US judge ordered Iran to pay over $10 billion in damages to families
of victims who died on September 11, 2001 – even though there is no evidence
of Tehran's direct connection to the attack. The same judge earlier cleared
Saudi Arabia from culpability.
The default judgement
was issued by US District Judge George Daniels in New York on Wednesday.
Under the ruling, Tehran was ordered to pay $7.5 billion to 9/11 victims' families,
including $2 million to each victim's estate for pain and suffering, and another
$6.88 million in punitive damages. Insurers who paid for property damage and
claimed their businesses were interrupted were awarded an additional $3 billion
in the ruling.
The ruling is noteworthy particularly since none of the 19 hijackers on September
11 were Iranian citizens. Fifteen were citizens of Saudi Arabia, while two were
from the United Arab Emirates, and one each from Egypt and Lebanon.
Saudi Arabia was legally cleared from paying billions in damages to families
of 9/11 victims last year, after Judge Daniels dismissed claims that the country
provided material support to the terrorists and ruled that Riyadh had sovereign
immunity. Saudi attorneys argued in court that there was no evidence directly
linking the country to 9/11.
In response to the latest ruling, Hossein Sheikholeslam, a senior aide to
Iran's parliamentary speaker, called the decision "absurd and ridiculous."
"I never heard about this ruling and I'm very much surprised because
the judge had no reason whatsoever to issue such a ruling… Iran never took part
in any court hearings related to the events of September 11, 2001," he
told
Sputnik. "Even if such an absurd and ridiculous decision has been made,
the charges simply hold no water because Iran has never been mentioned at any
stage of the investigation and the trials that followed."
While Sheikholeslam argued that Iran didn't take part in related hearings,
that lack of participation may have contributed to the decision. A default judgment
is typically issued when one of the parties involved in a case does not respond
to court summons or appear in court to make their case.
Judge Daniels found that Iran failed to defend itself against claims that
it played a role in 9/11. Iran believes the lawsuit is unnecessary because it
says it did not participate in the attack.
In the US, Tehran's role in 9/11 has been debated heavily over the years.
The
9/11 Commission Report stated that some hijackers moved through Iran and
did not have their passports stamped. It also stated that Hezbollah, which the
US designates as a terrorist organization supported by Iran, provided "advice
and training" to Al-Qaeda members.
In a
court document filed in 2011 regarding the latest case, plaintiffs claimed
Hezbollah "provided material support" to Al-Qaeda, such as facilitating
travel, plus "direct support" for the 9/11 attacks. As a result, the
plaintiffs argued Iran was liable.
However, the commission report itself found no evidence to suggest Iran was
aware of the 9/11 plot, and suggested the possibility that if Hezbollah was
tracking the movements of Al-Qaeda members, it may not have been eyeing those
who became hijackers on 9/11.
While the report suggested further investigation into the issue, President
George W. Bush has said, "There was no direct connection between Iran and
the attacks of September 11."
Iran, inhabited mostly by Shia Muslims, has also denied any connection to
Al-Qaeda – a militant Sunni group – and cooperation between the two has been
questioned due to religious differences. Al-Qaeda views the Shia as heretics,
for example.
"The people who committed those terrorist attacks were neither friends
nor allies of Iran," Iran Press Editor-in-Chief Emad Abshenas told Sputnik.
"They were our sworn enemies, members of Al-Qaeda, which considers Iran
as their enemy. Fifteen out of the 19 terrorists were Saudi citizens, which
happens to be America's best friend. The remaining four terrorists lived in
Saudi Arabia and enjoyed Saudi support. Therefore the perpetrators of the 9/11
attacks had nothing to do with Iran."
How the case moves forward after Daniels' ruling is unclear. According to
Bloomberg, it can be very hard to obtain damages from another country, but plaintiffs
might try to do so by targeting Iranian funds frozen by the US.
Notable quotes:
"... Turkey announced today that the Kurdish pipeline should be back online
in about a week. There's been a major mine-sweeping effort going on there since
the break. ..."
"... Turks can fix the pipeline but Turks cannot support financially and politically
the whole Iraq's Kurdistan entity where the oil is coming from. You still got eat
even when the oil is $30 :), so the Kurds are doing bidding process on who will
help pay the most. Iraqis central government has an offer dangling to take care
of Kurdish government employees in exchange for re-routing that kurdish oil through
central government for sale. ..."
"... But Turks have way bigger problems than one pipeline. They are in real
bind and are pushed real hard from both Russians and Americans. When it is all said
and done they could be in process of being dismembered. ..."
"... The only leverage that Turks have is over Euro elite that still needs them
for their dirty work in ME. Notice how Ms. Markel can easily find 3 billion for
Turkey (refugees will not see a single penny of it) while last year Euro pensioners
in Greece/Spain/Italy/France all they got is austerity. ..."
"... It is a class war and it has always been like that. ..."
"... The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all the
way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a pipeline that
joins it at the Turkish border, so the pipeline carries Kurdish oil too. It's in
Iraq's interest to have it open but since SE Turkey is essentially a war zone that
can be hard to bring about. ..."
Synapsid ,
03/09/2016 at 8:04 pm
Ves,
Turkey announced today that the Kurdish pipeline should be back online
in about a week. There's been a major mine-sweeping effort going on there
since the break.
The PKK denies blowing up the pipeline. Who knows?
Ves ,
03/09/2016 at 11:34 pm
Synapsid,
Turks can fix the pipeline but Turks cannot support financially and
politically the whole Iraq's Kurdistan entity where the oil is coming from.
You still got eat even when the oil is $30 :), so the Kurds are doing bidding
process on who will help pay the most. Iraqis central government has an
offer dangling to take care of Kurdish government employees in exchange
for re-routing that kurdish oil through central government for sale.
But Turks have way bigger problems than one pipeline. They are in
real bind and are pushed real hard from both Russians and Americans. When
it is all said and done they could be in process of being dismembered.
The only leverage that Turks have is over Euro elite that still needs
them for their dirty work in ME. Notice how Ms. Markel can easily find 3
billion for Turkey (refugees will not see a single penny of it) while last
year Euro pensioners in Greece/Spain/Italy/France all they got is austerity.
It is a class war and it has always been like that.
Synapsid ,
03/10/2016 at 12:56 am
Ves,
The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all
the way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a
pipeline that joins it at the Turkish border, so the pipeline carries Kurdish
oil too. It's in Iraq's interest to have it open but since SE Turkey is
essentially a war zone that can be hard to bring about.
I suspect that Iraqi Kurdistan could support itself from sale of the
oil they produce if they were allowed to just sell it and not have the money
come from Baghdad–and if they straightened out their own corrupt economy.
Notable quotes:
"... The most significant event of the last decade regarding crude oil has been the rise of U.S. shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit, consistently rising demand and improved technological methods of fracking led to the current production rate, which would have increased further had OPEC cut their production. ..."
Quite simply, the Saudis want to maintain their market share, but their means to control that
are dwindling.
The whole internet is jam-packed with analysis portraying Saudi Arabia and OPEC as villains for
the oil price collapse. On a closer look, however, the Saudi's could have taken no reasonable
steps to avert this situation. This is a transformational change that will run its full course,
and the major oil producing nations will have to accept and learn to live with lower oil prices
for the next few years.
Why the Saudi's are not to blame
(Click to enlarge)
As seen in the chart above, barring the period during the last
supply glut, the Saudi's have more or less maintained constant oil
production, increasing production only modestly at an average of
roughly 1 percent per year.
The most significant event of the last decade regarding crude oil has been the rise of U.S.
shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an
almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit,
consistently rising demand and improved technological methods of fracking led to the current
production rate, which would have increased further had OPEC cut their production.
Notable quotes:
"... All of this is to say that the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy can work out a compromise. In the meanwhile, the competing governing factions will have to defend themselves against not only other claimants to legitimacy but also ISIS and other smaller groups that have begun to attack Libyan oil production and export facilitates with increasing regularity. ..."
"... The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya not only helping to continue the instability and political stalemate there but also spreading unrest further in Northern Africa. ..."
Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc.
(ESAI)
... ... ...
While there are ongoing negotiations, or attempts at negotiations pushed by Washington and key
European states, so far it does not look at all hopeful. In the meanwhile, the efforts of the West
are focused on two issues. First is conducting strikes against ISIS leaders and key operatives who
might be either planning on targeting Western targets or who might be consolidating control over
parts of Libya. Second is keeping refugees from flowing into southern Europe (whether they are Libyans
or Africans who are taking advantage of the lack of governance in Libya to launch from its shores).
News reports indicate that the United States, France, the United Kingdom and Italy all have Special
Forces on the ground in Libya largely to support intelligence gathering and targeting ISIS cells
or leaders. The recent U.S. airstrikes two weeks ago against ISIS leaders and a training camp in
Libya may or may not reflect this small ground presence, but the attacks indicate that Washington
is focusing on elements of the terrorist group that might be planning attacks on Western targets.
The news information on the French aircraft carrier also hints that any strikes that Paris may carry
out will be against those potentially plotting against French targets. All of this is to say that
the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict
counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy
can work out a compromise. In the meanwhile, the competing governing factions will have to defend
themselves against not only other claimants to legitimacy but also ISIS and other smaller groups
that have begun to attack Libyan oil production and export facilitates with increasing regularity.
The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya
not only helping to continue the instability and political stalemate there but also spreading unrest
further in Northern Africa.
Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc.
(ESAI)
Notable quotes:
"... The rising clamor at home from the crashing shale sector and the banks that financed it; the resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's entrance into the Syrian take-down attempt having put Russia into a new position of influence in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian resistance to demands that they agree to limit production; Kuwait refusing to limit production; Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily: financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears, - these factors have led Western leaders to stop suppressing the price of crude. ..."
Al Tinfoil ,|
IMHO, the rise in crude prices is evidence that the West has blinked and is giving up on its
attempt to bankrupt Russia in order to make Putin kowtow to the West.
The rising clamor at home from the crashing shale sector and the banks that financed it; the
resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's
entrance into the Syrian take-down attempt having put Russia into a new position of influence
in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian
resistance to demands that they agree to limit production; Kuwait refusing to limit production;
Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily:
financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears,
- these factors have led Western leaders to stop suppressing the price of crude.
The commodities traders and their algos will now be allowed to manipulate up the prices. Fundamentals
of excess supply and weak demand do not matter, and have not mattered for a long time. Futures
contracts, refinery shutdowns for fires or scheduled maintenance, pipeline ruptures, and rumors
of international instability can all be used to increase crude prices.
The oil bulls are being let loose!
Notable quotes:
"... We all are living under neoliberalism , aren't we? And current fascinating developments with Bernie and Trump is nothing more than unorganized protest of shmucks against " masters of the universe " - neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7 capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man) ..."
"... The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to Marx delusions "the lower classes are never, even temporarily, successful in achieving their aims". ..."
"... The key idea of neoliberalism is redistribution of wealth up from shmucks to international (predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose money on oil and that they are selling it below the cost. What is important that the "masters of the universe" became richer. And sustainability is provided by grabbing asset of distressed countries and companies when they go too deeply in debt slavery. So the key idea here is get those countries and companies "conditioned" enough to grab them on a cheap. In old days that was called "shock therapy" now it is called "disaster capitalism". ..."
"... Destabilization as in "drop of oil prices to unsustainable levels" can be extremely profitable (see The Shock Doctrine: The Rise of Disaster Capitalism. ). This is the way the neoliberalism enforces its Washington consensus rules on other countries, especially resource nationalists like Putin's Russia. ..."
"... This was not done in case of "shale bubble" and other countries were implicitly stimulated by it to rump up production as well as by regime of high oil prices and cheap Western credits. Now we have a real crisis when "resource nationalist" are quickly running out of money. If Washington is able to crush them, it is also will show the other countries who are trying to oppose neoliberal globalization "who is the boss". It is not accidental that all establishment candidates in the current presidential race are extremely, pathologically jingoistic and are ready to bomb yet another half-dozen of countries in short order after coming to power. In this sense differences between H, C and R are superficial. They all are servants of neoliberal oligarchy in Washington and Wall Street (for H in the opposite order). ..."
likbez,
03/09/2016
at 6:59 pm
clueless,
Art Berman looks at the numbers and says oil should go back to $30, or even lower. It
does take capitalism time to work.
This looks like too theoretical post well outside the scope of this blog, but still there are
some basic facts that everybody needs to be aware of.
- We all are living under
neoliberalism, aren't we? And current fascinating developments with Bernie and Trump is
nothing more than unorganized protest of shmucks against "masters of the universe" -
neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7
capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man)
The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to
Marx delusions "the lower classes are never, even temporarily, successful in achieving their
aims".
- The key idea of neoliberalism is redistribution of wealth up from shmucks to international
(predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose
money on oil and that they are selling it below the cost. What is important that the "masters
of the universe" became richer. And sustainability is provided by grabbing asset of distressed
countries and companies when they go too deeply in debt slavery. So the key idea here is get
those countries and companies "conditioned" enough to grab them on a cheap. In old days that
was called "shock therapy" now it is called "disaster capitalism".
- Destabilization as in "drop of oil prices to unsustainable levels" can be extremely
profitable (see
The Shock Doctrine: The Rise of Disaster Capitalism.). This is the way the neoliberalism
enforces its Washington
consensus rules on other countries, especially resource nationalists like Putin's Russia.
The countries and companies in question were gently pushed to increase the production to
the level that assured the crisis to happen. While this sounds like another conspiracy theory,
and can well be such, the simple logic suggests that in XXI century the elite understands the
natural dynamics of capital accumulation well enough to freeze too enthusiastic Ponzi schemers
before they do the major damage, if they want it. At least suppress them enough to avoid "Minsky
moment."
This was not done in case of "shale bubble" and other countries were implicitly stimulated
by it to rump up production as well as by regime of high oil prices and cheap Western credits.
Now we have a real crisis when "resource nationalist" are quickly running out of money. If
Washington is able to crush them, it is also will show the other countries who are trying to
oppose neoliberal globalization "who is the boss". It is not accidental that all establishment
candidates in the current presidential race are extremely, pathologically jingoistic and are
ready to bomb yet another half-dozen of countries in short order after coming to power. In
this sense differences between H, C and R are superficial. They all are servants of neoliberal
oligarchy in Washington and Wall Street (for H in the opposite order).
It can well be that US shale was a part this Brzezinski's
The Grand Chessboard " gambit and now is a pawn sacrificed in a wider geopolitical game.
By
Rakesh
Upadhyay 09 March 2016 21:1
Iran is expected to raise the April Official Selling Price (OSP) of its flagship
light crude oil to Asia to 25 cents above the Saudi's similarly graded Arab
light. This is the highest premium since 2011 and is an increase of 30 cents
over the previous month.
Iran will likely price its light crude at 50 cents a barrel below the average
of Oman and Dubai quotes, whereas the OSP for Iran Heavy will likely be $2.60
a barrel below Oman and Dubai quotes.
But not all crudes are equal, and when it comes to
Iran Heavy Grade , pricing will remain aggressively competitive. Heavy Grade
is Iran's main export grade, which must compete with Latin America, Iraq and
Saudi Arabia-all of whom supply a similar grade.
Related: Six Reasons The Current Oil Short Covering May Have Legs
When it comes to its light crude, though, the competitive price Iran has
offered so far was for internal reasons and intended to reduce gasoline imports.
Many experts believed that Iran would offer large discounts to regain the
market share it lost under the sanctions regime. However, Iran is using a calculative
approach towards increasing its share and is looking to consolidate and increase
exports to its existing partners such as China, South Korea, and India, in Asia.
Iran expects to
increase exports to India to 460,000 bpd from the current 260,000 bpd. Similarly,
it expects to further increase its exports to
South Korea ,
which has already imported 203,165 bpd-its highest level since 2012.
Related: Oil Rally Stalls As Storage Concerns Spike
Demand from Europe has been a little slow to pick up due to ship insurance
and banking-related issues. Nevertheless, the
first shipment to Europe landed in Southern Spain on 6 March 2016. Three
more tankers--one bound for
Romania , another to France and a third to the Mediterranean--are expected
to reach their destinations soon.
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BIMCO's chief shipping analyst,
Peter Sand, said, "Former clients of Iran are the ones who are likely to
return as buyers... Italy, Spain and Greece were the top EU importers in 2011."
The mid-March meeting between OPEC, Russia and other major producers offers
a window of opportunity for Iran to increase production gradually, since the
major nations have agreed to a production freeze. On top of that, Russia is
planning to offer a different deal to Iran, which will allow it to ramp up its
production to pre-sanction levels.
Related: The $9.2 Billion Bet Against OPEC Dominance
The lifting of sanctions couldn't have come at a better time for Iran. It
is benefitting from the strong bounce in oil, and it is unlikely to face huge
competition, barring U.S. exports, if the production freeze is adhered to by
the major oil producers.
Tehran has cause for celebration, indeed. This was clear when Iranian Oil
Minister Bijan
Zanganeh said : "We look forward to the beginning of co-operation between
Opec and non-Opec countries and we support any measure that can stabilise the
market and increase prices."
The world can take comfort from the fact that Iran has not flooded the market
with cheap oil as previously envisaged by the experts. Capturing market share
is one thing, but there are internal needs to consider as well.
By Rakesh Upadhyay for Oilprice.com
More Top Reads From Oilprice.com:
Ron Patterson
, 03/09/2016
at 7:51 am
Now here is a type of headline you don't see very often. Bold mine.
Russia may be running out of oil
Oil production in Russia will inevitably decline by 2035 according to an Energy Ministry
report seen by the Vedomosti business daily. The different scenarios predict an output drop from
1.2 percent up to 46 percent two decades from now.
The document, obtained by the newspaper and confirmed by a source in the ministry, says by
2035 existing oil fields will be able to provide Russia with less than half of today's production
of about 10.1 million barrels per day.
The shortfall should be met by increased production from proven reserves, according to projections
by the Energy Ministry.
In the best case for oil producers, short-term growth remains possible only until 2020, according
to the report. After that, production will contract. The figures vary from 1.2 percent to 46 percent,
depending on prices, taxation and whether or not anti-Russian sanctions will be in force.
A slight increase in production is possible only for smaller companies like Slavneft and Russneft,
while the market leaders are facing the depletion of existing deposits. Added to an unfavorable
tax environment, their production is set to fall by 39-61 percent.
To counter the decline in oil production, the Energy Ministry proposes giving private companies
access to the Arctic shelf, to soften the tax regime and support for small and medium-sized
independent companies.
The Ministry also suggests promoting the processing of high-sulfur and super viscous
heavy oil with the introduction of preferential rates of excise duties on fuel produced from
such oil.
Desperate times call for desperate measures.
AlexS ,
03/09/2016 at 8:37 am
This forecast published by "Vedomosti" is for crude only and excludes condensate (around 520 kb/d
in 2015). It was not yet officially released. Condensate production growth in 2014-15 was
higher than crude only. There are gas condensate fields in the far north of West Siberia that
should start production in the next few years.
The worse case assumes very low oil prices and sanctions remaining for the whole period. Is
$30-40 oil a realistic scenario to 2035?
Base case implies 2035 crude production only 2.1% below 2015 levels
"Reasonably favorable" scenario: crude production in 2020-2030 slightly above 2015 levels;
2035: 1.6% below 2015.
Russian crude (ex condensate) production scenarios.
Source: Vedomosti newspaper based on the Energy Ministry data
AlexS ,
03/09/2016 at 8:48 am
Meanwhile, the EIA in its Short-Term Energy Outlook has revised upwards estimates and projections
for Russian oil production in 2015-17.
From the report:
"Russia is one example of production exceeding EIA's expectations. Fourth quarter 2015 oil
production in Russia is 0.2 million b/d higher than in last month's STEO, with initial data indicating
it has remained at high levels in early 2016. This higher historical production creates a higher
baseline level that carries through the forecast period. Russia's production is expected to increase
by 0.2 million b/d in 2016 and then decline by 0.1 million b/d in 2017. Russia's exposure to low
oil prices has been mitigated by the depreciation of the ruble relative to the dollar, given ruble-denominated
production costs, and by Russia's taxation regime for the oil sector."
The EIA is the last of the key international energy forecasting agencies to revise the numbers
for Russia (others are IEA, JODI and OPEC)
Dean ,
03/09/2016 at 10:06 am
Besides what Alex already said, I want to add another important point: the recovery of oil-in-place
in Russia is very low compared to international averages, around 20-25%. This is why there is
a lot of potential just by improving extraction from current fields.
P.S. Then, there is shale oil, really a lot of it, but it requires much higher prices for it
to be developed, and economically it makes more sense to first increase the % extracted of oil-in-place
Heinrich Leopold ,
03/08/2016 at 1:57 am
shallow sand,
China did increase its oil imports over the last few months to over 30 mill tons per month
(see below chart). Together with natgas and cyclical hydrocarbon imports this adds up to 40 mill
tons of hydrocarbons per month, which is around 10 mill barrels per day.
Slowly the fundamentals are building up for an oil price rise, although I think we will get
a pullback over summer.
clueless ,
03/08/2016 at 12:01 pm
"The data also showed China's February crude oil imports jumped 20 percent on year to their highest
ever on a daily basis, driven by import quotas and stockpiling."
From a China article today.
Heinrich Leopold ,
03/08/2016 at 12:35 pm
clueless,
In addition to the surge of oil imports, natgas is up year over year 100%, copper 50%, copper
ore and extractives up 92%. The increase is all up in volume as imports in dollar terms are still
very low due to low prices. However these numbers are huge as China is one of the largest importers
in the world.
To me this looks like the early sign of a nascent commodity recovery.
AlexS ,
03/08/2016 at 2:56 pm
3 main drivers of China's higher oil imports are:
1) state and commercial stockpiling
2) robust gasoline demand (not closely correlated with economic growth, as opposed to weak diesel
demand).
3) rising fuel exports
"Fuel exports in February rose 71.8 percent on a daily basis compared to the same month last
year, reaching 2.99 million tonnes, or 721,700 bpd, after hitting a record 975,500 bpd in December,
as China continues to export more diesel amid weakening domestic demand for the industrial fuel."
http://www.reuters.com/article/us-china-economy-trade-crude-idUSKCN0WA0A2
Synapsid ,
03/08/2016 at 6:15 pm
Alex S,
"…as China continues to export more diesel amid weakening domestic demand for the industrial
fuel."
Plus: There's increasing demand in China for gasoline as more cars are built and sold. More
gasoline coming from refineries means more diesel coming from refineries, as they produce both.
The small "teapot" refineries are being given permission to import gasoline now, I believe,
so that will help reduce overproduction of diesel, and the government has imposed a price floor
too; that helps reduce the panic exporting.
Heinrich Leopold ,
03/09/2016 at 12:56 am
AlexS,
The driving forces of Chinese oil imports are exploding car registrations:
http://www.tradingeconomics.com/china/car-registrations
The Chinese car market is much bigger than the US car market. And also growing much faster.
When a commodity cycle starts, metals (gold, silver, base metals…) are first to soar. Oil is
actually the last to rise as oil in most cases brings a commodity cycle to its end due to higher
inflation.
Yes, China exports diesel and gasoline, yet it also imports oil products of 2.66 mill tons
per month.
http://info.hktdc.com/hktdc_offices/mi/ccs/index_static_type/ChemicalImport.htm
Net exports are close to zero.
There is little doubt that China is in the early stage of a massive upswing. Anyone who hopes
for higher oil prices should hope also for a Chinese recovery. Oil prices will not go up without
a Chinese recovery.
AlexS ,
03/09/2016 at 3:01 am
Heinrich Leopold
Changes in China's imports and exports of crude and refined products are obviously important.
But what really matters for global supply/demand balance is
1)China's oil consumption.
2) China's oil production
China's demand for diesel, which is an indicator of economic activity, is weakening.
Demand for gasoline, which is an indicator of growing car ownership, is robust.
Overall, demand growth is slowing.
But this is partially offset by projected decline in oil production in 2016, the first in many
years.
China: demand by product
source: IEA OMR Feb 2016
Enno ,
03/09/2016 at 3:09 am
Thanks Alex. Indeed quite a reduction in growth compared with the last years.
Heinrich Leopold ,
03/09/2016 at 3:19 am
AlexS,
As the demand growth in 2015 has been way underestimated in 2014, it is again underestimated
for 2016.
The IEA numbers for 2016 are just an estimate and not yet a fact. Car registrations and import
numbers reveal way higher numbers are likely for China in 2016.
A strong sign of a Chinese recovery is the recent strength of the yuan, record high of new
loans (2500 bn yuan) and strong money suppley (+14%).
AlexS ,
03/09/2016 at 6:14 am
Heinrich Leopold,
You are right, the IEA has significantly increased its estimate of China's oil demand for 2015.
Last year, incremental demand was actually higher that in the previous 4 years.
I also agree with you that IEA likely underestimates China's demand growth in 2016.
But this growth will still be slower than last year; it will not accelerate.
Growing imports reflect buying by the government and oil companies for stockpiling and increasing
exports.
China's y-o-y oil demand growth, 2000-2016
source: IEA
AlexS ,
03/09/2016 at 6:27 am
As I said above, there is also a serious structural shift in China's oil consumption.
It is now driven by gasoline, which is due to growing private car ownership.
By contrast, demand for diesel, which is mainly consumed in the industry and construction, has
sharply decelerated.
And this seems to be a long-term trend, as China is gradually changing its economic model from
export-oriented, based on heavy industries and construction, to a more focused on private consumption.
China: y-o-y growth in gasoline consumption
source: IEA
AlexS ,
03/09/2016 at 6:30 am
China: y-o-y growth in diesel consumption
source: IEA
Dennis Coyne
,
03/09/2016 at 7:40 am
Hi AlexS,
It is possible that diesel fuel is being used more efficiently by the Chinese economy. For
example diesel is essentially the same as heating oil and as China develops less will be used
for heating buildings as natural gas pipeline infrastructure expands, there might also be some
switching to heat pumps for heating. These switches take time and there is a significant time
lag between high oil prices (from 2011 to mid-2014) and when we see the long run demand effects.
Also the expansion of auto sales tends to increase employment and economic activity throughout
the economy.
For these reasons I think a focus on total oil demand makes more sense than a focus on only
diesel demand.
AlexS ,
03/09/2016 at 12:01 pm
Dennis,
Yes, there is an effect of fuel substitution.
I'm not sure if a lot of diesel is used for heating in China (I think they are mostly using LPG,
coal, firewood, etc.), but certainly there are sectors of the economy where it can be substituted
or used more efficiently.
For example, in the 2000s, a lot of diesel and residual fuel was used for power generation,
as despite a rapid growth in generation capacity China often experienced serious power shortages.
In particular, that explains a spike in oil consumption in 2004. China now has sufficient generation
capacity, so diesel use for power generation in the commercial and residential sectors is diminishing.
But more important is a structural shift in China's economy and energy consumption patterns.
The country is undergoing a gradual transition to an economy oriented toward private consumption.
The share of less energy-intensive sectors, such as services, in GDP is increasing. Fixed investment/GDP
ratio is declining from 40-50% to more sustainable levels, which means relatively slower growth
and less infrastructural developments. All this should lead to a less energy-intensive economy
and relatively lesser use of industrial fuels, including diesel.
By contrast, gasoline demand is driven by rising living standards, growing middle class, and
hence rapidly increasing car ownership. Gasoline consumption will continue to grow at a high rate,
even though economic growth is slowing.
Dennis Coyne
,
03/09/2016 at 3:28 pm
AlexS,
Nice analysis, agree 100%.
islandboy ,
03/09/2016 at 8:20 am
Here's the deal. China may actually be the country where EVs take off in a big way first (if you
leave Norway out of it). The following insideevs.com piece rates China as the number one EV market
in the world. I don't understand the metrics used by the author for the countries below China
on the list but, it is hard to deny that China is the fastest growing market for EVs or that the
highest absolute numbers of EVs are being sold in China.
World's Top 7 Electric Vehicle Adoption Countries for 2015
1. China
up from #3; local sales 207,000, plus a lot more buses and commercial trucks. Claim to fame:
easily overtook USA this year for the global volume title; increased 300% over 2014; most sales
locally made by a diverse domestic industry; makes and deploys the vast majority of the world's
EV Buses.
China has once again proven that despite its huge size, it can turn its economy and industry
on a dime. They've been doing this every few years now, in a manner rivaling what the USSR and
USA accomplished during World War II.
As always, when you crank out an omelette this big, eggs will break. Indeed, the sooty fallout
of last decade's massive industrial push is one big reason why China is in such a hurry now to
clean up its energy grid, and its car and bus fleet. Hopefully they are learning some lessons,
and not just causing problems just as big downstream.
This concern is important. For example, in January Amnesty International published a meticulous
report, showing that China's Huyaou Cobalt company buys cobalt mined off of Congolese child and
slave labor. It then sells the cobalt directly or indirectly to Li-ion battery makers, including
BYD and interestingly, Korean LG Chem and Samsung. This must stop.
That said.
It is simply mind-boggling, that in 2012 China had all of 3,000 EV sales. The US was already
at 52,000 at the time. Three years later, they have apparently crossed 200,000 sales for the year,
with 35,000 EV sold in December 2015 alone.
China To Increase Annual Purchase Ratio To 50% Electric Cars For Some Government Departments
he Chinese government intends to further augment plug-in electric vehicle sales by increasing
purchases from various government departments.
The latest move sets buying guidelines of more than 50% of new purchases to be NEVs (New
Energy Vehicles – electric or plug-in hybrid).
What this means for future gasoline consumption growth in China is anybody's guess but, it
appears to me that EVs are in the early stages of an exponential growth phase.
Though Iran hasn't committed to a production freeze, since it wants to ramp up production to pre-sanction
levels, Russian Energy Minister
Aleksander
Novak has noted that "Iran has a special situation as the country is at its lowest levels
of production. So I think, it might be approached individually, with a separate solution."
With all the major Gulf nations agreeing, Iraq, which is without a credible political leadership,
will also likely follow suit if Russia assures them of stronger support against ISIS.
If the
above scenario plays out, Russia will emerge as the de facto leader of the major oil producing
nations of the world, accounting for almost 73 percent of the global oil supply.
Related: It's Time For Canadian Oil To Re-Shuffle, Re-shape And Rebound
Along with this, Russia has been in the forefront of plans to move away from Petrodollars,
and Moscow has formed pacts with various nations to trade oil in local currencies. With this new
cartel of ROPEC (Russia and OPEC nations), a move away from petrodollars will become a reality
sooner rather than later.
Russia is smart. Vladimir Putin is genius. Moscow senses the opportunity that is almost tangibly
floating about in the low crude price environment and appears to be ready to capitalize on it
in a way that would reshape the geopolitical landscape exponentially.
Ulenspiegel,
03/03/2016
at 7:10 am
"The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which
would have given its members cheap energy and relief from Vladimir Putin's stifling economic and
political leverage."
That is nonsense. The issue is that Russia has quite limited leverage: They can not replace
the European customers on short notice – pipeline chain producer to certain custrumers – and they
urgently need the income.
The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades.
Ves,
03/03/2016
at 8:25 am
"The issue is that Russia has quite limited leverage: They can not replace the European customers
on short notice"Leverage is always mutual in the gas trade that involves long term contracts
and long gas supply lines. It is like marriage :-)
"The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades."
I am not sure that this is the case.
"Gazprom's gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters
in 2015 with a 8.2 percent increase compared to 2014."
Stavros H,
03/04/2016
at 2:51 pm
@Ulenspiegel : No it is anything BUT nonsense.
The EU's domestic production of natural gas, including non-EU member Norway, is already in
terminal decline and will be declining into the future by almost 2% per year until it reaches
zero.
Unless the EU can find alternative sources of natural gas at competitive prices, Russia remains
the only economical option, hence the extremely high stakes over the Syrian War.
Moreover, the EU's "Green Energy" policies are an outright, insolvent disaster. Windmills and
solar panels can never and will never compete with hydrocarbons and don't let any muppet claim
otherwise. If wind and solar were anywhere remotely viable sources then why would anyone give
a toss over the Middle East at all? The degree to which "alternative energy" is uneconomical can
be seen from the EU's extremely high energy costs, far and away the highest in the world. In their
fanatical crusade against Russia, the EU countries have opted for a catastrophic energy policy
that has rendered them global economic growth laggards. All this, just so that Russia's gas exports
could be kept at the absolute minimum.
What Russia seeks to achieve vis-a-vis Europe, is to force/encourage/compel the EU to integrate
by as much as possible with Russia. What NATO (and especially the US and Euro-Atlanticists) most
fear is that a Russia rich in capital and technology would be the world's dominant geopolitical
player.
This is what is at stake in the current Global Hybrid War.
Notable quotes:
"... The meeting of oil-producing countries will be held on March 20th in Russia, the Minister of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives of countries who are OPEC members and countries that are not members in the organization. Mr. Kachikwu noted that producers seek to restore oil prices to $50 per barrel ..."
Ves,
03/03/2016
at 8:36 am
SS,
here is some good news. You have heard it first from me here on POB 2 weeks ago. We are moving
in direction of restoring the prices to acceptable level that major producers can live temporarily.
"The meeting of oil-producing countries will be held on March 20th in Russia, the Minister
of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives
of countries who are OPEC members and countries that are not members in the organization. Mr.
Kachikwu noted that producers seek to restore oil prices to $50 per barrel."
Notable quotes:
"... Instead, it reprieved the fading remnants of the military-industrial-congressional complex, the neocon interventionist camp and Washingtons legions of cold war apparatchiks. All of the foregoing would have been otherwise consigned to the dust bin of history. ..."
"... The Saudis geopolitical goal is to contain the economic and political power of the kingdoms principal rival, Iran, a Shiite state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion to its regional power status and was already engaged in a proxy war against Tehran in Yemen, highlighted by the Saudi genocide against the Iranian backed Houthi tribe. ..."
"... But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar Assad. In fact, some of them have said that if the United States is prepared to go do the whole thing, the way weve done it previously in other places [Iraq], theyll carry the cost. Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): With respect to Arab countries offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly yes, they have. The offer is on the table. ..."
"... Gazproms gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters in 2015 with a 8.2 percent increase compared to 2014 ..."
Longtimber ,
03/02/2016 at 7:35 pm
Stockman's Tales of western intervention into the ME Oil Puzzle.
"The Trumpster Sends The GOP/Neocon Establishment To The Dumpster"
"And most certainly, this lamentable turn to the War Party's disastrous reign had nothing to do
with oil security or economic prosperity in America. The cure for high oil is always and everywhere
high oil prices, not the Fifth Fleet"
http://davidstockmanscontracorner.com/the-trumpster-sends-the-gopneocon-establishment-to-the-dumpster/
likbez ,
03/02/2016 at 10:50 pm
Longtimber,
Thank you.
It goes all the way back to the collapse of the old Soviet Union and the elder Bush's historically
foolish decision to invade the Persian Gulf in February 1991. The latter stopped dead in its
tracks the first genuine opportunity for peace the people of the world had been afforded since
August 1914.
Instead, it reprieved the fading remnants of the military-industrial-congressional complex,
the neocon interventionist camp and Washington's legions of cold war apparatchiks. All of the
foregoing would have been otherwise consigned to the dust bin of history.
Yet at that crucial inflection point there was absolutely nothing at stake with respect
to the safety and security of the American people in the petty quarrel between Saddam Hussein
and the Emir of Kuwait.
Compare with the recent article by Robert F. Kennedy, Jr. in Politico:
http://www.politico.eu/article/why-the-arabs-dont-want-us-in-syria-mideast-conflict-oil-intervention/
Having alienated Iraq and Syria, Kim Roosevelt fled the Mideast to work as an executive
for the oil industry that he had served so well during his public service career at the CIA.
Roosevelt's replacement as CIA station chief, James Critchfield, attempted a failed assassination
plot against the new Iraqi president using a toxic handkerchief, according to Weiner. Five
years later, the CIA finally succeeded in deposing the Iraqi president and installing the Ba'ath
Party in power in Iraq. A charismatic young murderer named Saddam Hussein was one of the distinguished
leaders of the CIA's Ba'athist team.
… … …
The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline,
which would have given its members cheap energy and relief from Vladimir Putin's stifling economic
and political leverage. Turkey, Russia's second largest gas customer, was particularly anxious
to end its reliance on its ancient rival and to position itself as the lucrative transect hub
for Asian fuels to EU markets. The Qatari pipeline would have benefited Saudi Arabia's conservative
Sunni monarchy by giving it a foothold in Shia-dominated Syria. The Saudis' geopolitical goal
is to contain the economic and political power of the kingdom's principal rival, Iran, a Shiite
state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite
takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion
to its regional power status and was already engaged in a proxy war against Tehran in Yemen,
highlighted by the Saudi genocide against the Iranian backed Houthi tribe.
Of course, the Russians, who sell 70 percent of their gas exports to Europe, viewed the
Qatar/Turkey pipeline as an existential threat. In Putin's view, the Qatar pipeline is a NATO
plot to change the status quo, deprive Russia of its only foothold in the Middle East, strangle
the Russian economy and end Russian leverage in the European energy market. In 2009, Assad
announced that he would refuse to sign the agreement to allow the pipeline to run through Syria
"to protect the interests of our Russian ally."
… … …
But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement
from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing
that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar
Assad. "In fact, some of them have said that if the United States is prepared to go do the
whole thing, the way we've done it previously in other places [Iraq], they'll carry the cost."
Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): "With respect to Arab countries
offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly
yes, they have. The offer is on the table."
Ulenspiegel ,
03/03/2016 at 7:10 am
"The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which
would have given its members cheap energy and relief from Vladimir Putin's stifling economic and
political leverage."
That is nonsense. The issue is that Russia has quite limited leverage: They can not replace
the European customers on short notice – pipeline chain producer to certain customers – and they
urgently need the income.
The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades.
Ves ,
03/03/2016 at 8:25 am
"The issue is that Russia has quite limited leverage: They can not replace the European customers
on short notice"
Leverage is always mutual in the gas trade that involves long term contracts and long gas supply
lines. It is like marriage :-)
"The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades."
I am not sure that this is the case.
"Gazprom's gas exports to Europe – including Turkey – had increased to 158.6 billion cubic
meters in 2015 with a 8.2 percent increase compared to 2014."
Notable quotes:
"... Iraq's Oil Ministry said Tuesday that crude exports averaged 3.225 million
barrels a day in February ..."
by SINAN SALAHEDDIN | Associated Press
BAGHDAD (AP) - Iraq's Oil Ministry said Tuesday that crude exports averaged
3.225 million barrels a day in February, far below levels planned to provide
the nation with badly needed cash for ongoing military operations against Islamic
State extremists.
Last month exports grossed about $2.2 billion, based on an average price
of about $23 per barrel, ministry spokesman Assem Jihad said in a statement.
Iraq's 2016 budget is based on an expected price of $45 per barrel with a daily
export capacity of 3.6 million.
January's daily exports averaged 3.283 million barrels, bringing that month's
revenues to $2.261 billion.
The figures do not include oil being independently exported from Iraq's self-ruled
northern Kurdish region since mid-2015, preventing the government from reaping
revenues of nearly 600,000 barrels a day.
Iraq holds the world's fourth largest oil reserves, some 143.1 billion barrels,
and oil revenues make up nearly 95 percent of its budget. But like other oil-reliant
countries, Iraq's economy has been severely hit by plummeting oil prices since
2014.
This year's budget stands at nearly 106 trillion Iraqi dinars, or about $89.7
billion. It runs with a deficit of over 24 trillion dinars (about $20.5 billion)
that are planned to be relieved through loans from local and international lenders.
In the summer of 2014, Iraq was plunged into its worst crisis in the aftermath
of the withdrawal of U.S. troops at the end of 2011. The Islamic State group
- which emerged out of al-Qaida's branch in Iraq - blitzed across vast swaths
of Iraqi territory, including the country's second largest city, Mosul, and
captured nearly a third of Iraq.
Iraq introduced austerity measures earlier this year - eliminating government
posts, merging some ministries, halting spending on construction projects and
imposing new taxes to pay for civil servants and fund its military.
Notable quotes:
"... Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am sure he knows that. ..."
"... Pickens may not have the capability of writing Of Fossil Fuels and Human Destiny and The Grand Illusion , but when it comes to that oil barrel, man – he knows very well whats coming! ..."
Petro ,
12/23/2014 at 11:00 pm
To all:
…this is a gem:
https://www.youtube.com/watch?v=uwGz4foNsx8
one doesn't see this often on msm…. must have slipped through the cracks…somehow…
Happy Holidays to All!
Be well,
Petro
P.S.: if someone else already linked this, my apologies!
Ron Patterson ,
12/23/2014 at 11:26 pm
Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else
agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am
sure he knows that.
Huckleberry Finn ,
12/24/2014 at 12:02 am
Joe Kernan is a complete moron. He was mocking T.Boone, who was predicting higher prices all the
way from $30 to $140 in 2004-2008. At current growth rates, Saudi's will consume an additional
1 million barrels per day of their own consumption in 5 years. Ditto for Russia. Gonna be very
interesting.
Petro ,
12/24/2014 at 1:31 am
…"I am sure he knows that."…
-Yes he does, Ron! Yes he does!
That's precisely why he reacted with the lexicon and facial expression he did when his "old
buddy" Joe "challenged" his point of view and tried to portray him as a "same ol', same ol' "
charlatan!
Pickens may not have the capability of writing "Of Fossil Fuels and Human Destiny" and "The
Grand Illusion", but when it comes to that oil barrel, man – he knows very well what's coming!
And the imbecile Joe got it (or was told) at the end that you do not mess with T.Boone…so we
have to end on football and the "come again when in NYC…" bullshit.
"Well someone else agrees with me"
I would argue with some accuracy that a few more than "someone" do indeed agree with you Ron,
but your ultimate proof of vindication and sign that what you narrate about is close…very close,
stands with the fact that idiots akin to Joe Kernan, Ron Insana, etc. feel confident and knowledgeable
enough on mocking Matt Simmons…
-As Mr. Joseph Kennedy said: "…when the shoe shine boy gives you stock tips, cash out and stuff
the mattress…".
Be well,
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Tue, 03/01/2016 - 11:50 |
7256850
Huh Reeeally
So, max oil production when there has been falling demand causes
low prices which is good for consumers, what could go wrong?
If you're Syria you're the pipeline hub to enable either NATO or
Russian control of european gas supplies.
If you're Ukraine, well, everything has gone wrong, hasn't it?
Innocence of the masses VS effective propaganda...
If you're Yemen then your border is contiguous with that of a large
Saudi oil field, not to mention a competing brand of Islam.
If you're Iraq then, well, you've been totally f*d over since Bush
Sr., sorry about that.
If you're Libya and want to sell oil in gold Dinars, and your name
is Kadaffy (I know, but who cares how it's spelled?) then you should
have known better. Doesn't matter if you have a huge aquaifier and can
give away land and irrigate it, or provide free university education.
I guess I should be glad I'm just a simple consumer! Wait, I'm
paying for all this shiite!!!
Tue, 03/01/2016 - 11:53 |
7256869
inosent
Short term, the trade was to sell w/34.69 APR 16 as a stop. There
is still the trend, mojo to the downside, which has not yet broken.
The shot game is to hold feb high, and plunge to new lows, so March is
a thich red monthly bar that closes near the lows. I think the trigger
price is Feb highs, and it isn't too far away prev year sett, meaning
a break of feb = touching the prev yr sett, and going positive for the
year, which is an epic event, esp in this setting. Right now the
market is trapped inside of the 2/16/2016 shadow, w yday close
conspicuously settling (once again) inside that shadow @.75, with the
top of yday bar @.98, last trade 90.
the news is bad, but the news is bs. just a headline. the news is
only a story, the truth is somewhere else. so trading on old news
wears out and the paradigm shifts. pretty soon they talk about how the
world's population break 8 BB, so many ppl, so much demand, all that
stuff. then you stare at a chart that is in love with the upper right
hand corner of the chart, instead of the lower.
It's hard to see it, and believe me, impossible to feel it, esp
with all this short sniping and juking ower, threatening, etc, but,
and I get the velocity of money thing, I had not really taken that
fully into consideration, but nonetheless, the money supply flying
around out there is still 4x greater
today
that it was in
2009, where the prices were
higher
than they are now. On the
surface of it, that seems crazy to me.
So, theoretically, commods across the board are front running a
collapse in money supply (which has not happened yet) bcz, if I have
this right, the ponzi scheme of this money system requires fresh debt
to cover old % obligations, and those % obligations touch innumerable
amounts of debt instruments, govt, corp, down to mom and pop private.
As ZH hammers away on all the time, the question is, exactly
where
is the fresh money supply supposed to come from to cover?
If ZIRP failed for lack of takers, and one could argue that failure is
real because of the existence of NIRP, where the banks just go into
your acct and simply take
your
money to cover
their
obligations, and if NIRP is only a temporary bandaid (TM, haha)
solution, the argument goes that if there is not enough liquidity in
the system, these obligations
cannot
be covered, and as we
saw in 2008, when
that
happens, the par value of the bonds
pretty much hits zero, and when that happens,
then
the money
supply crashes, because as we know,
debt is money.
Assuming Putin is not (at least completely) right about the selling
politically motivated, with the hidden hand behind it the US Treasury,
trying to destroy Mother Russia (that has to at least be a factor),
what I would say that we are looking at, considering the extreme, mind
blowing divergence between oil prices and the stock market indices, is
at least the
possibility
the market has just
priced in
the coming money supply wipe out, the
worst case scenario.
So let's say the money supply crashes from today's levels to 2009,
that is a big drop, for sure, but oil
already played that
, to
the
extreme
of hitting $26 (!). That would definitely have an
impact on stock prices, but if oil
was
at $35 @2009 MS
levels, why would it be @10?
Of course, when the money supply crashes, moving away from the
current, seemingly impenatrable MS ceiling, this then leaves a lot of
room for fresh injections of money supply, to get the game started all
over again - but not after a lot of ppl get whatever they had in
equity totally wiped out.
But, under my analysis here, assuming that scenario, oil was way
out in front, so they wont be trading on that anymore because it
happened. That is old news, for real. And in that scenario, oil
production gets wiped out, but the demand (static as it generally is,
increasing only with a steady rise in population, in broad terms),
this would force oil prices much higher.
And what if the bet on money supply crash is wrong, and the central
banks pull a rabbit out of their hat? That is supportive of oil prices
as well.
Finally, setting aside all else, assuming our crazy world just
keeps on keeping on, and the fraud of headlines continues to mask the
truth that things are far better in the world than the headline
dictates, and that no new technology has come into play that makes oil
obsolete, the most basic and primitive analysis has one looking at
$26 v 0 and $26 v $150. You tell me, where is the risk?
Getting to new all time highs in a commod can take a very long
time, I grant you that. But no matter how I slice it, while sellers
might get some love down here for, what, $10, $15, they are starting
to play a game of market roulette, where instead of one bullet in the
chamber, there are like 3 or 4.
Thus, (150 - 25) / 2 = $62. (150 - 15) / 2 = $67. In other words,
the lower the prices go, the higher the mid point in the range between
old all time high, and last printed low. Some would argue the $150 oil
was an anomaly, but I say it has to be accounted for, and the
underlying factors that led to it are still in play, and not likely to
change for years to come. Even
if
there is an equity crash
back to 2009 lows, what does anybody thing the odds are that the fed
res system will be abolished and the hands that control the money
system will change?
If
that
happens, then the FRN becomes extinct, and then
perhaps we see a repricing across the board, where
everybody
gets a massive haircut. But that is a separate issue. Apples and
oranges, and a different risk discussion. Hence, in the present
context, I see oil back in the mid 60s, hard to say when, 2 years? Who
knows. But if the context doesn't change, I am far more focused on
that $150 than the $10, because if the context doesn't change, even
if
there is a MS crash, as oil is way out in front of it,
they can just rebuild the MS and put everybody right back where they
were in 2007, or even worse - meaning oil trades @ $200 p/bbl, back to
peak oil headlines, incessent demand, etc.
You cant see it now. 5 years? 7? Yeah, it wont look like this.
Leave it to the markets and the news and all the BS of the day
distract you from seeing a once in a lifetime opportunity. But, that
is what makes a market a market. Everybody has their own ideas, and
definitions of risk, and execute accordingly.
As always, the best trader wins.
AlexS,
03/02/2016
at 5:46 am
Russia's crude and condensate production in February was 10,840 kb/d (preliminary estimate), up
2.1% year-on-year, and down 25 kb/d (0.2%) from January level.source: Russian Energy Ministry
ERRATA,
03/02/2016
at 8:20 am
http://www.19rus.info/index.php/ekonomika-i-finansy/item/44314-rossiyan-preduprezhdayut-ob-ostrom-defitsite-benzina-s-1-iyulya
Russians warn of the acute shortage of petrol from July 1
--------
http://www.the-village.ru/village/situation/situation/231679-benzin
In the summer of 2016 Russia will face with lack of gasoline.
Jeffrey J. Brown,
12/22/2014
at 2:19 pm
A somewhat surprising article in Fortune:Why the next world war will be fought over food
http://fortune.com/2014/12/21/why-the-next-world-war-will-be-fought-over-food/
likbez,
03/01/2016 at 8:25 pm
Looks like Russian bear after being hit in the head and robbed at gun point starts slow awakening
from hibernation. The honchos of Russian oil companies are now officially onboard for the freeze
and some of them want more drastic measures. They have a discussion of "stabilization of Russian
economy" (which means stabilization of oil prices) with President Putin, which means that Putin
got his marching orders from oil oligarchs, some of which wants "quid pro quo" from the
government (not to increase taxes on oil despite budget deficit). Details are scarce. But previously
hapless head of Rosneft Igor Sechin lamented about the situation he drove his company into, being
completely unprepared to the oil price crush. May be he got promises of additional loans to keep
the company afoot.
Generally Russian performance in this crises leaves to me the impression of complete incompetence
on high level. Especially unimpressive is Alexander Novak – the Russian Minister of Energy. He
speaks like a typical neoliberal. This is when more centralized economy should score points and
they instead were taken for the ride and continued to buy the US Treasuries. Why not to buy Russia
oil for the strategic reserve instead, like China did ? I think Russia still does not have any
state strategic oil reserves (the only major country in such a position).
Russia is ready for the implementation
of the freeze of oil production
Slightly edited Google translation
Izvestia.ru
President Vladimir Putin and the heads of major Russian oil companies discussed implementation
of decisive measures to stabilize the Russian economy in view of increased volatility of world
markets.
As a start Russia is ready to join the group of countries within and outside OPEC, which approved
the proposal to freeze the level of production of oil in 2016 at January level. Such production
limits can be implemented by a joint agreement of key countries, that is already was put on table
on Feb 16, 2016 by Saudis, Russia, Qatar and Venezuela and now is at the stage of multilateral
discussion with other oil exporting countries. The final decision is expected somewhere in March
on a new meeting of Ministers of oil producing countries.
This meeting at the Kremlin was chaired by Vladimir Putin and was attended by all key representatives
of the Russian oil industry - the Chairman of the Board of "LUKOIL" Vagit Alekperov, the General
Director "Surgutneftegaz" Vladimir Bogdanov, the head of Board "Gazprom oil" Alexander Dyukov,
the President of the company "Bashneft" Alexander Korsik, the General Director of Zarubezhneft
Sergey Kudryashov, the head of "Tatneft" Nail Maganov, President of "Rosneft" Igor Sechin, the
head of the Independent oil and gas company Eduard Khudainatov.
In addition, the Russian minister of energy Alexander Novak and the head of the presidential
administration Sergei Ivanov, as well as aide to President Putin Andrei Belousov also participated
in this meeting.
This year Alexander Novak held a series of meetings with Ministers of oil-producing countries.
In February, the negotiations in the Qatari capital and it was proposed to fix the production
at the level of January. In January, Russia produced 46,006 million metric tons of oil with gas
condensate. This is 1.5% more than in January 2015. Average daily production amounted to 10.9
million barrels.
Before the meeting, when everybody was sitting at the table, Vladimir Putin held a short private
consultation with Alexander Novak. After that Putin opened the meeting with the following statement:
"As the Minister reported to me, some of you have more radical suggestions (for the countries
- exporters of oil. - Izvestia) for the stabilization of oil markets, but about this particular
measure (fixation of production at the level of January. - "The news") as I understand something
close to a consensus already exists.
The purpose of our meeting today is to hear from each of the heads of the companies represented
here personally the opinion of each of you on the subject of the discussion. How do you really
feel about the current situation and measures that need to be taken ?"
CEOs of major Russian companies remained silent while journalists were present. Only the General
Director "Tatneft" Nail Maganov and Chairman of the Board "Gazprom oil" Alexander Dyukov start
grinning, because these companies in January of this year recorded a growth of production relative
to January of last year (by 4.2% and 5.6% respectively, according to the Central Department of
Control of Fuel and Energy Complex).
After those introductory remarks journalists were asked to leave the meeting.
The meeting did not last long. After the meeting ended, Minister Alexander Novak in a press
conference said to journalists that all heads the Russian companies who were present supported
this international initiative. He stated that:
The implementation of this freeze should give a positive impulse on oil markets. It increases
the predictability of behaviors of key market participants, which should lead to the reduction
of volatility…
Today, the total surplus of world oil production is estimated to be around 1.5 million barrels
per day. If you freeze the level of production on the level of January, 2016 and the demand
increases by 1.3 million to 1.5 million barrels a day, the oversupply in the market will be
eliminated at the end of the year. And we already saw some signs of stabilization of the market
after this measure was announced.
Alexander Novak also noted that this freeze may not only reduce price volatility but also shorten
the period of depressed oil prices to the end of 2016, when in his opinion oil prices can return
to the $50-60 per barrel range. He noted that as of today 15 oil producing countries have publicly
declared his readiness to sign the agreement.
According to the Minister, they represent around 73% of world oil production. The exact format
of the agreement, in which the key is the method of monitoring of compliance, is yet to be determined.
The sighing of the freeze agreement can happen at another meeting of oil ministers in March.
According to Alexander Novak, even if Iran does not join the agreement, the market will still
stabilize, as Iran still has a very low level of production and can't increase it fast. Due to
this countries-signers of the agreement can make an exception for Iran and increase its ceiling
over the January 2016 level.
Freezing production at least will stop flooding the market with new volumes of oil in the delusionary
pursuit of "market share", commented on the event the analyst of FC "Discovery Broker" Andrei
Kochetkov. It will more be influenced by the financial strength of companies and countries as
well as the real costs of production from the depleting fields. On average, traditional oil wells
lose 3-5% of production volume each year, he said. Accordingly, if the flow of new investments
in the field slow down to a halt, the global market might lose another 3-4 million barrels per
day of the production at the end of the year. This drop even if less drastic as stated will increase
the pressure on oil prices said the expert.
There should not be any major problem for Russian companies with freezing the production of
oil on January, 2016 level said the head of the analytical company of the Small Letters Vitaly
Kryukov. We should not fear that this measure damage our fields, given that in Western Siberia
production continues to fall, he said.
That, of course, might lead to less drilling in some places but will not affect the commissioning
of new projects that were under construction. For example, LUKOIL is expected to launch new projects
this year in the Caspian sea, but at the same time they are quickly losing the volume of production
in Western Siberia.
The second topic discussed at the meeting with the President was the taxation of Russian oil
companies. The heads of the companies have asked the head of state in the medium term, not to
raise taxes and to keep the current system of taxation while the current turmoil with oil prices
exist. In his after the meeting interview Alexander Novak stated that Vladimir Putin is now aware
about the position of the heads of Russian oil companies on this subject, but this issue still
needs to be discussed inside the government.
This "OMG Cushing is filling up" MSM meme is actually extremely disingenuous...
Amatoori ,
02/28/2016 at 11:31 am
A good but long podcast with Art Berman, not so much new stuff for the people here but gives a
great over all picture on the oil market right now.
http://www.macrovoices.com/podcasts/MacroVoices-2016-02-25-Art-Berman.mp3
likbez ,
02/28/2016 at 3:12 pm
Thank you for the link.
The interviewer was very weak and rather arrogant. That spoiled the broth. See also a more
valuable Art Berman presentation (PDF)
http://www.macrovoices.com/publications/guest-publications/1-the-origins-of-the-global-oil-price-collapse-and-potential-investment-opportunities/file
IMHO this presentation is more valuable then interview.
likbez ,
02/28/2016
at 10:45 pm
One interesting take from Art Berman presentation is that he ignore "Great condensate Con" (and
grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut $30 oil
price range will last for the whole 2016.
• Energy markets have been characterized by low oil prices and over-supply since
mid-2014.
• Supply deficit before Jan 2014, supply surplus after
• Prices fell from 2011-2013 average of $111 per barrel to average of $52 in 2015.
• Without an OPEC cut, 2016 prices will probably be in the $30 per barrel range.
… … …
U.S. crude oil produc4on has declined about 570,000 bopd since the peak in April 2014,
about 60,000 bopd per month.
• EIA forecast is for a total decline of 1.4 mmbpd by September 2016 ( ~100,000 bopd per
month) before increasing again based on $43 per barrel WTI by year-end 2016 and $58 by
year-end 2017.
• Price deck has WTI at $43 per barrel by December 2016 & $58 by December 2017.
• Forecast suggests that the oil market is sufficiently in balance now for prices to increase
but
that production will not respond to price signals until later in 2016-very optimistic.
… … …
Little chance that oil prices will increase beyond the head-fakes and sentiment-driven price
cycles of
2015 and early 2016 until U.S. crude oil storage begins to decrease.
• Oil stocks are currently 152 million barrels above the 5-year average and 128 million barrels
above the
5-year maximum.
… … …
• Cushing and Gulf Coast storage make up almost 70% of U.S. working storage.
• These areas are currently at 84% of capacity. Cushing at 89%.
• As long as storage volumes remain above 80% of capacity, oil prices will be crushed.
• Until U.S. oil production declines substantially, storage will remain near capacity.
The OPEC cartel needs to take action to stabilize the oil market because crude prices have fallen
to "totally unacceptable" levels, Nigerian President Muhammadu Buhari said on Sunday.
Nigeria, Africa's biggest oil producer which earns around 90 percent of its foreign exchange earnings
from crude oil exports, has been hit hard by the erosion of vital revenues caused by the global slump
in oil prices which has also hammered its currency.
"The current market situation in the oil industry is unsustainable and totally unacceptable,"
Buhari told Qatar's ruler during a meeting in Doha, his office said in a statement.
Speaking on the second day of his visit, Buhari highlighted the need for cooperation between OPEC
and non-OPEC producers.
"We must cooperate both within and outside our respective organizations to find a common ground
to stabilize the market," said Buhari, who also discussed ways to stabilize prices with Saudi Arabia's
King Salman in Riyadh last week.
On Thursday, Venezuela's oil minister said Qatar, Russia, and Saudi Arabia had agreed to a meeting
in mid-March as part of efforts to stabilize oil markets.
Buhari's spokesman, Femi Adesina, added that delegations from Nigeria and Qatar signed two bilateral
agreements to "boost economic cooperation" between the countries.
There was an agreement to avoid double taxation and tax evasion as well as another that would
pave the way for direct flights between major cities of both countries.
Reuters
Davy on Sun, 28th Feb 2016 12:22 pm
Nigeria should be worried. With a population of 173 Mil Nigeria is a huge African nation. Nigeria
just barely feeds many of its poor people. Climate change appears to not be a benefit to Nigeria
with increasing instances of drought. This country is flirting with failure if low oil prices
and drought continue. Oil has allowed this country to expand many times past what it should have.
Lagos metropolitan area is approximately 16Mil. This is a mega city in an overpopulated country.
If you think Nigeria can just fail and everyone will do fine without them think again. Some of
the best oil in the world comes from Nigeria. They are a significant producer at 2.5 mbd. They
are an important anchor to West Africa the world can ill afford to lose.
Rick Bronson on Sun, 28th Feb 2016 5:10 pm
If big oil can produce at $30 / barrel, they can survive, otherwise they close.
More than 1/2 the rigs were closed, that means Shale is not viable at $30 / barrel.
It has nothing to do with the leadership. Its the market economy.
But even at this low oil prices, electric vehicles are selling decently.
Garden-City Boy on Sun, 28th Feb 2016 5:49 pm
Oil is the only glue that holds the Nigerian patchwork together. The tanking oil price triggering
Nigeria's export earnings' nosedive is probably the best thing to happen to the Nigerian contrivance.
Nigerians and indeed the World should brace up for the inevitable and learn to come to terms
with what crystalizes from the precariously fragile mosaic.
As I highlighted
on CNBC yesterday, Saudi's actions speak louder than their words; they
may be willing to entertain a production freeze if everyone else plays ball,
but in the meantime, they are continuing to flood the market, involved in a
political battle with Iran.
This is illustrated in the chart below. So far
in February, we are seeing Saudi crude oil flows into China up 30% versus
February last year, and some 67% higher than volumes seen last month,
kicking around record levels. On the flip-side, while we are hearing
repeated claims of production ramping up from Iranian sources, we are yet to
see this manifesting itself in vastly higher Iranian export activity.
On the economic data front we have had a number of inflation readings out
across the globe. Japan kicked things off, with inflation data coming in as
flat as a pancake at 0.0% YoY in January, edging down from +0.2% in the
month prior. German inflation was also as flat as a beaver's tail, at 0.0%
YoY for February, down from +0.5% in the prior month. We have also had
consumer confidence and business climate assessments out of the Eurozone:
both readings were downbeat.
Looks like Russian oil minister decided to play the role of a regular supply and demand jerk, may
be intentionally. Generally Russians unlike Chinese's behaved like idiots in this situation. Inread
of building state petroleum reserves like Chinese did and later selling oil later at reasonable prices
they continued to dump the oil on market helping Saudis to crash the price. Russia is still buying US
treasures instead as if oil is not as reliable as currency. Russia is the only major country that does
not have strategic oil reserves.
Alexander Novak mostly sounded like a regular member of the neoliberal cosmopolitan elite not as
a Russian oil minister who is interested in well-being of Russian citizens. As Soros aptly mentioned
such people have more in common with Wall Street financial oligarchs that with interests
of their own country.
Whether this was intentional of this is a his assumed position for Die Welt I do no know.
Notable quotes:
"... Given the pricing environment we expect in 2016 further reductions of 15-40%. Thus, this year 30 largest companies in the world can cut $200 billion from capex budgets . At the same time, we see that rise in in the price of the credit for oil producers in the US hinders their access to financial markets. ..."
"... On a global scale in the short term, these effects will be minimal. However, in the medium and long term they will be dramatic, because many of the cancelled projects were important for stability of oil supply from the point of view of growing global demand, have been postponed or frozen. So we can assumed that after 2020 a stable supply of oil is under threat. In this regard, Russia seeks to remain a stable supplier of oil globally. ..."
24.02.2016 | Die Welt/InoSMI
Russia is suffering from extremely low oil prices. Energy Minister Alexander Novak warned us
against the dramatic consequences of falling oil prices for the entire world. After the oversupply
of oil, according to him, a severe deficit is coming.
Die Welt: You have agreed with the oil Minister of Saudi Arabia on the limitation of oil
production. At first the market reacted to the results of your negotiations negativity and oil prices
continued to fall. What, in general, gives us this arrangement?
Alexander Novak: I Think our meeting with the colleagues from Saudi Arabia, Qatar and Venezuela
were very productive. The main result was a preliminary agreement on limiting oil production in 2016
at the level of January of this year. The final decision will be made when this initiative will join
most other oil producers. In our view, this approach would gradually reduce the oversupply and stabilize
prices at a level that will ensure the stability of the industry in the long term.
- Let's assume that others will agree with this. However, experts believe that price stabilization
is necessary not just freeze, and a reduction in oil production.
- Such proposals are periodically received. But we think that this may soon lead to an abrupt
artificial increase in prices. Because such a rise in prices entails the inflow of speculative
money into capital-intensive projects, for example, in the production of shale oil that, in turn,
will lead to rapid increase of oil production and as a result another round of oil prices fall. Of
crucial importance is the level of prices at which US shale oil is unprofitable. If the oil price
moved higher higher, we will again be faced with the effect of plummeting oil prices. That is why
we need mutual consultation in order better to access the current supply and demand situation.
- But the decline in prices over the last 18 months ago is already having a serious negative
impact on producers with higher costs.
- Yes, albeit slower than expected. This is a change from previous oil price cycles, when only
the oil exporting countries influenced the market by voluntarily reducing the production. But after
the invention of the technology for shale gas extraction in 2009, the situation has changed.
- So you agree with the International energy Agency, believes that in 2016, contrary to expectations,
oil prices stabilize?
- In general yes. Because when in mid-2014 oil prices began to decline, many thought that soon
shale oil will fall prey of it. However, this did not happen. We can see that the price at around
$100 per barrel was too high, but shale oil companies for more then a year managed to withstood the
falling oil prices and continue oil extraction is volumes comparable with the volume at peak.
Demand and supply grow equally, and the gap between them did not became smaller. That's why in 2016
everyone is adjusting their predictions about the end of low oil prices regime.
Limited access to funding by high cost producers and delay in implementation of capital intensive
projects will play a role in the alignment of supply and demand in the market and the volume of oil
production outside OPEC, primarily in North America, will be reduced. For example, in the US, the
number of drilling rigs already has declined by two-thirds.
- Not only in the United States. All the world's leading oil companies reduced their investment
programs by 10-35%. What reductions we can expect in 2016?
- Given the pricing environment we expect in 2016 further reductions of 15-40%. Thus, this
year 30 largest companies in the world can cut $200 billion from capex budgets . At the same time,
we see that rise in in the price of the credit for oil producers in the US hinders their access to
financial markets.
- What can be the consequences of reducing investments in the foreseeable future?
- On a global scale in the short term, these effects will be minimal. However, in the medium
and long term they will be dramatic, because many of the cancelled projects were important
for stability of oil supply from the point of view of growing global demand, have been postponed
or frozen. So we can assumed that after 2020 a stable supply of oil is under threat. In this regard,
Russia seeks to remain a stable supplier of oil globally.
- Can Russia to help stabilize prices, "selling" to OPEC and other major producers the
idea to reduce production?
- We haven't made exact calculations. For Russia, this is a difficult question due to the technological
aspects of oil extraction, the current state of the projects under construction and climatic conditions.
You can understand our situation from a simple fact: Russia has more than 170 thousand wells, and
to reduce their number very difficult. And in the middle East much less wells: Saudi Arabia produces
the same amount of oil as we do, with only 3500 wells. In addition, our oil companies are independent
joint-stock companies which are independently planning the level of their own production.
- The head of the second largest Russian oil company LUKOIL Vagit Alekperov said recently that
the Russian oil sector is most afraid that the government will change tax rules for him.
- I share the opinion of the head of the Lukoil concern. We needs a stable tax system. Oil prices,
along with the ruble and so fell and to this created for oil companies the problems of financing
of the oil extraction. If in addition we change the rules of taxation, the future would
become impossible to predict and the companies would be unable to plan their activities for more
then one year. We in the last two years had introduced some tax breaks which should encourage the
production at new fields in Eastern Siberia and the far East. Their effect is already noticeable:
in 2015, we got from those fields additional 60 million tons.
- And in the Arctic region?
- This region now is off-limit due to the costs. But the investments in the extraction of Okhotsk
and Caspian seas have risen because they are attractive from the point of view of taxation. In the
long run we are - regardless of the dynamics of oil prices - will have to change the tax system.
Together with the Ministry of Finance we will develop in the course of this year proposals.
- Russia, as you know, is struggling with declining production in current fields. If the investment
will be reduced, won't this mean that in 2017 the volume of oil production will fail?
- Much will depend on the situation with oil prices and the ruble exchange rate. All our major
companies confirm that they will be able to maintain production at the current fields at the current
level. However, at the current oil prices, investment in new projects will be reduced - at least
by 20-30%.
- In the medium to long term additional load on unconventional and expensive projects will
fall and Western sanctions. How noticeable the effect of them now?
- Impact on overall production is extremely small. In the last two years we have extracted from
these "difficult" fields were we do need western technology just 18 million tons, or around
3% of our total production. The growth of their share is a matter of the future.
- However, without the Western technologies to achieve it will be difficult.
- I expect the opposite effect. Since our companies cannot cooperate with the West in this
area, they had to do this work independently and to develop new technologies in Russia.
- Let me get this straight: in the next few years Russia can't eliminate technological handicap
with the West. This will not work.
At least, we achieve our goals. In three years we seriously upgraded the level of our current
technology. Professionals, scientific and practical basis of all that we have. Many companies are
working on it.
- As for the gas sector, the European Commission seeks to obtain access to all of the gas contracts.
What is that in your shows?
- It's hard for me to comment on it. We believe that commercial contracts are a matter between
the two companies.
- Are you concerned about the behaviour of the EU?
- European authorities want the contract on deliveries was coordinated by the European Commission.
However, many countries disagree. Much will depend on them.
- Differences between the EU and Gazprom have a long tradition. For a long time Gazprom attitude
to the EU's was aggressive and disrespectful. Now his tone was softer. How do you evaluate the bilateral
relations at the moment?
- We believe that Russia is a reliable supplier and that the relationship is beneficial to both
parties. Thus the entire current infrastructure was created. Now, however, we have to expand
it taking into account the fact that production in Europe will decrease and demand will increase.
But differences remain. Can we call the position of Europe a constructive policy ?
- Political aspects now take precedence over the economic aspect of natural gas and oil supplies.
So, for political reasons the project "South stream" was blocked . For political reasons, there
are attempts to prevent the expansion of Nord stream. It is obvious that the construction of the
first two lines of the "Nord stream" conformed to European legal norms. However, the attitude
to the two new branches is different. In addition, we see that in the new energy strategy of the
EU does n mention relations with Russia. How can this be considering the fact that we are the main
supplier of energy to EU? We hope, however, that pragmatism will prevail. We need to develop relations
based on mutual interests, guarantees and long-term prospects.
- I can assume that you are counting on the support of Germany to expand the "Nord stream".
- We presume that we are talking, primarily, about economic project. Major energy companies of
Europe are interested in him. Because this is a long term project. And we will compete with other
suppliers of natural and liquefied gas, which is the rate now.
Notable quotes:
"... Chinas output in 2016 will decline between 3 percent and 5 percent from last years record 4.3 million barrels a day, according to analysts from Nomura Holdings Inc. and Sanford C. Bernstein Co. That would be the first decline in seven years and the biggest drop in records going back to 1990. The country is the worlds fifth-largest producer and biggest consumer after the U.S. ..."
"... Fellow state-run energy giant China Petroleum Chemical, also known as Sinopec, said on Jan. 27 that oil and gas output in 2015 fell for the first time in 16 years as a slump in domestic crude production outweighed record volumes of natural gas ..."
"... While some Middle East suppliers can operate with oil at $25 a barrel, the break-even cost for Chinas Cnooc is closer to $41, according to Nomura Holdings Inc. analyst Gordon Kwan, who predicts the countrys domestic crude production will fall by 5 percent this year. ..."
"... The plateau, 2008 – 2014, was made possible by infill drilling. I suspect that the decline curve will be steeper than indicated in the above chart. ..."
AlexS,
02/28/2016 at 11:10 am
It seems that China's oil production will decline this year.From Bloomberg:
China Oil Output Seen Cracking Under Pressure of Price Collapse
http://www.bloomberg.com/news/articles/2016-02-05/china-oil-output-seen-cracking-under-pressure-of-price-collapse
• Domestic production forecast to fall first time since 2009
• Crude output may decline by as much as 5 percent: Nomura
China's output in 2016 will decline between 3 percent and 5 percent from last year's record
4.3 million barrels a day, according to analysts from Nomura Holdings Inc. and Sanford C. Bernstein
& Co. That would be the first decline in seven years and the biggest drop in records going back
to 1990. The country is the world's fifth-largest producer and biggest consumer after the U.S.
"We expect significant cuts in upstream production as the companies cut output at loss-making
fields," said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. "Chinese
explorers need to take more radical action to cut operating costs and increase efficiency."
CNPC plans to maintain crude output near 2015 levels, Deputy General Manager Wang Dongjin was
quoted in a statement posted last month on the company's website. The country's biggest producer
has only a "limited amount" of money to invest this year and will spend on oil and gas projects
that improve efficiency or promote sales, Wang said.
Fellow state-run energy giant China Petroleum & Chemical, also known as Sinopec, said on
Jan. 27 that oil and gas output in 2015 fell for the first time in 16 years as a slump in domestic
crude production outweighed record volumes of natural gas.
Cnooc. Ltd., the country's biggest offshore crude explorer, said last month that output will
fall this year, the first time in more than a decade, as it accelerates spending cuts.
While some Middle East suppliers can operate with oil at $25 a barrel, the break-even cost
for China's Cnooc is closer to $41, according to Nomura Holdings Inc. analyst Gordon Kwan, who
predicts the country's domestic crude production will fall by 5 percent this year.
China announced last month fuel prices won't be cut in line with crude as long as it trades
below $40 a barrel. The National Development and Reform Commission said the floor is designed
in part to shield domestic oil producers from the global price collapse.
"The policy is designed to provide explorers room to breathe," said Laban Yu, head of Asia
oil and gas equities at Jefferies Group LLC in Hong Kong. "China cannot afford to shut down domestic
production no matter how cheap crude gets."
dclonghorn says:
02/28/2016 at 1:17 pm
The articles I referred to above show a decline in actual Chinese production of 2.5 percent in
one month. China produces around 4 million bopd, so it is a top producer. Any producing area can
show a lot of variability from one month to another and production could rebound or have a small
decline next month, however 2.5 percent decline in a month is big.
As a comparison, If the EIA came out with actual USA production falling 2.5 percent in January
that would be a decline of around 230,000 barrels per day from December 2015. That's big!
On the other hand, Ron's historical production charts for China do show a lot of variation
from one month to next. I don't know anything about xinhuanet which ran this report, or the National
Development and Reform Commission which is supposedly reporting this information.
Javier ,
02/28/2016 at 1:41 pm
So that's a 215 mbpd predicted reduction from the world's fourth producer.
Watcher ,
02/28/2016 at 3:08 pm
http://www.tradingeconomics.com/china/crude-oil-production
Click on 5 Yrs. Looks like relentless increase in Chinese oil production since mid 2014 when
price decline started and when oil was > $100. Apparently EIA data.
No reason this can't be so given they have their own central bank.
dclonghorn ,
02/28/2016 at 3:16 pm
Nope, its an actual reported one month reduction of 2.5%. The data is in tons and I'm not sure
how it would convert but it would probably be a little over 100,000 bopd.
My point was that rate of decline in the US would be about 230,000 bopd in a month, so it is
a large percentage decline.
AlexS ,
02/28/2016 at 3:37 pm
Changes of 2-4% in China's monthly oil production are not unusual. More important, if this marks
a change in long-term trend.
China oil production kb/d
(converted from tons using 7,3 ratio)
Source: National Bureau of Statistics of China
oldfarmermac ,
02/28/2016 at 4:56 pm
It is hard to say how free oil companies are in China to go their own way, as they see fit, when
it comes to production policy. The government exercises an enormous amount of power over Chinese
industry.
Now if I were a Chinese commie, in a high position, knowing my country has a huge stash of
dollars possibly subject to depreciation due to inflation, I would opt to buy oil, and hold on
to domestic oil in the ground inside the country.
It seems like a damned safe bet it will be worth a lot more in a few years than it is now,
and the interest China earns on dollars is trivial.
AlexS ,
02/28/2016 at 5:09 pm
"Now if I were a Chinese commie, in a high position … I would opt to buy oil, and hold on to domestic
oil in the ground inside the country."
That's what they are doing. China is planning to increase its Strategic oil reserve capacity
to 500 million barrels in 2020
source for the chart below:
http://www.bloomberg.com/news/articles/2015-09-17/even-a-slowing-china-is-oil-s-best-defense-against-deeper-slump
Javier ,
02/28/2016 at 5:01 pm
I was referring to Nomura's prediction of a 5% yearly fall in China's 2016 oil production. If
it comes to happen this should set back production to 2012-13 levels.
Ron Patterson ,
02/28/2016 at 4:16 pm
China's production has been increasing at an average of almost 2% per year for about 10 years
now.
AlexS ,
02/28/2016 at 4:25 pm
…. and even longer-term
China's oil production, 2002-Jan 2016
sources: JODI, National Bureau of Statistics of China
(JODI uses conversion rate of 7.32 barrels/ton)
AlexS ,
02/28/2016 at 4:58 pm
China's mature onshore oil fields are declining.
This includes Daqing, China's largest field, currently accounting for a fifth of the country's
output.
excerpts from an article:
"In late 2014, CNPC essentially threw in the towel on its workhorse field, Daqing, announcing
that it would allow the field to essentially enter a phase of managed decline over the next five
years. Under this new approach, the field's oil production will fall from 800,000 barrels per
day (kbd) in 2014 to 640 kbd by 2020: a 20 percent decrease.
Daqing's oil production has declined relentlessly, despite PetroChina's significant increase
in drilling activity in the field during recent years. This suggests a significant risk that production
could fall faster than planned. For reference, PetroChina drilled 1,975 development wells in 2002
when oil production averaged 1.079 million barrels per day, but was forced to boost this to 4,498
development wells in 2014, when oil output at Daqing averaged 792,000 barrels per day. In short,
the number of development wells drilled increased by nearly 250 percent while oil production fell
by roughly 27 percent."
source: "China Peak Oil: 2015 Is the Year. By Gabe Collins. The Diplomat, July 07, 2015 [
http://thediplomat.com/2015/07/china-peak-oil-2015-is-the-year/
]
The chart below is from the article
Daqing field oil production, '000 bpd
Ron Patterson ,
02/28/2016 at 8:48 pm
The plateau, 2008 – 2014, was made possible by infill drilling. I suspect that the decline
curve will be steeper than indicated in the above chart.
AlexS ,
02/28/2016 at 9:57 pm
China's second largest field is Shengli, operated by Sinopec (China Petroleum & Chemical Corp.).
Although Shengli is a mature field (discovered in 1961, developed since 1964), production there
remained relatively stable within a range between 510 and 540 kb/d for many years, thanks to intensive
drilling program.
While Shengli's output was plateauing, Sinopec's other fields in China have delivered impressive
growth, having doubled oil production from around 150 kb/d in 1999 to 310 kb/d in 2014 (see the
chart below).
The growth trend was reversed in 2015, when Sinopec's output in China declined by 4.7% – the
first decline since the company's IPO in 2000. Further decline is expected in 2016.
The quote below is from Bloomberg:
"Sinopec has been maintaining output in its aging oil fields by over-investing and this is
no longer possible in the current oil price environment," said Neil Beveridge, a Hong Kong-based
analyst at Sanford C. Bernstein, who estimates the company needs oil to stay above $50 a barrel
to break even. "We expect Sinopec's domestic oil production to drop 5 percent to 10 percent this
year as it shuts down aging high-cost oil fields."
"Sinopec Shengli Oilfield Co. [Sinopec's subsidiary – AlexS] will shut the Xiaoying, Yihezhuang,
Taoerhe and Qiaozhuang fields to save as much as 130 million yuan ($19.9 million) in operating
costs, the company said in a statement.
The four oilfields are among the least profitable among 70 run by Sinopec Shengli, according to
the statement.
Fu Chengyu, the former chairman of Sinopec, said last year that output at the unit was being cut
"proactively" because of low oil prices."
http://www.bloomberg.com/news/articles/2016-02-17/oil-rout-echoes-in-china-as-sinopec-unit-shuts-crude-fields
Sinopec's oil production in China (kb/d)
Source: Sinopec F-20 annual reports, Operational Statistics for 2015
dclonghorn ,
02/28/2016 at 10:24 pm
Thanks for the information.
Notable quotes:
"... Just saw a press release on China's crude production for January. It says they are down 2.1 percent year on year to 17.69 million tons. ..."
"... An earlier release shows them producing 18.15 million tons in December 2015. That's a one month decline of 2.5 percent. ..."
dclonghorn,
02/27/2016
at 6:19 pm
Just saw a press release on China's crude production for January. It says they are down 2.1
percent year on year to 17.69 million tons.
http://news.xinhuanet.com/english/2016-02/26/c_135133603.htm
An earlier release shows them producing 18.15 million tons in December 2015. That's a one
month decline of 2.5 percent.
http://news.xinhuanet.com/english/2016-01/25/c_135043850.htm
Notable quotes:
"... Despite all the Chinese slowdown talk, China is importing commodities at a record pace (see below the chart for natgas imports, which increased by over 100% year over year). ..."
Heinrich Leopold,
02/26/2016
at 12:54 pm
clueless,Despite all the Chinese slowdown talk, China is importing commodities at a record
pace (see below the chart for natgas imports, which increased by over 100% year over year).
Although 6 bcf/d (or 1 mill boe/d) of natural gas imports are much lower than the 7 mill b/d
oil imports, the impressive growth rate reveals there is much room for future growth for natgas
exports here.
The main question remains if the US can produce enough natgas at low costs. 9 bcf/d is nearly
15% of US production. The US is currently still a net importer of natgas.
Notable quotes:
"... The freeze agreement isn't cutting production. That is not going to happen, Naimi said. ..."
The world's most powerful oilman brought a harsh message to Houston for executives hoping for
a rescue from low prices: high-cost producers -- many of them sitting in the room -- need to
either "lower costs, borrow cash or liquidate."
For the thousands of executives attending the IHS CERAWeek conference, the message from Saudi
Arabia oil minister Ali al-Naimi means deeper spending cuts, laying off more roughnecks and
idling drilling rigs.
"It sounds harsh, and unfortunately it is, but it is the most efficient way to rebalance
markets," Naimi told the audience in Houston on Tuesday.
... ... ...
Naimi told the executives in Houston that Saudi Arabia believed that freezing oil production
-- as it just agreed with Russia -- would be enough to eventually balance the market. Over time,
high-cost producers will get out of the business, and rising demand will slowly eat up the
oversupply, he said. The International Energy Agency believes that means another two years of low
prices.
The freeze agreement isn't "cutting production. That is not going to happen," Naimi said.
Venezuela, Saudi Arabia, Russia and Qatar have discussed holding a meeting in mid-March for
OPEC and non-OPEC oil producers that support the production freeze, Venezuela Oil Minister
Eulogio Del Pino said on Twitter. All oil producers are being consulted to determine where and
when the meeting will be held, Del Pino said. Venezuela has been lobbying for producers to
support prices, with Del Pino circling the globe to drum support.
... ... ....
While Naimi insisted that Saudi Arabia wasn't at war with shale, or any other producer, he was
clear in his aim. "We are doing what every other industry representative in this room is doing,"
he told the audience. "Efficient markets will determine where on the cost curve the marginal
barrel resides."
"It's going to be really, really ugly to get through this valley," Papa said.
Notable quotes:
"... Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia agreed to freeze their output at the January level, provided other oil-rich countries joined. Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether to take other steps. ..."
"... "This is the first step to see what we can achieve," he said. "If this is successful, we will take other steps in the future." He refused to explain what steps Opec could take." ..."
Loz,
02/23/2016
at 10:07 pm
"The balance sheets of shale producers are in disrepair," said Mr Hess"and
"Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
In a rare admission that the policy hasn't worked out as planned, Mr El-Badri said that Opec
didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.
Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia
agreed to freeze their output at the January level, provided other oil-rich countries joined.
Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether
to take other steps.
"This is the first step to see what we can achieve," he said. "If this is successful, we will
take other steps in the future." He refused to explain what steps Opec could take."
http://www.thenational.ae/business/energy/opec-head-el-badri-doesnt-know-how-it-can-live-together-with-shale-oil
Probably disinformation...
Iran called a proposal by Saudi Arabia and Russia to freeze oil production
"ridiculous" as its seeks to boost its own output after years of sanctions constrained
sales.
The proposal by Saudi Arabia, Russia, Venezuela and Qatar for oil producers
to cap output at January levels puts "unrealistic demands" on Iran, Oil Minister
Bijan Namdar Zanganeh said Tuesday, according to the ministry's news agency
Shana.
"It is very ridiculous, they come up with the proposal on freezing oil production
and call for this freeze to take place in their 10 million barrels a day production
vis-a-vis Iran's 1 million barrels a day" planned production boost, he said.
"If Iran's crude oil production falls, it will be overtaken considerably by
the neighboring countries."
The three OPEC members and Russia are seeking to stop the 40 percent drop
in oil prices over the past year caused by a global crude glut. Iran is seeking
to boost output by 1 million barrels a day this year after international sanctions
on its oil industry were lifted last month.
This interesting hypothesis about the elite split is not supported by the facts. It is unclear that
is this is true, why faction of elite which represent Big Oil can't get their own Presidential candidate.
Hillary is definitely a neocon. Same its true for Jeb! (he was a member of neocon think tank "Project
for New American century" and used Wolfowitz as a political advisor), Cruz and Rubio (both are probably
to the right of Jeb!).
Notable quotes:
"... This is power struggle between two opposite approaches between two camps. Elite is split along
the lines who has more to lose between two approaches: continuous world conflict or cohabitation and
gradual shifting of power to other parts of the world. Everything points that Bankers Big Oil are in
two opposite camps. Rest of us, including small medium oil, are just collateral damage in all of this.
..."
"... Do really believe that Bankers via their shale pet project just pumped 4.5 mbpd within just
6-7 years for reason of profit? There is no profit. Don't you see the blame game and the deflection
from the bankers that Saudis are "flooding" the oil market? ..."
"... Saudis are "flooding" oil as much Norwegians are "flooding" and that is – same as before. Do
you see that only shale are the "chosen one" and have a luxury of keeping the credit lines open while
Big Oil is forced cutting dividends for the first time in 100 years? Too many things are pointing to
this struggle that would make this just coincidence. ..."
Ves,
02/22/2016 at 11:51 am
Fred,I know where you are coming from but all I am trying to see through the fog of lies and
disinformation. This whole oil price crash is not about renewables , or how big our carbon foot
print is and if people should feel "not good enough" because of that.
This is power struggle between two opposite approaches between two camps. Elite is split
along the lines who has more to lose between two approaches: continuous world conflict or cohabitation
and gradual shifting of power to other parts of the world. Everything points that Bankers & Big
Oil are in two opposite camps. Rest of us, including small & medium oil, are just collateral damage
in all of this.
Do you really believe that these critical articles about Exxon are just suddenly appearing
after 100 years of pumping oil? Do really believe that Bankers via their shale pet project
just pumped 4.5 mbpd within just 6-7 years for reason of profit? There is no profit. Don't you
see the blame game and the deflection from the bankers that Saudis are "flooding" the oil market?
Saudis are "flooding" oil as much Norwegians are "flooding" and that is – same as before.
Do you see that only shale are the "chosen one" and have a luxury of keeping the credit lines
open while Big Oil is forced cutting dividends for the first time in 100 years? Too many things
are pointing to this struggle that would make this just coincidence.
likbez,
02/23/2016
at 12:04 am
Ves,
This is power struggle between two opposite approaches between two camps. Elite is split along
the lines who has more to lose between two approaches: continuous world conflict or cohabitation
and gradual shifting of power to other parts of the world.
Very interesting hypothesis.
Thank you --
Now one question.
Was not Jeb! a representative of Bush clan and by extension Big Oil in the current
Presidential race ? If so, then please note that he is a typical neocon (former member of the Project for New American
Century; with Wolfowitz as a political advisor). Also it was an oil man Bush II who got us into Iraq.
Those facts make your hypothesis about Big Oil being against imperial adventures somewhat weaker.
Just asking…
What's really behind falling
oil prices? Are there more conspiratorial forces at work here?
There are certainly some who believe so…
According to CNBC, Iranian President Hassan Rouhani told a cabinet meeting
back on Dec. 10, 2014, that the
oil price collapse was "politically motivated" and a "conspiracy against the interests of the
region, the Muslim people, and the Muslim world."
... ... ...
Echoing Rouhani's sentiment, Russian President Vladimir Putin said, "We all see the lowering of
the oil price. There's lots of talk about what's causing it. Could it be the agreement between the
U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could."
... ... ...
Oil Conspiracy Theory No. 3: I'll Have Iranian Oil with a Side of Economic Prosperity, Please
On April 7, 2015, the Energy Information Administration released the following statement: "Oil
prices could tumble $15 a barrel next year if sanctions are lifted following a final nuclear deal
with Iran."
While Iran and other world powers reached a preliminary deal on April 2, 2015, further negotiations
are needed to complete an agreement by a June 30 deadline.
Bloomberg Financial reports that "Iran's full return to the oil market
risks delaying a recovery in prices, which have slumped by almost half since last year amid a supply
glut. Iran could boost output by at least 700,000 barrels a day by the end of 2016."
That's right, Iran itself is a potential whale of an oil exporter – it sits on at least 10% of
the world's reserves. But because of sanctions, the country lacked the foreign investment it needs
to actually get the darn oil out of the ground.
Until now.
The oil price conspiracy theory here is that the Iran nuclear deal was made simply to boost the
U.S. economy, while further damaging Russia's. After all, there are several reasons why a drop in
oil prices is great for the American economy: it encourages consumer spending, it improves the job
market and it provides businesses with more profits.
Oil Conspiracy Theory No. 4: Sneaky, Sneaky POTUS
One conspiracy theory suggests that U.S. President Barack Obama colluded with the Saudis to flood
the global market with oil to bring down the U.S. shale oil industry. Why would he want to do that?
Because the shale oil glut threatens the development of renewable energy and slows progress in
cutting U.S. greenhouse gas emissions. According to this theory, POTUS is using the oil glut to destroy
anti-environmental projects across the board within the U.S.
In an article published by Slate, "Senate Democrats narrowly defeated
the Keystone XL pipeline
[bill on Tues., Nov. 18, 2014] in part because President Obama was expected to veto it even if it
did pass. He likely feels more comfortable about that stance than he would if oil were priced at
more than $100 a barrel right now."
Furthermore, Saudi Arabia hates the American shale oil industry as well. Though King Riyadh is
an ally, relations with the country are fraught over this particular subject. So what better way
to kill two birds with one stone? Let's just keep our Saudi allies happy while covertly
destroying the purportedly environmentally unfriendly fracking industry from within. More oil, please!
[Feb 20, 2016] Tech Talk - Oil Supply, Oil Prices and Saudi Arabi
Notable quotes:
"... Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia (KSA), can keep the world supply in balance with demand and more critically for them keep the price up at a level that they are comfortable with. Note that in relation to the overall volumes of oil being traded, they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd) in order to sustain prices. The USA produces more, OPEC produces less – not much less because global demand is growing – and the price is sustained. ..."
"... This has virtually nothing to do with the speculators on Wall Street and the corrections they might impose, this is all about supplying a needed volume to meet a demand and controlling that supply to ensure that the price is sustained. ..."
"... As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the countries themselves that they check from secondary sources, and provide both sets of numbers. ..."
"... One of the other caveats is that the internal demand in these countries is rising, and that lowers the amount that can be exported. This will in time require that OPEC produce more, just to sustain the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot continue to produce ever-increasing amounts of oil. ..."
"... But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA struggled, usually in vain, to find a market for internationally. It is only now that it is building its own refineries to process the oil that it can find a global market for the product. ..."
"... Realistically, over a couple of years, I would suspect that the oil price line that I mentioned was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate to it. ..."
Posted by
Heading Out
on August 18, 2013 - 3:17am
Topic: Supply/Production
Tags: crude oil,
crude oil price,
ghawar,
manifa,
safaniya,
saudi arabia,
saudi crude production,
saudi domestic consumption
[list all tags]
From the time that The Oil Drum first began and through the years up to the Recession of 2008-9,
there was an increase in the price of oil, and that resumed following the initial period of the recession,
and in contrast to the price of natural gas, oil has recovered a lot of the price that it lost.
Figure 1. Comparable price of oil from 1946 (Inflation
data)
If one were to draw a straight line on that graph from the low point in 1999 though now, there
hasn't been a huge variation away from the slope of that line for long. That, of course, does not
stop folk from pointing to the very short, roughly flat bit at the end and saying that oil prices
are going to remain at that level, or are even
about to decline.
To address that final point first, I would suggest that those making such a foolish prediction
should go away and read the OPEC Monthly
Oil Market Reports. Remember that, for just a little while longer, oil is a fungible product.
OPEC make no secret of the fact that they continuously examine the global economy and make estimates
on how it is going to behave.
This month they note that the economies aren't doing quite as well as expected, and have revised
down global growth to 2.9%, though they expect next year to be better, and hold to their estimate
of a 3.5% growth rate.
But OPEC go beyond just making that prediction - they use it, and data that they have on consumption
and oil supplies around the world to estimate how much OPEC should produce each month to balance
supply against demand, so that the price will remain at a comfortable level for the OPEC economies.
And based on those numbers they tailor production.
This month, for example, they note that global oil demand is anticipated to grow by 0.8 mbd this
year (and by 1.04 mbd in 2014). They anticipate growth in production of around 1.0 mbd from the non-OPEC
nations, with projected increases from Canada, the United States, Brazil, the Sudans and Kazakhstan
contributing to an additional 1.1 mbd next year. From these numbers they can project that demand
for OPEC oil will be slightly down this year, at 29.9 mbd down 0.4 mbd on last year, with next year
seeing an additional fall of 0.3 mbd on average.
Figure 2. Projected oil demand for 2013 (OPEC
MOMR )
Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia (KSA),
can keep the world supply in balance with demand and more critically for them keep the price up at
a level that they are comfortable with. Note that in relation to the overall volumes of oil being
traded, they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd)
in order to sustain prices. The USA produces more, OPEC produces less – not much less because global
demand is growing – and the price is sustained.
This has virtually nothing to do with the speculators on Wall Street and the corrections they
might impose, this is all about supplying a needed volume to meet a demand and controlling that supply
to ensure that the price is sustained.
There are a number of caveats to this simplified explanation, one being the short-term willingness
and ability of some producers to keep to their targets. One of the imponderables is the production
from Iraq. Although Iraq
has been given a waiver through 2014 on the need to limit their production, the increasing violence
has led to a drop in production,
back below 3 mbd.
Figure 3. OPEC production based on data from secondary sources (OPEC
MOMR)
As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the
countries themselves that they check from secondary sources, and provide both sets of numbers.
Figure 4. OPEC production numbers from the originating countries. (OPEC
MOMR August 2013)
Note, for example, that Iran says that it is producing over 1 mbd more than other sources report,
and Venezuela is around 400 kbd light. The balancing act is largely the charge of KSA, since it produces
the largest amount and can adjust more readily to balance the need.
One of the other caveats is that the internal demand in these countries is rising, and that lowers
the amount that can be exported. This will in time require that OPEC produce more, just to sustain
the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot
continue to produce ever-increasing amounts of oil.
Just exactly how much the country can produce is the subject of much debate, and has been at The
Oil Drum since its inception. But if I can now gently admonish those who think it can keep increasing
forever and that it has vast reserves that can flood the market at need. This fails to recognize
that the major fields on which the country has relied are no longer capable of their historic production
levels, and that over the time that TOD has been in existence, production has switched to the new
fields that KSA had promised it would, back in time.
But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA
struggled, usually in vain, to find a market for internationally. It is only now that it is building
its own refineries to process the oil that it can find a global market for the product. Yet those
refineries have only a limited capacity. If you can't ship, refine and market your product in the
form that the customer needs, it can't be sold, regardless of how much, instantaneously, you can
pump out of the ground. And so KSA is starting to look harder for other fields. They have increased
the number of rigs employed to 170 by the end of the year (in 2005 they had about
20 oil and 10 gas rigs operating), going beyond
the 160 estimated earlier, seeking both to raise production from existing fields, but also to find
new ones. This is almost double the number that Euan reported at the end of last year. That this
is being expedited is not good news! Because new fields will very likely be smaller, and more rapidly
exhausted, and may not have the quality of the oil produced from Ghawar and the other old faithfuls.
Realistically, over a couple of years, I would suspect that the oil price line that I mentioned
was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate
to it.
westexas
on August 18, 2013 - 10:38am
Permalink
I define the ECI (Export Capacity Index) ratio as the ratio of total petroleum liquids + other liquids
production to liquids consumption. So, production of 2.0 mbpd and consumption of 1.0 mbpd would result
in an ECI ratio of 2.0 (or they were consuming half of production). Mathematically of course, a declining
ECI ratio means that the net exporter is trending toward zero net oil exports (and an ECI ratio of
1.0).Note that some countries with flat net exports, e.g., Russia, which had net exports of 7.2
mbpd in 2007 and in 2012 (EIA), showed declines in their ECI ratios. Russia's ECI Ratio fell from
3.7 in 2007 to 3.3 in 2012.
If we look at 2005 to 2012 data, as annual Brent prices increased from $55 to $112, only seven
countries showed increases in their ECI ratios--Canada, Colombia, Iraq, Libya, Kazakhstan, Azerbaijan
and Nigeria. If we look at the last three years of data, 2010 to 2012, as annual Brent prices were
respectively $80, $111 and $112, only four of these seven countries still showed increases in their
ECI ratios--Canada, Colombia, Iraq and Libya. The other three--Kazakhstan, Azerbaijan and Nigeria--showed
declining ECI ratios from 2010 to 2012. And of course, Libya comes with an asterisk, because of political
unrest.
So, only 4 of the (2005) Top 33 net oil exporters showed: (1) An increasing ECI Ratio from 2005
to 2012, and (2) Maintained an increasing ECI ratio from 2010 to 2012.
Incidentally, some other countries did show increases in their ECI ratios from 2010 to 2012, but
they remained below their 2005 levels, e.g., the UAE's ECI ratio increased from 4.6 in 2010 to 5.1
in 2012, but they remained well below their 2005 ECI ratio of 7.6, i.e., the UAE is (so far at least)
on an "Undulating Decline" in their ECI ratio. At the 2005 to 2012 rate of decline in the UAE's ECI
ratio, they were on track to approach zero net oil exports in less than 30 years.
The overall (2005) Top 33 net oil exporters' ECI ratio fell from 3.75 in 2005 to 3.26 in 2012
(EIA).
westexas
on August 19, 2013 - 7:52am
Permalink
As I have noted before, the cyclical pattern of higher annual oil price highs and higher annual oil
price lows is very interesting, especially in regard to "Higher lows." Following are the last three
year over year declines in annual Brent crude oil prices (1998, 2001 and 2009), along with the rates
of change for 1998 to 2001 and for 2001 to 2009.
1998: $13
2001: $24 (+20%year)
2009: $62 (+12%/year)
If Brent averages $108 in 2013, down from $112 in 2012, it would be a +14%/year rate of change
(since the 2009 price of $62), which would be between the +12%/year and the +20%/year rates of change.
westexas
on August 19, 2013 - 7:52am
Permalink
Following is a chart of the GNE/CNI* ratio versus annual Brent crude oil prices for 2002 to 2011.
For 2012, Brent averaged $112, and EIA data show that the GNE/CNI ratio fell from 5.3 in 2011 to
5.0 in 2012.
*GNE = Combined net oil exports from (2005) Top 33 net oil exporters, BP + EIA data for graph,
total petroleum liquids
CNI = Chindia's (China + India) Net Imports, BP data
Matt on August
21, 2013 - 7:28am
Permalink
Watch out what is happening in India
Rupee woes: More trouble ahead as oil prices touch all time high
In a press release dated August 16, 2013, the Ministry of Petroleum and Natural Gas, talks
about the increasing under-recoveries on diesel. The under-recovery on diesel has gone up to Rs
10.22 per litre for the fifteen day period ending August 15, 2013. Before this, the under-recovery
was at Rs 9.29 per litre. This leads to a daily under-recovery of Rs 389 crore or Rs 11,670 crore
for the month. That's the under-recovery just on diesel. Other than this there are under-recoveries
on cooking gas as well as kerosene. The under-recoveries for the first quarter of 2013-2014 (i.e.
period between April 1, 2013 and June 30, 2013) stood at Rs 25,579 crore.
This is likely to go up during this quarter, given the depreciation of the rupee and the increasing
price of oil. Oil prices have been going up internationally because of the uncertainty that prevails
in Egypt. The "fear premium" is getting built into the price of oil.
....
Only very recently, the government started to increase the price of diesel, to reduce the under-recoveries.
But with the international price of oil going up and the rupee depreciating against the dollar,
even at higher prices, the under-recoveries on diesel haven't come down. The under-recovery on
diesel was at Rs 9.29 per litre in January. It is now at Rs 10.22, despite diesel prices going
up.
http://www.firstpost.com/economy/rupee-woes-more-trouble-ahead-as-oil-pr...
Heading Out
on August 19, 2013 - 10:40am
Permalink
I have been running my own site for some time at
Bit Tooth Energy . It covers more than
just Peak Oil - there is a weekly column on the use of high pressure water (which I actually did
for a living once) and other OT matters - come on over, the water is fine!
Notable quotes:
"... Iranian businesses continued to be hobbled by the sanctions fallout. Some
US clearing banks have warned banks in Europe, Asia and the Middle East that their
US-based dollar accounts will face close scrutiny if they do business with Iran.
This has prevented banking transactions with Iran starting up again despite the
removal of sanctions, the Financial Times said in this report Feb 14. ..."
"... Platts reporter Robert Perkins highlights in this analysis published Feb
8, a 500,000 b/d immediate rise and 1 million b/d within six months is seen as "wildly
optimistic." ..."
"... Platts calculations based on current market consensus point to a far sober
200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end. ..."
"... Excluding Iranian supply, global oil balances are now seen returning to
equilibrium by the third quarter of 2016, according to implied market outlooks from
the International Energy Agency, the EIA and OPEC. ..."
Might the other big shadow looming on the markets - Iran - turn out to be
a teddy bear?
Iranian businesses continued to be hobbled by the sanctions fallout.
Some US clearing banks have warned banks in Europe, Asia and the Middle East
that their US-based dollar accounts will face close scrutiny if they do business
with Iran. This has prevented banking transactions with Iran starting up again
despite the removal of sanctions, the Financial Times said in this
report Feb 14.
Not surprisingly, expectations on the pace of Iran's incremental barrels
flowing into the market are taking a more conservative turn. As Platts reporter
Robert Perkins highlights in this
analysis published Feb 8, a 500,000 b/d immediate rise and 1 million b/d
within six months is seen as "wildly optimistic."
Platts calculations based on current market consensus point to a far
sober 200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end.
Excluding Iranian supply, global oil balances are now seen returning
to equilibrium by the third quarter of 2016, according to implied market outlooks
from the International Energy Agency, the EIA and OPEC.
That brings us to the "dread discount" on oil because of the wider global
financial markets panic since the start of the year, triggered in large part
by fears over Chinese economic growth.
While impossible to quantify, could the discount evaporate if the global
economy performs much better than the doomsday scenarios currently preying on
nerves?
To paraphrase Mark Twain, it ain't what the oil markets don't know that will
get them into trouble. It's what they know for sure that just ain't so.
–Vandana Hari
Research Scholar,
McGraw Hill Financial Global Institute
Posted on February 18, 2016 | By Associated Press
DUBAI, United Arab Emirates - The United Arab Emirates threw its support on Thursday behind a
plan by major oil producers to freeze output levels in an attempt to halt a slide in crude prices
that has pushed them to their lowest point in more than a decade.
Russia, Saudi Arabia, Qatar and Venezuela announced their willingness to cap output at last
month's levels at a surprise meeting in Qatar this week - but only if other major oil producers
join them. OPEC member Kuwait has since said it supports the proposal.
The support from the Emirates, a close Saudi ally, does not come as a major surprise but is still
significant. The seven-state federation is OPEC's third-largest oil producer.
Energy Minister Suhail Mohammed al-Mazrouei said in a statement to state news agency WAM that the
Emirates supports any proposal to freeze output through consensus with OPEC and Russia, which is
not part of the oil-producing bloc.
"We believe that freezing production levels by members of OPEC and Russia will have a positive
impact on balancing future demand based on the current oversupply," he said.
He was also quoted as saying he believes current conditions will prompt producing countries to
cap existing output, if not cut supply. The UAE, he said, "is always open for cooperation with
everyone in order to serve the higher interests of the producers and the balance of the market."
A day earlier, Iranian Oil Minister Bijan Namdar Zanganeh said after talks with counterparts from
Iraq, Venezuela and Qatar that his country "supports any measure to boost oil prices" but stopped
short of committing Iran to capping its own output. Iran has previously said it aims to boost
production above its roughly 2.9 million barrels a day now that sanctions related to its nuclear
program have been lifted.
Notable quotes:
"... It is a very well done animation and really fleshes out the process your linked article describes. ..."
Permalink
A while back (it had seemed like years to me but it was actually March 23,
2012--is it just me or did this last presidential election cycle actually stretch
time?) Joules Burn posted
From Qurayyah
to Khurais: Turning Water Into Oil which contains links to part one (9:47)
and two (13:06) of From Qurayyah to Khurais
The following are direct YouTube links to the same
My end of the wire bottom of the line DSL connection made loading those clips
downright painful but it was worth it. It is a very well done animation
and really fleshes out the process your linked article describes.
Notable quotes:
"... At the centre are the two designated heirs to the 271-year-old House of Saud, which has ruled Saudi Arabia since its emergence as a modern state. Crown Prince Mohammed bin Nayef, the kings 56-year-old nephew, is first in line to the throne but Deputy Crown Prince Mohammed bin Salman, believed to be about 30, is Salmans son and a rising power. ..."
"... Mohammed bin Nayef is interior minister while Mohammed bin Salman runs the defence ministry, and their growing rivalry is making itself felt, experts say. ..."
"... He points to the irresponsible Saudi-led intervention in Yemen and says the key Western ally has taken a more hard line tilt away from reforms. . . . ..."
"... In addition to being defence minister, Mohammed bin Salman heads the kingdoms main economic co-ordinating council as well as a body overseeing Saudi Aramco, the state oil company in the worlds biggest petroleum exporter. ..."
Jeffrey J. Brown,
01/16/2016 at 11:17 am
I have read, and heard, that many analysts are increasingly concerned that a 30 year old, Mohammed
bin Salman, is calling a lot of the shots in Saudi Arabia. And there have been widespread reports
that members of the royal family are increasingly unhappy about the current regime.
Two princes in Saudi Arabia battle for one throne (October, 2015)
http://www.news.com.au/world/middle-east/two-princes-in-saudi-arabia-battle-for-one-throne/news-story/da3360ebc933b416f2de654c4f81c78b
A POWER struggle is emerging between Saudi Arabia's two most powerful princes, analysts
and diplomats say, as the secretive kingdom confronts some of its biggest challenges in years.
The Saudi-led military intervention in Yemen, falling oil prices and rising jihadist violence
are putting the country's leadership to the test, nine months after King Salman assumed the
throne following the death of King Abdullah. The kingdom's rulers have also faced criticism
for last month's hajj tragedy which, according to foreign officials, killed more than 2200
people in a stampede at the annual Muslim pilgrimage.
With concerns over the long-term health of 79-year-old Salman, jockeying for influence has
intensified, experts say.
At the centre are the two designated heirs to the 271-year-old House of Saud, which
has ruled Saudi Arabia since its emergence as a modern state. Crown Prince Mohammed bin Nayef,
the king's 56-year-old nephew, is first in line to the throne but Deputy Crown Prince Mohammed
bin Salman, believed to be about 30, is Salman's son and a rising power.
Mohammed bin Nayef is interior minister while Mohammed bin Salman runs the defence ministry,
and their growing rivalry is making itself felt, experts say.
"It's resulting in some disturbing policies abroad and internally," says Frederic Wehrey
of the Middle East Programme at the Carnegie Endowment for International Peace in Washington.
He points to the "irresponsible" Saudi-led intervention in Yemen and says the key Western
ally has taken a more "hard line tilt" away from reforms. . . .
In addition to being defence minister, Mohammed bin Salman heads the kingdom's main
economic co-ordinating council as well as a body overseeing Saudi Aramco, the state oil company
in the world's biggest petroleum exporter.
"Mohammed bin Salman is clearly amassing extraordinary power and influence very quickly.
This is bound to unsettle his rivals," Wehrey says.
The deputy crown prince "has this need to structure his position to become, at the moment
his father dies, irreplaceable" because he has no assurances of how Mohammed bin Nayef, as
king, would treat him, another foreign diplomat says.
Mohammed bin Salman, who has a close relationship with his father, has been "acting as if
he was the heir apparent, so this obviously creates tensions," Lacroix says.
Verwimp,
02/17/2016
at 2:46 pm
ND Bakken December 2015 data are out. Production fell back to levels not seen since August/September
2014. Exactly what the Season Effect Model predicted 25 months ago (within a 0.64% error margin).
Dana Gardiner ,
02/17/2016 at 12:42 pm
Start Preparing for the Collapse of the Saudi Kingdom
http://www.defenseone.com/ideas/2016/02/de-waal-and-chayes-saudi-arabia/125953/
Jeffrey J. Brown ,
02/17/2016 at 12:58 pm
Links to an excerpt from "On Saudi Arabia" and to a NYT article on the young prince, Prince Mohammed
bin Salman, who seems to be calling the shots in Saudi Arabia:
likbez ,
02/17/2016 at 1:51 pm
Jeffrey,
Amazing analysis at defenseone.com -- Somewhat correlates with
http://peakoilbarrel.com/bakken-up-in-november-plus-steo/#comment-556001 but without rose glasses typical for MSM coverage of Saudi politics (including news.com.au
article that you referenced in your old post)
As Heinrich suggested Saudi now preach "war is the health of the state" mantra. They need to
push everything to the extreme to cement their society before it falls apart.
http://peakoilbarrel.com/just-how-accurate-are-the-eias-predictions/#comment-559872
To me the Saudi strategy looks like that they want to push everything to extreme as this
will turn the table in politics and also in the oil market more likely than a 'soft approach'.
Jimmy ,
02/17/2016 at 2:09 pm
Brilliant article. Thanks! Feudal states and the Mafia family type business don't differ much.
Many great examples throughout history. It'll b very interesting to watch KSA unwind and train
wreck.
Jeffrey J. Brown ,
02/17/2016 at 2:14 pm
What's unfolding is what Karen Elliott House described in her book "On Saudi Arabia."
What scares many royals and most ordinary Saudis is that the succession, which historically
has passed from brother to brother, soon will have to jump to a new generation of princes.
That could mean that only one branch of this family of some seven thousand princes will have
power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines
of the founder's family could find themselves disenfranchised.
Jimmy ,
02/17/2016 at 2:47 pm
Buckle your chin strap muchachos! Once KSA train wrecks it's a whole new ball game!!
Notable quotes:
"... Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs that buy political loyalty. They take two forms: cash handouts or commercial concessions for the increasingly numerous scions of the royal clan, and a modicum of public goods and employment opportunities for commoners. The coercive "stick" is supplied by brutal internal security services lavishly equipped with American equipment. ..."
"... With its political and business elites interwoven in a monopolistic network, quantities of unaccountable cash leaving the country for private investments and lavish purchases abroad, and state functions bent to serve these objectives, Saudi Arabia might be compared to such kleptocracies as Viktor Yanukovich's Ukraine. ..."
In fact, Saudi Arabia is no state at all. There are two ways to describe it: as a political
enterprise with a clever but ultimately unsustainable business model, or so corrupt as to
resemble in its functioning a vertically and horizontally integrated criminal organization.
Either way, it can't last. It's past time U.S. decision-makers began planning for the collapse of
the Saudi kingdom.
In recent conversations with military and other government personnel, we were startled at how
startled they seemed at this prospect. Here's the analysis they should be working through.
Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs
that buy political loyalty. They take two forms: cash handouts or commercial concessions for the
increasingly numerous scions of the royal clan, and a modicum of public goods and employment
opportunities for commoners. The coercive "stick" is supplied by brutal internal security
services lavishly equipped with American equipment.
... ... ...
If the loyalty price index keeps rising, the monarchy could face political insolvency.
Looked at another way, the Saudi ruling elite is operating something like a sophisticated
criminal enterprise, when populations everywhere are making insistent demands for government
accountability. With its political and business elites interwoven in a monopolistic network,
quantities of unaccountable cash leaving the country for private investments and lavish purchases
abroad, and state functions bent to serve these objectives, Saudi Arabia might be compared to
such kleptocracies as Viktor Yanukovich's Ukraine.
For the moment, it is largely Saudi Arabia's Shiite minority that is voicing political
demands. But the highly educated Sunni majority, with unprecedented exposure to the outside
world, is unlikely to stay satisfied forever with a few favors doled out by geriatric rulers
impervious to their input. And then there are the "guest workers." Saudi officials, like those in
other Gulf states, seem to think they can exploit an infinite supply of indigents grateful to
work at whatever conditions. But citizens are now heavily outnumbered in their own countries by
laborers who may soon begin claiming rights.
For decades, Riyadh has eased pressure by exporting its dissenters-like Osama bin Laden-fomenting
extremism across the Muslim world. But that strategy can backfire: bin Laden's critique of Saudi
corruption has been taken up by others and resonates among many Arabs. And King Salman (who is
80, by the way) does not display the dexterity of his half-brother Abdullah. He's reached for
some of the familiar items in the autocrats' toolbox: executing dissidents, embarking on foreign
wars, and whipping up sectarian rivalries to discredit Saudi Shiite demands and boost nationalist
fervor. Each of these has grave risks.
There are a few ways things could go, as Salman's brittle grip on power begins cracking.
One is a factional struggle within the royal family, with the price of allegiance bid up beyond
anyone's ability to pay in cash. Another is foreign war. With Saudi Arabia and Iran already
confronting each other by proxy in Yemen and Syria, escalation is too easy. U.S. decision-makers
should bear that danger in mind as they keep pressing for regional solutions to regional
problems. A third scenario is insurrection - either a non-violent uprising or a jihadi
insurgency-a result all too predictable given episodes throughout the region in recent years.
The U.S. keeps getting caught flat-footed when purportedly solid countries came apart. At the
very least, and immediately, rigorous planning exercises should be executed, in which different
scenarios and different potential U.S. actions to reduce the codependence and mitigate the risks
can be tested. Most likely, and most dangerous, outcomes should be identified, and an energetic
red team should shoot holes in the automatic-pilot thinking that has guided Washington policy to
date.
"Hope is not a policy" is a hackneyed phrase. But choosing not to consider alternatives amounts
to the same thing
Brent crude futures trading at the Intercontinental Exchange (ICE) in London
surged over 7.5 percent after Iran declared its support for the oil output freeze.
Despite expressing its backing for the step, Tehran has not made any pledges
to curb to its own production.
After the initial rise, the positive market trend ended a few minutes later,
with the gain then dropping to around 6.2 percent.
WTI futures in New York also saw a reverse in earlier losses, gaining as
much as 6.3 percent, according to Bloomberg.
On Wednesday, Tehran expressed its support for the plan to freeze oil production
levels, which was put forward by Russia and Saudi Arabia a day earlier.
After meeting with energy ministers from other top crude oil producers, Iran's
Oil Minister Bijan Namdar Zanganeh said the country supported the measures that
aim to prevent a further drop in oil prices.
Iran backs the proposal, Iranian Shana news agency reported. However, the
minister did not specify whether Tehran would curb its own crude production.
Following the Moscow-Riyadh output agreement, Zanganeh met with his counterparts
from Iraq, Qatar and Venezuela in the Iranian capital. He assessed the meeting
as being positive, TASS news agency reported.
With three OPEC members – Qatar, Venezuela and Kuwait – already having said
they are ready to freeze output at January levels, and the UAE saying it's open
to cooperation, the fate of the initiative now mostly depends on Iran's participation.
Watcher ,
02/16/2016 at 11:51 am
The US is the dominant force in international banking. It is this position from which sanctions
are derived. Iran had to (and often did) find other ways to get paid for shipping oil than money
flow through international banking, which US and EU sanctions prohibited.
If you seek to oppose the US, you must not fight in a money arena. It's a disadvantageous battlefield.
The price of oil is determined by what? NYMEX traders? Or agreement between a refinery and
an oil exporter?
I would suggest it is the latter, which need not depend on NYMEX numbers at all.
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces. If you specify price to your
buyer, perhaps lower than his bid, you remove the marketplace from involvement in the battle.
The goal is victory. Not profit. How could you allow yourself to define victory in pieces of
paper printed by your enemy?
Ron Patterson ,
02/16/2016 at 12:13 pm
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces.
If your goal is to destroy US shale then the only way you can do that is to produce every barrel
of oil you possibly can. It would not be within your power to allow the price to be defined
by anyone or anything other than market forces. Of course every exporter negotiates a price with
his buyer. But that price must be within a reasonable amount of what the world oil price is at
the moment.
The price of oil is determined by supply and demand just like every commodity on the market.
Every day, there are thousands of oil buyers around the world. There are dozens of sellers,
many of them exporters. All the buyers are in competition with other buyers to get the lowest
possible price. All the sellers are in competition with other sellers to get the highest price
possible. And the price moves up and down with each trade, hourly or sometimes minute by minute.
To believe that even one of those dozens of exporters has the power to set the price oil, much
higher than everyone else is getting, is just silly. And likewise, to believe that a buyer can
get a much lower price than everyone else is getting, is just as silly.
They say that depletion never sleeps. Well, market forces never sleep either.
Watcher ,
02/16/2016 at 3:01 pm
But that price must be within a reasonable amount of what the world oil price is at the moment.
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
marketshare by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
All the sellers are in competition with other sellers to get the highest price possible.
Were this so there would exist no wiki for predatory pricing.
You aren't thinking about victory. If you seek victory, you don't fight in an arena where you
are disadvantaged. If you're the low cost producer of the lifeblood of civilization, you assert
that advantage and kill the enemy.
Dennis Coyne
,
02/16/2016 at 3:58 pm
Hi Watcher,
By your reasoning the price of oil should be close to zero, say $1/b.
Explain why that isn't the case, if "victory" is the sole objective.
Also predatory pricing is not an effective strategy especially in commodity markets where the
barriers to entry are low.
OPEC does not set the price of oil on World Markets, they simply influence it by their level
of output. In the case of the oil industry attempts at predatory pricing are not rational, it
is simply a strategy for losing money.
Ron Patterson ,
02/16/2016 at 4:08 pm
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
market share by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
Oh good grief. I give up. You are a hopeless case.
Watcher ,
02/16/2016 at 8:40 pm
Tell that to the Soviets.
likbez ,
02/17/2016 at 12:00 am
"Tell that to the Soviets."
Perfect --
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11220027/Cheap-oil-will-win-new-Cold-War-with-Putin-just-ask-Reagan.html
http://www.susmitkumar.net/index.php/reason-for-ussr-collapse-oil-a-german-banks-not-reagan
http://www.hubbertpeak.com/reynolds/sovietdecline.htm
Jimmy ,
02/17/2016 at 12:00 am
I don't think Watcher expresses the situation very clearly, especially with words like 'predator'.
I don't see it as an apt analogy. I do however feel that the current price war/production war/phantom
production war is clearly an act of economic warfare by Saudi Arabia against their competitors.
It seems odd to me that a world oil production system that can't very accurately tell me how much
oil was produced today until months after the fact is going to start the day tomorrow by saying
'we are over supplied by 1.8 million barrels a day today' and then proceed to talk the price into
the gutter.
Watcher ,
02/17/2016 at 11:59 am
The predator is not KSA.
Watcher ,
02/16/2016 at 11:51 am
The US is the dominant force in international banking. It is this position from which sanctions
are derived. Iran had to (and often did) find other ways to get paid for shipping oil than money
flow through international banking, which US and EU sanctions prohibited.
If you seek to oppose the US, you must not fight in a money arena. It's a disadvantageous battlefield.
The price of oil is determined by what? NYMEX traders? Or agreement between a refinery and
an oil exporter?
I would suggest it is the latter, which need not depend on NYMEX numbers at all.
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces. If you specify price to your
buyer, perhaps lower than his bid, you remove the marketplace from involvement in the battle.
The goal is victory. Not profit. How could you allow yourself to define victory in pieces of
paper printed by your enemy?
Ron Patterson
,
02/16/2016 at 12:13 pm
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces.
If your goal is to destroy US shale then the only way you can do that is to produce every barrel
of oil you possibly can. It would not be within your power to allow the price to be defined
by anyone or anything other than market forces. Of course every exporter negotiates a price with
his buyer. But that price must be within a reasonable amount of what the world oil price is at
the moment.
The price of oil is determined by supply and demand just like every commodity on the market.
Every day, there are thousands of oil buyers around the world. There are dozens of sellers,
many of them exporters. All the buyers are in competition with other buyers to get the lowest
possible price. All the sellers are in competition with other sellers to get the highest price
possible. And the price moves up and down with each trade, hourly or sometimes minute by minute.
To believe that even one of those dozens of exporters has the power to set the price oil, much
higher than everyone else is getting, is just silly. And likewise, to believe that a buyer can
get a much lower price than everyone else is getting, is just as silly.
They say that depletion never sleeps. Well, market forces never sleep either.
Watcher ,
02/16/2016 at 3:01 pm
But that price must be within a reasonable amount of what the world oil price is at the moment.
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
marketshare by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
All the sellers are in competition with other sellers to get the highest price possible.
Were this so there would exist no wiki for predatory pricing.
You aren't thinking about victory. If you seek victory, you don't fight in an arena where you
are disadvantaged. If you're the low cost producer of the lifeblood of civilization, you assert
that advantage and kill the enemy.
Dennis Coyne
,
02/16/2016 at 3:58 pm
Hi Watcher,
By your reasoning the price of oil should be close to zero, say $1/b.
Explain why that isn't the case, if "victory" is the sole objective.
Also predatory pricing is not an effective strategy especially in commodity markets where the
barriers to entry are low.
OPEC does not set the price of oil on World Markets, they simply influence it by their level
of output. In the case of the oil industry attempts at predatory pricing are not rational, it
is simply a strategy for losing money.
Ron Patterson
,
02/16/2016 at 4:08 pm
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
market share by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
Oh good grief. I give up. You are a hopeless case.
Watcher ,
02/16/2016 at 8:40 pm
Tell that to the Soviets.
likbez ,
02/17/2016 at 12:00 am
"Tell that to the Soviets."
Perfect --
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11220027/Cheap-oil-will-win-new-Cold-War-with-Putin-just-ask-Reagan.html
http://www.susmitkumar.net/index.php/reason-for-ussr-collapse-oil-a-german-banks-not-reagan
http://www.hubbertpeak.com/reynolds/sovietdecline.htm
Jimmy ,
02/17/2016 at 12:00 am
I don't think Watcher expresses the situation very clearly, especially with words like 'predator'.
I don't see it as an apt analogy. I do however feel that the current price war/production war/phantom
production war is clearly an act of economic warfare by Saudi Arabia against their competitors.
It seems odd to me that a world oil production system that can't very accurately tell me how much
oil was produced today until months after the fact is going to start the day tomorrow by saying
'we are over supplied by 1.8 million barrels a day today' and then proceed to talk the price into
the gutter.
Notable quotes:
"... KSA has cut production in 6 out of the last seven months. Cut might not be the right word though as I suspect it was not a choice. It was thrust upon them by geology. ..."
"... I feel they are producing every single barrel that they possibly can. Theyve got the peddle to that floor. No holding back. ..."
Jimmy,
02/15/2016 at 9:44 pm
KSA has 'cut' production in 6 out of the last seven months. Cut might not be the right word
though as I suspect it was not a choice. It was thrust upon them by geology.
KSA will IMO face month after month of decreasing production. They managed a production
surge for a short while but that's all they had in them. They've shot their bolt. Iran probably
has some good increases coming but that's about it, and not all of that Iranian increase will
be exported.
AlexS ,
02/15/2016 at 10:17 pm
This has nothing to do with geology.
The increase in Saudi oil production in the summer season was due to peak demand from the domestic
power generation for air conditioning.
As demand moderated in the past several months, KSA slightly reduced output levels, while crude
exports have actually increased.
KSA oil production and exports in 2015 – Jan. 2016
sources: JODI, OPEC
Jimmy ,
02/15/2016 at 10:35 pm
Thanks AlexS,
Do you believe that the slightly reduced production level of the last 6 of 7 months was optional?
I tend not to. I feel they are producing every single barrel that they possibly can. They've
got the peddle to that floor. No holding back.
AlexS,
02/16/2016
at 5:15 am
Jimmy,
Although this is a peak oil blog, we should not see any seasonal/monthly/weekly/daily decline
in oil production as a sign that it has already peaked.
likbez,
02/16/2016
at 1:12 am
Alex,
How you can expand exports when Iran is very aggressively trying to get back into the market
with a very similar product at a very similar price. And somehow signed contracts for at least
0.3 Mb/d in Europe alone.
Does this mean that there is a huge deficit in the world for good quality oil or they simply
undercut competitors, including Iranians ?
Something is wrong with this picture.
Al Arabiya
OPEC member Kuwait projected a record budget deficit for the fiscal year starting April 1 on the
sliding price of oil, the finance ministry said on Thursday.The shortfall
for the 2016-2017 fiscal year is estimated at 11.5 billion dinars ($38 billion) due to a sharp decline
in oil revenues, the ministry said on its Twitter account.
Spending was estimated at 18.9 billion dinars, just 1.6 percent lower than
in the current year, the ministry said.
Revenues were projected at 7.4 billion dinars, of which oil income is estimated
at $19.1 billion or just 78 percent of the public revenues.
In the past, income from oil contributed more than 94 percent of revenues
in the Gulf emirate, before the decline in crude prices.
Kuwait has projected a shortfall of $23 billion in the current fiscal year
which ends March 31, the first deficit after 16 years of surplus.
The Gulf state, which has a native population of just 1.3 million, has
built around $600 billion in fiscal reserves in those years.
Notable quotes:
"... For decades, the royal family has used the kingdom's immense oil wealth to lavish benefits on its people, including free education and medical care, generous energy subsidies and well paid (and often undemanding) government jobs. No one paid taxes, and if political rights were not part of the equation, that was fine with most people. ..."
"... But the drop in oil prices to below $30 a barrel from more than $100 a barrel in June 2014 means that the old math no longer works. Low oil prices have knocked a chunk out of the government budget and now pose a threat to the unwritten social contract that has long underpinned life in the kingdom, the Arab world's largest economy and a key American ally. ..."
"... Like Norway, Saudi Arabia's oil money has created a generation of lazy bums who get paid a lot for doing little of importance. Lower oil prices is the only thing that'll force the Saudi population to work harder. ..."
"... Frugal. Having worked both in Norway and the middle east, I think it is unfair to put them in the same pot. There are more productive nations than Norway, but they do work much harder than the nationals of the oil-rich middle east countries. In addition, if one nation ever got the work-life balance right than it is them. ..."
"... I suppose they could try get jobs that displace the expats but it's not like they're gonna go be lumberjacks and farmers. Who the hell is hiring in KSA, Wendy's? ..."
"... As a kid I remember my dad once remarked 'never buy a house in a one resource town'. KSA is a one resource country! 30 million people with no detectable prospects whatsoever. The best any of then can do is get educated and flee. ..."
Jeffrey J. Brown,
02/16/2016 at 7:54 pm
Young Saudis See Cushy Jobs Vanish Along With Nation's Oil Wealth
http://www.nytimes.com/2016/02/17/world/middleeast/young-saudis-see-cushy-jobs-vanish-along-with-nations-oil-wealth.html?action=click&contentCollection=International%20Opinion&module=MostPopularFB&version=Full®ion=Marginalia&src=me&pgtype=article
RIYADH, Saudi Arabia - In pressed white robes and clutching crisp
résumés, young Saudi men packed a massive hall at a university in the
capital city this month to wait in long lines to pitch themselves to
employers.
It was one of three jobs fairs in Riyadh in two weeks, and the high
attendance was fueled in part by fear among the younger generation of
what a future of cheap oil will mean in a country where oil is everything.
For decades, the royal family has used the kingdom's immense
oil wealth to lavish benefits on its people, including free education
and medical care, generous energy subsidies and well paid (and often
undemanding) government jobs. No one paid taxes, and if political rights
were not part of the equation, that was fine with most people.
But the drop in oil prices to below $30 a barrel from more than
$100 a barrel in June 2014 means that the old math no longer works.
Low oil prices have knocked a chunk out of the government budget and
now pose a threat to the unwritten social contract that has long underpinned
life in the kingdom, the Arab world's largest economy and a key American
ally.
Frugal,
02/16/2016 at 9:25 pm
Like Norway, Saudi Arabia's oil money has created a generation of lazy
bums who get paid a lot for doing little of importance. Lower oil prices
is the only thing that'll force the Saudi population to work harder.
Daniel,
02/17/2016 at 3:12 am
Frugal. Having worked both in Norway and the middle east, I think it
is unfair to put them in the same pot. There are more productive nations
than Norway, but they do work much harder than the nationals of the oil-rich
middle east countries. In addition, if one nation ever got the work-life
balance right than it is them.
Jimmy,
02/16/2016 at 10:58 pm
I suppose they could try get jobs that displace the expats but it's
not like they're gonna go be lumberjacks and farmers. Who the hell is hiring
in KSA, Wendy's?
As a kid I remember my dad once remarked 'never buy a house in a
one resource town'. KSA is a one resource country! 30 million people with
no detectable prospects whatsoever. The best any of then can do is get educated
and flee.
Slightly edited Google Translation
Don't forget that of every four barrels of extra oil that we need over the next 25 years, only one
will be used to meet demand growth. Three others will just compensate for the decline of existing fields.
The number of vehicles in the world tin 2012 was over a billion (700 M cars, 300 m trucks and buses).
Notable quotes:
"... The question what will happen now with the oil prices in a short run still remains open. Iran has offered Europe a good discount to compete with Saudi Arabia depressing prices. According to National Iranian oil company , the discount on Iranian oil grades Iran Heavy (part of the OPEC basket) is $6.55 dollar while Saudi Arabia discount is $4.85 dollars per barrel. ..."
"... In this situation, in my opinion, the statement about the freezing of the production is from Saudi Arabia was just a tactical move, which hints on possible production cuts by OPEC later. A bluff if you wish. ..."
"... However, from now on the most natural trend for oil prices is up. And not due to any agreements, but due to depletion when production in most countries naturally goes down because of low capex. This is a more fundamental factor, but the agreement allow to win some time before this fundamental factor fully comes into play. ..."
"... The fact is that the oil the world economy still consumes more and more oil each year and now this trend was accelerated by low prices. As the result problems with meeting demand might arise as early ad the end of 2016 and inventories will start being depleted. ..."
"... After that we will enter a new uptrend , a new phase of higher prices of energy. But once scared twice shy and it is unlikely that oil prices will go up quickly. But I expect 2016 average in the range of $40-45 per barrel. This price range, I believe, will suit most conventional oil companies in the world. And especially Russian, which due to the devaluation of the national currency is largely compensated for falling prices of the oil on world markets... ..."
"... The key value of the Doha statement is that it implies that the restriction of volumes of production is possible, changing market expectation. Thats it. ..."
"... No one still can predict how much more time will be needed for coming to agreement to reduce oil production, and whether agreement will be reached at all, but it does change market expectations immediately. ..."
... ... ...
From my point of view, it is a signal that Saudi game in the oil dumping is close to the end,
from now on Riyadh is interested in raising energy prices. Another thing, again, that the Saudis
are ready to freeze and to reduce production only if Iran and Russian freeze or proportionately
reduce their production too.
"SP": How will other members of OPEN react on Doha announcement?
Other members will most probably support this decision. Already, a number of members of
OPEC with higher production costs, were in favor of restricting their production.
This is first of all Venezuela, partially United Arab Emirates, Bahrain, and Oman. And we must
understand that if for Saudi Arabia and Russia low oil prices created problems with balancing the
budgets, for Venezuela this is a real question of survival.
This alignment of interests have led to the situation with this joint statement and subsequent
reaction of the market which is currently unfolding before our eyes. One way to move another
step forward might be an emergency OPEC meeting, which could take place in early March, and on which
the proposal to freeze production by cartel members can be officially adopted.
"SP": will oil price go up from now on?
The market is essentially ready for the return of higher oil prices, therefore, it might respond
positively to this news. However, the oil market is very speculative, and responding primarily to
the expectations - the real figures of production do not play a primary role in forming the spot
price for oil.
And yet, to seriously move oil prices up, it is probably necessary to reduce the world production
by around 1.5 million barrels a day. No matter by what measures.
We also think that oil speculators might use this situation to switch the trend and try to earn
money on uptrend instead of downtrend. This is the opinion of the head of the analytical Department
of the Russian energy Security Fund Alexander Pasechnik. Even minimal 'warming" of oil market is
beneficial to the producers of "black gold", including Russia which now waist their national
treasure.
He suggested that the agreement in Doha was possible because it was impossible to wait longer
for some measures to stop speculative attacks on oil price. The possibility of creating an
artificial shortage of supply in the oil market were actively discussed for the last few months on
different levels, but no decision were made.
The question what will happen now with the oil prices "in a short run" still remains open.
Iran has offered Europe a good discount to compete with Saudi Arabia depressing prices. According
to "National Iranian oil company", the discount on Iranian oil grades Iran Heavy (part of the OPEC
basket) is $6.55 dollar while Saudi Arabia discount is $4.85 dollars per barrel.
In this situation, in my opinion, the statement about the freezing of the production is from
Saudi Arabia was just a tactical move, which hints on possible production cuts by OPEC later. A bluff
if you wish.
"SP": What are the risks for Russia, due to freeze of production at the current level?
In my opinion, there is no any significant risks. In any case we will be forced to reduce production
due to the increase of the fiscal burden on the oil industry, and the consequent reduction of investments
in the sector. Let me remind you that in 2016, the oil companies will pay 200 billion rubles of additional
taxes, and government intends to stick to this tax regime in 2017 and possibly in 2018. This means
that the coming drop of production in the Russian Federation is baked into the cake. Agreement with
Saudis for freeze production on January 2016 level does not change this reality.
On the other hand, we should not expect much from the agreements in Doha. Even if the position
the Quartet will be supported by all other members of OPEC, it does not guarantee that such
a "gentleman's agreement" will be respected by all members of the cartel.
However, from now on the most natural trend for oil prices is up. And not due to any agreements,
but due to depletion when production in most countries "naturally" goes down because of low
capex. This is a more fundamental factor, but the agreement allow to win some time before this
fundamental factor fully comes into play.
The fact is that the oil the world economy still consumes more and more oil each year and
now this trend was accelerated by low prices. As the result problems with meeting demand might arise
as early ad the end of 2016 and inventories will start being depleted.
After that we will enter a new "uptrend", a new phase of higher prices of energy. But
once scared twice shy and it is unlikely that oil prices will go up quickly. But I expect 2016 average
in the range of $40-45 per barrel. This price range, I believe, will suit most conventional oil companies
in the world. And especially Russian, which due to the devaluation of the national currency is largely
compensated for falling prices of the oil on world markets...
"The key value of the Doha statement is that it implies that the restriction of volumes
of production is possible, changing market expectation. That's it." This is how Director
of the Energy Institute Sergey Pravosudov thinks about the announcement. The key purpose of such
statements is to spook speculators pushing the oil price down, and not to push oil prices up.
No one still can predict how much more time will be needed for coming to agreement to reduce
oil production, and whether agreement will be reached at all, but it does change market expectations
immediately.
Luke H
on November 23, 2012 - 3:20pm
Permalink
'Keeping oil capacity is challenging says Saudi Aramco'A while back (it had seemed
like years to me but it was actually March 23, 2012--is it just me or did this last presidential
election cycle actually stretch time?) Joules Burn posted
From Qurayyah to Khurais: Turning
Water Into Oil which contains links to part one (9:47) and two (13:06) of From Qurayyah
to Khurais
the following are direct YouTube links to the same
part 1
http://www.youtube.com/watch?v=axjEk8zDvy8&feature=relmfu
part 2
http://www.youtube.com/watch?v=C7MH9MhOpRk&feature=relmfu
My end of the wire bottom of the line DSL connection made loading those clips downright painful
but it was worth it. It is a very well done animation and really fleshes out the process your
linked article describes.
Notable quotes:
"... Qatar's energy minister, Mohammad bin Saleh al-Sada, said the agreement would help stabilize the market. Saudi oil minister Ali Al-Naimi said the freeze was adequate for the market, adding the meeting was successful. He added he hoped producers inside and outside OPEC would adopt the proposal. ..."
"... The producers will meet with Iran and Iraq on Wednesday and may find significant reticence on the part of Iran to hold output steady. After years of sanctions, Iran plans to ramp up production in a bid to regain market share. ..."
Crude futures pared gains Tuesday following news that Qatar, Saudi Arabia, Russia and
Venezuela would lead an effort to freeze output at January levels, dashing hopes of a cut in
production.
The large producers met in Doha, Qatar, to discuss measures to tackle a supply glut that's
sent prices to 13-year-lows.
Qatar's energy minister, Mohammad bin Saleh al-Sada, said the agreement would help stabilize
the market. Saudi oil minister Ali Al-Naimi said the freeze was "adequate" for the market, adding
the meeting was successful. He added he hoped producers inside and outside OPEC would adopt the
proposal.
The producers will meet with Iran and Iraq on Wednesday and may find significant reticence on
the part of Iran to hold output steady. After years of sanctions, Iran plans to ramp up
production in a bid to regain market share.
... ... ...
Qatar is the current holder of the rotating OPEC presidency.
Earlier, news of the meeting news sparked hopes of an eventual deal on supply cuts, after
Saudi Arabia-led oil cartel OPEC previously persistently refused to lower its 30 million
barrel-a-day production ceiling in a strategy to squeeze out higher cost energy producers,
including U.S. shale companies.
Iran: Tehran is continuing its battle for market share with
the Saudis by cutting its price for heavy crude going to Mediterranean customers
by more than a recent Saudi cut. The selling price for Iranian Heavy crude is
now set at $6.40 below the Brent Weighted Average. For Northwest Europe and
South Africa the price is now $6.30 below the Brent Average as compared to $6.00
for Arab crude. This may only be the beginning of price wars between Iran and
the Gulf Arabs as Tehran battles to regain the market share it held before the
sanctions were imposed.
The postponement of a conference in London at which Tehran was to announce
its terms for foreign oil companies wanting to invest in developing Iranian
oil shows that there is considerable infighting within the Iranian ruling class.
Although the Iranians tried to blame the postponement on troubles getting visas
for all the Iranians who wanted to attend, the delay likely was forced by hardline
opponents of the Rouhani government who say the proposed agreements violate
Iran's constitution which decrees that none of Iran's oil reserves can be owned
for foreigners. Iran is seeking some $200 billion in foreign investment to increase
its production to 4-5 million b/d. Given the low oil prices, Iran is unlikely
to be capable of accumulating the capital to make major increases in its oil
production. Some believe the domestic political situation will become worse
after the elections when the hardliners make an effort to gain take more control
over the oil industry away from moderate President Rouhani and his government.
The lifting of the sanctions my not turn out to be as much of a boom for
Iran's economy as many Iranians had hoped. It is doubtful that in these tough
times for the oil industry many international oil companies will be interested
in deals in which they supply the money and take the risks while allowing the
Iranians all the control and most of the benefits from the projects.
In the meantime, Iran is demanding payment for its oil in euros rather than
dollars in order to stick it to Washington. The problems of insuring cargoes
of Iranian oil, however, seem to be easing. Washington will now allow non-US
persons to insure crude and oil products coming from or going to Iran.
Notable quotes:
"... The Norwegian statistics bureau says the economy shrank 1.2 percent in the last quarter of 2015, dragged down by poor performance in oil-based industries, while full-year growth at 1 percent was the lowest since 2009. ..."
"... Statistics Norway says the economy grew 0.1 percent in the fourth quarter, up from a flat performance in the previous quarter. The oil, gas and shipping sector contracted 5.6 percent compared with growth of 7.8 percent in the previous quarter. ..."
"... The agency said Tuesday that overall GDP last year was 1.6 percent, down from 2.2 percent in 2014. ..."
The Norwegian statistics bureau says the economy shrank
1.2 percent in the last quarter of 2015, dragged down by poor performance in
oil-based industries, while full-year growth at 1 percent was the lowest since
2009.
Statistics
Norway
says the economy grew 0.1 percent in the fourth quarter, up from a flat
performance in the previous quarter. The oil, gas and shipping sector contracted
5.6 percent compared with growth of 7.8 percent in the previous quarter.
Like other oil and gas producers, Norway was hit by low
crude prices, causing thousands of job losses and industry closures. Norway is the
largest fossil fuels producer in western Europe.
The agency said Tuesday that overall GDP last year was
1.6 percent, down from 2.2 percent in 2014.
Iran is now directly competing with Saudi in Europe regarding oil sales. A Bloomberg report earlier
this week revealed some concrete data showing that Europe is a key battleground in the market share
struggle between Iran and Saudi. From that report: "The most competitive pricing compared with Saudi
Arabian supply in 21 months underscores its intention to win back market share." [emphasis my own]
Iran Heavy oil, one of the Islamic Republic's primary export grades, will cost $1.25 less than Saudi's
most similar crude in March, releases from Iran's NIOC and Saudi Aramco both show.
During sanctions, Iran supplied Turkey and continued publishing prices for Europe. Iran's most recent
discount will be the steepest against the Saudi grade since June 2014, Bloomberg reported. Iran is
also giving steeper discounts for Iran Heavy grade in Asia.
Iran is preparing to boost oil exports by 1 M/bpd this year, and is also getting ready to introduce
a new heavy grade as it adds production, Bloomberg reports.
Marketers with Iran's NIOC can go after more than 500,000 barrels of lost daily sales in Europe alone,
Bloomberg reports, now that sanctions, which limited Iran's oil sales to six buyers (China, India,
Japan, South Korea, Taiwan and Turkey), have ended.
How young, arrogant Saudi price took other OPEC members hostage...
Notable quotes:
"... I think Saudi Arabia pushed for a strategy that will go down as one of the greatest mistakes in OPEC's history. It was a decision, I might add, that 9 of the 13 OPEC members reportedly oppose. ..."
"... But I believe they failed to fully appreciate the risk in that strategy. If the higher cost producers slash costs in an attempt to survive (which they undoubtedly would), OPEC could suffer through a period of much lower prices. That is in fact what has happened. ..."
"... OPEC has claimed several times that their strategy is working because U.S. shale oil production is falling. But the only way the strategy actually works is for OPEC to get back to the cash flow levels they had prior to 2014. They are a very long way from achieving that. ..."
"... The one big thing they have going for them is that they still control 72% of the world's proved crude oil reserves - 1.2 trillion barrels. If they ultimately manage to sell those barrels and earn a few dollars more per barrel as a result of their current strategy, it could amount to trillions of dollars ..."
Some have argued that OPEC had no choice but to defend market share instead of cutting
production to balance the market, but I disagree. I think Saudi Arabia pushed for a strategy
that will go down as one of the greatest mistakes in OPEC's history. It was a decision, I might
add, that 9 of the 13 OPEC members reportedly oppose.
... ... ...
At the time of their decision, the global markets were probably oversupplied by 1-2 million
bpd. If OPEC had merely decided to remove 2 million bpd off the world markets - only 5.5% of the
group's combined 2014 production - the price drop could have easily been arrested and maintained
in the $75-$85/bbl range. That would have still given them 38.9% of the global crude oil market.
For that matter, a production quota cut of 13% could have removed from the market a volume
equivalent to all of the U.S. shale oil production added between 2008 and 2014. (Whether the
Saudis could have actually enforced those quotas is another matter).
Why didn't they opt for that course of action?
Don't get me wrong, I understand why they did what they did. I just don't think it was necessary.
They were obviously concerned that the shale oil boom would continue to expand, with production
not only continuing to grow in the U.S. but in other countries with shale oil resources. It was a
legitimate concern, but I think the shale oil boom in the U.S. would have peaked in a few years.
Further, I am not sure any other country will see the same level of success in shale drilling for
various reasons. Some will succeed, but I don't expect they will manage to add millions of
barrels per day of new oil production in just a few years.
It was going to be a gamble either way, but I think it would be more likely that a combination of
growing global demand and a shale boom that couldn't continue to expand at the rates seen from
2008 to 2014 would have ultimately shifted power back to them after perhaps a couple of rounds of
production cuts.
OPEC of course reasoned that it didn't make sense that they, the low cost producer, should cut
production which would prop up higher cost producers. After all, that does seem backwards.
But I believe they failed to fully appreciate the risk in that strategy. If the higher cost
producers slash costs in an attempt to survive (which they undoubtedly would), OPEC could suffer
through a period of much lower prices. That is in fact what has happened.
OPEC has claimed several times that their strategy is working because U.S. shale oil
production is falling. But the only way the strategy actually works is for OPEC to get back to
the cash flow levels they had prior to 2014. They are a very long way from achieving that.
Should OPEC go on to gain back market share, and should they manage to maintain higher margins as
a result, their strategy could pay off in the long run. The one big thing they have going for
them is that they still control 72% of the world's proved crude oil reserves - 1.2 trillion
barrels. If they ultimately manage to sell those barrels and earn a few dollars more per barrel
as a result of their current strategy, it could amount to trillions of dollars. (Note that
because proved reserves are a function of price and available technology, their reserves
estimates may plummet back to what can be produced economically at a price of $30/bbl. That will
nullify much of Venezuela's heavy oil reserves).
If OPEC's strategy does ultimately pay off, it will be many years before it does so. It will
require a huge recovery in the price of oil. It won't be easy for them to earn back the trillion
dollars in foregone revenue for 2015 and 2016. At this moment in time, it is hard to conclude
that it was anything other than a big, costly miscalculation on their part. I also expect that's
what the history books will eventually say.
When President Obama secretly authorized the Central Intelligence Agency to begin arming Syria's
embattled rebels in 2013, the spy agency knew it would have a willing partner to help pay for the
covert operation. It was the same partner the C.I.A. has relied on for decades for money and discretion
in far-off conflicts: the Kingdom of Saudi Arabia.
...
The support for the Syrian rebels is only the latest chapter in the decadeslong relationship between
the spy services of Saudi Arabia and the United States, an alliance that has endured through the
Iran-contra scandal, support for the mujahedeen against the Soviets in Afghanistan and proxy fights
in Africa. Sometimes, as in Syria, the two countries have worked in concert. In others, Saudi Arabia
has simply written checks underwriting American covert activities.
...
In addition to Saudi Arabia's vast oil reserves and role as the spiritual anchor of the Sunni Muslim
world, the long intelligence relationship helps explain why the United States has been reluctant
to openly criticize Saudi Arabia for its human rights abuses, its treatment of women and its support
for the extreme strain of Islam, Wahhabism, that has inspired many of the very terrorist groups the
United States is fighting. The Obama administration did not publicly condemn Saudi Arabia's public
beheading this month of a dissident Shiite cleric, Sheikh Nimr al-Nimr, who had challenged the royal
family.
...
American officials have not disclosed the amount of the Saudi contribution, which is by far the largest
from another nation to the program to arm the rebels against President Bashar al-Assad's military.
But estimates have put the total cost of the arming and training effort at several billion dollars.
...
When Mr. Obama signed off on arming the rebels in the spring of 2013, it was partly to try to gain
control of the apparent free-for-all in the region. The Qataris and the Saudis had been funneling
weapons into Syria for more than a year. The Qataris had even smuggled in shipments of Chinese-made
FN-6 shoulder-fired missiles over the border from Turkey.
...
By the summer of 2012, a freewheeling feel had taken hold along Turkey's border with Syria as the
gulf nations funneled cash and weapons to rebel groups - even some that American officials were concerned
had ties to radical groups like Al Qaeda....The C.I.A. was mostly on the sidelines during this period, authorized by the White House under
the Timber Sycamore training program to deliver nonlethal aid to the rebels but not weapons. In late
2012, according to two former senior American officials, David H. Petraeus, then the C.I.A. director,
delivered a stern lecture to intelligence officials of several gulf nations at a meeting near the
Dead Sea in Jordan. He chastised them for sending arms into Syria without coordinating with one another
or with C.I.A. officers in Jordan and Turkey.
...While the intelligence alliance is central to the Syria fight and has been important in the war
against Al Qaeda, a constant irritant in American-Saudi relations is just how much Saudi citizens
continue to support terrorist groups, analysts said.
"The more that the argument becomes, 'We need them as a counterterrorism partner,' the less persuasive
it is," said William McCants, a former State Department counterterrorism adviser and the author of
a book on the Islamic State. "If this is purely a conversation about counterterrorism cooperation,
and if the Saudis are a big part of the problem in creating terrorism in the first place, then how
persuasive of an argument is it?"
Notable quotes:
"... Submitted by Dalan McEndree via OilPrice.com, ..."
"... Or, alternatively, are they targeting specific global competitors and specific national markets? ..."
"... And, of course, what does the Saudi strategy beyond pumping crude portend for the Saudi approach to some OPEC members' calls for coordinated production cuts within OPEC and with Russia? ..."
"... Saudi Arabia's sustainable crude output capacity ..."
"... Rather than maintaining crude output at 2014's level in 2015, the Saudis steadily increased it after al-Naimi's announcement in Vienna as they brought idle capacity on line ..."
"... IEA monthly Oil Market Report ..."
"... exports peaked in 4Q 2015 at 7.01 million barrels per day ..."
"... The Saudis did not ship any of their incremental crude exports to the U.S.-in other words, they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output, and did not seek to increase U.S. market share. ..."
"... It is therefore not surprising that the Saudis moved aggressively in Europe in 4Q 2015-successfully courting traditional Russian customers in Northern Europe and Eastern Europe and drawing complaints from Rosneft. ..."
"... In this Saudi effort, the U.S. could be an ally. The U.S. became a net petroleum product exporter in 2012 (minus numbers in the table below indicate net exports), and net exports grew steadily through 2015. Growth continued in January, with net product exports averaging 1.802 million barrels per day, and, in the week ending February 5, 2.046 million. U.S. exports will lessen the financial attractiveness of investment in domestic refining capacity, both for governments and for foreign investors in their countries' oil industries (data from EIA). ..."
"... It may be that the Saudis will not change course until Russian output declines, Iraq's stagnates, Iran's output growth is stunted-and that receding output from weaker countries within and outside OPEC would not be enough. If this is case, the Saudis will see resilient U.S. production as increasing pressure on their competitors and bringing forward the day when they can contemplate moderating their output. ..."
"... NOTE: Nothing in the foregoing analysis should be understood as denying that the U.S. oil industry has suffered intensely or asserting that this strategy, if it is Saudi strategy, will succeed. ..."
"... NOTE: Nothing in the foregoing analysis should be understood as denying that …. IF IT IS Saudi strategy. ..."
The Hidden Agenda Behind Saudi Arabia's Market Share Strategy
Submitted by Dalan McEndree via OilPrice.com,Do the Saudis have an oil market strategy
beyond pumping crude to defend their market share? Are they indifferent to which countries' oil industries
survive? Or, alternatively, are they targeting specific global competitors and specific
national markets? Did they start with a particular strategy in November 2014 when Saudi
Petroleum and Mineral Resources Minister Ali al-Naimi announced the new market share policy at the
OPEC meeting in Vienna and are they sticking with it, or has their strategy evolved with the evolution
of the global markets since?
And, of course, what does the Saudi strategy beyond pumping crude portend for the Saudi approach
to some OPEC members' calls for coordinated production cuts within OPEC and with Russia?
Conventional Wisdom
Conventional wisdom has it that the Saudis are focused primarily on crushing the U.S.
shale industry. In this view, the Saudis blame the U.S. for the supply-demand imbalance
that began to make itself felt in 2014. U.S. production data seems to support this. Between 2009
and 2014, U.S. crude and NGLs output increased nearly 4 million barrels per day, while Saudi Arabia's
increased only 1.64 million barrels per day, Canada's 1.06 million, Iraq's 0.9 million, and Russia's
0.7 million (Saudi data doesn't include NGLs).
In addition, the Saudis, among many others, believed that U.S. shale would be the most vulnerable
to Saudi strategy, given relatively high production costs compared to Saudi production costs and
shale's rapid decline rates and the need therefore repeatedly to reinvest in new wells to maintain
output.
Yet, if the Saudis were focused on the U.S., their efforts have been unsuccessful, at least in
2015. As the table below shows, U.S. output growth in 2015 outstripped Saudi output growth and the
growth of output from other major producers in absolute terms. In addition, many observers also came
to believe that U.S. shale production will recover more quickly than production in traditional plays
once markets balance due to its unique accelerated production cycle and that this quick recovery
will limit price increases when markets balance.
Is the U.S. Really the Primary Target?
The above considerations imply the Saudis-if indeed they primarily were targeting U.S. shale-embarked
on a self-defeating campaign in November 2014 that could at best deliver a Pyrrhic victory and permanent
revenues losses in the US$ hundred billions.
Is the U.S. the primary target? U.S. import data (from the EIA) suggests the U.S. is not now the
Saudis' primary target, if it ever was. Like other producers, the Saudis operate within a set of
constraints. Domestic capacity is one. In its 2015 Medium Term Market Report (Oil), the IEA put
Saudi Arabia's sustainable crude output capacity at 12.34 million barrels per day in 2015
and at 12.42 million in 2016. Export capacity-output minus domestic demand-is another.
Rather than maintaining crude output at 2014's level in 2015, the Saudis steadily increased
it after al-Naimi's announcement in Vienna as they brought idle capacity on line (data from
the IEA monthly Oil Market Report):
This allowed them to increase average daily crude exports by 460,000 barrels in 2015 over 2014
average export levels-even as Saudi domestic demand increased-and exports peaked in 4Q 2015 at
7.01 million barrels per day (assuming the Saudis keep output at average 2H 2015 levels in 2016,
and domestic demand increased 400,000 barrels per day, as the IEA forecasts, the Saudis could export
nearly 7 million barrels per day on average in 2016):
The Saudis did not ship any of their incremental crude exports to the U.S.-in other words,
they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output,
and did not seek to increase U.S. market share. Based on EIA data, Saudi imports into the U.S.
declined from 1.191 million barrels per day in 2014 to 1.045 million in 2015-and have steadily declined
since peaking in 2012 at 1,396 million barrels per day. (OPEC's shipments also declined from 2014
to 2015, from 3.05 million barrels per day to 2.64 million, continuing the downward trend that started
in 2010). Canada, however, which has sent increasing volumes to the U.S. since 2009, increased exports
to the U.S. 306,000 barrels per day in 2015:
Also, the Saudi share of U.S. crude imports declined 1.9 percentage points in 2015 from 2014,
and has declined 2.6 percentage points since peaking at 16.9 percent in 2013; during the same two
periods, Canada's share increased 4.5 and 9.9 percentage points respectively (and has more than doubled
since 2009):
Other Markets
The Saudis presumably exported the incremental 606,000 barrels per day (460,000 from net increased
export capacity plus 146,000 diverted from the U.S.) to their focus markets. Since other countries'
import data generally is less current, complete, and available than U.S. data, where these barrels
ended up must be found indirectly, at least partially.
In its 2015 Medium Term Market Report (Oil), the IEA projected that the bulk of growth from 2015
to 2020 will come in China, Other Asia, the Middle East, and Africa, while demand will remain more
or less stagnant in OECD U.S. and OECD Europe:
The Saudis find themselves in a difficult battle for market share in China, the world's second
largest import market and the country in which the IEA expects absolute import volume will increase
the most through 2020-1.5 million barrels per day (it projects Other Asia demand to increase 2.0
million). The Saudis are China's leading crude supplier. However, their position is
under sustained attack from their major-and minor-global export competitors. For example,
through the first eleven months of 2015, imports from Saudi Arabia increased only 2.1 percent to
46.08 million metric tons, while imports from Russia increased 28 percent to 37.62 million, Oman
9.1 percent to 28.94 million, Iraq 10.3 percent to 28.82 million, Venezuela 20.7 percent to 14.77
million, Kuwait 42.6 percent to 12.68 million, and Brazil 102.1 percent to 12.07 million.
As a result of the competition, the Saudi share of China's imports has dropped from ~20 percent
since 2012 to ~15 percent in 2015, even as Chinese demand increased 16.7 percent, or 1.6 million
barrels per day, from 9.6 million in 2012 to 11.2 million in 2015. Moreover, the competition for
Chinese market share promises to intensify with the lifting of UN sanctions on Iran, which occupied
second place in Chinese imports pre-UN sanctions and has expressed determination to regain its prior
position (Iran's exports to China fell 2.1 percent to 24.36 million tons in the first eleven months
of 2015).
Moreover, several Saudi competitors enjoy substantial competitive advantages. Russia has
two. One is the East Siberia Pacific Ocean pipeline (ESPO) which directly connects Russia
to China-important because the Chinese are said to fear the U.S. Navy's ability to interdict ocean
supplies routes. Its capacity currently is 15 million metric tons per year (~300,000 barrels per
day) and capacity is expected to double by 2017, when a twin comes on stream. The second is the agreement
Rosneft, Russia's dominant producer, has with China National Petroleum Corporation to ship ~400 million
metric tons of crude over twenty-five years, and for which China has already made prepayments. Russia
shares a third with other suppliers. Saudis contracts contain destination restrictions and other
provisions that constrain their customers' ability to market the crude, whereas those of some other
suppliers do not.
Marketing flexibility will be particularly attractive to the
smaller Chinese refineries, which Chinese government has authorized to import 1 million-plus
barrels per day.
While they fight for market share in China, the Saudis also have to fight for market share in the
established, slow-growing or stagnant IEA-member markets (generally OECD member countries). Saudi
exports to these markets declined 310,000 barrels per day between 2012 and 2014, and 490,000 barrels
per day between 2012 and 2015's first three quarters. Only in Asia Oceania did Saudi export volumes
through 2015's first three quarters manage to equal 2012's export volumes. During the same period,
Iraq managed to increase its exports to Europe 340,000 barrels per day (data from IEA monthly Oil
Market Report).
It is therefore not surprising that the Saudis
moved aggressively in Europe in 4Q 2015-successfully courting traditional Russian customers in
Northern Europe and Eastern Europe and drawing complaints from Rosneft.
As with China, the competition will intensify with Iran's liberation from UN sanctions. For example,
Iran has promised to regain its pre-UN sanctions European market share-which implies an increase
in exports into the stagnant European market of 970,000 barrels per day (2011's 1.33 million barrels
per day minus 2015's 360,000 barrels per day).
Might the U.S. be an Ally?
Without unlimited crude export resources, the Saudis have had to choose in which global markets
to conduct their market share war, and therefore, implicitly, against which competitors to direct
their crude exports.
Why did the Saudis ignore the U.S. market?
First, U.S. crude does not represent a threat to the Saudis' other crude export markets.
Until late 2015, when the U.S. Congress passed, and President Obama signed, legislation lifting
the prohibition, U.S. producers, with limited exceptions, could not export crude. Even with the
prohibition lifted, it is unlikely the U.S. will become a significant competitor, given that the
U.S. is a net crude importer. Therefore, directing crude to the U.S. would not improve the Saudi
competitive position elsewhere.
Second, the U.S. oil industry is one of the least vulnerable (if not the least vulnerable)
to Saudi pressure-and therefore least likely and less quickly to crack. Low production
costs are a competitive advantage, but are not the only one and perhaps not the most important
one. Financing, technology, equipment, and skilled manpower availability is important, as are
political stability, physical security, a robust legal framework for extracting crude, attractive
economics, and access and ease of access to markets. The Saudis major export competitors-Russia,
Iran, and Iraq-are far weaker than the U.S. on all these areas, as are its minor export competitors,
including those within-Nigeria, Libya, Venezuela, and Angola-and outside OPEC-Brazil.
Third, in the U.S. market, the Saudis face tough, well-managed domestic competitors,
and a foreign competitor, Canada, that enjoys multiple advantages including proximity,
pipeline transport, and trade agreements, the Saudis do not enjoy.
Finally, the Saudis may be focused on gaining a sustainable long term advantage in
a different market than the global crude export market-the higher value added and therefore more
valuable petroleum product market. Saudi Aramco has set a target to double its global
(domestic and international) refining capacity to 10 million barrels per day by 2025. Depressed
revenues from crude will squeeze what governments have to spend on their oil industries and, presumably,
they will have to prioritize maintaining crude output over investments in refining.
In this Saudi effort, the U.S. could be an ally. The U.S. became a net petroleum product exporter
in 2012 (minus numbers in the table below indicate net exports), and net exports grew steadily through
2015. Growth continued in January, with net product exports averaging 1.802 million barrels per day,
and, in the week ending February 5, 2.046 million. U.S. exports will lessen the financial attractiveness
of investment in domestic refining capacity, both for governments and for foreign investors in their
countries' oil industries (data from EIA).
Saudi Intentions
The view that the Saudi market share strategy is focused on crushing the U.S. shale industry has
led market observers obsessively to await the EIA's weekly Wednesday petroleum status report and
Baker-Hughes weekly Friday U.S. rig count-and to react with dismay as U.S. rig count has dropped,
but production remained resilient.
In fact, they might be better served welcoming resilient U.S. production. It may be that the
Saudis will not change course until Russian output declines, Iraq's stagnates, Iran's output growth
is stunted-and that receding output from weaker countries within and outside OPEC would not be enough.
If this is case, the Saudis will see resilient U.S. production as increasing pressure on their competitors
and bringing forward the day when they can contemplate moderating their output.
NOTE: Nothing in the foregoing analysis should be understood as denying that the U.S. oil
industry has suffered intensely or asserting that this strategy, if it is Saudi strategy, will succeed.
Escrava Isaura
Article MAIN Point: Conventional Wisdom
Conventional wisdom has it that the Saudis are focused primarily on crushing the U.S.
shale industry.
Article LAST words: NOTE: Nothing in the foregoing analysis should be understood
as denying that …. IF IT IS Saudi strategy.
Does anyone with their head screwed on believe this Conventional Wisdom nonsense?
Let me give you three examples:
Isn't Saudi Arabia going into war? Where will the money come from? In a war, Saudi Arabia will
go broke before US shale.
Second: Saudi Arabia Per Capita Income:
Despite possessing the largest petroleum reserves in the world, per capita income dropped from
approximately $18,000 at the height of the oil boom (1981) to $7,000 in 2001, according to one
estimate. As of 2013, per capita income in Saudi was "a fraction of that of smaller
Persian Gulf neighbors", even less than petroleum-poor Bahrain.
https://en.wikipedia.org/wiki/Economy_of_Saudi_Arabia#Challenges
Third: Saudi Arabia has no more oil fields to tap in:
http://peakoilbarrel.com/closer-look-saudi-arabia/
SillySalesmanQu...
The Saudi's remain committed to "helping" the US squeeze Russia at the expense of our own shale
industry, Canadian tar sands and bankrupting Venezuela and Brazil. When prices get low enough,
the Four Horseman of the Big Oil (Exxon, BP, Dutch Shell and ARAMCO) will swoop in and buy it
up, for a fraction of what it is worth.
It's just another power play to squeeze the smaller producers out of the market. When they are
finished, oil will go back up and they will make gazillions more. It's been used over and over
again for a hundred plus years.
Big fish eat small fish...same as it ever was.
Faeriedust
The Saudis are dealing with a domestic budget crisis created by the new king (and most especially
his Defense Minister son)'s attempts to impose regional hegemony in the Middle East. They are
attempting to move from the "soft power" of deep pockets to "hard power" of direct control over
formerly independent regions, in order to provide colonial positions and the opportunity for advancement
to their disaffected poor. It will not end well, and the complete collapse of the Kingdom is a
distinct possibility. But of course, they're not going to admit that anywhere it might see print.
Trading giant
Vitol says it's already buying Iranian oil, several European oil companies
have already chartered tankers for Iranian crude. Total SA has reportedly signed
an agreement with Iran to buy 160,000 barrels per day effective from the 16th
of February.
Spanish refiner Compania Espanola de Petroleos has booked some provisional
Iranian crude cargoes to land in European ports,
according to Bloomberg, and
Glencore Plc trading house bought a cargo earlier this month.
But Lukoil's trading arm, Swiss-based Litasco, has cancelled its booking
of an Iranian cargo to Italy over insurance complications,
according to Reuters.
Japan is a step
ahead of other prospective importers of Iranian oil. In 2012, Japan's Parliament
approved government guarantees on insurance for Iranian crude oil cargoes, circumventing
European Union sanctions and allowing for the provision of up to $7.6 billion
in coverage for each Iranian crude oil tanker bound for Japan. But that
law expires on 31 March, so it may have to go back to parliament for approval
if the West hasn't sorted things out by then.
The London-based International Group of Protection & Indemnity Clubs, which
covers some 90 percent of global tonnage through reinsurance, is
reportedly in talks with Washington to figure a way out of the insurance
quagmire quickly, according to the Wall Street Journal.
Notable quotes:
"... A group of Russian Duma deputies proposed to prohibit for 5 years the sale of raw oil abroad and develop a strategy for the development of the economy of Russia in the direction of reducing the dependence on the fluctuations of world oil prices. ..."
likbez ,
02/09/2016 at 12:23 am
Russian Duma deputies proposed to prohibit oil exports for 5 years (http://izvestia.ru/news/603420)
A group of Russian Duma deputies proposed to prohibit for 5 years
the sale of raw oil abroad and develop a strategy for the development
of the economy of Russia in the direction of reducing the dependence
on the fluctuations of world oil prices.
A letter to the Minister of Economic Development Alexei Ulyukayev
was sent by deputies from the minority party "Fair Russia", informs
"RIA Novosti".
According to the parliamentarians, the biggest problem is that Russia
still sits on an oil needle. So state reforms are needed for the domestic
economy.
"Today we need to summon all the courage to declare the abolition
of the raw oil sales to world markets. We must start to turn out economy
in the direction of increasing the level of oil processing in domestic
petrochemical industry and lessening the priority of oil extraction
industries. Russia has repeatedly demonstrated that it can rise from
the ashes. The state needs reforms which reallocates currency reserves
to ensure this path of development of the domestic economy based on
the internal opportunities of economic development " says deputies'
request.
According to the parliamentarians, the immediate introduction of
such prohibition is impossible, because Russia has obligations to the
current trading partners.
Instead Deputies proposed to adopt a government program "Development
of the economy of the Russian Federation in the direction of reduction
of its dependence on raw oil sales".
"While we procrastinate and endure the slump of oil prices waiting
for the rise of oil prices, Russian economy deteriorates and Russian
state suffers too. Why do we recklessly waste our precious natural resources
depriving future generations? To be the world's gas fueling station
is not what Russia wants to be", they wrote.
Notable quotes:
"... Since his appointment, there has been a genuine effort in the field of PR. the goal is to create
for him an image of a politician of an international stature. He seeks to become the counterpart, if
not the equal of the great western powers. ..."
"... It is important to be opportunistic at this level and not to alienate the fringe wahhabi elements
of Saudi Arabia is of paramount importance. A little interaction with the West it OK, too much of interactions
with the West, this is detrimental to his image and his credibility. Therefore he tries to advance his
goal, while at the same time trying not to offend nobody. It is, after all, a dive of discovery in the
international political universe. ..."
"... Regardless of his background, he needs to prove that he matters, that he is a hardliner, that
he is a good minister of Defence, and that that he is anti-shiite, he is a man capable of confronting
Iran. At the same time, he needs to satisfy needs of Saudi population which is increasingly flocks to
jihadism. ..."
"... It is necessary to remove the ground under the feet of those who believe that the monarchy
has for too long been moderate, particularly during the reign of the former king Abdallah. It is this
desire to build his leadership, which leads to the direct confrontation with the shia, including such
political decisions as the execution of the leader of shiite Nimr al-Nimr, and the increased tension
with Iran. Finally, it also represents a reaction of the Saudi monarchy, which was disappointed by the
United States. He would like to stop normalization of Iranian-American relations, because in the event
of a confrontation with Iran, the Saudis would find themselves in a difficult position without 100%
US support. ..."
"... Prince Mohammed bin Salman tenure as the head of the armed forces can be characterized as a
failure. In Yemen, there has been a stalemate ..."
"... Moreover, where he was able to displaced the allies of Iran, the radicals from Al Qaeda and
DAESH took the control of those area. Iran became firmly positioned at the southern gateway to Saudi
Arabia. It is anything but a success. ..."
"... Nevertheless, he was applauded because he stood up and responded, tried to stop to Iran. He
responded to the Iran thereat, but has not managed to achieve his goals, which was expected of him.
However, in the eyes of the Saudis, a manly reaction that tha fact that has the the will to challenge
to the hegemony of Iran in the region was positive steps. ..."
"... In addition, Mohammed bin Salman has a revenge in mind: in 2009, the houthis crossed the Saudi
border, and despite the superiority of Saudis weaponry, the Saudi troops were able to repel that offence
only after 3 months of fighting which left 130 soldiers dead. ..."
"... It is perceived as dangerous because of the war, reckless and ineffective in Yemen as well
as its strategy of tension vis-à-vis Iran. Moreover, for the Germans, Iran is a huge market. They have
relied heavily on Iran in recent years, in the logical continuation of the long tradition of trade between
the two countries. Dont forget that it is a country that lives from exports, and that it is therefore
very important for the Germans to arrive at an agreement with Iran. Moreover, Germany is a country whose
strategy is intimately linked to that of the United States and totally dependent on NATO due to the
fact that it is forbidden to have an army of its own. Germany knows that if it was a direct confrontation
between Saudi Arabia and Iran, it would be required to be supportive of Saudi Arabia – regardless of
the efforts by Barack Obama to move closer to Iran. ..."
"... the strategy of the prince Mohammed Bin Salman is to push Iran to the fault in causing the
tensions that can go up to a risk of open warfare that would force the west to choose Saudi Arabia against
Iran ..."
"... The Prince Mohammed bin Salman is now the most powerful man in Saudi Arabia. It has exclusive
access to his father, King Salman, and effectivly he can rule the coutries inread of him. He is head
of his office, which means that nobody can contact or be received by the King without going through
the son ..."
"... Saudi Arabia is extremely disturbed by the detente with Iran on the international scene. We
are witnessing more or less a reversal of alliances, and of countries images in the eyes of the West.
A short time ago, Iran was demonized in the West. Today, it is accepted as a normal partner. Iran, therefore,
benefits from a relatively favorable treatment, while at the same time when the Arab monarchies, particularly
Saudi Arabia, are seen as retrograde, unable to provide for reforms and creating the flow of Islamic
radicals... The nature of Hezbollah, interference military and terrorists of Iran is currently forgotten.
..."
"... I think it will be very difficult to see any reapprochement with Iran in the coming months
as Saudi Arabia has two hardliners in the young rising generation of leaders. The heir and the vice-inherit
the Kingdom share the same radical line toward Iran. ..."
"... Moreover, Saudi Arabia pays very dear to his strategy of crushing oil prices, which makes it
less able to buy social peace than before. Therefore, there is an internal demand of radicalism, because
the discontent rumbles in the parts of the Saudi population fueled by the effects of the falling oil
prices. ..."
"... If one wanted to summaries, we could say that to buy a peace with Islamist Wahhabi radicals,
it is necessary to kill shia... besides, the Saudis have a genuine complex of encirclement by the Shiite
states. They try to counter it by creating an opposite ark of Sunni radicals. ..."
"... even if this does not lead to open warfare, the tension between Saudi Arabia and Iran is sustainable,
if only because this new generation of Saudis leaders is more combative. They differ from the former
kings who belonged to a generation that was distinguished rather by its search for a compromise and
some consensus. This is absolutely not the case for those two heirs of the throne. ..."
Et l'homme le plus dangereux du Moyen-Orient est
Atlantico : While today Saudi Arabia play the central role in the conflicts around the Middle
East which are worried the whole world. What do we know bout young chief of the armed forces of Saudi
Arabia ?
Antoine Basbous : His position is more precarious than the last year, and it looks like
he is trying to double cross his cousin crown prince.
He tries to use the advantage of the presence of his father on the throne to become a direct successor.
It is an assumption that is pretty crazy since theoretically, Mohammed bin Salman does
not belong to the chain of the succession because of his position in the family. In addition, it
is clearly lacking experience and legitimacy, compared to its brothers and cousins, but also to public
opinion.
He is someone of impulsive, short-tempered, as we already observed in the past. He behaves somewhat
like like his father when he was young. Previously, when he was less in the spotlight, he could afford
some mistakes. But since his appointment to the ministry of defense, he embodies the virile answer
of the kingdom to the set of challenges from Iran. Now, he certainly has placed contracts with firms
of communication that has allowed him to acquire the elements of language needed to smooth impression
about himself. They also help him to appear on major foreign media : recently, he appeared in the
journal The Economist. Since his appointment, there has been a genuine effort in the field of
PR. the goal is to create for him an image of a politician of an international stature. He seeks
to become the counterpart, if not the equal of the great western powers.
It is important to be opportunistic at this level and not to alienate the fringe wahhabi elements
of Saudi Arabia is of paramount importance. A little interaction with the West it OK, too much of
interactions with the West, this is detrimental to his image and his credibility. Therefore he tries
to advance his goal, while at the same time trying not to offend nobody. It is, after all, a dive
of discovery in the international political universe.
Inside, however, his authority comes from his status of the son to the King to whom his father
is listening a lot. In one year, it has greatly expanded its power. It controls not only the military,
budgets but also key sectors of the economy. It has separated the' ARAMCO (the biggest oil company
in the world) from the ministry of oil. This dramatically increases his economic power. In addition,
the minister of oil shall soon leave the position, and should be replaced by his half-brother. Mohammed
bin Salman leaves him a ministry deprived of any substance.
For his education, we know that he has studied the Law in Saudi Arabia, but has not, to my knowledge,
pursued follow-up studies in the West. Currently, he oversees the operations of the Coalition in
Yemen, together with his cousin prince Mohammed bin Nayef, the Interior minister and deputy crown
prince. So far, they are not in rivalry, on the contrary: as the minister of the Interior had no
sons, he might appoint Mohammed bin Salman to be a crown prince since their age gap is 21 years.
Moreover, the two men appear together on the front.
Alexander del Valle : Regardless of his background, he needs to prove that he matters,
that he is a hardliner, that he is a good minister of Defence, and that that he is anti-shiite, he
is a man capable of confronting Iran. At the same time, he needs to satisfy needs of Saudi population
which is increasingly flocks to jihadism. To consolidate its legitimacy, it is obliged to give
grain to grind to the islamists because a large part of the Saudi society is seduced by the dream
of Daech. It is also in a logic of competition with her uncle, who is the current heir of the thone,
as well as with the other princes. It is necessary to remove the ground under the feet of those
who believe that the monarchy has for too long been moderate, particularly during the reign of the
former king Abdallah. It is this desire to build his leadership, which leads to the direct confrontation
with the shia, including such political decisions as the execution of the leader of shiite Nimr al-Nimr,
and the increased tension with Iran. Finally, it also represents a reaction of the Saudi monarchy,
which was disappointed by the United States. He would like to stop normalization of Iranian-American
relations, because in the event of a confrontation with Iran, the Saudis would find themselves in
a difficult position without 100% US support.
Why his actions caused the concerns of the German intelligence services ? What assessment can
we make of year tenure at the head of the armed forces of Saudi Arabia ?
Antoine Basbous : It is important to understand the origins of this report. It is not excluded
that it comes from someone with an interest to harm the image of the Kingdom or of the Prince.
Prince Mohammed bin Salman tenure as the head of the armed forces can be characterized as a failure.
In Yemen, there has been a stalemate. The conflict began in April. We are in January. Nine months
later, despite the multiple bombardments, all of the money spent, the control of the Yemen government
from Ryad remains illusive... He has not managed to clean, to conquer and to install a protected
area. Moreover, where he was able to displaced the allies of Iran, the radicals from Al Qaeda
and DAESH took the control of those area. Iran became firmly positioned at the southern gateway to
Saudi Arabia. It is anything but a success.
Nevertheless, he was applauded because he stood up and responded, tried to stop to Iran. He
responded to the Iran thereat, but has not managed to achieve his goals, which was expected of him.
However, in the eyes of the Saudis, a "manly" reaction that tha fact that has the the will to challenge
to the hegemony of Iran in the region was positive steps. Iran has claimed control of four Arab
capitals. Hassan Rohani has announced the training of 200 000 militia in the five nations in their
neighborhood. A reaction of Saudi Arabia, in the light of these elements, is not unexpected or abnormal.
However, the latter has been slow to arrive and is not manifested in the most timely, the most intelligent
or the most effective.
However, this operation was his baptism of fire. Prior to the commencement thereof, the Prince
was suffering from a bad press. This conflict, it was his moment of truth so to speak. It should
be judged on its ability to generate a "surge" of military and diplomatic activities in the region,
so that Saudi Arabia free itself the control of the Us administration, and that the country acquires
a greater autonomy. The fact that Barack Obama has approved the nuclear deal with Iran has been perceived
as a lesson for the Turks and the Saudis. In addition, Mohammed bin Salman has a revenge in mind:
in 2009, the houthis crossed the Saudi border, and despite the superiority of Saudis weaponry, the
Saudi troops were able to repel that offence only after 3 months of fighting which left 130 soldiers
dead.
Alexander del Valle : It is perceived as dangerous because of the war, reckless and
ineffective in Yemen as well as its strategy of tension vis-à-vis Iran. Moreover, for the Germans,
Iran is a huge market. They have relied heavily on Iran in recent years, in the logical continuation
of the long tradition of trade between the two countries. Don't forget that it is a country that
lives from exports, and that it is therefore very important for the Germans to arrive at an agreement
with Iran. Moreover, Germany is a country whose strategy is intimately linked to that of the United
States and totally dependent on NATO due to the fact that it is forbidden to have an army of its
own. Germany knows that if it was a direct confrontation between Saudi Arabia and Iran, it would
be required to be supportive of Saudi Arabia – regardless of the efforts by Barack Obama to move
closer to Iran.
In fact, since the Covenant of Quincy, Saudi Arabia is bound by a close alliance with the United
States and through this with the western countries. Thus, the strategy of the prince Mohammed
Bin Salman is to push Iran to the fault in causing the tensions that can go up to a risk
of open warfare that would force the west to choose Saudi Arabia against Iran. This tactic is
based on the alliance of ultra-strategic-Pact of Quincy, which was renewed in 2006 by George W. Bush
and still valid today that fact that in any conflict, as soon as Saudi Arabia is struggling with
a rival in the region, the United States should support it. This looks like what Erdogan doing shoot
down a Russian plane. It was to prevent a warming of relations between the Russians and the Americans.
What are the limits of his influence in Saudi Arabia ? In what extent his role as the Minister
of Defence is decisive for his own future in the kingdom ?
Antoine Basbous : The Prince Mohammed bin Salman is now the most powerful man in Saudi
Arabia. It has exclusive access to his father, King Salman, and effectivly he can rule the coutries
inread of him. He is head of his office, which means that nobody can contact or be received by the
King without going through the son. He also can say to anyone inside as well as abroad, "This
is the will of the King". So he has phenomenal power, and does not suffer from the luch of desire
to exercise it. As to whether his role as Defence minister, is decisive for his own future, it is
obvious. If he succeeds in this position and it shows the virility of the military success, this
can strengthen its position. On the other hand, if this gets stuck into yeme war quadmire, if the
failures multiply, it is not excluded that this will ruin completely his chances of succeeding his
father. In a situation like this, He might well became a falling star. It is vital that he achive
a good results in the war on the ground, although in a majority of arab countries, the people is
not necessarily looking very attentively at the quality of governance.
What is the analysis of personality of this key figure and the balance sheet of his first year as
the Defense minister can say about the position of Saudi Arabia on the international scene in the
comong months ? What will be developments in the relations of Saudis and Iran ?Antoine Basbous
: Saudi Arabia is extremely disturbed by the detente with Iran on the international scene.
We are witnessing more or less a reversal of alliances, and of countries images in the eyes of the
West. A short time ago, Iran was demonized in the West. Today, it is accepted as a normal partner.
Iran, therefore, benefits from a relatively favorable treatment, while at the same time when the
Arab monarchies, particularly Saudi Arabia, are seen as retrograde, unable to provide for reforms
and creating the flow of Islamic radicals... The nature of Hezbollah, interference military and terrorists
of Iran is currently forgotten.
Mohammed bin Salman is still an "emerging" politician, politician in the course of "on the job"
training. But despite of that he is exercising functions that are extremely strategic, and he must
demonstrate whether he can adapt to situations to which the country is facing.
Alexander del Valle : I think it will be very difficult to see any reapprochement with
Iran in the coming months as Saudi Arabia has two "hardliners" in the young rising generation of
leaders. The heir and the vice-inherit the Kingdom share the same radical line toward Iran.
Moreover, Saudi Arabia pays very dear to his strategy of crushing oil prices, which makes
it less able to buy social peace than before. Therefore, there is an internal demand of radicalism,
because the discontent rumbles in the parts of the Saudi population fueled by the effects of the
falling oil prices. An increase of sympathy for jihadism can be felt with those segments of
the population. So even if the prince Mohammed bin Salman and prince Mohammed ben Nayef – heir to
the throne and minister of the Interior - were moderate, they would be obliged to give pledges to
their people, who account for more of the "appeasers of Shiites". If one wanted to summaries,
we could say that to buy a peace with Islamist Wahhabi radicals, it is necessary to kill shia...
besides, the Saudis have a genuine complex of encirclement by the Shiite states. They try to counter
it by creating an opposite ark of Sunni radicals.
I thus do not see how there could be a rapprochement with Iran. Or it can be only via the pressure
of the United States, as was the case between Greece and Turkey in the past. Therefore, even
if this does not lead to open warfare, the tension between Saudi Arabia and Iran is sustainable,
if only because this new generation of Saudis leaders is more combative. They differ from the former
kings who belonged to a generation that was distinguished rather by its search for a compromise and
some consensus. This is absolutely not the case for those two heirs of the throne.
Iran signed an agreement to supply crude oil with Hellenic Petroleum SA,
a Greek oil refinery, in what may be the Persian Gulf producer's first such
deal with a European company since the removal of international sanctions this
month.
Deliveries will begin immediately, Hellenic Petroleum said in an e-mailed
statement on Friday. The agreement also includes an adjustment for a financial
backlog owed to Iran's state oil company after sanctions imposed four years
ago, according to the statement. Iran's Deputy Oil Minister Amir Hossein Zamaninia
discussed potential energy co-operation with Greek Energy Minister Panos Skourletis
earlier on Friday in Athens.
The oil market is bracing itself for a ramp up in supplies from Iran amid
a global supply glut that pushed prices down to a 12-year low. Oil analysts
surveyed by Bloomberg anticipate the nation will ship 100,000 barrels a day
more crude within a month of sanctions ending, and four times that within half
a year. Iran says it will boost exports by 500,000 barrels a day right away.
Europe had been Iran's second-biggest oil customer before sanctions were
introduced, purchasing nearly 600,000 barrels a day from the Middle East nation
in 2011, according to the U.S. Energy Information Administration. Greece was
one of the biggest European importers, buying about 120,000 barrels a day in
2011, data from the International Energy Agency shows.
The return of Iranian oil could send prices even lower, as it fills in the
gap left by the decline in U.S. shale production, the IEA warned on Jan. 19.
Flows of Iranian crude to Europe may displace similar grades sold by Russia
and Iraq, which may in turn be diverted to the U.S., Citigroup Inc. predicts.
European oil companies such as Royal Dutch Shell Plc, Eni SpA and Total SA
have said they're interested in returning to Iran to develop its oil reserves,
which are the fourth-biggest in the world.
Notable quotes:
"... Deals signed just over a week ago when Iranian President Hassan Rouhani
met his French counterpart, Francois Hollande, in Paris included some 20 agreements
and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul
Airbus passenger planes to update its ageing fleet. Carmaker Peugeot-which was forced
to pull out of Iran in 2012--also agreed to return to the Iranian market in a five-year
deal worth $436 million. ..."
"... In the reverse flow of the new deal, Total has agreed to buy between 150,000
and 200,000 barrels of Iranian crude a day, with company officials also noting that
Total would be looking at other opportunities as well in oil, gas, petrochemicals
and marketing. ..."
"... According to Iranian media , Total will start importing 160,000 barrels
per day in line with a contract that takes effect already on 16 February. ..."
"... Total will likely want back in on this project, and buying Iranian oil
surely helps. And Iran, likewise, is eagerly seeking out European markets, with
the Iranian Oil Ministry now saying that it's crude oil sales to Europe have exceeded
300,000 barrels per day , counting the Total deal. ..."
"... Iran has recently signed oil contracts not only with French Total, but
also with Russian Lukoil's trading arm, Litasco, and Spanish refiner Cepsa. The
Ministry says that Italian oil giant Eni is interested in buying 100,000 bpd from
Iran, and that such a contract will be discussed soon in Tehran. ..."
"... Iran is seeking to bill its new crude oil sales in euros in order to reduce
dependence on the U.S. dollar, the news agency reported, citing an anonymous NIOC
source. ..."
"... Washington is not going to appreciate this additional threat to the petro
dollar . This would add Iran to the growing list of countries that, over the past
few years, have begun to pose a challenge to the current system by forming pacts
to transact oil in local currencies. ..."
As Airbus and Peugeot finally return to post-sanctions Iran, the trade-off
is Iranian oil, with French Total SA taking the plunge in an agreement to buy
up to 200,000 barrels per day of Iranian crude--but the catch is that
sales will be in euros.
Deals signed just over a week ago when Iranian President Hassan Rouhani
met his French counterpart, Francois Hollande, in Paris included some
20 agreements and a $25-billion accord under which Iran will purchase 73
long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet.
Carmaker Peugeot-which was forced to pull out of Iran in 2012--also agreed to
return to the Iranian market in a five-year deal worth $436 million.
In the reverse flow of the new deal, Total has agreed to buy between
150,000 and 200,000 barrels of Iranian crude a day, with company officials also
noting that Total would be looking at other opportunities as well in oil, gas,
petrochemicals and marketing.
According to Iranian media, Total will start importing 160,000 barrels
per day in line with a contract that takes effect already on 16 February.
Total never really left Iran, though. While it
stopped all oil exploration and production activities there in 2010, making
it one of the last to withdraw, it still maintained an office there.
Since 1990, Total has been a key investor in Iranian energy, playing a role
in the development of Iran's Sirri A&E oil and South Pars gas projects. Sanctions
also halted its planned involvement in the LNG project linked to Iran's South
Pars Phase 11.
But Total's work in Iran hasn't been without its problems-even without sanctions.
In May 2013, Total agreed to pay
$398.2 million to settle U.S. criminal and civil allegations that it
paid bribes to win oil and gas contracts in Iran. U.S. authorities claimed
that between 1995 and 2004, Total paid about $60 million in bribes to an Iranian
government official to win lucrative development rights in three South Pars
project oil and gas fields. While French prosecutors had recommended that Total
and its then-CEO, Christophe de Margerie, be tried on these charges,
De Margerie's premature death in a Moscow plane crash put paid to that and
the case was discontinued.
At stake here is Iran's prized South Pars, which holds some 14 trillion cubic
meters of natural gas and 18 billion barrels of gas condensates. Or in other
words, 7.5 percent of the world's natural gas and half of Iran's total reserves.
And
Phase 11 of this project is what the supermajors are eyeing. Total was dismissed
from Phase 11 in 2009 and its portion of the project was awarded to China National
Petroleum Corporation (CNPC), which then pulled out in 2012 under the bite of
sanctions.
In September 2015, the National Iranian Oil Company (NIOC) transferred the
uncompleted portions of Phase 11 to Iranian companies.
Total will likely want back in on this project, and buying Iranian oil
surely helps.
And Iran, likewise, is eagerly seeking out European markets, with
the Iranian Oil Ministry now saying that it's crude oil sales to Europe
have exceeded 300,000 barrels per day, counting the Total deal.
Iran has recently signed oil contracts not only with French Total, but
also with Russian Lukoil's trading arm, Litasco, and Spanish refiner Cepsa.
The Ministry says that Italian oil giant Eni is interested in
buying 100,000 bpd from Iran, and that such a contract will be discussed
soon in Tehran.
But there is a catch,
as reported by Reuters. Iran is seeking to bill its new crude oil sales
in euros in order to reduce dependence on the U.S. dollar, the news agency reported,
citing an anonymous NIOC source.
Washington is not going to appreciate this additional
threat to the petro dollar. This would add Iran to the growing list of countries
that, over the past few years, have begun to pose a
challenge to the current system by forming pacts to transact oil in local
currencies.
By Charles Kennedy for Oilprice.com
Notable quotes:
"... Venezuelas oil minister Eulogio Del Pino, who was on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was productive. ..."
NEW YORK (Reuters) - Oil prices were down 2 percent on Monday
as supply overhang concerns grew after a Saudi-Venezuela meeting at the weekend showed few signs
of coordination to boost prices.
No tangible signs emerged from a meeting on Sunday between
Saudi Arabia's oil minister Ali al-Naimi and his Venezuelan counterpart that OPEC and non-OPEC suppliers
were ready to meet to discuss the price slump.
After a flurry of diplomacy over the last two weeks about
a possible production cut roiled oil markets, Sunday's meeting between cash-strapped Venezuela and
the kingpin of the Organization of the Petroleum Exporting Countries was seen as "make or break"
for a possible deal to boost prices that have slumped 70 percent since mid-2014.
Venezuela's oil minister Eulogio Del Pino, who was on a tour
of oil producers to lobby for action to prop up prices, said his meeting with Naimi was "productive."
"But does 'productive' mean less production? The market thinks
not, at least right now," said Phil Flynn, an analyst at Price Futures Group in Chicago.
Notable quotes:
"... while historically OPEC exercised a rational production strategy, as of the 2014 OPEC Thanksgiving
massacre, there is no more OPEC, as can be seen by the relentless attempts by roughly half the members
to call an OPEC meeting unsuccessfully, confirming what we said in late 2014 - OPEC no longer exists,
which means it is every oil producer for themselves. ..."
Whether it's $50 or $70 by the end of 2016 will largely be determined by the global economy, he added,
reiterating the same flawed thesis he used to justify his bullishness a year ago: "We're still building
inventories, and we will for the next several months. And then we'll start to draw," Pickens said.
"Once you start to draw, you're not going to start back building again. The draw will come here in
the next few months. It'll become pretty clear."He was wrong then, and he will be wrong this time
again for the simple fact that while historically OPEC exercised a rational production strategy,
as of the 2014 OPEC Thanksgiving massacre, there is no more OPEC, as can be seen by the relentless
attempts by roughly half the members to call an OPEC meeting unsuccessfully, confirming what we said
in late 2014 - OPEC no longer exists, which means it is every oil producer for themselves.
Putting T Boone's forecasts in context, in a CNBC commentary in October, Pickens conceded his
prediction for $70 oil by the end of 2015 wasn't going to happen, because worldwide demand did not
go up as much as he thought and supply did not markedly go down. Oil closed the year at $37: his
prediction was off by 50%.
Notable quotes:
"... It could be that KSA production is about to fall off a cliff, so to speak. It's hard to know what to think but given KSA's strange, and perhaps desperate, geopolitical and geoeconomics maneuvers as of late it seems likely that something is afoot. They've been playing a lot of silly little games the last 18 months or so. It causes me great suspicion. ..."
Jiimmy,
02/05/2016
at 11:04 pm
I found this old article when I was reminiscing and google searching some old stories about wikileaks
and KSA's overstated oil reserves. I believe the wikileaks cable mentioned KSA overstated oil
reserves by 300 billion barrels. I believe KSA is now owning to having less less than 300 billion
barrels in proven oil reserves these days.
http://www.theoildrum.com/node/7149
It could be that KSA production is about to fall off a cliff, so to speak. It's hard to know
what to think but given KSA's strange, and perhaps desperate, geopolitical and geoeconomics maneuvers
as of late it seems likely that something is afoot. They've been playing a lot of silly little
games the last 18 months or so. It causes me great suspicion.
And this on OPEC.
http://anz.theoildrum.com/node/4033
Watcher,
02/06/2016
at 3:25 am
The macro clue to things is in KSA's own words:1. We are not going to produce oil for which
we have no orders. That verbiage was from them at $110/b.
Think carefully about that today, because it has to still be true.
2. We are not going to lose market share.
To whom? They have said they don't compete with shale. They don't. They don't produce light
oil. They don't sell to the same refineries. So how would they lose market share? By having a
producer of their weight/type oil undercut their price. They have to match a competitor price.
If Urals gets priced at $30/b then so must theirs, regardless of who asked for how much.
(Giving rise again to that sticky question of who is placing orders for oil they can't sell
or burn)
Notable quotes:
"... the global oil market is not a market like those for smartphones, automobiles or ladies purses. The global oil ( gas) market is a STRATEGIC one. Which goes on to say that the core states, such as first of all, North America, then NW Europe get to have the first and final say. ..."
"... This problem is compounded by the fact that high oil prices enable geo-strategic rivals such as Russia/Iran/Iraq/Venezuela to be more defiant than they would otherwise be. ..."
"... The oil rich countries that are directly controlled by the US co (the US Empire) also known as GCC, follow an oil production policy that largely suits the core states themselves, depending on the situation and their ability to affect the global market. ..."
"... As North America was a massive oil importer circa 2009 (Canada cannot be seen in isolation, but as appendix to the US) this increased oil production went a lot way in: a)boosting economic growth (North America has easily outpaced other advanced economies since the Lehman crisis) b) Minimize the US trade deficit and therefore: c) Boosting the value of the US dollar. ..."
"... Countries outside of the US, Canada (to a lesser extent UK, Norway ) that are major oil producers, need to accrue massive profits from their oil sales, since they universally divert most of those funds into financing the government, the military and social spending, while they must also keep some for re-investments into their oil sectors. US Canada are uber-happy if they can more or less break-even. ..."
yiedyie,
02/04/2016 at 5:51 pm
Could this have been due to the special place US has in the hierarchy.When camels are thirsty
they are chewing thistle to relieve their thirst, but the thistle is dry, so in fact their own
blood relieve their thirst.
Dogs chew old bones but there is nothing in them, but pieces of splited bone pierce their mouth
ceiling and fresh blood makes them think there is food in there.
This is what US has done f.ed the little economic moment it still had because is the forefront
of the empire, he is going for the fresh blood of shale.
Stavros H,
02/05/2016 at 12:16 am
As I have repeatedly stated on this blog, the global oil market is not a market like those
for smartphones, automobiles or ladies purses. The global oil (& gas) market is a STRATEGIC one.
Which goes on to say that the core states, such as first of all, North America, then NW Europe
get to have the first and final say.
The problem for the US, Canada, Norway and the UK (the only wealthy countries producing large
quantities of oil) is that their oil reserves are extremely marginal and can only be accessed
with high oil prices (in the long-run) This problem is compounded by the fact that high oil
prices enable geo-strategic rivals such as Russia/Iran/Iraq/Venezuela to be more defiant than
they would otherwise be.
The oil rich countries that are directly controlled by the US & co (the US Empire) also
known as GCC, follow an oil production policy that largely suits the core states themselves, depending
on the situation and their ability to affect the global market.
In my view, this is what preceded the recent oil market collapse:
- NATO-GCC to Russia in 2011/12: "Give up Assad, or we'll fill our media with BS stories
about you. We will also 'encourage' our corporations to not invest in your country"
- Russia to NATO-GCC: "You have been doing that for ages, who cares for even more propaganda.
Assad stays"
- NATO-GCC to Russia in 2013/14: "Give up Assad, or we will turn Ukraine against you, there
will be serious trouble for you, as now we will make our economic warfare against you, official.
Moreover, our 'regime-change' efforts will intensify"
- Russia replies to NATO-GCC: "Bring it on, Assad stays"
- NATO-GCC to Russia in 2014: "We will pummel the oil price into oblivion*, we promise that
you will feel the strain, just give up on Assad or we will destroy you"
- Russia replies to NATO-GCC: "I have seen worse. Assad stays"
*Notice that NATO-GCC did not use the oil-price weapon until one of two things happened:
a) Time-pressure on regime-changing-Syria became serious.
b) The shale and tar sands infrastructure had been already put in place under high oil prices.
But back to Ron's core (and largely correct) claim that the global oil production gains of
recent years have been a North American phenomenon (I would also add Iraq)
North America has been able to ramp-up production spectacularly in recent years because of
the following reasons:
a) It's capital rich. Instead of diverting all of that QE-enabled loans to the parasitic "housing
market" and lots of inane Silicon Valley start-ups (that fail 99 times of 100) it was wiser to
have some dough flow into the "shale oil & gas miracle" as well as Alberta's vast tar sands deposits.
Which made both economic as well as strategic sense.
b) As North America was a massive oil importer circa 2009 (Canada cannot be seen in isolation,
but as appendix to the US) this increased oil production went a lot way in: a)boosting economic
growth (North America has easily outpaced other advanced economies since the Lehman crisis) b)
Minimize the US trade deficit and therefore: c) Boosting the value of the US dollar.
As I have noted many times before on this blog, some (maybe several) countries around the world
have massive oil reserves that are far more prolific than those currently being exploited in North
America. But these countries, do not enjoy neither the political/military clout over the GCC,
nor remotely the financial capital to engage in such massive (and risky) investments.
Countries outside of the US, Canada (to a lesser extent UK, Norway ) that are major oil
producers, need to accrue massive profits from their oil sales, since they universally divert
most of those funds into financing the government, the military and social spending, while they
must also keep some for re-investments into their oil sectors. US & Canada are uber-happy if they
can more or less break-even.
But the peak-oil-environmental bias of many, does not allow them to see this.
Javier,
02/05/2016 at 4:14 am
Your strategic analyses are very interesting Stavros, and fit many of the things we all know are
true. However I have a problem with the "We will pummel the oil price into oblivion" part.
The available evidence is that the price of oil followed very closely the supply/demand ratio.
The chart below is from Dr. Ed's blog.
I am always skeptical of interpretations that are not supported by evidence. There are multiple
theories about who caused the oil price to go down and why. I rather stick with the data, it is
not a PO bias but quite the opposite. A supply/demand mismatch caused it and nobody wanted to
cut production unilaterally.
Ron Patterson,
02/05/2016 at 8:51 am
The oil rich countries that are directly controlled by the US & co (the US Empire) also
known as GCC, The oil rich countries that are directly controlled by the US & co (the US Empire)
also known as GCC, follow an oil production policy that largely suits the core states themselves,
depending on the situation and their ability to affect the global market.
That statement makes no sense whatsoever. Just who is/are "US & Co"? Would that be Obama? Or
perhaps the US Congress? Or perhaps the US Oil Companies? Then in the second half of that long
sentence, you completely contradict the first half of the sentence. You say: follow an oil
production policy that largely suits the core states themselves," Now which is it? Are they
controlled by US & co, or are do they pay no attention to whomever in the US that is doing the
controlling and follow a policy that simply suits themselves?
I would definitely agree with the second half of your sentence, the GCC states do exactly what
they damn well please. And I would definitely disagree with the first half of your sentence. They
would pay no attention to any US politician or businessman that might call them up and try to
tell them what to do.
But back to Ron's core (and largely correct) claim that the global oil production gains
of recent years have been a North American phenomenon (I would also add Iraq).
Well no, that's not what I said. Yes, recent oil production gains have been from US, Canada,
Iraq and Saudi Arabia. But what I said was:
The recent surge in world production that was brought about by high prices…
The recent gains in Iraq and Saudi Arabia were after the price already started to fall. Those
gains were not brought about by high prices. They were despite a steep decline in prices.
likbez ,
02/05/2016 at 10:22 am
Ron,
That statement makes no sense whatsoever. Just who is/are "US & Co"?
"US and Co" is essentially a codename for NATO. It is ruled by international financial elite
(Davos crowd) which BTW consider the USA (and, by extension, NATO) as an enforcer, a tool for
getting what they want, much like Bolsheviks considered Soviet Russia to be such a tool.
The last thing they are concerned is the well-being of American people.
TechGuy,
02/04/2016
at 6:06 pm
Is Armageddon located in Syria?Saudi Official Says Kingdom Ready to Send Troops to Syria
http://abcnews.go.com/International/wireStory/saudi-official-kingdom-ready-send-troops-syria-36717765
"Asiri's announcement came shortly after Russia said it suspects Turkey of planning a military
invasion of Syria. Ministry spokesman Maj. Gen. Igor Konashenkov said Thursday in a statement
that the Russian military has registered "a growing number of signs of hidden preparation of the
Turkish armed forces for active actions on the territory of Syria.""
Who has ongoing military operations in Syria?
1. Syria
2. ISIS
3. IRAN
4. NATO (US, EU)
5. TURKEY (NATO, but for a non-NATO agenda)
5. KSA?
All we need is China to join in, to make it an official global war ( contained inside of one
small third world nation for the moment)
Watcher,
02/04/2016
at 6:11 pm
In general, Russia, Iran and Assad are winning. They are about to wipe out the rebels holding
Aleppo. That would effectively eliminate anyone for the US to support.It also would pretty
solidly assure that no GAZPROM challenging pipeline of Qatar gas to Europe is going to happen.
The reaction across the board is a tad desperate.
The Wet One,
02/04/2016
at 6:19 pm
How the heck is Saudi going to get troops into Syria? No shared border there. Through Iraq? Can't
see that happening because Iraq is aligned with Iran. Through Israel? Bwahahahaahahahahaha! Through
Jordan? Eh, well I guess that might work. Reasonably short supply lines too.Well, let's get
this party really rockin' and rollin'! C'mon everybody! Let's do the twist!
AlexS,
02/04/2016
at 7:02 pm
Saudis Say Cash Crunch Won't Derail an Ambitious Foreign Agenda
http://www.bloomberg.com/news/articles/2016-02-04/saudis-say-cash-crunch-won-t-derail-an-ambitious-foreign-agenda
Saudi Arabia won't let the plunge in oil prices derail a regional agenda that includes waging
war in Yemen and funding allies in Syria and Egypt, Foreign Minister Adel al-Jubeir said in an
interview.
"Our foreign policy is based on national security interests," al-Jubeir said on Thursday at the
Ministry of Foreign Affairs headquarters in the kingdom's capital, Riyadh. "We will not let our
foreign policy be determined by the price of oil."
Javier,
02/04/2016
at 7:15 pm
The bankruptcy of the corrupt, medieval, bigot, terrorist exporting regime of Saudi Arabia would
be one of the few positive things of continuing low oil prices.
Jiimmy,
02/05/2016
at 12:13 am
Saudi troops are going to get their ass kicked so hard. It's going to be pathetic. Saudis are
soft. Their leadership is incompetent. Their army has never seen battle on any reasonable scale.
I don't know whether to laugh at the very idea of Saudi troops fighting in Syria or cry for the
poor buggers that are gonna be turned into buzzard feed.
Notable quotes:
"... The question is whether 56 year old Crown Prince Mohammed bin Nayef (King Salman's nephew) or 30 year old Deputy Crown Prince Mohammed bin Salman (King Salman's son), or someone else, will succeed King Salman. ..."
"... King Salman, the deputy crown prince has shifted into high gear as the kingdom's minister of defense, economic czar and ultimate boss of Aramco, the national oil company that bankrolls the kingdom. Not since the 1960s has a prince his age held such power. . . . ..."
"... Some of Mohammed bin Salman's uncles and cousins insist that the senior members of the family are organizing to meet with the king in the "near future" to ask him to restrain or remove his son. ..."
"... "Is he a prince? A businessman? Or a politician?" asks one of the king's octogenarian half brothers. "I don't know when this play will end. Government is not theater. King Salman needs to open his heart and his mind to his brothers." ..."
Jeffrey J. Brown,
02/05/2016
at 8:32 am
Karen Elliott House, author of "On Saudi Arabia," has an Op-Ed in the WSJ in regard to the question
of succession in Saudi Arabia.
The question is whether 56 year old Crown Prince Mohammed bin Nayef (King Salman's nephew)
or 30 year old Deputy Crown Prince Mohammed bin Salman (King Salman's son), or someone else, will
succeed King Salman. An excerpt from the Op-Ed, "Some of Mohammed bin Salman's uncles and cousins
insist that the senior members of the family are organizing to meet with the king in the "near
future" to ask him to restrain or remove his son."
Inside the Turmoil of Change in the House of Saud
As oil prices drop and external threats mount, a 30-year-old crown prince is suddenly ascendant.
http://www.wsj.com/articles/inside-the-turmoil-of-change-in-the-house-of-saud-1454632133
Can an audacious young prince make his tradition-bound family bow to his will and force
his somnolent society to wake up? With the sweeping powers recently bestowed on 30-year-old
Saudi Deputy Crown Prince Mohammed bin Salman, the Saudi royal family, its 30 million subjects
and the outside world may soon find out.
For the past two decades Saudi Arabia's geriatric rulers have steered the kingdom at a glacial
pace as if it were an antique car. Given the wheel last year by his father, King Salman, the
deputy crown prince has shifted into high gear as the kingdom's minister of defense, economic
czar and ultimate boss of Aramco, the national oil company that bankrolls the kingdom. Not
since the 1960s has a prince his age held such power. . . .
Prince Mohammed bin Salman, a risk-taker, has rallied much of the country behind him by
acting decisively-without deferring to the U.S.-to sever diplomatic ties with Tehran and confront
Iranian meddling in Yemen and Syria, to pursue a new 34-nation Islamic coalition against terrorism,
and to meet a parade of world leaders, including Russia's Vladimir Putin and China's Xi Jinping,
to show Washington that Riyadh has options.
As a result, there is a palpable air of anticipation in the kingdom. A growing number of
Saudis believe that the deputy crown prince will leapfrog his older cousin, 56-year-old Crown
Prince Mohammed bin Nayef, to succeed the 80-year-old King Salman. To these Saudis, especially
the younger generations, the youthful prince, with his energy and activism, is a leader whose
time has come. Some 70% of Saudis are the deputy crown prince's age or younger. To others,
including many in the royal family, he is a whirlwind about to wreak havoc in the kingdom and
create more chaos in the region. . . .
Yet some in the royal family believe this king and his son are bent on excluding the
bulk of the 7,000-member family in favor of only one line. Since 1953, the throne has passed
from brother to brother largely by seniority among the 36 sons of the founder Abdulaziz ibn
Saud. Some of Mohammed bin Salman's uncles and cousins insist that the senior members of the
family are organizing to meet with the king in the "near future" to ask him to restrain or
remove his son.
"Is he a prince? A businessman? Or a politician?" asks one of the king's octogenarian half
brothers. "I don't know when this play will end. Government is not theater. King Salman needs
to open his heart and his mind to his brothers."
