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Peak Cheap Energy and Temporary Oil Price Slump

Fighting MSM disinformation and oversimplifications about cost of shale oil and other energy related topics:
as Arthur Berman noted "Shale oil is not a revolution, it is a retirement party"

News Casino Capitalism Recommended Links Secular Stagnation Gas wars Oil glut fallacy Subprime oil: Deflation of the USA shale oil bubble
Paper oil, Minsky financial instability hypothesis and casino capitalism Slightly skeptical view of oil price forecasts Paper oil and record oil futures trading volumes MSM propagated myth about Saudis defending this market share Russia oil production Iran return to western oil markets fear mongering Oil Burden: amount on money spend on energy vs. global GDP
Energy returned on energy invested (ERoEI) Energy Geopolitics Great condensate con A note of ERoEI decline Cushing is filling up hysteria Plato Oil as Hubert Peak in condition of rising oil prices Media disinformation about Plato oil and Hubert peak
Energy disinformation agency and friends Big Fukushima Debate Oil consumption growth The fiasco of suburbia US military energy consumption Media-Military-Industrial Complex Neoconservatism
Neocolonialism as Financial Imperialism  All wars are bankers wars Predator state Bakken Reality Check Junk bond bubble Debt enslavement Neoliberalism as a New Form of Corporatism
IMF as the key institution for neoliberal debt enslavement Media disinformation about Plato oil and Hubert peak Fiat money, gold and petrodollar Energy Bookshelf Financial Quotes Financial Humor Etc
80 years ago the Nobel Prize winning chemist explained where oil DOES come into the picture:

Though it was not understood a century ago, and though as yet the applications of the knowledge to the economics of life are not generally realized, life in its physical aspect is fundamentally a struggle for energy, …

Soddy, Frederick M.A., F.R.S.. Wealth, Virtual Wealth and Debt (Kindle Locations 1089-1091). Distributed Proofreaders Canada.

The ‘backing’ for the petrodollar now includes the monetized value of Chinese and third world labor and natural resources as well as OPEC oil. But controlling the outcome of life’s “struggle for energy” is still the crumbling cornerstone of both US foreign and domestic economic policies:

  • control the world’s access to energy and it has no choice but submitting to the hegemon’s will
  • the U.S. political system is now owned lock, stock and barrel by a financial / military industrial / fossil fuels complex (am I forgetting anybody?). The powers that be are trying to preserve the existing status quo by insuring that life remains a “struggle for energy”.

The denizens of Wall Street and Washington can perhaps be forgiven for believing they were the “masters of the universe” at the conclusion of WWII. What they can NOT be forgiven is their belief – then or now – is that “the end of history” had arrived (unless they cause it).

Steven comment on Michael Klare Delusional Thinking in Washington, The Desperate Plight of a Declining Superpower


Introduction

Nemesis eventually catches hubris.

"Shale oil is not a revolution, it is a retirement party"
Arthur Berman

When oil is traded too cheaply, the victim of such trades is always the future generations. The current drop in oil prices might have been a curse, not the blessing as it slowed down or stopped the adaptation processes that were already in place with $4 per gallon ($1 per liter) gas in the USA.  The reality is a harsh mistress: the situation with depletion of existing oil deposits and new discoveries is now worse than in, say, 2000. But we still continue to do the same things. Such as buying large SUVs. Which fits Albert Einstein definition of insanity ("doing the same thing over and over again and expecting different results"). As one NYT commenter noted (Moscow on the Brazos):

I don't get it. We're supposed to be running out of oil, right? Or has that changed? $2 gas and we've gone past the Bell Curve of supply and use? And now we're all drunk on cheap gas. I'm happy to see new innovative efficient technology, new electric and hybrid cars but now they're selling boatloads of SUVs and pickup trucks. They are back in big style. They are better now, instead of 11 mpg they're 15 mpg.

As IEA noted in iea.org

In a Low Oil Price Scenario, longer payback periods mean that the world misses out on almost 15% of the energy savings seen in our central scenario, foregoing around $800 billion-worth of efficiency improvements in cars, trucks, aircraft and other end-use equipment, holding back the much-needed energy transition.

At the same time, the current slump in oil prices proved to be pretty long and any person who tried to predict commodities price in the current environment is suspect ;-). At the end of the day the supply/demand dynamic is at work, but market under neoliberalism is an unstable system with a built-in positive feedback loop. As such neoliberalism is quite capable of dragging us through shortages, depressions, environmental disasters, and even wars on the way from one equilibrium to another. So all those general considerations that are provided below are nothing but an educated guess. As John Kenneth Galbraith aptly said: "The only function of economic forecasting is to make astrology look respectable." Readers beware...

This is a skeptical page that was created due to strong doubts about MSM coverage of the current oil prices slump. especially the idea of oil glut (which in the USA for some strange reason coincide with rising imports of oil and the deflation of shale bubble) and Saudis supposed decision to defend their share of the market" (aka predatory pricing used by Saudis since mid 2014 to slam the oil prices). There are strong indications that that was the political decision make by Saudi elite to hurt Iran after the decision to lift sanctions was made by the USA and allies in mid 2014. Approximately since this very moment they started to dump their oil on the market at artificially low prices (which is called predatory pricing). It might be a coincidence, but it might be a reaction of Saudis to the deal reached with Iran.

Also, MSM cries about glut on oil look strange as the USA from month to month imports more and more oil. Oil glut and rising oil imports are two incompatible trends. But not for the US MSMs. This looks like a phenomenon which came directly from  Geroge Orwell's novel 1984  where it was called "doublespeak". 

The first thing to understand is that at a given stage of developing of drilling and other related technologies there is a minimal price of oil below which production can be continued only at a loss. This price point is different for different types of oil, and slightly varies between different regions but it does exist. For example, a shale/tight oil well often costs around $6-8 million, which needs to be amortized over the life of a well which in the case of shale/tight oil is approximately five-six years. To make things worse unlike conventional wells that can produce approximately at the same rate for a decade, those wells experience a steep decline after two first years, with more half of oil extracted in the first two years. The cost is much higher for non-conventional oil producers than for conventional producers. Canadian tar sand production is even more expensive. Deep water drilling is somewhere in between conventional and non-conventional oil, pricewise.

There are different estimates, but most analysts agree that the US shale/tight oil producers need around $70-$80 per barrel to be able to pay their debts and around $50-$60 to break even. Those numbers are slightly less for deep water oil ($40-$50) and slightly higher for Canadian tar sands. The picture below illustrated difference prices to produce different types of oil ( see below) is reproduced from What Me Worry About Peak Oil  by Art Berman (December 27, 2015 ):

This means that production of light oil from tight zones need the price of $70-80 per barrel to break even.  The same applies to extra heavy, deep water, and EOR projects. Offshore arctic and ultra deep water are extremely expensive and with their own special environmental risks as BP recently discovered. The implication seems to be that most industry investments do require prices in $80-$100 range to continue pump oil at the same rate (Red Queen's race - Wikipedia). In this sense 2010-2013 were gold age for oil production worldwide, as prices were close or above $100 and billions were invested in high cost oil resources ( "Shale oil is not a revolution, it is a retirement party" as aptly observed Arthur Berman).

Now prices dropped below $33 (as of Jan 6, 2015) and at this level of prices all tight oil producers  are losing money  on each barrel of oil they produce. Debt fueled boom in the shale space will most likely never return. Most shale players managed to survive 2015 (some due to hedges; some due to junk bond dent they accumulate and still did not put into capex). But to survive in 2016 will be more difficult and they are in danger of defaulting on their bonds. Mass extinction might well be in the cards, if low prices persist for the whole year.

 when the almighty money almagamations like the Carlyle Group swoop in and buy up all the distressed assets, we just might see oil prices rebound. The vultures won’t have the motive to short the heck out of oil, like they are now.

Junk bonds has duration around five-seven years, so bonds taken in 2010 will be due soon and refinancing them now is very difficult. That means weaker non-conventional oil producers will probably be bankrupt if not in 2016, then in 2017, if prices stay low. This process already stated with something like a dozen bankruptcies in 2015. According to OilPrice.com more expected in 2016:

At the same time world demand for oil will continues to grow and will grow in 2016 probably by 1.3 Mb/d or more.  In 2015 it rose from 92.45 to 93.82 Mb/d. The only country that has additional capacities now is Iran but how quickly it can expand production in low price regime and whether it will be willing to sell additional oil at such low prices to get currency is difficult to predict. Some think that Iran will be able to add another 0.5 Mb/d in 2016 which can only compensate for the drop of US production and nothing else. Production in all other countries will be iether stable or slightly declining due to natural decline of wells with age and lack of capital investments in new drilling. Typical estimate is 1% decline or around 1MB/d of lost supply. Natural rate of decline of most conventional wells is around 6% and non-conventional around 20 (not evenly distributed; the first year production can even rise).  It it doubtful that remaining capital investments will be able to offset everything but 1% of decline. Real decline from non-OPEC members in 2016 can be more.

Actually even Saudis managed only marginally increase their exports in 2015; they just exported slightly more oil  (around  +0.3Mb/d more) at very low prices which supports the current low oil price regime, but not their economy which ended 2015 with a record deficit around $100 billions by Saudis estimates ($150 by IMF estimates). What is Saudis motivation of doing this (and depleting both their coffers and oil reserves) is a difficult question to answer but probably this is an economic war with Iran. The second important source of support of low prices is Wall Street games with futures.

The key problem here is that shale and tight oil producers were not that profitable at above $100 per barrel oil price range that existed in 2010-2013 and accumulated large amount of debt (several hundreds of billions, mostly in junk bonds) during those "good times" . The debt that now needs to be serviced so they have an albatross around their necks.

The destruction of oil supply while very gradual already started albeit slowly, as decline of wells is still compensated by hedging, new drilling and projects that have been started in the "good old days" are still coming online. This decline might well accelerate toward the middle of 2016, if prices do not recover. In any case hedges will expire somewhere in 2016 and after that it will be clear who is swimming naked.

In other words the current oil prices are IMHO not sustainable (too low) even in one-two year timeframe. When most hedges expire and the number of bankruptcies start to increase, Wall Street might be unable to press oil futures down anymore so push back in prices can be pretty violent. .

BTW Saudis lost around $100 billions this year and their foreign reserves shrunk to around $600 billions. Projected loss for 2016 is around $85 billions. So they need around one decade to deplete their foreign currency reserves.

Some suspicious consistency in the US MSM stories about oil price slump

“Where ideas are concerned, America can be counted on to do one of two things: take a good idea and run it completely into the ground, or take a bad idea and run it completely into the ground.”

—George Carlin

Oh what a tangled web we weave, When first we practice to deceive!"

Walter Scott, Marmion, Canto vi, Stanza 17

 

To make the story short current MSM behaviour is highly irresponsible and suggests that all of them are in the pockets of Wall Street or worse. After all oil is a irreplaceable commodity that will eventually run out. Low oil prices from this point of view are the last thing we need. It's like drinking party on the deck of Titanic. What should be done is creating the infrastructure for living with much less oil available. Which is possible only with high prices for this commodity. also the destruction of oil patch that now is happening should be get so much cheerleading. It is a tragedy for many people. The ability to fill gas tank for less then 2 dollars is not everything in this life. 

Economist Herbert Stein (1916-1999) wrote in 1986: "if it can’t go on forever it will stop." Despite this self-evident truth there is interesting, highly correlated bias, in coverage of oil prices slump for most of the US MSM: all predict essentially that current low oil prices will stay if nor forever, then for a very long time. And that what happened in 2015 is not anomaly, despite clear indicators that at this price most US producers sell their barrels at loss.  They salivate that this situation will continue in the first half of 2016 and well into 2017. They also completely discard negative externalities of this event.  As oil has crashed to $33 levels there is  a lot of MSM talk that the current price is really the long term historical average price, that 2005-2014 was an anomaly (bubble) and that we will stay in this range (say, $20-$40) for years to come.  Actually you can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

You can bet that at any price point MSM will claim that the cost of extraction is 20% lower, no matter what the price level is.

Yes, there are few places in the Middle East and Russia from which oil can be profitably extracted at this price range. But those countries depend on oil for revenue to balance the budget so even in those places this situation is unsustainable.  More then 80% sources of oil are unprofitable at those prices. That includes all shale/tight oil and all deep offshore anywhere in the world.

Still for some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.
 

For some unknown to me reason in MSM low oil prices (below the cost of production) and depletion of valuable natural resource are now considered to be a universal good. While at best this is nothing more then initiated by Saudis "Hail Mary pass" to save Western civilization from secular stagnation. Externalities be damned, full speed ahead. Shale oil industry and destruction of its workforce, junk bond market troubles are just collateral damage. Does not matter one bit. Give us cheap oil brother and all will be fine.

But at the same time never try to catch falling oil barrel ;-). Market can stay irrational longer than you can stay solvent.

Also strange and suspicious is that most MSM peruse suspiciously similar and questionable, or outright false, if we look at the facts, stories:

  1. Quicker depletion of a valuable and irreplaceable national resource due to low prices does not matter.  Existing wells deplete 5-8% per year (tight oil more that that) so you need to discover, drill and put on line at least the same amount in order to maintains the same volume of oil production. That costs money, and if money are not here nobody will drill. So natural tendency of production at low oil price (which now man below $70-$80 per barrel) is down, not up. 
     
  2. Saudis are fighting for their market share and flooding the world with oil.  This hypothesis is advanced despite the fact that their exports are stagnant and had grown in 2015 only by around 0.2-0.3 Mb/d (see Saudi Arabia oil production and forecast for 2016). Which is a miserable amount. What fight for market share: they can sell all theoil they produce.  In 2014 they exported around 7.1 Mb/d and in 2015 around 7.3 Mb/d. Plus/minus 0.1 Mb/d. So nothing essentially changed as for the level of their exports taking into account that the growth of world consumption for 2015 is over 1 Mb/d.   Their real strategy is dumping their exports at low price undercutting other producers to bring the price down.  In other words they are using what is called "predatory pricing" and to achieve that they tapped into their currency reserves to the tune of $100 billion a year. They are burning their currency reserves at the speed at which they can exhaust them from six years to decade, losing the investment grade in three.  Also most of their fields are old and semi-exhausted, so maintaining high production might even damage them, cutting short their useful life and the total amount of oil Saudis can recover from them. 

    Saudi shipments rose to 7.364 million barrels a day in October, 2015, according to the latest figures from the Joint Organizations Data Initiative (JODI).  Shipments averaged 7.11 million barrels a day in 2014, down from an 11-year high of 7.54 million barrels a day in 2013 and the lowest in three previous years. So Saudis failed even match their 2013 exports in 2015.

  3. Iran is able and willing to throw on the market another 0.5-0.7 Mb/d in 2016 further depressing prices. This hypothesis is advanced despite explicit statements from the Iran leadership that they will not give any future customer additional discounts above those that exist today.  while Iran leadership is definitely irrational, blocking the temporary freeze agreement, and willing to hurt the county future by increasing oil production as much as they can in low oil price environment (hurting their ally Russia in the process), they are not completely stupid and they do not have much money to drill anyway.  As they now have access to their previously frozen foreign reserves they definitely can wait a year or two before coming to the market with the new supply.  also increase of supply is not instant, it requires time and money, even taking into account that Iran has some underdeveloped fields that can be profitably put into production even at low prices that exist to today. This is a better strategy then coming with new supply at the point of ridiculously low prices. Although everything can happen. Middle Eastern nations are unpredictable.
     
  4. A very conservative estimate of the decline of non-OPEC production for the next year. Most assume that it will be limited to roughly 0.5 Mb/d. But the rate of natural decline of existing conventional oil wells is 3-6% and reduced capital expenses mean less new production is coming online in 2016 and 2017. Assuming 1% depletion that's around 1MB/d that should disappear in 2016. Add to this hard crash that is possible for the US shale producers and the estimate 1.5 Mb/d drop does not look outrageously high. But those consideration somehow disappeared from all considerations from MSM and they operate under assumption that supply from existing wells is indefinite and decline is a rounding error.  Only increase in supply is material and eminent (again Iran supply story get the most prominence). 
     
  5. The US MSM propagate the following bogus narrative: "there is an oil glut in the USA market in particular despite the fact that the USA increasing their import of oil. To cry about glut on oil in the country which imports each month in 2015 more and more oil is something new to me.  This is something from Orwell novel Nineteen Eighty-Four and is called doublespeak. If you are an oil producer, you don’t pump oil unless you have orders for it.  If you pump oil without orders, then you need your own storage to store it. In no way you ship it to Cushing, Oklahoma with their 80 Mb storage capacity as your customers can be in completely different part of the USA and it's you who need to pay for storage. That's the privilege used by refineries to regulate their input in case of maintenance, seasonal peaks, etc.  You don’t ship any oil without getting paid for it. So oil glut theory claim that they are producers which have oil shipped to customers and customers did not use it. Putting it in storage instead. And this bogus "theory" is propagated by MSM for more then 18 month now. It' time for MSM to stop to propagate this nonsense. 
     
  6. Cheap oil is here to stay and current situation will last to 2017 in worst case or to 2020-2040 in the best. IEA forecasts are viewed as facts, despite clear interest in lower oil prices.  In reality just cutting capital investment along with depletion of  existing fields (almost 6% for conventional wells, around 20% per year but very unevenly spread for shale/tight oil wells) guarantee diminishing supply. To compensate for 5% depletion the world now needs to find and put into production approximately 5 Mb/d of oil. In other words the world is losing approximately 1 Mb/s of supply per quarter. This loss a very difficult to stop, although it was possible for the last several years because huge capital investments in oil industry caused by high oil prices. 2010-2014 has shown that with high oil prices the decline can be stopped and reversed.  The problem is that adequate capital investments are thing in the past and now most oil companies need to adapt to starvation mode as for capital investment in the oil industry. That spells huge trouble for Norway, Russia, GB,  and other nations with mostly conventional wells.  It will be a miracle if they can maintain they level of production at prices below $40 for more then one-two years (there is some inertia here and new projects are continuing to come online for around 18 months since the start of the price drop; that means till mid, or last quarter of 2016, depending were you put the start of oil price drop). 
     
  7. MSM instantly forgot about previous concerns and the reversal of efficiency of the US car fleet. In 2015 SUVs again became the most popular category of personal car with sales of large SUVs booming. This deterioration of the US fleet efficiency happens along with slow down of sales of hybrids and, especially, electrical cars.
     
  8. Growth of demand during the current period of below $2 per gallon gas for some, unexplained reason will be slower then the explosive growth of demand in 2015. for some reason is is expected to be  limited to around 1% or 1.3-1.4 Mb/d worldwide.
     
  9. China slowed down and her oil consumption will be stagnant or down despite boom in car sales, as if the number of cars of the road is disconnected with oil use. In reality transportation is around 60% of country oil use. Right, but China oil consumption is still growing and will continue to grow in 2016. Those trends can co-exist for a while. So electrical consumption decline does not mean that the oil consumption decline is eminent.

    The same situation can exist in other countries such as the USA - slowing of the economy along with growth of oil consumption. All those new SUVs on the road need fuel to run.
     
  10. The assumption that the destruction of shale/tight oil companies with excessive debt loads in the USA  will be gradual and slow. Despite the fact that they currently produce at a loss  each barrel of oil they sell.  Also it will be orderly without major disruption of production -- just a gradual decline despite dramatically lower capital expenses. The assumption of most US MSM is that US production will stay close to current levels due to Gulf production or due to by waiving some magic wand by Obama administration.
     
  11. Junk bond problem does not exist or is of minor importance despite the fact that there are over 100 billions of shale oil book related junk bonds on the market. Similarly losses of financial sector from hedges in 2015 are non-existent as well (only Mexicans got several billions or additional revenue due to hedges).

The question is from where all those MSM deceptive and false  "talking points" originate.

The end of cheap oil hypothesis

The "end of cheap oil" hypothesis can be simplified to several postulates:

  1. Mankind demand for oil will continues to grow, although the pace of growth slows down with the increase of the price of oil as well as due to stagnation of world economy caused by high oil prices. That does not exclude temporary (often multiyear) oil price slumps or highs: instability is the nature of financial system under neoliberalism. 
  2. The supply of oil profitably extractable at any given price point below $100 (such $40, $50, $60 per barrel) will continue to shrink. Total extractable supply of oil can grow only by adding more and more expensive source of oil, sources with lower EROEI. New technology of extraction (especially horizontal drilling) can somewhat offset decline of EROEI but can't reverse it.  Simple calculation by dividing "proven world reserves" by annual consumption suggest that at prices below $100 in 2014 dollars they will be exhausted in approximately half a century (assuming $50 a barrel price point) peakoilbarrel.com, comment 12/11/2015 at 7:34 am)
    Proved oil reserves at 1700.1 billion barrels, 52.5 years of supply.

    Reference:

    http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/oil-review-by-energy-type/oil-reserves.html

    At 50 USD per barrel, the value is 50×1,700,100,000,000=85,005,000,000,000 usd

    Not enough, 100 USD per barrel will be better. 85 trillion dollars to spend so 1700.1 billion barrels of oil can be extracted and burned in 52.5 years. An absolute bargain. Current consumption at 32.85 billion per year, 365×90,000,000, 1700.1/32.85=51.75 years.

  3. The search for new sources of hydrocarbons by G7 countries will intensify over time and will likely generate resources wars. At least two resource wars already happened: Iraq and Libya. Wars are fought over access to and control of oil resources with high EROEI as well as other vital natural resources. With rising human population, competition for these resources might increase triggering conflicts, large and small. Industrialized nations already started to invade weaker countries to secure access to oil which is essential to the survival of modern industrial civilization (Iraq and Libya, and if we think about pipelines to Europe, Syria). 
  4. Very high price of oil (let's say above $100 per barrel)  leads to stagnation in all major industrialized countries and first of all the USA as well as eventual debt collapse of neoliberal economies and slow down or reverse of neoliberal globalization.
  5. The current "Race to burn what's left" is irrational.  Low oil prices destroy and delay investment in new supplies, slow down efficiency gains, encourage consumption and sow the seeds of the next big boom in prices.  If we assume that at each price point only a finite amount of oil can be profitably extracted from Earth (which is a planet, that is now well researched for oil), the current year and a half slump in oil prices looks extremely suspicious. It means robbing future generations, as conservation efforts are now derailed. Sales of SUVs and small trucks in the USA are up.  Trillions in equity and bond losses, hundred thousands of ruined retirement accounts and there is a severe recession knocking on the door for the US economy. The US are selling their last drops of oil at prices below production cost. In my opinion it would be wiser to save the oil that is currently  produce in strategic reserves and sell it when prices are much higher.

Please note that the US government patiently observes the current situation and does not try to influence the price by buying oil for their strategic oil reserve, although in the past it used to do such things. MSM coverage of oil also suggests strong establishment bias toward lower prices. As if this is the last "Heil Mary" pass in geostrategic game for the USA dominance.  So there are higher priorities in play here then the destiny of the US shale industry and more rapid exhaustion of national oil reserves. At the same time oil price slum is equivalent to a huge stimulus  to the USA economy, but it does have some significant side affects. If we assume $93.17-49.08=44.09 price drop for 2015 and the daily consumption of around  19.58 Mb/s that comes to 222 billions a year.

The current drop of oil prices also represent huge stimulus to EU,  China, Japan and other all other industrialized countries without or with little own oil reserves. If this were organized as a part of Russian sanctions package, this was a brilliant strategy. All industrialized countries in which own consumption far exceeds own production, are essentially isolated from negative affect of countersanctions   by the low price of oil.  In other worlds this is a huge global economic stimulus to the "masters of the universe" and at the same time stern warning to one of the last "resource nationalists" which try to pursue independence from Washington foreign policy.

The key question here: was it engineered by neoliberal strategists in Washington, DC and their masters in major Wall Street banks (in this case this was a really brilliant move)? Or is this ugly side effect of unhinged capitalism known as neoliberalism where oil companies overinvested in new projects due to greed and many new projects are coming simultaneously  online, while demand for oil grows more slowly then they expected. In any case at one point Saudi Arabia decided to dump its oil on the market and fun started. Was it the order from Washington or thier own initiave is unclear.

In recent years oil consumption was growing at slower pace dur to high oil prices. Per Michael Klare 2005 projection of oil consumption in 2015 was 105 Mb/d (millions of barrels per day); actual in 2015 was around 93 Mb/d as high price of oil stimulated investment in energy saving technologies. That includes not only small and hybrid cars (which actually did not improve much from, say, 1990 level, as the size of small car in the USA had grown considerably, but also cars and trucks working on natural gas, blending gas with alcohol (up to 10%), tax breaks for electrical cars ($7500 currently on many "pure electrical" models of small passenger cars, half of that on hybrids). Now this positive trend is partially reversed.  

But there were other signs of introduction of energy saving technologies which indirectly cut oil consumption, especially in chemical industry which will stay:     

For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

Note on the term "conspiracy theories"

Conspiracy theory was the term invented by CIA to whitewash their participation in JFK assassination, which got a wider use and became a common term in English language.  Here is how the term is defined in Wikipedia:

A conspiracy theory is an explanatory hypothesis that suggests that two or more persons, a group, or an organization of having caused or covered up, through secret planning and deliberate action, an event or situation which is typically taken to be illegal or harmful. Although the existence of a proven conspiracy involving United States President Richard Nixon and his aides in the Watergate scandal of the 1970s has been claimed as validation of conspiracy theories in general,[1] the term "conspiracy theory" has acquired a derogatory meaning and is often used to dismiss or ridicule beliefs in conspiracies.[2]

Such things as the current oil slump probably could never happen purely due to market forces (and notion of "free market" is another neoliberal lie; neoliberal markets are neither free nor fair). Oil is not a regular commodity. Oil is a strategic resource. So I think it is naïve to analyze it strictly in supply-demand terms.  Geopolitics plays very important role in oil prices and always was. Remember how the USSR was brought to its knees by dropping the oil prices in late 80th.

Remember Iraq war with one million of Iraqis dead. Was not this a blatant attempt to secure oil resources for the USA majors? Remember Libyan color revolution and Hillary reaction to the horrible death of poor colonel. Is not this about collision of French desire to secure oil supplies and Washington desire to get rid on a dictator who was an obstacle to neoliberal agenda?

And Syria war unleashed to achieve what ? It all about remapping Middle East by toppling "not friendly enough" to Washington regimes. It took longer then "seven countries in five years"  as Rumsfeld promised (https://www.youtube.com/watch?v=9RC1Mepk_Sw) but it looks like the plan itself is still current: 

“We’re going to take out seven countries in 5 years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran”

General Wesley Clark. Retired 4-star U.S. Army general,
Supreme Allied Commander of NATO during the 1999 War on Yugoslavia .

It is clear that recent "petro wars" in the Middle East were about execution of a  US strategy which was not only about globalism and the USA world dominance, but also about oil.

The oil market has always been driven by geopolitics, and it was a factor that contributed to unleashing both WWI and WWII. Or, if you want, geopolitics has been very strongly influenced by the supply and distribution of crude oil for at least a century. To talk in pure supply/demand terms about such a strategic, vital for human civilization commodity is absurd.
and the whole idea the Kingdom of  Saudi Arabia, a vassal state completely dependent in its survival on the USA unleashes a price war against the USA shale production looks very suspect. nevertheless it is propagated by major MSM like 100% true.

In other words oil was and is a major weapon of economic war. And dumping oil prices is especially potent weapon against countries with significant oil exports such as Russia, Venezuela, Iran, Iraq, etc.  You can kill several birds with one stone.

The key question here is classic cue bono ? Which country is the major beneficiary of the current oil prices crash. The answer is -- the USA (despite some troubles of shale producers which started in late 2015 when most hedges expired). So  it is plausible to suggest that the USA elite including Wall Street banks played an important role in slamming oil prices to reach some important geopolitical goal, significance of which supersede the value of destruction of the USA shale industry.  After all the US financial industry can for a short time distort price of any commodity to any desired level.  HFT is a perfect tool for that and that was explicitly mentioned on Aleynikov trial  by Goldman officials.

It might well be that the current low price is playing double role: to stimulate Western economies and simultaneously serve as the most important part of package of sanctions against Russia. Obama actually hinted that this is true. And Saudi Arabia did play similar role in the past -- crash of oil prices did  facilitated the dissolution of the USSR, which lost the major part of its export revenue).

I would like to stress it again that the idea that Saudi Arabia is engaged in price war against the USA to defend its market share is extremely questionable. By all measures KSA is a satellite state, vassal of the USA if you like. How vassal state can act in such a way without the USA blessing ?  Economic conditions are now not equal to 2008 so the current drop of oil prices can't be explained by panic.  And without using the power of US-controlled financial markets it id doubful that it is possible to accomplish such a quick and sustained drop. 

The USA has long history of using oil as a geopolitical tool. Not only to crash the USSR but also to lure Japan into WWII. Oil embargo against imperial Japan served essentially as a declaration of war and it was read by Imperial Japan leadership exactly this way  (the leadership, which actually has little or no illusions that Japan will lose, but decided not to surrender without armed struggle). There is some evidence that Perl Harbor was not defended specifically to make entrance into the war with Japan more dramatic and more acceptable to the population of the USA, as a reaction on the clear act of aggression by Japan (although air carriers were sent to sea to save them).

And population of Earth still grow, as well as the number of cars and, especially tracks on the road. Similarly the number of airplanes and ships.  Until that trend stops the "long term"  trend for oil price should be up as chances of finding large deposit of "cheap oil" are not close to zero.  Of course "In a long run we all are dead" maxim applies.

But as of 2015 the planet is pretty well explored for this vital commodity. That means that the cost of oil extraction rises with time because the cheapest to extract oil is removed first. Actually this is now true for most commodities, including metals.

To get oil now deeper wells are needed, or fracking equipment and fracking sand and liquids, or you get oil that is too heavy or oil which contains too much sulfur. That means that  special refineries need to be build. In any case more resources are need to produce the same amount of petrol and diesel for transportation and other purposes. It is natural to think that price will gradually rise due to diminishing returns on capital used for extraction.  According to Barclays Capital (cited by  Steven Kopits),  the costs of extracting oil began increasing by 10.9% per year, since 1999 from $5 to almost $25 per barrel.  Add to this transportation cost to refineries, interest on debt, etc and we are probably talking about "magic" figure of $60 per barrel.  So in 2015 any price below it is strongly suspect and probably is temporary. Although the4 rule is "never to say never" and for investors in oil ETNs (such USO, OIL, etc) Keyes saying that market can be irrational longer the you can stay solvent fully applies.  The same saying is now looming over the heads of shale companies executives. As of December 2015 bloodbath has began.

So the question is really about how long the current low oil prices (oil slump) will last. One year is definitely enough to eliminate hedges. And in December of 2015 they are mostly gone (two year hedges do exist but are a rarety)  Capital expenses are now slashed to the bones, but project that take several years to complete will still come into production and that will support the level of oil production at least for one year till Jan 2017. We also can probably see some consolidation of the oil industry. Weak players start being eliminated.

Three years are enough to eliminate most new capital investment and to finish projects which started before slump. Capital investment goes to a screeching halt. After that much depends on the speed of decline of existing wells and pace on increasing of global consumption. that actually includes growth of internal consumption in three major oil producing nations such as USA, Russia and Saudi Arabia. Of those three Saudi Arabia experiences especially quick rise in internal oil demand.

In any case since mid 2015 the price of oil on spot market dropped almost to one third of max price previously achieved. As of Aug 8, 2015 the spot price for October, 2015 delivery was around $44 per barrel. This is a dramatic drop from over $100 per barrel price peak achieved earlier. 

"Cheap oil" is the cornerstone of the current neoliberal world order; it's end means end of US dominated world

We need to understand that "cheap oil" is the cornerstone of the current neoliberal social system including the level of neoliberal globalization that is underway since late 80th. So for the USA elite a lot is in stake if price of oil consistently stays, say, over $100. The USA world domination which is so cherished by neocons and for which they are ready to fight endless wars is in stake.  Also countries that "do not deserve it in view of neoliberal elite (and are only partially controlled by the USA), such as Iran and Russia, can became fabulously rich. And they understand that "the end of cheap oil" might bring great socio-economic changes within the USA itself as neolibel fairy tale about "tricke down" prosperity will be exposed as a fraud. and American people can became rightfully angry, despite all efforts to brainwash them and to fond external target for their anger. In this sense we can view the current oil slump as a brave attempt, "The Last Hurrah" attack of the old neoliberal guard  which came to power in 1980th to postpone inevitable social changes (and first of all demise of neoliberalism and by extension the USA role as a global hegemon). the important of oil for the US as the center or global neoliberal empire was well described in 2002 article by Bill Christison (Oil and the Middle East)

April 5, 2002

Back in March CounterPunch published Christison's devastating critique of the strategies and conduct of the US war of terrorism. (See our archive by scrolling down to "Search CounterPunch.)) These new remarks, which he has made available to CounterPunch were delivered to various peace groups in Santa Fe, New Mexico on early April.Bill Christison joined the CIA in 1950, and served on the analysis side of the Agency for 28 years. From the early 1970s he served as National Intelligence Officer (principal adviser to the Director of Central Intelligence on certain areas) for, at various times, Southeast Asia, South Asia and Africa. Before he retired in 1979 he was Director of the CIA's Office of Regional and Political Analysis, a 250-person unit His wife Kathy also worked in the CIA, retiring in 1979.Since then she has been mainly preoccupied by the issue of Palestine.

I've been asked to talk today about the topic, "U.S. Oil Policy as a Juggernaut in U.S. Foreign Policy." That's a great title. When you hear the word "juggernaut," what you think of--at least what I think of--is a monster machine of some sort, maybe the heaviest heavy tank you can imagine, rumbling down a city street, unstoppable, crushing everything in its way, and even destroying the paving of the street as it goes. Well, that comes pretty close to describing what I believe about the long-term effects of our oil, and other, foreign policies in the Middle East. But if we look ahead, rather than at the past or the present, my hope is that, by changing some of our own foreign policies, U.S. oil policy will in the future no longer be a destructive juggernaut.

It's worth spending a minute to talk about why oil is so important to the United States. The world's total use of energy from all sources--from petroleum, natural gas, coal, wood, hydropower, nuclear, geothermal, solar, and wind power--has increased in recent years roughly as the global population has also increased. Petroleum contributes the greatest single amount -- about two-fifths of the world's total energy output, and natural gas (which is in some ways related to oil) more than another one-fifth. The United States alone uses about one-quarter of the world's total energy output, but has less than five percent of the world's population. The U.S. itself does not produce anywhere near the amount of energy that it consumes. According to statistics of the U.S. Department of Energy, the United States used in the year 2000 almost 100 quadrillion Btu's--or British Thermal Units--of energy. But of those 100 quadrillion Btu's, the U.S. had to import close to 30 percent. The United States is, hands down, the most profligate user of energy, by far, on this whole globe.

With respect to oil alone, the U.S. imported in the year 2000 almost two-thirds of the oil that it used. The importance of Saudi Arabia as a supplier of the U.S., needs to be emphasized, but not just because the Saudis hold the largest known but still untapped oil reserves in the world. What is even more important to the U.S. at the moment is that Saudi Arabia has the largest installed but unused rapid production capacity--that is, oil wells, pumping equipment and so forth already there but not used to meet current, or "normal," production needs. In any emergency that cut off oil supplies from anywhere else in the world, Saudi Arabia would one of very few, and maybe the only, nation that could easily and quickly increase its oil production without a waiting period measured in months rather than a few days. This obviously adds to what any general or admiral would call the strategic value of Saudi Arabia to the United States.

There is another characteristic of the global oil industry that we should all understand. It is an industry dominated by a half-dozen extremely large, global corporations--including ExxonMobil (these two firms merged in 1999), British Petroleum, Shell, Texaco, Gulf and Socal. Fifty to 75 years ago these companies might have been swashbuckling, unregulated corporations seeking to maximize profits and avoid the controls of any governments by all means fair or foul. Today, however, these companies by no means have the same personalities that they had years ago. In the Middle East, at least, the governments of the area have nationalized practically all oil production, and the companies or their subsidiaries have gradually worked out mutually supportive relationships with the local governments, under which the companies continue to manage most of the oil production and global oil trade, while the governments, and OPEC, make the basic decisions on how much oil to produce. The companies continue to make large profits, which keep them happy enough.

In their relations with the U.S. and other advanced nations, the companies no longer shun government regulation, because most of the regulations imposed on them are supportive of, and increase the profits of, the companies themselves. The regulations fall more into the area of corporate welfare than into the area of inducing the corporations to become better citizens. In the U.S., the ties of the oil companies with both of the major political parties are close and mutually profitable. Up to a few months ago, these same comments would have applied to Enron, which was clearly one of the world's largest energy companies, even though it was not one of the largest global oil companies.

I started out by comparing the long-term effects of U.S. oil policies to a juggernaut. To show you why, I want to go back almost 60 years, to February 1945. In that month, President Franklin D. Roosevelt, while returning from the Yalta Conference, met with King Ibn Saud of Saudi Arabia on a U.S. warship in the middle of the Suez Canal. Two months later, Roosevelt was dead, but this meeting was probably one of his most important acts as a world leader The actual records of the conversations between these two men have never been released by either of their governments, but it is quite clear that an agreement was reached under which the United States guaranteed for the indefinite future the security and stability of the Saudi monarchy. In return, the Saudi King guaranteed U.S. access to, and joint development of, the massive Saudi oil reserves, also for the indefinite future. These mutual guarantees were later, implicitly at least, extended to apply to the other, and smaller, Gulf state monarchies, from the Arab Emirates to Bahrain and Kuwait. All of these guarantees were reinforced by the U.S. war against Iraq in 1990-1991, and these guarantees still today form the basis of U.S. oil policies in the Middle East.

So for close to 60 years now, the U.S. has continued to prop up and support these authoritarian governments. I'd like to give you an example of how this has worked in the case of Saudi Arabia. This is from an article that appeared in The Nation magazine last November, written by a British expert on world security affairs. Here are a few lines from this article. "To protect the Saudi regime against its external enemies, the United States has steadily expanded its military presence in the region. [T]o protect the royal family against its internal enemies, US personnel have become deeply involved in the regime's internal security apparatus. At the same time, the vast and highly conspicuous accumulation of wealth by the royal family has alienated it from the larger Saudi population and led to charges of systemic corruption. In response, the regime has outlawed all forms of political debate in the kingdom (there is no parliament, no free speech, no political party, no right of assembly) and used its US-trained security forces to quash overt expressions of dissent. All these effects have generated covert opposition to the regime and occasional acts of violence"

The United States pursued policies like these not only in Saudi Arabia and the smaller Gulf States, but elsewhere in the Middle East as well. When the U.S. overthrew Mossadegh in Iran in 1953, and reinstalled the Shah in power, Washington began carrying out precisely the same policies in Iran as it employed in Saudi Arabia. The Shah's secret police, known as SAVAK, and the Iranian military forces both grew markedly stronger. For 26 years the Shah's repressive regime succeeded in smothering internal dissent. In 1979, however, major internal dissent did erupt, supported by radical Islamic clerics who wanted all U.S. influence out of their land. The Shah was quickly overthrown. U.S. experiences in Iran since that date should have suggested to people in Washington that just perhaps the strong U.S. support for repressive regimes in the Middle East was not the ideal long-term policy for us to pursue. No reexamination of U.S. foreign policy ever got started, however, because the United States was immediately consumed by the horrible insult Iranians imposed on us when they held over 50 Americans from the U.S. Embassy hostage for more than a year.

Then, in the 1980s, the U.S. spent the decade quietly cozying up to Saddam Hussein, the dictatorial ruler of Iraq, which was and is another big oil producer of the Middle East. Since Iran was now a U.S. enemy, the U.S. supported Iraq in its war against Iran. The U.S. did not criticize Saddam Hussein even when he employed chemical warfare to gas sizable numbers of Kurdish people in his own country. The United States only abandoned him in 1990, when he crossed the U.S. over Kuwait. Even here, the diplomatic signals Saddam received from the U.S. until shortly before he invaded Kuwait were very unclear. Once again, when the break finally came, the U.S. administration gave no thought to reappraising its own policies throughout the region. A decision was made in favor of going to war to end this threat to U.S. hegemony and U.S. access to oil, and that was that.

Now, in the year 2002, this almost-60-year-old Middle East oil policy of the United States is showing signs of even more fraying at the edges. Beyond any question in my opinion, one of the root causes behind the terrorism of September 11 was this very U.S. policy of supporting for the past half-century and more these authoritarian and often corrupt Arab and Muslim governments. There exists a high degree of anger among many Muslims with their own governments, which have for so long been supported by the U.S.

Osama bin Laden is a good example of this particular root cause behind the September 11 terrorism. His wrath was directed as much against the Saudi government, for example, as it was against the United States. His opposition to what used to be his own government was probably the main reason why he had the support of a majority of the young men under 25 in Saudi Arabia. He received similar support from many young men in other Arab and Muslim states as well. Right now these groups of angry young men obviously no longer have a viable leader in Osama bin Laden, but other extremist leaders are almost sure to arise. In addition, the next generation of leaders in at least some of these states may well emerge from among these young men. If any of them do come into power, their future governments will likely be more anti-American than the present governments, which Washington likes to call "moderate," but which are really nothing of the sort. If we have not reduced our energy dependence on oil in the meantime, we may face serious trouble.

The U.S. should therefore adopt quite draconian measures immediately to reduce its overall energy usage, including its dependence on Mideast oil. It is unlikely, for the near future at least, that the U.S. will solve a future energy crunch through alternative power sources or by "clean" coal, nuclear power, or Alaskan oil usage. The U.S. also should not count on oil supplies from Central Asia as a way to ignore the need for conservation.

The U.S. should also, over time and gradually, reduce its ties with the present governments in many Muslim states, and try to develop improved relations with opposition elements there, actively seeking out democratically inclined groups. Such steps will be necessary if there is to be any hope of reducing support for future Osama bin Ladens that arises from the anger of Arabs and Muslims with their own governments.

I want to turn now to another foreign policy problem that the U.S. faces in the Middle East, one that has become more tightly intertwined with U.S. oil policies since September 11. Ever since shortly after World War II, the U.S. has had not one but two fundamental foreign policies in the Middle East. The first policy, which I've already talked about, has been to support authoritarian and undemocratic governments in the oil nations in an effort to guarantee the long-term easy access to Middle East oil at "reasonable" prices. The other policy, equally important, has been to provide strong support to Israel and to guarantee the security of Israel as a Jewish state, also for the long term.

Over the last fifty-plus years, there has been a fair amount of tension and conflict between these two policies. The United States under President Harry Truman was, as I'm sure you all know, instrumental in helping to establish the state of Israel in 1948. But even then, one of the reasons for the opposition to Truman's desires by many other U.S. officials, including the Secretary of State, General George Marshall, was that it might endanger the west's access to oil from the Arab nations.

As it has turned out, for most of the period since World War II, the U.S. has managed to keep its two basic policies in the Middle East pretty much apart from each other--in separate boxes so to speak--and to keep the tensions between them in check. The very existence of the Cold War, which provided the bogey-man of a common enemy, helped in this regard. The one obvious time when the U.S. proved unable to keep the tensions between its two policies under control was the OPEC oil embargo against the west in late 1973 and early 1974. The Arab-Israeli war of 1973, and specifically the U.S. response of resupplying Israel with large amounts of new military equipment, precipitated the embargo, and many of us here can remember the gas lines that resulted in this country. But the gas lines only lasted a few months, and then we all went back to normal. But we should remember those months as a perfect example of the fact that there are indeed real conflicting interests involved in the two basic U.S. foreign policies in the Middle East.

Overall, though, because the United States has been able to hold these conflicting interests in check for most of the past half century, I think that Washington has allowed the tensions to grow, more or less ignored by U.S. policymakers, to a point where they are going to be exceedingly difficult to deal with in the future. Since September 11, a number of things have happened that make it more impossible than ever to separate the effects of the Israel-Palestine problem from the effects of the continuing U.S. support for most authoritarian governments of the oil nations in the area.

In Saudi Arabia and most of the small Gulf States, the position of the monarchies has become more precarious, as these monarchies have been subjected to more criticism since September 11 from public opinion in the United States than has been the case for years. In normal circumstances, when these monarchies are confident that the U.S. guarantee of their security is strong and unbreakable, most of them will not worry too much about other issues that might further weaken their domestic position. The George W. Bush administration is undoubtedly reassuring them that the U.S. security guarantee is still in effect, but they cannot help but be worried about its permanence when they see public opinion in this country changing. This puts pressure on the monarchies to pay more attention to the opinion of their own Arab "street." And the opinion of this Arab "street" is today more intensely critical than ever of Israel's policies on Palestine and the continued occupation of the West Bank and Gaza.

The U.S. government, from September 11 right up to the present, has made it clearer than ever to the world at large that it will unilaterally decide what actions around the world constitute "terrorism," and what actions do not. Specifically, in the minds of Arabs and Muslims everywhere, the U.S. seems to have accepted all actions by Palestinians against Israelis, including acts against Israeli soldiers as well as those against innocent civilians, as being terrorism. At the same time, however, the U.S. appears to believe that no acts by Israelis against Palestinians constitute terrorism. Arabs see this as a double standard. When, also at the same time, Arabs see their own rulers expressing support for the "war on terrorism" as it is defined by the U.S., their antagonism toward their own rulers intensifies. And the rulers themselves, recognizing this antagonism, feel greater concern for their own positions.

I'd like to express a note of caution here. I certainly do not know for sure whether any, or some, or all of the governments in Arab oil nations--the dictatorial governments whose stability and security the U.S. has guaranteed for almost 60 years--will collapse in the near future. Of course change can happen rapidly and without warning. The best minds in the U.S. government had no inkling that the Shah of Iran was going to be ousted a week before it happened in 1979. But even governments that seem to be falling apart can sometimes last for years, until some totally unforeseen shove comes along that pushes them over the edge.

What I am more sure of is that these Arab oil governments are now under greater pressure to change than they have been for years, because of developments since September 11. Therefore the U.S. should be actively encouraging--though never using military force to do so--a gradual movement toward greater political democracy in these nations. And in order to reduce the importance of one major factor leading to greater instability in the region, the U.S. should immediately begin to play a far more active role than it has recently in pressing for a solution to the Israel-Palestine problem based on two truly sovereign nations, with strong treaty guarantees from the United States of the future security of both of these nations.

Simultaneously,  wars for access to cheap oil (Iraq, Libya) can  be viewed as desperate attempts to find a way out of "secular stagnation", in which advanced economies found themselves after 2008 (or, more correctly, after 2000). And history proves that war is not always necessary. Sometimes other mechanisms work as well. So lowering of oil price for a considerable perios can also be viewed as a  clever "Hail Mary" pass to save Western economies which suffer from stagnation (aka "new normal") characterized by low economic growth, high level of debt,  and high unemployment rate --  along with deflationary tendencies at the end of debt expansion super cycle. 

And this precious product then is by-and-large wasted. In most Western countries population uses a lot more energy than they absolutely have to use, burning lion share of it in personal transportation.  Industries produce a lot of unnecessary or outright harmful crap, which sell only by the power of marketing.  Some industries produce crap exclusively and can be eliminated ;-). Most people in the USA could probably cut their private gas consumption by 50% or more with little or no harful effects (less car trips, sharing of cars, use of hybrid and electrical cars for commute, telecommuting, etc).

But this is not true of major industries, air and sea transport.  Those are areas where the limits set by "end of cheap oil" strike hard. At $4 per gallon and higher some (heavy/bulky) goods produced in China are already uneconomic to ship to the USA. That already started to affect  furniture industry. And we need get serious about planning, and the subsequent modifications in our energy usage pattern. Transition to the world with less "cheap oil" takes a lot of time and money to implement.

It might well be possible to replace around 20% of today’s oil consumption with renewable. Hybrid and electrical cars don't save much energy (lithium battery production consumes a lot of energy and rare metals which are very expensive to mine and refine) but they allow to substitute burning of oil to burning coal to produce electricity. 

Just the fact that oil industry now resorted to two  ecologically dangerous methods of extraction of shale oil and tar sands oil indirectly proves "top cheap oil" hypothesis. Why bother if cheap oil is plentiful? It's simply stupid to invest money in such extraction schemes unless you really believe in the "end of cheap oil".  If you object to this that means that you can't think clearly an dispassionately.

In both cases the size of ecological damage will be certain only decades later. it might be something like destroying America to save it. IMHO in no way the US shale production could be the decisive factor in spot prices drop of this magnitude (to closer $30 in 2015 dollars which so 30/2.4 in 1983 dollars ). And in 2014-2015 economic contraction did not reached 2008 levels to justify it from this point of view. EROEI of shale oil is way too low for shale oil to be competitive at current prices:  it is a complex and not very efficient process of conversion of energy and junk bonds into oil. It is far from just drilling a hole  and collecting oil which  flows under internal pressure  like in old good times.  Horizontal drilling greatly helps (and is the essence of most new methods of oil extraction with one (upper) well used to inject stream or chemicals and the other below it to collect oil) , but does not change the whole picture or lower EROEI of those methods. According to Wikipedia:

A 1984 study estimated the EROEI of the various known oil-shale deposits as varying between 0.7–13.3[75] although known oil-shale extraction development projects assert an EROEI between 3 to 10. According to the World Energy Outlook 2010, the EROEI of ex-situ processing is typically 4 to 5 while of in-situ processing it may be even as low as 2. However, according to the EIA most of used energy can be provided by burning the spent shale or oil-shale gas.[76]

Same problem of low EROEI is true about tar sands. Simplifying you can think about extraction of oil from tar sands as the industrial process of converting energy of  natural gas and junk bonds into oil. Approximately  280–350 kWh of energy is needed to extract a barrel of bitumen and upgrade it to synthetic crude. Most of this energy is produced by burning natural gas. Assuming $.1 per kilowatt we will get energy cost alone around 28-$35 a barrel. You probably should double this number to account for capital expenses and other costs.  

Is oil commodity or under neoliberalism this is another currency subject to standard currency attacks

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia.

Befor assendance of neoliberalism in 1980th world oil prices were determined largely by real daily supply and demand. It was the province of oil buyers and oil sellers. Then Goldman Sachs decided to buy the small Wall Street commodity brokerage, J. Aron in the 1980th They had their eye set on transforming how oil is traded in world markets.

It was the advent of “paper oil,” oil traded in futures, contracts independent of delivery of physical crude, easier for the large banks to manipulate based on rumors and derivative market skullduggery, as a handful of Wall Street banks dominated oil futures trades and knew just who held what positions, a convenient insider role that is rarely mentioned inn polite company. It was the beginning of transforming oil trading into a casino where Goldman Sachs, Morgan Stanley, JP MorganChase and a few other giant Wall Street banks ran the crap tables. Essentially they invented another commodity currency. In the foreign exchange market, commodity currencies generally refer to the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso.

It looks like oil also became not pure commodity, but a new commodity currency. New York really trades overwhelmingly on a non-physical oil basis these days. Nobody checks if sellers of the futures have actual oil to settle. All settmenta are in dollar. In other words oil was virtualized.

In addtionan there are multiple oil ETFs (which are prefect way to rob lemmings -- naive investors who decided that oil is more reliable store of value then stocks)

Symbol  Name  Assets*  Avg Vol  YTD  1 Year  3 Year  5 Year  Inception  ER  ETF Home Page  Liquidity  Expenses 
USO United States Oil Fund $2,578,400.00 25,967,785 -28.05% -57.77% -59.14% -56.62% 2006-04-10 0.45% View A+ A+
OIL S&P GSCI Crude Oil Tot Ret Idx ETN $866,760.90 4,389,938 -33.41% -63.17% -64.50% -62.10% 2006-08-15 0.75% View A B
DBO DB Oil Fund $513,040.00 331,095 -27.39% -58.67% -58.24% -53.53% 2007-01-05 0.78% View A B-
BNO United States Brent Oil Fund $91,324.50 128,165 -26.08% -57.43% -59.34% -35.66% 2010-06-02 0.90% View A- C+
USL United States 12 Month Oil $70,752.00 84,619 -22.71%

As with futures, several questions arise about OIL ETFs. In any case as dollar finance is unlimited (via printing press) that creates completely new environment for commodities, when the price can be completely detached from reality.  In a way, oil ETFs are not that different then gold EFT which became pure "virtual currency" called "gold"  -- yet another financial speculation vehicle (Something Just Snapped At The Comex Zero Hedge):

As of Friday the comex gold "coverage" or amount of paper claims on every ounce of physical, was literally off the chart, soaring to a mindblowing 207 ounces of paper gold claims for every ounce of deliverable gold. This also means that the dilution ratio between physical gold and paper gold has hit a new all-time low of just 0.48%!

Similarly to games with gold we see "naked" shorting of oil:

United States Oil Fund LP (ETF) Short Interest Down 6.7% in July (USO) by Max Byerly

Aug 18th, 2015 | Ticker Report

Shares of United States Oil Fund LP (ETF) (NYSE:USO) were the target of a significant decline in short interest in the month of July. As of July 31st, there was short interest totalling 45,855,306 shares, a decline of 6.7% from the July 15th total of 49,139,106 shares, AnalystRatings.NET reports. Based on an average trading volume of 23,230,679 shares, the short-interest ratio is currently 2.0 days.

United States Oil Fund LP (NYSE:USO) opened at 13.89 on Tuesday. United States Oil Fund LP has a 52 week low of $13.86 and a 52 week high of $35.83. The company’s 50-day moving average is $16.41 and its 200 day moving average is $18.44.

United States Oil Fund, LP (NYSE:USO) is a commodity pool that issues limited partnership interests (shares) traded on the NYSE Arca, Inc. The investment objective of USO is for changes in percentage terms of its shares’ per share net asset value (NAV) to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the NYMEX). The Company’s general partner is United States Commodity Funds LLC. The net assets of USO consist primarily of investments in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the NYMEX, ICE Futures or other the United States and foreign exchanges.

Here is an interesting graph of money manager positions on NYMEX WTI (only NYMEX and only WTI):

The key question here is: "To what extent oil is still a commodity, and to what extent it is now yet another "virtual currency" subject to standard currency attacks ?" Naked selling of oil futures via shorting of OIL ETFs is not only possible, but highly profitable path for such attacks (4 Ways to Short Oil with ETFs - May 16, 2013 - Zacks.com).  All those tricks are possible due to free convertibility to US dollars, which unlike oil do not have any Earth-based limitations as for quantity and, what is more important, quality (gas liquids and shale oil are not equivalent to "classic' oil and refining of them produce mainly gasoline, instead of full spectrum of products; they should be considered "oil substitutes" and counted separately). And small amount injected in ETF can move spot oil market vary efficiently. So tail can wag the dog.

Who finance such attacks as losses can be substantial is an interesting question the answer on which I do not know, but recent behaviour of oil prices is typical for a currency attack as data about real oil extraction does not produce any optimism as for elimination of "peal cheap oil" phenomenon. But for speculators and gulling retail investors this does not matter. Casino is a casino. What is interesting the US MSM produce highly deceptive and well coordinated picture suggesting that there is government involvement in the whole scheme ( see below Russia sanctions section).

All those talks about crisis of overproduction are suspect. To a certain extent this might be a factor  due to slowing down of China economy and perma recession in the USA along with better small cars efficiency. But it is impossible to hide the fact that it was Saudi Arabia that decided to lower the oil prices and started to move in this direction ( An Oil Price 'Cold War' With Saudi Arabia Experts Disagree - US News) much like that did to economically crash the USSR in late 80th, early 90th.  I think that talk about attack on the USA shale industry does not make much sense, as Saudi Arabia is a vassal state and such move is punishable for a vassal:

Some experts declared it the start of a “cold war” with Saudi Arabia, as described by two University of Texas professors in an op-ed in the Dallas Morning News. Other analysts, however, contend that the Saudis are merely trying to defend against other exporters to the U.S.

“There’s another conflict brewing in the Middle East — the intensifying oil battle between Saudi Arabia and Texas,” Isaac Barchas and Michael Webber, who teach at the University of Texas at Austin, wrote in the op-ed.

As Webber, deputy director of the university's Energy Institute, describes to U.S. News, "Ford versus GM, Dell versus Apple: these are big companies duking it out for market share. Why would it be any different for oil. Is it a military war? No. But it's a market share war."

There are three main parts to his and Barchas' argument:

  1. Hydraulic fracturing, or fracking, has unleashed an energy boom here in the U.S., reducing net crude oil and petroleum product imports to their lowest levels since 1987.
  2. With more oil now available on the market, combined with a sluggish global economy that’s reduced demand in Europe and China, benchmark Brent crude oil prices have fallen by roughly 27 percent since June – their lowest point in four years.
  3. Saudi Arabia, the U.S's.second-largest source of imported oil behind Canada, is trying to retain its market share by undercutting American producers. The goal: drive down prices far enough to scare away Wall Street investors or simply make fracking unprofitable, forcing U.S. companies to take their drill rigs offline to reduce supply and clearing the way for more Saudi oil imports.

As Chip Register, managing director of consulting firm Sapient Global Markets asserted in a blog post on Forbes, “The Saudis have put a bull’s-eye on the U.S. shale industry.”

Other experts, however, expressed strong skepticism with this view.

“It’s not a personalized attack,” Steven Kopits, managing director of the consulting firm Princeton Energy Advisors, says of the Saudi discount. “Saudi Arabia is looking out for its own interests, not trying to undermine other people’s interests.” 

Jan Kalicki, public policy scholar and energy lead at The Wilson Center, a nonpartisan think tank, agrees.

“Any real impact on shale in the U.S. is going to require more than a price adjustment of this kind," he says.

U.S. shale fields can start and stop production relatively quickly. Technological advances, meanwhile, have sharply lowered the break-even point – no longer does fracking rank as one of the most expensive forms of oil production. It can still turn a profit at current prices of $80 a barrel, but depending on the type of well, fracking operations might even be able make money at prices as low as $55 a barrel.

Hence, “trying to apply predatory pricing in the oil business will only work in the very short run, if at all,” says Paul Sullivan, economics professor at National Defense University.

I think here the target is probably Russia. Telegraph reported  that Saudis offer Russia secret oil deal if it drops Syria - Telegraph

The revelations come amid high tension in the Middle East, with US, British, and French warship poised for missile strikes in Syria. Iran has threatened to retaliate.

The strategic jitters pushed Brent crude prices to a five-month high of $112 a barrel. “We are only one incident away from a serious oil spike. The market is a lot tighter than people think,” said Chris Skrebowski, editor of Petroleum Review.

Leaked transcripts of a closed-door meeting between Russia’s Vladimir Putin and Saudi Prince Bandar bin Sultan shed an extraordinary light on the hard-nosed Realpolitik of the two sides.

Prince Bandar, head of Saudi intelligence, allegedly confronted the Kremlin with a mix of inducements and threats in a bid to break the deadlock over Syria. “Let us examine how to put together a unified Russian-Saudi strategy on the subject of oil. The aim is to agree on the price of oil and production quantities that keep the price stable in global oil markets,” he said at the four-hour meeting with Mr Putin. They met at Mr Putin’s dacha outside Moscow three weeks ago.

“We understand Russia’s great interest in the oil and gas in the Mediterranean from Israel to Cyprus. And we understand the importance of the Russian gas pipeline to Europe. We are not interested in competing with that. We can cooperate in this area,” he said, purporting to speak with the full backing of the US.

Oil futures

Oil ETNs such USO or OIL does not have any intrinsic value. They are based on oil futures. Like is that case with currency future contracts, empirical studies suggest, not only is the oil futures price a biased estimate of the future spot price, but more often  it even gets the direction wrong. If the futures price suggests the oil will depreciate, it can well appreciate instead. In addition you can buy or sell options on oil making this commodity a real paradise for speculators.

Speculators definitely have expectations about the future oil spot price.  But often they demonstrate herd behavior driving the price to extremes as trading futures is trading "virtual oil" (futures are settled in dollars, never in actual commodity). This is especially true about short selling which can drive oil to really unprofitable for all major producers price. Recently they manage to drive it to less then $40 a barrel, the price at which only selected low cost producers can get the oil form the ground (to say nothing to invest in additional exploration or pay the cost of infrastructure and such). You ability to see oil short via specialized ETF or other means is limited only by your dollar reserves and the availability of counter party (and you can play certain games with this counterparty issue). 

Here is example of prices on Aug 31, 2015 (which also is a nice demonstration of dramatic dynamics that is possible in a single day) :

Chart Current Session Prior Day Opt's
Open Time Set Chg Vol Set Op Int
Oct'15 45.00 19:28
Aug 31
49.20
3.98 719704 45.22 440212 Call Put
Nov'15 45.69 19:28
Aug 31
49.93
3.95 137067 45.98 215025 Call Put
Dec'15 46.57 19:29
Aug 31
50.77
3.91 162736 46.86 243840 Call Put
Jan'16 47.50 19:28
Aug 31
51.63
3.91 57430 47.72 102471 Call Put
Feb'16 47.50 19:28
Aug 31
52.38
3.93 38475 48.45 50167 Call Put
Mar'16 48.25 19:29
Aug 31
52.98
3.92 38170 49.06 73615 Call Put
Apr'16 48.75 19:29
Aug 31
53.47
3.86 14106 49.61 25925 Call Put
May'16 48.99 19:28
Aug 31
53.85
3.76 7934 50.09 23357 Call Put
Jun'16 49.86 19:28
Aug 31
54.16
3.64 44230 50.52 103798 Call Put
Jul'16 50.29 19:28
Aug 31
54.38
3.53 3938 50.85 21832 Call Put
Aug'16 50.03 19:28
Aug 31
54.61
3.42 2511 51.19 16337 Call Put
Sep'16 50.72 19:28
Aug 31
54.87
3.31 8091 51.56 42572 Call Put
Oct'16
-
19:28
Aug 31
55.16
3.20 1164 51.96 17226 Call Put
Nov'16
-
19:28
Aug 31
55.48
3.11 1038 52.37 17809 Call Put
Dec'16 52.59 19:28
Aug 31
55.81
3.02 56618 52.79 133005 Call Put
Jan'17
-
19:28
Aug 31
56.05
2.94 598 53.11 14894 Call Put
Feb'17
-
19:29
Aug 31
56.31
2.87 277 53.44 8034 Call Put
Mar'17 55.45 19:29
Aug 31
56.59
2.81 988 53.78 9195 Call Put
Apr'17
-
19:28
Aug 31
56.85
2.75 465 54.10 3543 Call Put
May'17
-
19:29
Aug 31
57.08
2.69 435 54.39 2930 Call Put
Jun'17 53.69 19:29
Aug 31
57.34
2.64 5669 54.70 21475 Call Put
Jul'17 56.32 19:28
Aug 31
57.55
2.60 143 54.95 3120 Call Put
Aug'17
-
19:29
Aug 31
57.81
2.57 48 55.24 1760 Call Put
Sep'17
-
19:28
Aug 31
58.11
2.56 71 55.55 3982 Call Put
Oct'17
-
19:28
Aug 31
58.41
2.54 15 55.87 1184 Call Put
Nov'17
-
19:28
Aug 31
58.73
2.53 15 56.20 1270 Call Put
Dec'17 55.75 19:28
Aug 31
59.05
2.51 9588 56.54 44135 Call Put
Jan'18
-
19:28
Aug 31
59.21
2.49
-
56.72 1532 Call Put
Feb'18
-
19:28
Aug 31
59.38
2.46
-
56.92 312 Call Put
Mar'18
-
19:28
Aug 31
59.57
2.43
-
57.14 2688 Call Put
Apr'18
-
19:29
Aug 31
59.77
2.40
-
57.37 63 Call Put
May'18
-
19:28
Aug 31
59.98
2.37
-
57.61 516 Call Put
Jun'18
-
19:29
Aug 31
60.21
2.34 226 57.87 3700 Call Put
Jul'18
-
19:28
Aug 31
60.35
2.30
-
58.05 296 Call Put
Aug'18
-
19:28
Aug 31
60.52
2.27
-
58.25 61 Call Put
Sep'18
-
19:28
Aug 31
60.69
2.23
-
58.46 461 Call Put
Oct'18
-
19:28
Aug 31
60.87
2.20
-
58.67 61 Call Put
Nov'18
-
19:28
Aug 31
61.05
2.16
-
58.89 311 Call Put
Dec'18 58.54 19:28
Aug 31
61.24
2.12 2002 59.12 19416 Call Put
Jan'19
-
19:28
Aug 31
61.35
2.10
-
59.25 204 Call Put
Feb'19
-
19:28
Aug 31
61.48
2.08
-
59.40 4 Call Put
Mar'19
-
19:28
Aug 31
61.62
2.06
-
59.56 454 Call Put
Apr'19
-
19:28
Aug 31
61.78
2.04
-
59.74 4 Call Put
May'19
-
19:28
Aug 31
61.96
2.02
-
59.94 4 Call Put
Jun'19
-
19:28
Aug 31
62.15
2.00
-
60.15 1185 Call Put
Jul'19
-
19:28
Aug 31
62.20
1.98
-
60.22 5 Call Put
Aug'19
-
19:28
Aug 31
62.29
1.96
-
60.33 4 Call Put
Sep'19
-
19:28
Aug 31
62.41
1.94
-
60.47 4 Call Put
Oct'19
-
19:28
Aug 31
62.55
1.92
-
60.63 4 Call Put
Nov'19
-
19:28
Aug 31
62.72
1.90
-
60.82 104 Call Put
Dec'19
-
19:28
Aug 31
62.93
1.88 158 61.05 6628 Call Put
Jan'20
-
19:29
Aug 31
63.00
1.86
-
61.14
-
Call Put
Feb'20
-
19:29
Aug 31
63.08
1.84
-
61.24
-
Call Put
Mar'20
-
19:28
Aug 31
63.17
1.82
-
61.35
-
Call Put
Apr'20
-
19:28
Aug 31
63.28
1.80
-
61.48
-
Call Put
May'20
-
19:28
Aug 31
63.41
1.78
-
61.63
-
Call Put
Jun'20
-
19:28
Aug 31
63.56
1.76
-
61.80
-
Call Put
Jul'20
-
19:28
Aug 31
63.57
1.74
-
61.83
-
Call Put
Aug'20
-
19:28
Aug 31
63.62
1.72
-
61.90
-
Call Put
Sep'20
-
19:29
Aug 31
63.70
1.70
-
62.00
-
Call Put
Oct'20
-
19:29
Aug 31
63.83
1.68
-
62.15
-
Call Put
Nov'20
-
19:28
Aug 31
63.97
1.66
-
62.31
-
Call Put
Dec'20 64.00 19:28
Aug 31
64.14
1.64 14 62.50 1935 Call Put
Jun'21
-
19:28
Aug 31
64.59
1.57
-
63.02
-
Call Put
Dec'21
-
19:28
Aug 31
65.04
1.50 1 63.54 440 Call Put
Jun'22
-
19:28
Aug 31
65.34
1.50
-
63.84
-
Call Put
Dec'22
-
19:28
Aug 31
65.64
1.50
-
64.14 180 Call Put
Jun'23
-
19:29
Aug 31
65.64
1.50
-
64.14
-
Call Put

Is this  the mixture of overproduction crisis and intelligence operation with unforeseen side effects (blowback)

If we assume that the current event are a complex mixture of overproduction crisis, secular stagnation and intelligence operation with the goal to squeeze Russia (and as a side effect hurt Iran revenues)  that we should expect it lasting for several years, enough to destroy the opponents economically. So changes of recovering of oil prices in 2016 from this point of view are slip. For Russia this is a double blow as oil prices also affect natural gas prices. And it is true that Russian leadership were completely unprepared to this course of events, so the damage is great and real. As noted "Obama’s foreign policy goals get a boost from plunging oil prices" (Washingtonpost, Dec 23, 2015):

Plunging crude oil prices are diverting hundreds of billions of dollars away from the treasure chests of oil-exporting nations, putting some of the United States’ adversaries under greater stress.

After two years of falling prices, the effects have reverberated across the globe, fueling economic discontent in Venezuela, changing Russia’s economic and political calculations, and dampening Iranian leaders’ hopes of a financial windfall when sanctions linked to its nuclear program will be lifted next year.

At a time of tension for U.S. international relations, cheap oil has dovetailed with some of the Obama administration’s foreign policy goals: pressuring Russian President Vladi­mir Putin, undermining the popularity of Venezuelan President Nicolás Maduro and tempering the prospects for Iranian oil revenue. At the same time, it is pouring cash into the hands of consumers, boosting tepid economic recoveries in Europe, Japan and the United States.

https://www.washingtonpost.com/business/economy/as-crude-oil-prices-plunge-so-do-oil-exporters-revenue-hopes/2015/12/23/ed552372-a900-11e5-8058-480b572b4aae_story.html?hpid=hp_hp-top-table-main_oil-910pm%3Ahomepage%2Fstory

But there are some visible side effect, with some probably not well anticipated:

All that means that dramatic drop in oil prices is a mixed blessing. Mike Whitney lists several other factors( Oil Price Blowback , Jan 6, 2015, Counterpunch)

Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit, but that will probably change as time goes on. What the Obama administration should be worried about is the second-order effects that will eventually show up in terms of higher unemployment, market volatility, and wobbly bank balance sheets. That’s where the real damage is going to crop up because that’s where red ink and bad loans can metastasize into a full-blown financial crisis. Check out this blurb from Nick Cunningham at Oilprice.com and you’ll see what I mean:

“According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas… One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.” (Low Prices Lead To Layoffs In The Oil Patch, Nick Cunningham, Oilprice.com)

Of course industries lay-off workers all the time and it doesn’t always lead to a financial crisis. But unemployment is just one part of the picture, lower personal consumption is another. Take a look:

“Falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer…..Another way to show this graphically is to look at the annual changes in Personal Consumption Expenditures (PCE) in aggregate as compared to the subsection of PCE spent on energy and related products. This is shown in the chart below.

Lower Energy Prices To Lower PCE (Personal Consumption Expenditures):

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(The Gasoline Price Myth, Lance Roberts, oilprice.com)

See? So despite what you might have read in the MSM, lower gas prices do not translate into greater personal consumption or more robust growth. Quiet the contrary, they tend to intensify deflationary pressures and reduce activity which is a damper on growth.

Then there’s the knock-on effects that crashing prices and layoffs have on other industries like mining, manufacturing and chemical production. Here’s more from Oil Price:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve…

The majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail….

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprise almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability…

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy than the “savings” provided to consumers.” (The Gasoline Price Myth, Lance Roberts, oilprice.com)

None of this sounds very reassuring, does it? And yet, all we hear from the media is how the economy is going to reach “escape velocity” on the back of cheap oil. Nonsense. This is just more “green shoots” baloney wrapped in public relations hype. The fact is, the economy needs the good-paying jobs more than it needs low-priced energy. But now that prices are tumbling, those jobs are going to disappear which is going to be a drag on growth.

Now check out these headlines I picked up on Google News that help to show what’s going on off the radar:

Measuring oil production and consumption: BBL,  MMbbl and Mb/d

In a way the USA (along with Canada) is an exceptional (read backward) country which still was unable (or more correctly unwilling) to switch to metric system.  In the USA oil production and  consumption by volume is usually measured in  barrels (BBL). One BBL equals 42 US gallons  or approximately 159 liters; 6.29 barrels equal one cubic meter and (on average) 7.33 barrels weigh one metric ton (1000 kilograms). Energy-wise one barrel of crude approximately equals 5604 cubic-feet of natural gas, 1.45 barrels of liquefied natural gas (LNG), or about one barrel of gas condensate.

When converting volume measures into weight measures a coefficient based on so called API gravity  is used. The latter is a measure of how heavy or light a petroleum liquid is compared to water: if its API gravity is greater than 10, it is lighter and floats on water; if less than 10, it is heavier and sinks. In other words this is a measure that is inverse of density. Although mathematically, API gravity is a dimensionless value,  for historical reasons it is measures in 'degrees' like angles. In this case this is degrees on a hydrometer instrument. API gravity values of most petroleum liquids fall between 10 and 70 degrees. From Wikipedia:

Crude oil is classified as light, medium, or heavy according to its measured API gravity.

Crude oil with API gravity less than 10° is referred to as extra heavy oil or bitumen. Bitumen derived from oil sands deposits in Alberta, Canada, has an API gravity of around 8°. It can be diluted with lighter hydrocarbons to produce diluted bitumen, which has an API gravity of less than 22.3°, or further "upgraded" to an API gravity of 31 to 33° as synthetic crude.[7]

Oil companies that are listed on American stock exchanges typically report their production in thousand or million barrels. Abbreviations like Mbbl (one thousand barrels), or MMbbl (one million barrels) are used. Often Mb/d is used instead of MMbbl per day.  This actually preferable notation that is used in this page.

As density of the oil varies it is not that easy to convert one metric into another for example volume into weight  as the following quote illustrates (Open Thread, Oil and Gas - Peak Oil Barrel ):

One problem is the estimate of Russian average barrels per metric ton, often it is assumed that this is 7.3 or 7.33 barrels per metric ton. If 7.33 barrels per ton is correct the average API gravity would be 33.4 degrees.

The Urals blend is about 31.7 degrees API or 7.25 barrels per metric ton.

On political motives for reporting less Russian output, possibly the US government wants the sanctions to affect Russian oil output and has some influence on what is reported by the EIA. Likewise the Russian government wants to show that sanctions are not affecting them and might influence the Russian oil ministry to report higher output.

Possibly this could happen or the average API gravity of Russian output may be different than we think, if API gravity is 31.7 degrees (Urals blend) then output in April would have been 10.55 Mb/d, JODI had about 10.1 Mb/d in April.

AlexS showed that the NGL numbers reported by the EIA and Jodi may be about 350 kb/d too high (perhaps some condensate is being included in NGL that should be part of C+C output). If we added 350 kb/d to JODI’s April 2015 estimate of C+C output we get about 10.45 Mb/d for Russia, now the difference is only 100 kb/d, take the average and call it 10.5 Mb/d+/- 50 kb/d. That is a better explanation than “politics” in my opinion.

Great Condensate Con: What liquids are counted as oil in statistical reports such as EIA

There are several different liquids that are usually counted as oil.  Three major are crude, condensate and Natural Gas Liquids. The total all three is often counted as would oil production which now is over 90 Mb/d. But by how much nobody knows. The EIA reports crude plus condensate  as "oil".  EIA has total world production of Crude Oil, NGPL, and Other Liquids at 93,770,000 barrels per day in June 2015.  This type of reporting provides oil traders with wrong data and was called "Great condensate con" :

Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This condensate is less dense than oil and can interfere with optimal refining if too much is mixed with actual crude oil. The oil industry's own engineers classify oil as hydrocarbons having an API gravity of less than 45--the higher the number, the lower the density and the "lighter" the substance. Lease condensate is defined as hydrocarbons having an API gravity between 45 and 70. (For a good discussion about condensates and their place in the marketplace, read "Neither Fish nor Fowl – Condensates Muscle in on NGL and Crude Markets.")

Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con.

Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December, according to the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy. U.S. statistics for crude oil imports include condensate, but don't break out condensate separately. Brown believes that with America already awash in condensate, almost all of those imports must have been crude oil proper.

Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude oil, if they didn’t have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate] inventories?"

Part of the answer is that U.S. production of crude oil has been declining since mid-2015. But another part of the answer is that what the EIA calls crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's condensate-rich tight oil fields -- the ones tapped by hydraulic fracturing or fracking -- the United States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.

Exactly how much of America's and the world's presumed crude oil production is actually condensate remains a mystery. The data just aren't sufficient to separate condensate production from crude oil in most instances.

Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014 the upper limit of the volume of condensate that they could process" and still maintain the product mix they want to produce. That would imply that condensate inventories have been building faster than crude inventories and that the condensate is looking for an outlet.

That outlet has been in blended crudes, that is heavier crude oil that is blended with condensates to make it lighter and therefore something that fits the definition of light crude. Light crude is generally easier to refine and thus more valuable.

The trouble is, the blends lack the characteristics of nonblended crudes of comparable density (that is, the same API gravity), and refiners are discovering to their chagrin that the mix of products they can get out of blended crudes isn't what they expect.

So, now we can try to answer our questions. Brown believes that worldwide production of condensate "accounts for virtually all of the post-2005 increase in C+C [crude plus condensate] production." What this implies is that almost all of the 4 million-barrel-per-day increase in world "oil" production from 2005 through 2014 may actually be lease condensate. And that would mean crude oil production proper has been nearly flat during this period -- a conjecture supported by record and near record average daily prices for crude oil from 2011 through 2014. Only when demand softened in late 2014 did prices begin to drop.

Here it is worth mentioning that when oil companies talk about the price of oil, they are referring to the price quoted on popular futures exchanges -- prices which reflect only the price of crude oil itself. The exchanges do not allow other products such as condensates to be mixed with the oil that is delivered to holders of exchange contracts.

But when oil companies (and governments) talk about oil supply, they include all sorts of things that cannot be sold as oil on the world market including biofuels, refinery gains and natural gas plant liquids as well as lease condensate. Which leads to a simple rule coined by Brown: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil.

The glut that developed in 2015 may ultimately be tied to some increases in actual, honest-to-god crude oil production. The accepted story from 2005 through 2014 has been that crude oil production has been growing, albeit at a significantly slower rate than the previous nine-year period--15.7 percent from 1996 through 2005 versus 5.4 percent from 2005 through 2014 according to the EIA. If Brown is right, we have all been victims of the great condensate con which has lulled the world into a sense of complacency with regard to actual oil supplies--supplies he believes have been barely growing or stagnant since 2005.

"Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often a contrarian, Brown added: "The time to invest is when there's blood in the streets. And, there's blood in the streets."

He explained: "Who of us in January of 2014 believed that prices would be below $30 in January of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices will remain low for a long time.

Brown points out that it took trillions of dollars of investment from 2005 through today just to maintain what he believes is almost flat production in oil. With oil companies slashing exploration budgets in the face of low oil prices and production declining at an estimated 4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push oil prices much higher very quickly.

That possibility is being obscured by the supposed rise in crude oil production in recent years that may just turn out to be an artifact of the great condensate con.

 

But counting such a diverse group of liquids is impossible without substantial errors in each category. That mean that the error margin of and global production figure has margin or error around  +- 0.5% or even 1% or one Mb/d.  for example amount of oil produced and pumped to the surface at wellhead is different and greater that amount of oil that got to refineries (which along with chemical plants are major consumers) because of losses during transportation and evaporation or light fractions in case weather is hot during the period before oil is processed at refinery or chemical plant.  Also there are differences in reporting and errors in measuring oil density by various countries, difficulties of converting weight into volume and vice versa, etc.  There are also large differences in reporting between agencies ( aspofrance.viabloga.com)

Reporting of small producers (and small producer countries) is often very fuzzy and here various games can be and often are played with those report with compete impunity, if you have some agenda.  So any analyst who take published by agencies figures  as precise amount produced accuracy equal to five meaningful digits is iether idiot or crook. Only first three digits  probably can be countered as meaningful. In no way the forth digit is.  If the analyst is talking about "oil glut" based on those figures he/she is definitely a crook ;-). 

Now you understand that all talk about 1Mb/d glut is very suspect.

Que Bono and Wall Street HFT games with oil futures

Low oil prices are essentially a crime against humanity as oil is exhaustible resources and burning it now in oversized SUVs means depriving of fuel and extremely important important for chemical industry commodity future generations. So the question is "que bono"

From this point if view (which is a standard starting point of any crime investigation) the origin of low oil prices lies probably in Wall Street  which capitalized on the US government desire to hurt Russian economy, Saudi machinations (with Saudis as a partner in this crime ;-) related to thier declining market share in oil market.

It is not that difficult on the level of Wall street cguant to play the short game for a long time,  skillfully dropped the market prices by exploiting rumores, and with the help of MSM distorting statistics (just read a typical CNBC article to feel the level of crap they are trying to infuse in readers), exploiting Saudi desire to preserve market share combined with temporary oil overproduction. Temporary overproduction due to the period of oil prices over $100, when everybody and his brother in the USA were trying to discover and drill new shale well and convert junk bonds into flow of oil trying to get rich in such supposlydly lucrative market. 

World production at the same time stagnated. Russia exports are actually in decline for many years. After all Libya production now is off the market, due to destruction of their country and subsequent civil war caused by French intervention in alliance with the USA, Qatar and several other mid-eastern countries. If you analyze the US press the bias toward lower oil prices is  evident. 

 

Production by country and total world production

Estimated average world daily production of 95.71  Mb/d for 2015 ( (Jan 12, 2016 forecast) exceeds EIA’s Annual Energy Outlook 2015 forecast (April 2015) by 2.6 Mb/d! so much for EIA forecasting abilities.

For 2016 IEA predicts 95.93 (Jan 12, 2016 forecast) and for 2017 96.69 (also  Jan 12, 2016 forecast)

OPEC predictions were 94.5 Mb/d for 2015 (December 2015  forecast) with growth in 2020 to 97.6 (it presupposes investment of  around $250 billion each year in non OPEC countries and $40 billions annually by OPEC countries; money that with current oil prices are nowhere to come by):

In the downside supply scenario, 3.3 mb/d from non-OPEC supply is assumed to be lost by 2040 with respect to the Reference Case.

Oil production is highly concentrated.  The top dozen of out of 100 oil-producing countries accounted for over 73% of the world's oil production. The top three (Russia, Saudi Arabian and the USA) account for almost 40%. 

Here is a chart from  Bloomberg Business

Iraq and Iran are also large and important players but currently  they are definitely the second tier players.  That might change in the future.

Now what will (most probably) happen in 2016 with the major players

Now let's discuss Iran and Iraq

All three major oil producers (troika) are severely affected by the oil price slump, but for the USA as one of the largest world oil importers it is a mixed blessing (destruction of shale  industry and connected with it jobs is just a collateral damage for approximately $200 billion stimulus due to lower prices.

For the Russia and Saudis this is a huge negative development which  leads to unbalanced budgets (especially for Saudies who need $100 oil to balance the budget and  lost $100 billions of their foreign reserves in 2015) and depletion  of currency reserves (more for Saudis then Russia, but Saudis had bigger currency reserves and can benefit from being a vassal of the USA by commanding a higher prices for state assets in fire sale). 

All-in-all around 100 countries produce oil with top three producing around 40%,  and the top ten over 63% of the world's oil production.

According to International Energy Agency (EIA), in 2011 the top ten oil-producing countries accounted for over 63% of the world's oil production.[2] As of November 2012, Russia produced 10.9 million barrels of crude per day, while Saudi Arabia produced 9.9 million barrels.[3]

Top oil producers: According to EIA top 10 oil producer countries produced over 64 % of the world oil production in 2012. The top oil producers in 2012 were: Russia 544 Mt (13 %), Saudi Arabia 520 Mt (13 %), United States 387 Mt (9 %), China 206 Mt (5%), Iran 186 Mt (4 %), Canada 182 Mt (4 %), United Arab Emirates 163 Mt (4 %), Venezuela 162 Mt (4 %), Kuwait 152 Mt (4 %) and Iraq 148 Mt (4 %). In 2012 total oil production was 4,142 Mt. [4] In 2011 the world oil production was 4,011 Mt demonstrating an annually rising trend in oil production.[5]

  Country Production (bbl/day) Production (MT) Share of
World %
Date of
Information
 World 84,951,200 10,194 100% 2014 est. Peak Production
1 Russia 10,107,000 1212 14.05% 3/2015.[6] 10,107,000 (3/2015)
2 Saudi Arabia 9,735,200 1168 13.09% 12/2014.[6] 9,900,000 (1/1980)
3 United States 9,373,000 1124 12.23% 4/2015.[6] 9,610,000 (6/2015)
4 China 4,189,000 502 5.15% 5/2015.[6] 4,189,000 (5/2015)
5 Canada 3,603,000   4.54% 12/2014.[6] 3,603,000 (1/2015)
6 Iraq 3,368,000   4.45% 5/2015.[6] 3,368,000 (5/2015)
7 Iran 3,113,000   4.14% 12/2014.[6] 6,060,000 (1/1974)
8 United Arab Emirates 2,820,000   3.32% 12/2014.[6] 2,820,000 (1/2013)
9 Kuwait 2,619,000   2.96% 12/2014.[6] 2,650,000 (1/2013)
10 Mexico 2,562,000   3.56% 12/2014.[6] 3,476,000 (1/2004)
11 Venezuela 2,501,000   3.56% 12/2014.[6] 3,280,000 (1/1997)
12 Nigeria 2,423,000   2.62% 12/2014.[6] 2,627,000 (1/2005)
13 Brazil 2,255,000   3.05% 12/2014.[6] 2,255,000 (1/2015)
14 Angola 1,831,000   2.31% 12/2014.[6] 1,946,000 (1/2008)
15 Kazakhstan 1,573,000   1.83% 12/2014.[6]
16 Qatar 1,553,000   1.44% 12/2014.[6]
17 Norway 1,539,000   2.79% 12/2014.[6]
18 Algeria 1,462,000   2.52% 12/2014.[6]
19 Colombia 1,003,000   1.19% 12/2014.[6]
20 Oman 940,000   0.95% 12/2014.[6]
21 Azerbaijan 871,000   1.20% 12/2014.[6]
22 Indonesia 828,000   1.66% 12/2014.[6]
23 United Kingdom 801,000   1.78% 12/2014.[6]
24 India 772,000   1.04% 12/2014.[6]
25 Malaysia 570,000   0.82% 12/2014.[6]
26 Argentina 540,000   0.93% 12/2014.[6]
27 Ecuador 526,000   0.58% 12/2014.[6]
28 Egypt 514,000   0.80% 12/2014.[6]
29 Libya 470,000   0.85% 5/2015.[6]
30 Australia 338,000   0.70% 12/2014.[6]
31 Vietnam 337,000   0.36% 12/2014.[6]
32 Equatorial Guinea 270,000   0.41% 12/2014.[6]
33 Congo, Republic of the 265,000   0.33% 12/2014.[6]
34 Sudan 259,000   0.13% 12/2014.[6]
35 Thailand 241,000   0.45% 12/2014.[6]
36 Gabon 239,000   0.29% 12/2014.[6]
37 Turkmenistan 229,000   0.22% 12/2014.[6]
38 Denmark 175,000   0.31% 12/2014.[6]
39 Yemen 131,000   0.34% 12/2014.[6]
40 Brunei 112,000   0.17% 12/2014.[6]
41 Italy 106,000   0.17% 12/2014.[6]
42 Ghana 105,000   0.01% 12/2014.[6]
43 Chad 98,000   0.13% 12/2014.[6]
44 Romania 85,000   0.14% 12/2014.[6]
45 Trinidad and Tobago 81,000   0.18% 12/2014.[6]
46 Pakistan 81,000   0.16% 12/2014.[6]
47 Cameroon 81,000   0.09% 12/2014.[6]
48 Timor-Leste 79,000   0.11% 12/2014.[6]
49 Peru 69,000   0.17% 12/2014.[6]
50 Uzbekistan 65,000   0.08% 12/2014.[6]
51 Tunisia 55,000   0.11% 12/2014.[6]
52 Germany 52,000   0.19% 12/2014.[6]
53 Bolivia 51,000   0.06% 12/2014.[6]
54 Bahrain 50,000   0.06% 12/2014.[6]
55 Cuba 50,000   0.06% 12/2014.[6]
56 Turkey 48,000   0.06% 12/2014.[6]
57 Ukraine 41,000   0.12% 12/2014.[6]
58 New Zealand 40,000   0.07% 12/2014.[6]
59 Ivory Coast 36,000   0.07% 12/2014.[6]
60 Papua New Guinea 34,000   0.04% 12/2014.[6]
61 Belarus 30,000   0.04% 12/2014.[6]
62 Netherlands 28,000   0.07% 12/2014.[6]
63 Syria 23,000   0.48% 12/2014.[6]
64 Philippines 21,000   0.02% 12/2014.[6]
65 Albania 21,000   0.01% 12/2014.[6]
66 Mongolia 21,000   0.01% 12/2014.[6]
67 Burma 20,000   0.02% 12/2014.[6]
68 Congo, Democratic Republic of the 20,000   0.02% 12/2014.[6]
69 Poland 19,000   0.04% 12/2014.[6]
70 Austria 17,000   0.03% 12/2014.[6]
71 France 15,000   0.08% 12/2014.[6]
72 Suriname 15,000   0.07% 12/2014.[6]
73 Serbia 12,000   0.01% 12/2014.[6]
74 Hungary 11,000   0.03% 12/2014.[6]
75 Guatemala 10,000   0.02% 12/2014.[6]
76 Croatia 10,000   0.03% 12/2014.[6]
77 Chile 7,000   0.01% 12/2014.[6]
78 Mauritania 7,000   0.02% 12/2014.[6]
79 Spain 6,000   0.03% 12/2014.[6]
80 Japan 5,000   0.16% 12/2014.[6]
81 South Africa 4,000   0.22% 12/2014.[6]
82 Bangladesh 4,000   0.01% 12/2014.[6]
83 Czech Republic 3,000   0.01% 12/2014.[6]
84 Lithuania 2,000   0.01% 12/2014.[6]
85 Belize 2,000   0.00% 12/2014.[6]
86 Bulgaria 1,000   0.00% 12/2014.[6]
87 Georgia 1,000   0.00% 12/2014.[6]
88 Kyrgyzstan 1,000   0.00% 12/2014.[6]
89 Barbados 1,000   0.00% 12/2014.[6]
90 Greece 1,000   0.00% 12/2014.[6]

Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and this has consequences for oil prices, demand and prosperity in parts of the world, especially the OECD. Most of the growth in oil supply has been in the USA and Canada where the market has been flooded with expensive oil.

Here are the data for crude oil + condensate + natural gas liquids (C+C+NGL) and exclude biofuels and refinery gains that are included by the EIA in their total liquids number.

The 1.1 million bpd gain in US oil production was the largest year over year gain for any country in 2013, and the largest gain in US history. Mostly due to shale oil. The US remained the world’s third-largest oil producer at 10 million bpd in 2013, trailing Saudi Arabia’s 11.5 million bpd and Russia’s 10.8 million bpd. Rounding out the top five were China (4.2 million bpd) and Canada (3.9 million bpd).

Just to put the current US oil boom into further perspective, over the past five years global oil production has increased by 3.85 million bpd. During that same time span, US production increased by 3.22 million bpd — 83.6 percent of the total global increase.

If the current “low oil price crisis”  does indeed destroy high cost production capacity then this will raise the question if the high cost sources can  be brought back? And at what cost?  Especially interesting is the question: "Can the shale industry can come back from the near death experience?"

What MSM do not discuss: depletion rates

Low oil prices are suicidal for mankind in a long run. Oil is too valuable and irreplaceable resource  for chemical industry to be burned in excessive qualities in transport due to low prices, especially when hybrid and all electrical cars is a reality and price differential with ordinary cars for small card is not that great (less then twice). Electricity unlike oil can be produced from renewable resources such as nuclear (breeder reactors are a reality), wind and solar (solar panels improved dramatically in the last ten years).  At the same time in the USA (and probably elsewhere) sales of SUVs and light trucks are again booming.  That say something about level of intelligence of the USA government. 

With producers in the US and across the world pumping as much as they can, they are doing it at a cost of running into diminishing production rates (depletion) on those existing wells sooner. The 2008 IEA survey of ~800 major fields (including all giants and supergiants) which produced over 60% of that year crude showed an average annual decline rate of 5.1%.

Most countries in the world now face depletion of their reserves. Some face acute depletion (Indonesia, Mexico, etc), some still manage to maintain plato (Russia, Saudi Arabia) or even increase production (the USA, Canada, Iraq, Iran, in the future probably Libya and Syria),  But generally around 4% of total world capacity is depleted per year and without adequate investment can't be replaced. in 2008 IHS estimated global oil field decline rates to be around 4.5%. EIA did a study estimated the worldwide decline rates to be around 6.7%.

When peak oil has been discussed decades ago it was considered a 3% decline rate in production was manageable -- 5% would considered extremely difficult to deal with  (The Guardian)

Now depletion rates are higher (source: IHS, Deloitte & Touche and USGS databases; other industry sources; EIA estimates and analysis)

Outside a couple of countries such as Iran, Iraq and Venezuela offshore production grows faster the onshore production. Shale production growth in the past was the fastest, especially in the USA.  That means a switch to more expensive sources of oil.

Given the increasing decline rates, the oil industry needs considerable capex investments. In the absence of them it slide into irreversible decline.  New technologies greatly help but there are natural limits of what you can achieve with them. they are not substitute to finding new fields which is a very expensive activity.

US oil production and forecast for 2016

Among three major oil producing nations (USA, Russia and Saudi Arabia) the USA is the most dynamic nation, and the most difficult to predict due to large share of shale oil in the USA output. Gradual destruction of the US shale industry ability to pump oil  due to low prices is now established fact. That only discussable item is how quick it will proceed. The first 12 months were cushioned by hedges, but at the and of 2015 most companies are now  "swimming naked". 

Still there are signs that the US oil production peaked in 2015. Decimation of shale can't be compensated by offshore drilling. The sinking shale that could easily lose 1 Mb/d in 2016

At the same time in 2015 total US oil production remained remarkably stable, bank loans were extended or refinanced and bankruptcies were few and does not look like an epidemic. So forecaster of "doom and gloom" were wrong by at least one year. There are no signs of panic in view of drop of oil prices below the level of sustainable production. After all oil is the strategic industry and to leave to market forces is extremely unwise. Wall Street probably has other opinion. As John Kenneth Galbraith said “The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.” (The Great Crash of 1929). They live by the next quarter results.

Dec 8, 2015 EIA data  can be found http://www.eia.gov/forecasts/steo/tables/?tableNumber=29#

EIA estimates that total U.S. crude oil production declined by about 60,000 b/d in November 2015 compared with October. That decline will accelerate in December. Crude oil production will probably gradually decrease through the third quarter of 2016 before growth resumes late in 2016, it higher oil prices (at least above $50) materialize. 

Projections of the U.S. crude oil production

Saudi Arabia oil production and forecast for 2016

Oil production

There are signs that Saudi Arabia oil production peaked or close to a peak. A terror attack in 2016 Saudi Arabia is not very likely. Shiite organizations have not resorted to terrorism in many years and they seem now focused on fighting ISIS. which although sponsored by Saudis is a distinct organization.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015 (7% increase in production). Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, )  Here is relevant quote (OilPrice.com, Dec 21, 2015)

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

And those doubts about Saudis ability to increase production exist for some time. When U.S. president George W. Bush asked the Saudis to raise production on a visit to Saudi Arabia in January 2008 they declined. After that Bush questioned whether they had the ability to raise production any more.

But they did managed to achieve temporary production peak: in April 2015, the Saudi oil minister Ali Al-Naimi said that Saudi Arabia produced 10.3 million barrels per day in March that year, which was the highest figure based on records since the early 1980s.  The previous peak in production was in August 2013 at 10.2 million barrels per day.

Theoretically as its own population and internal consumption is growing and depletion of its wells reached critical level, they should concentrate of providing the standard of living for future generations, not dump the oil at the lowest price.  In three decades if the current annual increase in internal consumption continues at, say, 5% and production stays flat Saudi Arabia paradoxically may became oil importing county.

Still Saudi are known to use the most advanced (and most expensive) technologies of boosting the extraction rate to counter the natural decline curve.   They now are exploring shale technology and reportedly are trying to hire workers from the USA who became unemployed during the downturn of shale industry started in mid 2014.

Exports

Contrary to MSM coverage about Saudis flooding world with their oil, year over year increase in exports is slim. Basically they are flat (due to rapidly increasing population and domestic consumption): 

Net exports were around 7.111 Mb/d (September, 2015). But with current low prices this is an economic suicide, even if this is an economic war against Iran -- attempt to hurt its major competitor when  sanctions are lifted.

The net revenue dropped more then a half and the country is burining its currency reserves (which are substantial and at current burn rate will last for more then three years)  So there is something fishy in this propagated by Western MSM idea of Saudis defending their market share. The cost of defending their market share proved to be in hundred billions of lost revenue, which far exceeds their losses from rise of the US shale oil production (if the prices remained above $100 per barrel).  Also the question arise, why now. Shale was a long story in the USA and reached present size around decade ago (2005).

This is definitely a declation of war. But if the target is not the USA (and it can't be the target as Saudis are the USA vassal state), then war of whom ?  The USA is actually a beneficially of this  war (like most wars in this region) and  got a half trillion subsidy due to lower price of oil.  And  "corrupt and atheistic" Western Europe also got similar subsidy.

Business Insider

A report by Citigroup has warned that Saudi Arabia could run out of oil to export by 2030, raising fears that oil prices may rise significantly in coming years.

... ... ...

Its export capacity could steadily reduce and, “if nothing changes, Saudi may have no available oil for export by 2030”, Citi analyst Heidy Rehman wrote.

Saudi Arabia consumes 25pc of its oil output and oil accounts for about 50pc of its electricity production. With peak power demand rising by about 8pc per year, the nation is aiming to more than double its power capacity by 2032 through new nuclear and solar instalations.

Internal consumption

Saudi Arabia produced 10.28 million barrels a day in October 2015 and exported  7.364 million barrels a day. the difference  is less then 3 Mb/d

In September figure were 10.28 and 7.111. The difference is above 3 Mb/d.

So we can assume that 2015 internal consumption is approximately 3 million barrel a day.  In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, which equates to a nearly 8% rise y-o-y, driven by transportation fuels such as jet/kerosene, gasoline and diesel oil, which grew at high rates. The higher consumption of jet fuel reflects the increase in travel activity towards the end of the summer vacation, which coincided with the Hajj season.

Internal consumptions rapidly growing year over year with some years (2009) close to 10% growth (Saudi Arabia Crude Oil Consumption by Year (Thousand Barrels per Day)):

2005 1,963.64 4.20 %
2006 2,020.02 2.87 %
2007 2,094.33 3.68 %
2008 2,236.99 6.81 %
2009 2,436.12 8.90 %
2010 2,579.73 5.90 %
2011 2,760.91 7.02 %
2012 2,861.00 3.63 %
2013 2,925.00 2.24 %

Russia oil production and forecast for 2016

Russian oil production considered to be at "over peak" stage with increases mainly due to offshore drilling. In 2014 total petroleum and other liquids production in 2014 were 10.8 Mb/d  (EIA). Russia crude oil production in late 2015 was around 10.20M, up from  10.08Mb/done year ago. That's was an unanticipated, even by Russian Ministry of Energy result of activities of small companies. which managed to increase of  production by  1.12% from one year ago, when most analysts expected a slight decline (Russia Crude Oil Production (Monthly, Barrels per Day).

Despite severe depreciation of ruble and sanctions, in 2015 Russia managed to reach the level of production that exceed the level of former USSR period. At the same time most of Russia's fields are mature fields and the production from them is declining for long time,  offset only by new more expensive projects with less total volume. Unless Arctic oil and other expensive oil are economical to produce (which requires over $100 bbl price) the national path for Russian production is iether long plato or down. 

Russian oil extraction (red) and oil exports (green) in metric tons

 

In 2015 Russia managed to increase exports the first time in six years, but that does not change general situation: internal consumption is growing pretty robustly with growth of car fleet and decline of production due to national depletion of oil conventional wells became more and more difficult to compensate with new discoveries. And new fields, even if such exist, can't be now tapped because capital expenditures by most Russian oil companies now are slashed to the bone (russia is more like the USA in this respect with over dozen of major oil companies producing   oil).

At current oil prices Arctic oil now is out of reach and only existing platforms will remain in production. All of them are losing money. conventional wells are still profitable with same remaining profitable up to $20 per barrel. Still for the next several years Russia probably will be able to keep the current level of production due to huge previous investments dome in 2010-2014 in a few new fields (Bloomberg Business, December 20, 2015):

The other big boosts to Russian production this year have come from a few mid-sized new fields like those of Severenergia in the Arctic Yamal region. Co-owners Novatek OJSC and Gazpromneft PJSC invested in the $9.2 billion project back when oil prices were high. With most of the capital already committed, operating costs now are relatively low and output of gas condensate, a light and especially valuable form of crude, is up five-fold this year.

One side effect of falling oil prices -- the 52 percent plunge in the ruble over the last two years -- has helped Russian oil producers, chopping their costs in dollar terms since between 80 and 90 percent of their spending comes in rubles.

... ... ...

To be sure, few in the industry expect Russia to be able to sustain the current performance for more than a few years. Tax hikes and lack of financing have cut deeply into exploration drilling, which is down 21 percent this year, and handicap the larger new projects that are needed to replace the country’s older fields as they run dry.

... ... ...

In some parts of the Russian oil patch, low prices are already causing pain. At $40 a barrel, “half of our fields could be stopped. Heavy oil, low horizons, mature horizons are all unprofitable at a price of $40-45. We are waiting for better times,” Russneft OJSC Board Chairman Mikhail Gutseriev said in an interview on state television early this month.

Unfortunately just before the oil prices crush Russia was engaged in several high cost drilling projects in Arctic and was caught naked when oil price dropped. ( see Petroleum industry in Russia - Wikipedia).  Timing can't be more bad as this is a really expensive oil, probably around $60 per barrel or higher at wellhead.  Which are now sold at a huge discount.  Igor Sechin proved to be a weak leader of the Russia major state owned oil company Rosneft.  Government refused to bail out the company which faces large external debt and it was saved by some "white knife" billionaire.

Moscow Exile, December 19, 2015 at 11:19 am

Undeterred by OPEC’s decision to keep pumping and drive out U.S. shale rivals, Russian oil output continued to grow, in October setting a new monthly record for the post-Soviet era. Explorers have remained profitable under a friendly tax system and low production costs.

Mystery Benefactor

Rosneft assuaged concerns over the sustainability of Russia’s biggest corporate debt load after the company received a $15 billion advance payment for oil supplies from a source the company didn’t identify, according to quarterly reports published Nov. 13. The inflow of cash will help Rosneft meet $2.5 billion in debt due in the fourth quarter, $13.7 billion in 2016 and $11.3 billion in 2017, according to a presentation on its website.

See: One Year Into New OPEC Era, You Made 12% Buying These Oil Bonds

It looks like the board is in denial of the blunder with overinvest they made:

18 December 2015
Rosneft Holds Board of Directors Meeting

On December 18, Rosneft Board of Directors considered in Vladivostok interim results of its 2015 operations, the business-plan for 2016-2017, the Long-term development program and the energy efficiency program of the Company.

The following decisions were taken:

1. The Board of Directors considered and acknowledged 2015 Rosneft interim results and the intermediate results of the implementation of the long-term development program of the Company. The Board of Directors welcomed the results of the implementation of programs aimed at raising efficiency in challenging economic environment: the Company maintained low levels of OPEX and eased its debt burden.

2. The Board of Directors considered and acknowledged the business-plan for 2016-2017, structured in accordance with a conservative macroeconomic scenario and focused on the implementation of the Long-term development program of the Company, approved by the Government of the Russian Federation.

Within the ambit of delivering strategic goals of boosting production, securing deliveries of oil and oil products, maintaining a market share (both in Russia and abroad), the Company plans to increase capital expenditures by a third (compared to 2015 levels). The investment development program envisages the achievement of strategic goals of hydrocarbon production growth by means of accelerated commencement of oil and gas greenfields whilst exercising a balanced external financing program. After the completion of transition to Euro-5 motor fuels production in December 2015, refineries’ modernization program will be focused on increasing processing depth. Also, the program of cutting operating costs and enhancing operating and financial efficiency will be continued. Hence the leadership in the industry by the operating costs and capital costs will be guaranteed.

... .... ...

Commenting on the results of the Board meeting, Rosneft Chairman of the Management Board Igor Sechin said: “Measures taken by the Company for strengthening its oilfield services business dimension in 2015 enabled Rosneft to increase production in order to guarantee supplies to its traditional markets while keeping operating and capital expenditures at the record-low levels. The Company consistently generates free cash flow, providing funding sources for its investment decisions in accordance with 2015-2016 business plan approved by the Board of Directors and the Long-term Development Program”.

In August 2014, it was announced that preparations by the Russian government to sell a 19.5 percent stake in the company were underway and would most likely be sold in two tranches. So far this chunk of the company was not sold, probably because of low oil prices. 

Russia oil internal consumption is generally more or less stable and growling at a very slow page outside several 'abnormal" years. In 2016 it will not probably grow much as the economy remain is conditions close to recession. Lukoil chairman has said that he  expects Russia to produce less oil  in 2016 than in 2015

Russia internal oil consumption is currently around 3.3 Mb/d, up from 3.2 Mb/d one year ago. This is a change of 3.15% from one year ago.

2005 2,785.14 1.25 %
2006 2,803.47 0.66 %
2007 2,885.10 2.91 %
2008 2,981.92 3.36 %
2009 2,888.53 -3.13 %
2010 3,081.82 6.69 %
2011 3,352.11 8.77 %
2012 3,395.11 1.28 %
2013 3,320.00 -2.21 %

It is expected that it will continue to grow by around 0.1 Mb/d per year as car fleet is rapidly growing.. Also Russia will process more raw oil in 2016 then in 2015 which also negatively influence export of raw oil

Oil producing countries with civil wars/sanctions/military conflicts  

This is a very complex topic that is beyond the scope of this analyses. But paradoxically such countries are the "last hurrah" for increasing the oil production, as they do have reserve that can't be tapped at reasonable costs now but at the same time represent the last spot of "cheap oil" deposits. Some facts:

Oil consumption

Mankind dependency on oil is hardwired into fabric of our civilization.  It is an irreplaceable product. But as much as  2/3 of this extremely valuable chemical industry resource is burned in transportation. That actually means that sales of cars and trucks are instrumental to predicting future demand at least one year ahead.  And they are growing especially fast in China and India. They also accelerated in the USA.

World oil consumption is often given in millions barrels per day (mbpd or Mb/d). BP stated that in 2014 global oil demand increased by 1.4 Mb/d over 2012 to 91.3 Mb/d.  Assuming on average $60 per barrel this is 5.5 trillion dollars a year of additional expenses on energy.   Here are actual figures of world consumption for the last decade ( World Crude Oil Consumption by Year (Thousand Barrels per Day))

2005 84,668.04 1.79 %
2006 85,586.39 1.08 %
2007 86,700.09 1.30 %
2008 86,027.86 -0.78 %
2009 84,953.36 -1.25 %
2010 87,839.10 3.40 %
2011 88,657.70 0.93 %
2012 89,668.91 1.14 %
2013 90,354.27 0.76 %

As BP noted in February 2015 "Global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year".  So it is reasonable to assume that oil demand will rise approximately the same rate, which taking into account the current rate of consumption is above 1Mb/d.

The oil consumption proved to be extremely resilient  to economic conditions (that only drop in the last decade happened in 2009) and is growing globally each year by rate about 1 Mb/d due to increase of population and cars and trucks on the road. ( Peak oil - Wikipedia )

The table above does not contain data for 2014 and 205. Here they are:

As for the forecast of 2015, the growth of consumption is predicted in the range of 1.2-1.4 MB/d:

According to IEA "an annual $630 billion in worldwide upstream oil and gas investment – the total amount the industry spent on average each year for the past five years – is required just to compensate for declining production at existing fields and to keep future output flat at today’s levels" (iea.org). It is easy to see that such amount is difficult to come by when prices of oil are in $30-$40 range,  do the decline of world oil output might happen faster then growth of consumption.

OPEC forecast is usually more reliable then EIA but generally very similar, despite having different set of biases (G7 bias in case of IEA and Saudi Arabia bias for OPEC forecast) They predict higher growth of demand in 2015 and lower growth in 2016:

World oil demand is expected to grow by 1.50 mb/d in 2015 to average 92.86 mb/d, ...  In 2016, world oil demand growth is seen reaching 1.25 mb/d ...  to average 94.14 mb/d.

India is set to become the world’s third largest oil importer after the US and China before 2025, according to the International Energy Agency (IEA). India’s energy needs would overtake Japan as the third largest net importer of oil before 2025. EIA predict stable consumption level until 2040 only 1.1% growth on average (EIA)

The bulk of that demand growth is expected to come from developing countries in Asia. With U.S. supply falling, where are the new oil supplies coming from ? There simply isn’t enough to go around.

Double-digit percentage increases in oil consumption were recorded by Pakistan, Venezuela, and Azerbaijan from 2012 to 2013, and over the past five years double-digit percentage consumption increases were recorded by Central and South America (15.2 percent), the Middle East (18.3 percent), Africa (12 percent), Asia Pacific (17.4 percent), and the former Soviet Union (12.8 percent). World Sets New Oil Production and Consumption Records

Per country picture: not all countries are created equal

The most significant factor affecting petroleum demand has been human population growth. Large countries that previously were dirt poor and consumed minuscule amount of oil now now rapidly growing (India and China) are primary drivers of consumption. Arab countries also experience rapid population growth (Saudi Arabia is one example). The United States Census Bureau predicts that world population in 2030 will be almost double that of 1980. Oil production per capita peaked in 1979 at 5.5 Giga barrels/year but then declined to fluctuate around 4.5 Giga barrels/year since. In this regard, the decreasing population growth rate since the 1970s has somewhat ameliorated the per capita decline.

Not all consumers of oil are created equal.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of January 1, 2014

See also: Oil consumption per capita bar chart

Country Name Oil consumption per capita
 (bbl/day per 1000 people)
Year of Estimate
Singapore 202 2012
Nauru 139 2012
Kuwait 134 2012
Luxembourg 119 2012
Bahamas, The 111 2012
United Arab Emirates 103 2012
Saudi Arabia 100 2012
Falkland Islands (Islas Malvinas) 96 2008
Seychelles 89 2012
Qatar 85 2012
Greenland 69 2012
Canada 64 2012
United States 61 2012
Netherlands 60 2012
Belgium 60 2012
Cayman Islands 57 2012
Antigua and Barbuda 56 2012
Iceland 56 2012
New Caledonia 54 2012
Libya 51 2012
Norway 47 2012
Malta 46 2012
Oman 46 2012
Korea, South 45 2012
Australia 44 2012
Taiwan 43 2012
Hong Kong 42 2012
Brunei 42 2012
Finland 41 2012
Puerto Rico 41 2012
Saint Kitts and Nevis 39 2012
Sweden 39 2012
Bahrain 38 2012
Japan 35 2012
New Zealand 35 2012
Greece 34 2012
Austria 34 2012
Trinidad and Tobago 33 2012
Slovenia 32 2012
Israel 31 2010
Barbados 31 2012
Germany 31 2012
Spain 31 2012
Switzerland 31 2012
Ireland 30 2012
Macau 29 2012
France 28 2012
Panama 28 2012
Grenada 28 2012
Suriname 27 2012
Venezuela 27 2012
Portugal 26 2012
United Kingdom 26 2012
Lebanon 26 2012
Denmark 25 2012
Italy 25 2012
Turkmenistan 25 2012
Estonia 24 2012
Iran 23 2012
Iraq 22 2012
Jamaica 22 2012
Belize 21 2012
Saint Vincent and the Grenadines 19 2012
Czech Republic 19 2012
Malaysia 19 2012
Lithuania 19 2012
Saint Lucia 18 2012
Mexico 18 2012
Chile 18 2012
Mauritius 18 2012
Armenia 18 2012
Belarus 17 2012
Fiji 17 2012
Cuba 16 2012
Djibouti 15 2012
Russia 15 2012
Brazil 10 2012
Turkey 8 2012
China 7 2012
India 3 2012
Pakistan 2 2012
Bangladesh 1 2012

Consumption in net oil exporting countries is limited to the volume of production and price while consumption in net oil importing countries by the price of oil and the oil that is left for export after internal consumer got their share (which depends on price of oil).  In other words, to paraphrase “Animal Farm,”  all pigs are equal but some pigs are more equal then others.

Of course pigs with strong military (read G7) are also more equal then others and can change this equation in their favor by force and already started doing this (USA in Iraq, France in Libya).

While demand for oil continues to increase globally, oil producing countries also increase their internal consumption rapidly. For example increase in internal consumption of Saudi Arabia led to a situation when since 2005 their exports are essentially flat despite increase of production.

Having noted Steven Kopits’ continuing track record of being remarkably prescient regarding global oil supply and demand analysis, I do have one issue with global supply & demand analysis -– consumption in net oil exporting countries versus consumption in net oil importing countries, to -- wit, to paraphrase “Animal Farm,” in my opinion some consumers are more equal than others.

Let’s assume a scenario where all oil production and refining operations are in oil exporting countries and let’s ignore things like refinery gains. Total petroleum liquids production is 80 mbpd and consumption in the oil exporting countries is 40 mbpd, and they therefore net export 40 mbpd to oil importing countries.

Production rises by 2.5 mbpd in the oil exporting countries, so total supply increases from 80 mbpd to 82.5 mbpd. However, consumption in the oil exporting countries rose by 5 mbpd. So, Net Exports = Production – Consumption = 82.5 mbpd – 45 mbpd = 37.5 mbpd.

My point is that a global supply and demand analysis would not accurately represent the situation in the net oil importing countries, i.e., a 6.25% decline in the supply available to net importers (40 mbpd to 37.5 mbpd), although global supply is up by 3.125%, 80 mbpd to 82.5 mbpd.

Of course, the crux of what I call “Export Land Model” or ELM, is that for a number of reasons (subsidies, proximity to production, legal restrictions, etc.), consumption in oil exporting countries tends to be satisfied before oil is exported.

Interesting enough, the case histories tend to show that regardless of how oil exporters treat internal consumption, given an ongoing production decline, the net export decline rate tends to exceed the production decline rate and the net export decline rate tends to accelerate with time.

For example, Indonesia subsidizes petroleum consumption and the UK heavily taxes petroleum consumption, but both former net oil exporters showed accelerating rates of decline in their net exports (in excess of their respective production decline rates).

Here are the ELM Mathematical Facts of Life:

Given an ongoing production decline in a net oil exporting country, unless they cut their domestic oil consumption at the same rate as the rate of decline in production or at a faster rate, the resulting net export decline rate will exceed the production decline rate and the net export decline rate will accelerate with time. Furthermore, a net oil exporter can become a net oil importer, even with rising production, if the rate of increase in consumption exceeds the rate of increase in production, e.g., the US and China.

The (2005) Top 33 net exporters showed a slight increase in production from 2005 to 2013, from about 62 mbpd to 63 mbpd (total petroleum liquids + other liquids, EIA), but their rate of increase in consumption exceed their rate of increase in production and their combined net exports (what I call Global Net Exports, or GNE) fell from 46 mbpd in 2005 to 43 mbpd in 2013.

Furthermore, China and India (“Chindia”) consumed an increasing share of a post-2005 declining volume of GNE. What I call Available Net Exports (ANE, or GNE less Chinidia’s Net Imports, CNI) fell from 41 mbpd in 2005 to 34 mbpd in 2013.

Here’s the Available Net Exports problem:

Given an ongoing decline in GNE–and it’s when, not if–then unless the Chindia region cuts their oil consumption at the same rate as the rate of decline in GNE, or at a faster rate, the resulting rate of decline in ANE will exceed the GNE decline rate and the ANE decline rate will accelerate with time.

From 2005 to 2013, GNE fell at 0.8%year. From 2005 to 2013, ANE -- the supply of Global Net Exports of oil available to importers other than China & India -- fell at 2.3%/year.

The USA consumption

The United States remains the world's largest consumer of petroleum. The United States uses most of oil per capita in the world.  Between 1995 and 2005, US consumption grew from 17.7 Mb/d (2,810,000 m3/d) to 20.7 Mb/d (3,290,000 m3/d), a 3,000,000 barrels per day (480,000 m3/d) increase. According to EIA Jan 12, 2016 report (eia.gov):

In other words the USA consumption is approximately equal to total Saudi export capacity. 

The U.S. Energy Information Administration (EIA) includes volumes of biofuels in data on total petroleum consumption. Per capita consumption of oil in the USA is one of the highest in the worlds and exceeds, for example, Russian per capita consumption four times.

Looking forward, both the EIA and the EIA project that U.S. oil demand will oscillate around 20 Mb/d mark. That might change if oil price stays low for several years.

The USA consumption is highly concentrated on transportation sector and in private cars sector is quite wasteful. The same population in Germany, Great Britain, France, Poland, the low countries and Scandinavia use 10 Mb/d.

Peter, 12/21/2015 at 4:33 pm
Watcher

1)US consumption is besides a couple of small countries the highest in the world.

http://www.indexmundi.com/map/?v=91000

compared to other western industrial countries it’s consumption is totally unjustifiable.

2) Driving a Ford F150 or an ampera to work has nothing to do with GDP and everything to do with needless oil consumption. So stop saying things which even an 8 year old would find obvious

US consumers will not cut consumption out of the goodness of their hearts, they will be forced to do so when prices make cuts necessary.

China consumption

China, by comparison, increased consumption from 3,400,000 barrels per day (540,000 m3/d) to 7,000,000 barrels per day (1,100,000 m3/d), an increase of 3,600,000 barrels per day (570,000 m3/d), in the same time frame.

China surpassed the United States as the world’s largest crude oil importer in 2015. As China’s economic growth is predicted to decrease from the high rates of the early part of the 21st Century that level might grow more slowly, but still China is so far behind the USA in consumption of gasoline per capita the trend toward more equal consumption clearly will increase china figures dramatically. Much depends how quickly china will grow middle class, which owns individual cars.

India consumption

India is burning over 4 mbpd now. India's oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million barrels per day.  Look at Energy Export Databrowser to see the consumption line for each country. 45 degree slope for India, just a few degrees less than China’s slope. KSA’s slope looks early exponential. No reason why it shouldn’t be. It’s their oil.

Russian consumption

Russian internal consumption grows rapidly and that means that in the future Russia will export less oils. Russian leadership have found itself unprepared to the dramatic drop of oil prices and now will take moves to refine more oil at home, and selling less raw oil. The fact that Russia sells mostly unprocessed oil was a blunder that costs Russia billions and Putin had shown ability to learn from mistakes. 

Russia's Key Energy Statistics world rank
Total Primary Energy Production
2012
55.296
Quadrillion Btu
3
Total Primary Energy Consumption
2012
31.522
Quadrillion Btu
3
Dry Natural Gas Production
2011
22,213
Billion Cubic Feet
2
Total Petroleum and Other Liquids Production
2014
10,853
Thousand Barrels Per Day
3
Total Primary Coal Production
2013
388,013
Thousand Short Tons
6

Compare that with the USA

United States' Key Energy Statistics world rank
Total Primary Energy Production
2012
79.212
Quadrillion Btu
2
Total Primary Energy Consumption
2012
95.058
Quadrillion Btu
2
Dry Natural Gas Production
2011
22,902
Billion Cubic Feet
1
Total Petroleum and Other Liquids Production
2014
13,973
Thousand Barrels Per Day
1
Total Primary Coal Production
2013
984,842
Thousand Short Tons
2

India

India's existing domestic production of about 0.86 Mb/d is only about 25% of its current consumption of 3,47 Mb/d.  According to the EIA, its production peaked at 996,000 barrels per day in 2011. Energy consumption in India is likely double by 2031.   The CAGR (compound annual growth rate) for the ten years ending in March 2014 is above 3.5%.

Domestic production of  oil is relatively stable. The EIA (US Energy Information Administration) estimates that India had close to 5.7 billion barrels of proven oil reserves at the beginning of 2014. About 44% of the reserves are onshore resource.

 Imports is likely to rise  from current 75 percent to 80 percent by the end of the 12th five year plan (2016-17). According to the Directorate General of Commercial Intelligence and Statistics, crude oil and refined products made up over 28 percent and 30 percent of India's import of principal commodities in 2010-11 and first half of 2011-12 respectively.

India is a major crude oil refiner. India petroleum refining capacity has outstripped demand consistently. Since 2002, the country's export of petroleum products has risen from 10 million tones to around 60 million tones in 2011-12, an average annual growth of over 20%.

Analyzing India’s oil consumption

According to IES (International Energy Statistics) presented by the EIA (US Energy Information Administration), the CAGR for total petroleum consumption for the world was 0.8% from 2005 to 2013. This consumption has been measured in thousand barrels per day. In the same period, China saw its consumption increase by 5.1%. In CAGR terms, India’s consumption increased by 4.1%. In contrast, the US saw its consumption decrease by 1.2%.

Per sector consumption

Oil consumption is distributed amongst four broad sectors: transportation, residential, commercial, and industrial. In terms of oil consumption, transportation is the largest sector and the one that has seen the largest growth in demand in recent decades. This growth has largely come from new demand for personal cars. In the USA it accounts for approximately 68.9% of all the oil used. Globally it is close to 55%

There are also "shadow" consumers of oil. For example military is important but often underreported or unreported consumer. So in no way published figured of consumption can be taken at face value. 
 

Consumption by transportation sector

Approximately two-thirds of U.S. oil consumption is due to the transportation sector. Slightly less for the world. 

In the USA consumption is depicted on the following picture

Private transportation is gradually became more efficient in miles per gallon metric (so energy consumption is shifted to the production of battery and electrical motors).  Most of the efficiently is already obtained on cars such as Toyota Prius which averages probably 40 miles per gallon and can run on electrical engine at low speeds/city traffic which is killing regular car efficiency.  Further substantial improvement is unlikely as traffic jams are the most important feature of morning commute in the USA. Traffic congestion, especially at rush hour, is a problem in most of the USA large cities. A 2009 study found that traffic congestion costs the United States almost $87.2 billion. The economic costs of traffic congestion have increased 63% over the past decade, and despite the declining traffic volumes caused by the economic downturn, Americans still waste more than 2.8 billion US gallons (11,000,000 m3) of fuel each year as a result of traffic congestion. Motorists also waste 4.2 billion hours annually, or one full workweek per traveler.

Private transportation sector oil consultation with gradually rise with the growth of population.

It's not only car and trucks burn fuel on the roads. Maintaining road surface is pretty fuel-intensive activity as well. With the development of the  Eisenhower Interstate Highway System in the 1950s, the road system in the USA, as of 2010, has a total length of 47,182 miles (75,932 km), making it the world's second longest after China's, and the largest public works project in US history. A large number of multilane roads while improving peak hours traffic is considerably more expensive to maintain. A Federal Highway Administration report saying the number of roads in good condition each year is going up.  As the same time roads and surface transportation will only get about half their projected $1.7 trillion need for capital projects.  The high cost of America's bad roads and bridges - Feb. 12, 2013

Industrial transportation use efficient diesel engines and improving efficiently on such engines is a very difficult task. So it will approximately consume the same amount of fuel per ton per mile of transported goods as now. Some improvement are possible by increasing of usage of railways. for maritime transportation saving are possible by lowing the speed of vessels, which was already done when price of oil was high.

In air transportation larger planes, more efficient engines can improve fuel efficiency. Between 1960 and 2000 there was a 55% overall fuel efficiency gain. Optimal amount of passengers/cargo  and fuel are also important factors. As over 80% of the fully laden take-off weight of a modern aircraft such as the Airbus A380 is craft and fuel (Fuel economy in aircraft - Wikipedia )

Pilots of turbine airplanes actually have less control over the fuel efficiency of their flights because there are so many variables, first among them being air traffic control. Turbine engines are at their least efficient down low where the air is dense. As the airplane climbs up and the air thins, the turbine produces less power and thus consumes less fuel, but the drag of the thinning air on the airplane decreases faster than the power from the engine drops, so the airplane speeds up and the fuel flow goes down. Takeoff delays really cut into fuel efficiency in a jet compared to a piston engine.

Military aviation also consumes large amount of fuel and is known for very low fuel efficiency.

Chemical industry consumption

Chemical industry consumes approximately 30% of oil.

Residual Fuel Oil Consumption By Chemical Industry - By Country - Data from Quandl

Military consumption

Also we should not forget that one of the largest consumer of oil is military which will get oil at any price. And we have the recent trend in re-armament. So the consumption of oil by military grows again. Here are some 2007 data (US military energy consumption- facts and figures)

As the saying goes, facts are many but the truth is one. The truth is that the U.S. military is the single largest consumer of energy in the world. But as a wise man once said, don't confuse facts with reality. The reality is that even U.S. Department of Defense (DoD) does not know precisely where and how much energy it consumes. This is my Fact Zero.

Below I give some facts and figures on U.S. military oil consumption based mostly on official statistics.[1] If you want to reproduce them make sure you read every footnote even if you need to put on your glasses. Also read the footnotes in this article.

According to the DoD's Federal Energy Management Report for FY2006, the DoD spent approximately $3.5 billion on facility energy and $16.5 billion on energy for tactical vehicles. To this we should add 238 million spent on non-tactical vehicles.[6] Overall, total actual cost[7] for DoD energy consumption is over $20 billion. By the way, remember that a billion has nine zeros.

According to Pentagon spokesman Chris Isleib a $10 increase per barrel of oil increases Defense Department costs by $1.3 billion per year.

Hurting Russian economy

Oil is a strategic resource using which countries pursue geostrategic interest. So manipulation on oil price is a war by other means. As Patrick J. Buchanan  noted in his article America Regains the Oil Weapon The American Conservative in American Conservative (Nov 14, 2014)  "...price, Adam Smith notwithstanding, is something we can control and manipulate"  although strangely enough he consider Saudis to be an independent player, as if they are not a vassal state dependent on Washington:

In July of 1941, after Japan occupied French Indochina, the Roosevelt administration froze Japan’s assets in the United States. Denied hard cash, Japan could not buy the U.S. oil upon which the empire depended for survival. Seeing the Dutch East Indies as her only other source, Japan prepared to invade.

But first she had to eliminate the sole strategic threat to her occupation of the East Indies—the U.S. battle fleet at Pearl Harbor. FDR’s cutoff of oil to Japan was thus a primary cause of WWII in the Pacific, which led to hundreds of thousands of U.S. war dead, the destruction of Japan, Mao’s triumph in China and a U.S. war in Korea.

A second stunning use of the oil weapon came in 1973. Arab members of OPEC imposed an embargo in retaliation for Nixon’s rescue of Israel with an airlift in the Yom Kippur war. Long gas lines helped to bring Nixon down.

Now the oil weapon appears to be back in America’s hand.

Due to the substitution of natural gas for oil in heating homes and buildings, horizontal drilling, and hydraulic fracking, which enables us to bring oil and gas out of shale rock in places like North Dakota, U.S. production has exploded. We now produce more oil than Saudi Arabia and the benefits are not only economic, but geostrategic.

... ... ...

What is Riyadh’s game?

Is the Saudi strategy to let prices fall to where it is no longer profitable for Americans to begin new fracking? Are the Saudis thinking of doing to the new oil-producing champion, USA, what we are doing to Venezuela, Russia, and Iran? Riyadh may want to let the price of oil sink below where it makes sense for energy companies to prospect for new sources of oil or invest more billions in expanding production.

Are the Saudis out to cripple us with an oil glut?

Today, not only are Iran and Iraq producing below potential, so, too, is Libya. And we have been bombing ISIS’ oil facilities in Syria.

A contrarian’s question: Would we not be better off if these countries not only restored oil production, but also expanded production and put more oil on the market than they do today? Demand creates supply, and a world oil market where there is more supply than demand would seem to be to America’s benefit. For we remain the world’s largest consumer of petroleum products. And surely it is to our benefit to enlarge both the reserves and production of oil and gas in North America.

Price pays a huge role in creating, and shrinking, supply. And price, Adam Smith notwithstanding, is something we can control and manipulate, even as China manipulates its currency.

In “America’s New Oil Weapon” in National Review, Arthur Herman of the Hudson Institute urges the United States to take bold steps to increase our supplies of oil and gas.

We should relax the rules on drilling in Alaska’s Arctic National Wildlife Refuge, which has 10 billion barrels of oil locked up. We should use as an economic weapon against OPEC the 700 million barrels in the Strategic Petroleum Reserve. We should allow the export of oil from the United States to enable us to cope with OPEC cutbacks. We should build the Keystone XL pipeline, and the other oil and gas pipelines between us and Canada now sitting in limbo.

What Herman is urging upon us is a new nationalism, a new way of thinking about international economics that puts the U.S. and its allies first, and uses our economic leverage to advance national rather than global interests.

High oil prices pressured the US economy and its perennially-undercapitalized banking system. US economy health depends on low oil prices.   But there is geopolitical dimension of the current drop of oil prices. In is not unconceivable to think that Washington reused Reagan plan of hurting Russian economy (which catalyzed dissolution of the USSR) by pushing down oil prices.

Among the many threats facing Russia’s economy, cheap oil could be the biggest of all. Low crude are depressing the ruble (at some point in early 2015 ruble  dropped to 69 per dollar from 30-35 or so; in August 24, 2015 it reached 69.96) and knocking export on which Russia depends due to its integration in the global economy: the direction Russian neoliberal pushed for since 1991. And Russian elite was taking high oil prices for granted. For example,  Russia’s draft budget for 2015 was based on $100-a-barrel oil (Oil Prices Are Hurting Russia's Economy - Businessweek, October 13, 2014)

Because of Russia’s outsize dependence on oil and gas, which account for more than two-thirds of its exports, lower energy prices can easily tip its $2 trillion economy into recession. “Growth is likely to remain positive only with oil prices above $92 to $93 a barrel,” says economist Charles Robertson of Renaissance Capital. At $90 a barrel, the economy would contract 0.4 percent next year, and at $80 a barrel it would shrink 1.7 percent, he predicts.

Do the US tried to subdue Russia the second time via decimating oil prices and thus cutting dramatically the stream of revenue from oil exports?  It is difficult to say.   But now this strategy is better understood by Russians, which created certain difficulties in its implementation despite the huge power of the US financial sector. The sector which can allow itself to play with oil futures the way it wants due to unlimited supply of the US dollars -- the world reserve currency.  The Fed remains a monetary superpower controlling the world's main reserve currency and xUSSR  and emerging countries currencies are formally or informally pegged to dollar. Therefore, its monetary policy is exported across the globe. The Fed was exporting its easy monetary policy to the rest of the world in the early-to-mid 2000s. Now  the attempt of normalization of monetary policy creating huge tightening of monetary conditions for the rest of the world.  It also dramatically devalue large export oriented Russian companies:

How Russian energy giant Gazprom lost $300bn  Justin Burke for  the New East network

Aug 07, 2015  |  The Guardian

annamarinja airman23 8 Aug 2015 09:09

Poor airman23. Have you ever heard about Dick Cheney? Have you ever looked at the Wolfowitz Doctrine? If not, then you are very much behind the nowadays understanding of fascism and fascists. On the other hand, you are such a concrete success of Mrs. Nuland-Kagan' (and likes) travails.

yemrajesh  -> psygone 8 Aug 2015 07:36

Difficult to say. If the costs are true'ly low it would have reflected at the Pump. But it hasn't. Another flaw is how can oil pumped from deeper well ( Fracked Oil) is cheaper than conventional oil. It looks more like US flexing its muscles to subdue Russia. Besides its not Just Gazprom , shell, BP, Exxon , Gulf, Mobil etc also many of US vassal states are affected. It would be interesting to see how long this artificial price drop continue with zero benefit to the customers.

Kaiama 8 Aug 2015 06:07

Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies.

AlbertEU  -> alpamysh 7 Aug 2015 17:09

The crisis of one industry necessarily will hurt other sectors. Hard-hit banking sector, which is credited US shale industry. The effect can be like an avalanche. Especially if it is strengthened by additional steps. I think for anybody is not a secret the existence of a huge number of empty weight of the dollar, which is produced by running the printing press. Oil trade is in the dollar, which in turn keeps the volume of the empty weight of the dollar. Now imagine a situation where part of the oil market has not traded more in dollars. It is equally affected, the USA and Russia.

But there is one important detail. Russia has never in its history, was a rich country (if you count all the inhabitants of Russia, not individuals). In the country there is no cult of consumption. The traditional religions of Russia, that is, those that have always existed in Russia (Orthodox Christianity, Islam and Buddhism) did not contribute to the emergence of such a cult.

Orthodoxy says plainly that material wealth is not important for a man. Wealth is only supplied in addition to achieve the main goal in the life of an Orthodox Christian. Therefore, to be poor in Russia is not a problem. This is a normal way of life. Hence the stoic resistance to any hardship, challenges, wars and so on. Expectations of great social upheaval in Russia, caused by the lowering of the standard of living is a little naive. Russia used to run in the marathon. Who would have more strength, intelligence and endurance is a big question. Geopolitics is a very strange science...

If this is a deliberate maneuver, an economic war on Russia, it can became very costly and might have made sense only on a short or medium-term basis (three-five years), to shock Russian elite into submission and depose Putin and his faction of "resource nationalists" which are like a bone in the throat of US multinationals.  This time Washington managed to catch  Putin's government completely  unprepared to such development of event, which increased the chances of success.

And they really took Russian elite by surprise. That's why the USA oil Blitzkrieg initially enjoyed such a huge success and immediately crashed the ruble (100% devaluation happened) as well as put Russian economy in recession. But Russians quickly realized what's going on and the game in the second part of  2015 became more complicated as those futures and shale industry junk bonds now also weight on the USA financial sector.  It this was a deliberate maneuver, it does has unanticipated side effects.

Those who sell futures for 2017 for $58 can be hit with $30 loss per barrel, if the game turn bad.  So the current low oil price movements should be viewed as  yet another neoliberal financial casino gambling session, in which stakes are really high.  It is completely counter productive from the point of view of future of mankind, but the last thing the USA elite care about is the future of mankind. They are preoccupied with the desire to preserve and enhance their global neoliberal empire and that requires crashing all potential competitors, including Russia and China. The paradox is that while they weaken Russia they really strengthen China (although they try to compensate this with playing Chinese stock market to their advantage). But Putin severely underestimated the damage West can inflict to Russian economy:

Opportunities for the West to hurt the Russian economy are limited, President Vladimir Putin said Thursday. Europe cannot stop buying Russian gas without inflicting pain on itself, and if the US tries to lower oil prices, the dollar will suffer.

If the West tries to damage Russia’s influence in the world energy market, efforts will likely backfire, the Russian President said during his twelfth annual televised question and answer session.

To really influence the world oil market a country would need to increase production and cut prices, which currently only Saudi Arabia could afford, Putin said.

The president added he didn’t expect Saudi Arabia, which has “very kind relations” with Russia, will choose to cut prices, that could also damage its own economy.

If world oil production increases, the price could go down to about $85 per barrel. “For us the price fall from $90 to $85 per barrel isn’t critical,” Putin said, adding that for Saudi Arabia it would be more sensitive.

Also the President said that being an OPEC member, Saudi Arabia would need to coordinate its action with the organization, which “is very complicated.”

Meanwhile, Russia supplies about a third of Europe's energy needs, said Putin. Finland, for example, is close to Russia economically, as it receives 70 percent of its gas from Russia.

“Can Europe stop buying Russian gas? I think it's impossible…Will they make themselves bleed? That's hard to imagine,” the Russian president said.

Since oil is sold internationally on global markets cutting the price would mean lower dollar circulation, diminishing its value in the global currency market.

"If prices decrease in the global market, the emerging shale industry will die,” Putin said.

The US shale industry has boosted domestic production, but President said that the so-called "shale revolution" was expensive and not quick to come.

Russia’s economy largely relies on energy. In 2013 more than 50 percent of the national budget was funded by gas and oil revenues. The main revenue comes from oil, as last year, oil revenues reached $191 billion, and gas $28 billion.

“Oil and gas revenues are a big contribution to the Russian budget, a big part for us when we decide on our government programs, and of course, meeting our social obligations,” the president said.

As Reuters reported:

“The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world…

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad.

The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand…

With global oil markets in flux, it is far from clear how much U.S. condensate will find a market overseas.”
(Analysis – U.S. opening of oil export tap widens battle for global market, Reuters)

Why would the oil producers, who have over the years raised the price of oil  suddenly agree to drop the price from roughly $120 a barrel to lower then $60  a barrel (Want To Hurt Russia Lower The Price Of Oil OilPrice.com?).

Let us look first at who the major oil producers are today: Saudi Arabia, Qatar, the United Arab Emirates and the United States, as well as Russia, Iran and the Islamic State.

Of those, we can make a clear distinction between the first four countries who have solid economies and ample amounts of cash reserves and who can sustain a sharp drop in revenue when oil is sold at a lower price...

The big losers in this case will clearly be the last three countries on that list: Russia, Iran and the Islamic State.

Coincidentally, these countries are currently engaged in highly controversial conflicts and are facing opposition from the United States and the West.

Russia is involved in Ukraine’s civil war, supporting the separatists in a highly criticized move condemned by the United States and its Western allies. In response, the allies began to impose sanctions as punishment and, given the ruble’s recent downturn, Russia’s credit rating being slashed and desperate gas deals in the Asian markets, it seems that the sanctions have, thus far, been highly successful.

CNN reported that Russian is Russia losing $140 billions from sanctions and low oil price according to estimates from Russia's finance minister Anton Siluanov. For every $10 drop in the per-barrel price of oil, Russia loses up to $14.6 billion a year in revenues, according to Alfa Bank. This is a real economic war (Russia has just lost the economic war with the west Business The Guardian)

The phrase “perfect storm” is over-used, but the combination of a collapsing currency, a collapsing economy and punitive interest rates make it apposite. The question now is how Putin responds. If he softens his line over Ukraine, the west’s gamble will have paid off and it will be mission accomplished. But there are hardliners in Moscow who will argue that the response to the crisis should be a siege economy and the ratcheting up of military pressure on Ukraine. If economic agony makes a wounded Russian bear more belligerent, it will prove a hollow victory.

Here’s a clip from an NPR interview with the president just last week. About halfway through the interview, NPR’s Steve Inskeep asks Obama: “Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

“Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

Barack Obama:

If you’ll recall, their (Russia) economy was already contracting and capital was fleeing even before oil collapsed. And part of our rationale in this process was that the only thing keeping that economy afloat was the price of oil. And if, in fact, we were steady in applying sanction pressure, which we have been, that over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they’d have enormous difficulty managing it.” (Transcript: President Obama’s Full NPR Interview)

Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy? It sure sounds like it. And that would also explain why Obama decided to allow domestic producers to dump more oil on the market even though it’s going to send prices lower. Apparently, none of that matters as long as the policy hurts Russia.

So maybe the US-Saudi oil collusion theory isn’t so far fetched after all. Maybe Salon’s Patrick L. Smith was right when he said:

“Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105.

Shortly after Kerry’s visit, the Saudis began increasing production, sure enough — by more than 100,000 barrels daily during the rest of September, more apparently to come…

Think about this. Winter is coming, there are serious production outages now in Iraq, Nigeria, Venezuela and Libya, other OPEC members are screaming for relief, and the Saudis make back-to-back moves certain to push falling prices still lower?

You do the math, with Kerry’s unreported itinerary in mind, and to help you along I offer this from an extremely well-positioned source in the commodities markets: “There are very big hands pushing oil into global supply now,” this source wrote in an e-mail note the other day.” (“What Really Happened in Beijing: Putin, Obama, Xi And The Back Story The Media Won’t Tell You”, Patrick L. Smith, Salon)

As New York Post tabloid, a mousepiece of Rupert Murdock,   gleefully reported

The price collapse could not have come at a worse time for Bad Vlad Putin. The Russian president needs an oil price around $100 a barrel to prop up what’s become a wartime economy. Oil and gas provide up to a third of budget revenue and compose two-thirds of exports.

Sanctions imposed over Putin’s aggression have gnawed at Russia’s economy, but this price drop bites deep: The ruble has crashed, Russian bonds are pathetic, and foreign reserves are bleeding.

While Russians will put up with harder times than Westerners will, Putin’s made extravagant commitments (bet he’d like to have back the $50 billion he squandered on corrupt Olympic construction). The world’s fave bare-chested bully had embarked on a massive arms buildup, with a hi-tech $5 billion command center just unveiled. But Putin’s visions of military resurgence are becoming unaffordable. He also made election promises to improve Russia’s wretched health-care system. Instead, he’s firing health-care workers and shuttering hospitals.

He promised higher living standards, but now the average Ivan’s feeling squeezed. And Putin faces enormous costs in Crimea and eastern Ukraine, two booby-prize welfare states, with the latter shot to ruins. Putin’s popularity remains high. For now. The gravest worry is that, with his back to the wall, he’ll play the Mother Russia card and attack again.
 

Iraq war was a war for oil

Oil, the U.S.-Middle East Free Trade Area and the Bush Agenda By Antonia Juhasz,

 Antonia Juhasz, a visiting scholar at the Institute for Policy Studies, is the author of The Bush Agenda: Invading the World, One Economy at a Time, on which part of this article is based. She is working on a new book that will make the case for the break-up of the largest American oil companies. Learn more at www.TheBushAgenda.net

Remember oil? That thing we didn’t go to war in Iraq for? Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, “[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales.” Of course, Bush not only wants to keep oil out of his enemies’ hands, he also wants to put it into the hands of his friends. 

The President’s concern over Iraq’s oil is shared by the Iraq Study Group, which on December 6 released its much-anticipated report. While the mainstream press focused on the report’s criticism of Bush’s handling of the war and the report’s call for (potential) removal of (most) U.S. troops (maybe) by 2008, ignored was the report’s focus on Iraq’s oil. Page 1, chapter 1 laid out in no uncertain terms Iraq’s importance to the Middle East, the United States and the world with this reminder: “It has the world’s second-largest known oil reserves.” The group then proceeds to give very specific and radical recommendations as to what should be done to secure those reserves. 

Guaranteeing access to Iraq’s oil, however isn’t the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war—and the most ignored.  Just two months after declaring “mission accomplished” in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it.

The Bush Agenda

Within days of the 9/11 terrorist attacks, then-U.S. Trade Representative Robert Zoellick announced that the Bush administration would be “countering terror with trade.” Bush reiterated that pledge four years later when he told the United Nations, “By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world.” In the case of the March 2003 invasion and ongoing occupation of Iraq, these “free trade”—or corporate globalization—policies have been applied in tandem with America’s military forces.

The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic and political laws, and write a new constitution. The new economic laws have transformed Iraq’s economy, applying some of the most radical—and sought-after—corporate globalization policies in the world and locking in sweeping advantages to U.S. corporations. Through the ongoing occupation, the Bush administration seeks to ensure that both Iraq’s new government and this new economic structure stay firmly in place. The ultimate goal—opening Iraq to U.S. oil companies—is reaching fruition.

In 2004, Michael Scheuer—the CIA’s senior expert on al-Qaeda until he quit in disgust with the Bush administration—wrote, “The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages.”  How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq’s economic infrastructure.

L. Paul Bremer III—the head of the U.S. occupation government of Iraq, the Coalition Provisional Authority (CPA)—followed Bearing Point’s plan to the letter. From May 6, 2003 until June 28, 2004, Bremer implemented his “100 Orders” with the force of law, all but a handful of which remain in place today. As the preamble to many of the orders state, they are intended to “transition [Iraq] from a … centrally planned economy to a market economy” virtually overnight and by U.S. fiat.  Bremer’s orders included firing the entire Iraqi military—some half a million men—in the first weeks of the occupation. Suddenly jobless, many of these men took their guns with them and joined the violent insurgency. Bremer also fired 120,000 of Iraq’s senior bureaucrats from every government ministry, hospital and school. {By removing the Sumi bureaucracy, they removed opposition to globalization.  The U.S. could now shop for support from what would soon be a newly elected factionalized parliament—jk.}  His laws allowed for the privatization of Iraq’s state-owned enterprises (excluding oil) and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. The laws reduced taxes on all corporations by 25 percent and opened every sector of the Iraqi economy to private foreign investment. The laws allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms) and to send their profits home without having to invest a cent in the struggling Iraqi economy. Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, agriculture and trade were all changed to conform to U.S. goals. 

After the U.S. corporate invasion of Iraq

More than 150 U.S. companies were awarded contracts for post-war work totaling more than $50 billion.  The American companies were hired, even though Iraqi companies had successfully rebuilt the country after the previous U.S. invasion. And, because the American companies did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were, of course, well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result: increasing hostility, acts of sabotage targeted directly at foreign contractors and their work, and a rising insurgency.

Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity.

U.S. Air Force Colonel Sam Gardiner, author of a 2002 U.S. government study on the likely effect that U.S. bombardment would have on Iraq’s power system, said, “frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we’ve let big U.S. companies go in with plans for major overhauls.”

Many companies had their sights set on years-long privatization in Iraq, which helps explain their interest in “major overhauls” rather than getting the systems up and running. Cliff Mumm, head of Bechtel’s Iraq operation, put it this way: “[Iraq] has two rivers, it’s fertile, it’s sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term.”

And, since many U.S. contracts guaranteed that all of the companies’ costs would be covered, plus a set rate of profit (known as cost-plus contracts), they took their time, building expensive new facilities that showcased their skills and would serve their own needs should they be runing the systems one day.

Mismanagement, waste, abuse and criminality have also characterized U.S. corporations in Iraq—leading to a series of U.S. contract cancellations. For example, a $243 million contract held by the Parsons Corporation for the construction of 150 health care centers was cancelled after more than two years of work and $186 million yielded just six centers, only two of which are serving patients. Parsons was also dropped from two different contracts to build prisons, one in Mosul and the other in Nasiriyah. The Bechtel Corporation was dropped from a $50 million contract for the construction of a children’s hospital in Basra after it went $90 million over budget and a year-and-a-half behind schedule. These contracts have since been turned over to Iraqi companies.

Halliburton’s subsidiary KBR is currently being investigated by government agencies and facing dozens of charges for waste, fraud and abuse. Most significantly, in 2006, the U.S. Army cancelled Halliburton’s largest government contract, the Logistics Civil Augmentation Program (LOGCAP), which was for worldwide logistical support to U.S. troops. Halliburton will continue its current Iraq contract, but this year the LOGCAP will be broken into smaller parts and competitively bid out to other companies.

The Special Inspector General for Iraq Reconstruction (SIGIR), a congressionally-mandated independent auditing and oversight body, has opened 256 investigations into criminal fraud, four of which have resulted in convictions. SIGIR has provided critical oversight of the U.S. reconstruction, but this fall it nearly fell prey to a GOP attempt to shut down its activities well ahead of schedule. Fortunately, it survived.

SIGIR’s October 2006 report to Congress reveals the failure of U.S. corporations in Iraq. In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. Even the term “complete” can be misleading as, for example, SIGIR has found that contractors have failed to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have on average just 11 hours of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day. Before the war, Baghdad averaged 24 hours per day of electricity.

While there has been greater success in finishing water and sewage projects, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses. Meanwhile, the health care sector is truly a tragedy. Just 36 percent of planned projects are reported as complete. Of 20 planned hospitals, 12 are finished and only six of 150 planned public health centers are serving patients today.

Overall, the economy is languishing, with high inflation, low growth, and unemployment rates estimated at 30 to 50 percent {being part of a militia is providing employment} for the nation and as high as 70 percent in some areas. The International Monetary Fund has enforced a structural adjustment program on Iraq that mirrors much of Bush’s corporate globalization agenda, and the administration continues to push for Iraq’s admission into the World Trade Organization.

Iraq has not, therefore, emerged as the wealthy free market haven that Bush & Co. had hoped for. Several U.S. companies are now preparing to pack up, head home and take their billions of dollars with them, their work in Iraq left undone.  The Bush administration is likely to follow a dual strategy: continuing to pursue a corporate free-trade haven in Iraq, while helping U.S. corporations extricate themselves without consequence. The administration will also focus on the big prize: Iraq’s oil.

Winning Iraq’s oil prize: 

The Bush Agenda does have supporters, especially those corporate allies that have both shaped and benefited from the administration’s economic and military policies.  In the 2000 election cycle, the oil and gas industry donated 13 times more money to Bush’s campaign than to Al Gore’s. The Bush administration is the first in history in which the president, vice president and secretary of state are all former energy company officials. In fact, the only other U.S. president to come from the oil and gas industry was Bush’s father. Moreover, both George W. Bush and Condoleezza Rice have more experience running oil companies than they do working for the government.

Planning to secure Iraq’s oil for U.S. companies began on the tenth day of the Bush presidency, when Vice President Dick Cheney established the National Energy Policy Development Group—widely referred to as “Cheney’s Energy Task Force.” It produced two lists, titled “Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001,” which named more than 60 companies from some 30 countries with contracts for oil and gas projects across Iraq—none of which were with American firms. However, because sanctions were imposed on Iraq at this time, none of the contracts could come into force. If the sanctions were removed—which was becoming increasingly likely as public opinion turned against the sanctions and Hussein remained in power—the contracts would go to all of those foreign oil companies and the U.S. oil industry would be shut out.

As the Bush administration stepped up its war planning, the State Department began preparations for post-invasion Iraq. Meeting four times between December 2002 and April 2003, members of the State Department’s Oil and Energy Working Group mapped out Iraq’s oil future. They agreed that Iraq “should be opened to international oil companies as quickly as possible after the war” and that the best method for doing so was through Production Sharing Agreements (PSAs).

PSAs are considered “privatization lite” in the oil business and, as such, are the favorite of international oil companies and the worst-case scenario for oil-rich states. With PSAs, oil ownership ultimately rests with the government, but the most profitable aspects of the industry—exploration and production—are contracted to the private companies under highly favorable terms. None of the top oil producers in the Middle East use PSAs, because they favor private companies at the expense of the exporting governments. In fact, PSAs are only used in respect to about 12 percent of world oil reserves {such as Nigeria}. 

 

Weakness of the propagated by MSM hypothesis about Saudi Arabia fighting for its market share

In 2013 before oil prices slump started Saudies shipped 7.54 million barrels a day on average up from 7.41 million barrels a day in 2012 (JODI website ). Saudi Arabia exported 5.49 million barrels a day in 2002, when the group began collecting oil data. Saudi monthly exports in 2013 peaked at 7.84 million barrels a day in August, the most since April and May of 2003. North Sea Brent, the benchmark for more than half of the world’s oil, averaged $110.82 a barrel during the 2010-2013.

Saudi Arabia produced 10.28 million barrels a day in October, 2015,  up from 9.69Mb/done year ago.   Chances that production will reach 11 Mb/d are slim. There are strong signs that they have huge difficulties in increasing oil extraction volume.  All their efforts to increase production led to increase of less then 1Mb/d  increase in 2015. Which is partially offset by  increase in internal consumption (In 2015 Saudi Arabia oil demand rose by a notable 0.21 mb/d, a nearly 8% annual rise)  Here is relevant quote (OilPrice.com, Dec 21, 2015). All they can achieve is 7% increase of exports.

Crude exports from Saudi Arabia rose from an average of 7.111 million barrels per day in September to 7.364 million per day in October, according to the latest data from the Joint Organizations Data Initiative (JODI), which monitors the oil industry. The report said this quantity was the most oil exported from Saudi Arabia since June and 7 percent higher than in October 2014.

The key question about propagated by MSM hypothesis about Saudi Arabia fighting for its market share is "Why piss yourself without any need?". 

That means that if Saudis withdraw one Mb/s from the market in 2015 and exported the same 7 Mb/d (instead of 7.5 Mb/d, saving around 0.5 Mb/d of their oil reserves, not counting rise in internal consumption)  their revenue would be  125 billions.  While after increasing oil production to maximum (no spare capacities) they got oil revenue $118 billions.  Less money for more effort.  Their proven oil reserves are only 268 billion barrels (EIA)  which at current rate of production (which is around 3.6 billion barrels per year) get them less then a hundred years.

Moreover they need approximately $100 oil to balance budget, so low oil prices mean depletion of their currency reserves, which if prices say on the current level will last less then 10 years.  Saudi Arabia’s record deficit of  $98 billion in 2015 At the end of October, its reserves fell to $644 billion from $732 billion at the end of last year.  The finance ministry has issued bonds worth $20 billion for the domestic market. projected means that dumping oil on the market was a self-destructive action.

The only reasonable explanation for such suicidal actions is that they launched "all-out" economic war against their arch-enemy Iran depriving it of oil revenue after lifting sanctions, hitting simultaneously Russia, Venezuela and couple of other countries they do not like.  In any case such an action should be approved by Washington as Saudis are a vassal state completely dependent on Washington for survival of their monarchic regime.

And it is easy to see huge benefits for Washington from such Saudis-Iran oil war.  Moreover may be lifting sanction itself was a gentle push for Saudis to unleash this war.

Not everybody buy MSM propagated version of Saudis behaviour. For example here is a comment from Yahoo (Saudi to diversify economy away from oil King Salman)

brian  Dec 30, 2015

This oil collapse is engineered by Saudi with the Western media. As the analysts are saying the daily over production is 1.5 million barrels. 1.5 out of 100 million daily production is ONLY 1.5% percent. Why did Saudi keep on over producing and with the media bombarding over production, the future's market is easily manipulated as oil collapsed to $36 per barrel.

This just does not make sense and not fair to the commodity producing nations. If you look at the U.S., Euro, Japan, China all they are doing is QE, printing money to supercharge their economy. On the other hand, the commodity nations are contracting.

Si

Saudi Arabia is in a conundrum, it has propped up its Clergy and kept majority of its population illiterate. This was done to keep the Kingdom under full control of its population, their women folk are even further worst off. The country is run by expatriates from around the world, mostly from Egypt, Pakistan, India, Bangladesh and Malaysia. According to Saudi rules these expatriates can not ever become citizens, even after many generations. Unlike Iran whose population is highly educated (Men and Women), Saudi administrators are afraid if Saudi gets educated there will be a revolution and that will affect how Saudi Arabia is ruled. My bet is Saudi Arabia can not progress beyond oil based economy.

 

And in another Yahoo thread Oil down 3 percent; Brent near 11-year low as oversupply worries return
Old Midwest Geezer
Saudi Arabia is fighting a financial war against Iran, its mortal enemy. Iran's main source of income is oil and SA is putting the screws to them and their Russian buddies. They picked up a perk by squeezing the US shale oil producers.

Hedging and junk debt: shale oil as subprime oil


"There are too many ugly balance sheets," warns one energy industry analyst, adding simply that "the group is not positioned for this downturn." While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various 'statistics' about how the down-side of low oil prices is 'contained' and the huge colossal massive tax cut means 'everything is awesome' for America, the data - and now actions - do not bear this out.

Zero Hedge

Shale oil companies were not making as bandits when prices were $100. They operated in a very risky and rather unstable environment and mot of them took substantial amoount of debt.  Many used hedges regularly to make the environment more stable which is double edge sword -- it helps if price drop but deprive you of profits if price surge. Those who did were in better shape in 2015 when oil prices dropped to $35 per barrel (WTI).  Here is a good explanation of hedging from a post in peakoilbarrel.com blog:

shallow sand, 12/20/2015 at 8:56 am
Donn. Companies hedge with counter parties. Those are usually large banks. The there are 3 basic types of hedges.
  1. SWAP. The producer and counter party agree to a fixed price, say $70 per barrel. If the price goes above $70, the producer pays the counterparty the difference. If it goes below $70, the counterparty pays the producer.
  2. Cost less collars. These are like SWAPS, but in a range. Say the parties agree to a collar of $60-80. No money changes hands unless the price goes outside the range.
  3. The third is a floor, or put. The producer pays a premium to the counterparty. Say the producer buys $60 puts. If the price falls below $60, the counterparty pays the producer.

There are various hybrids and modifications of the above.

The price levels and cost of puts are based on the futures market. It is now impossible to hedge anything remotely profitable for the shale industry and a good portion of US conventional.

Furthermore, it is difficult to hedge production past 24 months. This is especially true for shale, with the high declines.

One concern with SWAPS or collars is in the event of a price spike, the producer produces less barrels than that hedged. That can wind of costing the producer a lot of $$. Also, theses types of hedges can result in very large margin requirements of the producers, but they commonly avoid those by allowing a first lien on production.

Another problem with hedges is giving up upside. If it were possible, someone who hedged in 2003 for the next ten years at $30 a barrel would be BK, as the price rocketed up, which caused OPEX to also skyrocket.

Most companies do not hedge past 24 months. Also, they do it in layers so that not as many barrels are hedged n the later years.

Many companies had significant hedge gains in 2015. There will be much less in 2016 and almost none in 2017.

Shale companies debt was typically rated as junk which means that chances for repayment of the load are low.  Just due to this fact the current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious even with some technology advances which were sped up by the price slum as well as lower service companies costs.   To many observers $60-$75 per barrel looks like a more reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted.

The current talk about profitability of certain parts of shale at below then $50 prices looks a little bit suspicious.   To many observers $60-$75 per barrel looks like more a reasonable minimal price for shale oil sustainable extraction, if the amount of junk bond debt is counted. 

Some technological improvements can cut costs. Neglecting ecological concerns can cut costs. The strong dollar and crash of other commodities can cut some costs (as steel and some equipment, can be bought at much lower prices). But whether all three factors mentioned can cut 50% of costs is a big multibillion question.   Gail Tverberg, a well known commentator on "end of cheap oil" problem,  thinks that the current drop of prices looks more like a harbinger of the collapse of financial system then oversupply problem on world markets (Deflationary Collapse Ahead?  Aug 28, 2015  Our Finite World )

The entire shale oil industry in America is complex mix of new technological methods and new schemes of creation of  junk bonds by Wall Street (200 billion of this debt might also be securitized like subprime mortgages). There also might be some complex derivative bets  (including but not limited to related to hedging of oil prices by shale producers, airlines, etc).

Shale oil is impossible to understand without  proper context which is the existence of  sophisticated financial system and complex financial products under neoliberalism. Wall Street can be trusted as for its ability to produce exotic financial instrument tailored for particular purpose, which can blow in your face in case of any Black Swan event.  In this case this might be securitization of debt of shale oil companies that could play a role somewhat similar to subprime mortgages but on much smaller scale as the amount of dent is miniscular in comparison with subprime mortgages.  Still, in this sense, we can call shale oil subprime oil (Broken Energy Markets and the Downside of Hubbert’s Peak Energy Matters): 

The second example of a broken energy market I want to explore is the US shale industry.  This shares certain characteristics with the wind industry in that it is a high cost but potentially very large resource. But the mechanism for integration of this resource into the market is rather different. The problem with shale gas is that over-supply has resulted in the US gas price being dumped below the level where many shale operators can make a profit. Consumers in this case benefit through getting both secure and low priced gas. But the shale operators have reportedly racked up large losses that have been covered by expanding debt. These losses may yet come home to roost with the consumer if debt defaults result in a new credit crunch where the debts are socialised via government bailouts of the banking sector.

If it were possible to produce shale gas at $1 / million btus then everyone would be happy. Consumers would be getting secure and cheap energy and producers would be making handsome profits to distribute to shareholders. That is how capitalism is supposed to work. The system as it has operated seems broken.

US Light tight oil (LTO) production appears now to have created the same problem for the liquids plays where the entrance of expensive liquids in the market have contributed to the crash in the oil price. This has created risks for the LTO operators. It remains to be seen if the LTO sector sees mass insolvencies and default on loans that may socialise these losses. The introduction of high cost LTO has also undermined the whole of the higher cost component of the conventional oil sector. If LTO could be produced in large quantities for $20 / bbl then there would be no problem since this source would  go on to substitute for the higher cost conventional sources of supply. But with costs closer to $60-$80 this is not going to happen. The conundrum for capitalism is the introduction of large quantities of higher cost energy to the system.

At this point I have to admit that nuclear power may be subject to similar limitations. It is difficult to view the Hinkley Point new nuclear build in the UK as a triumph for the consumer or the country. A better way to manage such enormous capital expenditure on vital infrastructure is via the state. The costs may eventually be socialised to the tax payer, but at least the energy is reliable and amongst the safest forms of power generation ever developed and the taxation system distributes costs in an equitable way.

A form of society could undoubtedly exist powered by nuclear, wind and shale gas. But it would be a society supported by the state with far larger numbers working in the energy industries than now, producing lower surpluses, the energy production part perhaps running at a perennial loss. Those losses have to be covered by either higher price or via the taxation system. Either way, the brave new world that awaits us will be characterized as the time of less that will be in stark contrast to the time of plenty many of us enjoyed during the 20th Century.

The so-called “shale revolution” in the U.S. was partially powered by innovation in horizontal drilling but  its cornerstone is the junk bond market. Which questions boom’s the long-term sustainability.  As The Wall Street Journal  reported total debt is   almost $200 billion. At 7% that's 14 billion of interest a year. Or at $40 per barrel 350 million barrels per year are needed just to service the debt. That's almost million barrels per day or almost total production of Bakken field (dmr.nd.gov )

And now,  the bankruptcies have begun as financing costs are not just prohibitive, there is no liquidity available at any price for many...

American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion.

Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June.

But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment.

Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” said Daniel Katzenberg, an analyst at Robert W. Baird & Co. “There are too many ugly balance sheets.”

...

In 2010, U.S. companies focused on producing oil and gas had $128 billion in combined total debt, according to financial data collected by S&P Capital IQ.

As of their latest quarter, such companies had $199 billion of combined total debt.

Even is "good times", before the start of current oil price slump,  the whole shale industry was financed only via junk bond market:  75 of the 97 energy E&P companies were rated by S&P below investment grade (Shale Boom Built on ‘Junk’ - GE Reports Ideas, May 19, 2014)

Although share prices for most U.S. exploration and production (E&P) companies are at all-time highs, the elephant in the room is an industry financed by the high-yield debt market, better known as “junk bonds.” The S&P says that 75 of the 97 energy E&P companies it rates are below investment grade.

The report cites a recent analysis by Energy Aspects, a commodity research consultancy, of 35 independent companies that shows a steadily worsening financial picture across the last six years. The analysis showed the companies spent as much as they brought in and “net cash flow is becoming negative while debt keeps rising.”
 

Many of the oil-drilling newcomers set up shop in order to take advantage of the low rates and easy money available in the bond market. Now that oil prices have crashed, investors are avoiding energy-related junk bonds. Moreover the whole US bond market started to turn south (in correlation with stocks) in anticipation of rate hikes. Which is making it impossible for the smaller companies to roll over their debt or attract fresh capital. The most indebted companies from Here Are America's Most Levered Energy Companies Zero Hedge are:

Source: CapIQ

When these companies need to refinance their bond they are forced to default or, if they have valuable properties, be acquired by larger companies. The whole situation with junk bonds from shale companies has some analogy with subprime loads and while lesser in scale still can serve as a catalyst for another financial meltdown (WSJ.com)

Energy companies, the fastest-growing segment of the high-yield bond market in recent years, account for nearly 18% of all outstanding high-yield bonds, up from 9% in 2009, according to J.P. Morgan.

Mr. Hamid says that the 40% possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets.

Still even if companies make smart moves to cut costs, with oil at $65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20% to 25%. “It would become a very dire scenario,” Mr. Hamid said.

After a steep plunge in oil prices last week, WTI crude, the U.S. benchmark, was recently up 3% to $68.14 a barrel in Monday morning trading.

He predicts that not that many companies will default in 2015 because many companies have hedged their exposure. But he expects that energy companies will run into trouble in 2016 as even the most conservative energy companies will see most of their hedges run off.

Energy companies are the largest sector in the high-yield universe by a wide margin. The next largest sector, J.P. Morgan estimates, is the healthcare sector, which accounts for 7.1%.
 

The total size of shale companies junk bond debt is estimated at 200 billions out of which at least 20 billions are not recoverable.

The additional huge problem is that the banks again have bundled a lot of shale companies debt into financially-engineered products like Collateralized Loan Obligations (CLOs) and Collateralized Debt Obligations (CDOs), which much like subprime CLO and CDO are overrated and might fail when borrowers are no longer able to service the loans. The rot can be concealed for a while (may be two-three years -- as long as existing well produce oil in quantity to pay the debt), but eventually, if oil prices don’t recover, a significant number of these companies are going to go under

Vultures start circling shale companies

If low prices persist for all 2016 many shale oil companies are doomed. And vultures already started circling them:

Clueless, 12/19/2015 at 10:40 pm
I would guess that by now, most can see what is happening and therefore, what is going to happen in the future since the model has been established. The banks are not going to take serious hits. Re: Magnum Hunter and New Gulf Resources.

I remember seeing some vulture investor discussions back in 2009. They were stating that they would never buy equity in failing companies: they would take control thru the debt. Much more upside possible. So, a company with $1 billion in debt has its bonds trading at say 70 cents on the $ and it is rated junk. The bond funds that hold the debt [their covenants prohibit them from holding “bankrupt” rated debt] sells to novice speculators. Then the debt plunges to 10- 30 cents on the dollar. The investment/hedge funds step in. They can buy $1 billion of debt for $300 million or less, and the are praying that the company does go belly up. If it does, they get 100% of the equity, and agree to put in another $200 million to ride out the storm. A totally non-contested, prearranged bankruptcy. If things come back [even partially], they might own a company worth $2 billion for their $500 million investment. 

shallow sand, 12/19/2015 at 11:20 pm
Clueless. You are correct. I might add that the vultures do not appear to be just purchasing the debt. They are trading unsecured debt for second lien debt. I am not sure how this works, but from what I have read, the unsecured bonds have very weak covenants. The vultures give the unsecured bond holders the option of taking pennies on the dollar or becoming subordinate the vultures on all the debt the vultures are able to trade out.

The vultures better be pretty sharp, however. 1st, they better have a good handle on the assets they are trying to acquire. Second, they better have a good team put together to operate the assets. Third, they better have a better handle on future oil and gas prices than schmucks like me.

I saw something similar to this up close in the aftermath if the 1998-99 crash. An investor group bought the bad debt from a bank for pennies on the dollar, took assignment of the liens and foreclosed.

The investor group found out in a hurry that they didn’t quite know what they had bought, and that it wasn’t easy to manage from 1000+ miles away. They had a hell of a field superintendent, but of course they thought they were smarter than him, despite him having grown up in the middle of the field.

In any event, after burning several million dollars, the sold the assets and I am sure took a big loss. They also screwed up on timing the sale. Had they held on for about 3 more years they could have at least quintupled the sale proceeds. But they knew about as much as I, or really any of us, know about where oil prices are headed.

I am sure these distressed buyers are real sharks. But sharks can die too.

What is the sustainable minimal oil price with the current oil reserves depletion

As oil is important geopolitical resource there can be no definite answer to it. Still there is a probability that the peak "cheap oil" has already occurred, but we won’t know that until several years after the fact.  There is a large discrepancy in estimates ;-).  Much depends of the type of oil in question with shale, oil sands, as deep water oil as the most expensive.

Shale oil has a break even price around $70-75 / barrel for most shale producers and at below $50, every single well is losing money. There are also pretty expensive oil extracted from  deepwater (around 7 Mb/d). Which at current oil prices will shrink approximately 10% per year.  And there are around 20 MB/d in shallow water with higher staying power but also declining 10% due to lack of investments in current price situation.  Half of oil production from future developments is uneconomic at US$60/bbl (post of AlexS 01/29/2016 at 7:06 pm )

EIA projects that in 2030 the average real price of crude oil is projected to be $72 per barrel in 2006 dollars or about $113 per barrel in nominal dollars. Projected U.S. crude oil production averages 9.3 Mb/d in 2015 and 8.8 Mb/d in 2016.  Decline is 0.5 Mb/d.  EIA is always on optimists side (they were major cheerleaders of shale bubble, which makes them more of propaganda agency then statistical outlet)  so you can probably assume that 2020 prices of oil will be above, especially if low prices will last the whole 2016.  

Pricewise EIA projections are dropping all 2015 (Short-Term Energy Outlook)

EIA short term predictions as of December 3, 2015 suggest that low oil prices might continue to dominate the first quarter of 2016:

Previously common wisdom was around that price will return to $100 per barrel on average in 2016, which the following post from Zerohedge illustrates:

6344498 Magooo

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil production has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.  http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.  http://www.EIA.org/textbase/npsum/high_oil04sum.pdf

BUT WE NEED HIGH OIL PRICES:  Marginal oil production costs are heading towards $100/barrel http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth.  http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs “the dark side of the golden age of shale”. In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011.   http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5

Now all those consideration looks far less plausible in a short term (one year) period. Here are some "post oil price slump" considerations (in 2013 dollars):

Wikipedia article gives a more wide range of prices at wellhead (without cost of servicing the debt and transportation costs) from $35 to $95 for shale oil (Oil shale economics - Wikipedia)

The United States Department of Energy estimates that the ex-situ processing would be economic at sustained average world oil prices above US $54 per barrel and in-situ processing would be economic at prices above $35 per barrel. These estimates assume a return rate of 15%.[6] The International Energy Agency estimates, based on the various pilot projects, that investment and operating costs would be similar to those of Canadian oil sands, that means would be economic at prices above $60 per barrel at current costs. This figure does not account carbon pricing, which will add additional cost.[4] According to the New Policies Scenario introduced in its World Energy Outlook 2010, a price of $50 per tonne of emitted CO2, expected by 2035, will add additional $7.50 per barrel cost of shale oil.[4]

According to a survey conducted by the RAND Corporation, the cost of producing a barrel of oil at a surface retorting complex in the United States (comprising a mine, retorting plant, upgrading plant, supporting utilities, and spent shale reclamation), would range between $70–95 ($440–600/m3, adjusted to 2005 values). This estimate considers varying levels of kerogen quality and extraction efficiency. In order for the operation to be profitable, the price of crude oil would need to remain above these levels. The analysis also discusses the expectation that processing costs would drop after the complex was established. The hypothetical unit would see a cost reduction of 35–70% after its first 500 million barrels (79×10^6 m3) were produced. Assuming an increase in output of 25 thousand barrels per day (4.0×10^3 m3/d) during each year after the start of commercial production, the costs would then be expected to decline to $35–48 per barrel ($220–300/m3) within 12 years. After achieving the milestone of 1 billion barrels (160×10^6 m3), its costs would decline further to $30–40 per barrel ($190–250/m3).[7]

 

Floor for oil prices for 2016

The only function of economic forecasting is to make astrology look respectable.
 ~John Kenneth Galbraith

The most common view is that most US shale producers are highly vulnerable if price falls below $60 and are losing money on each barrel of oil they produce  at prices below $50. With difficulties of junk bond re-financing this figure should be higher. Some Russian sources cite $75 per bbl as a breakeven price for US shale oil.  This estimate is supported by the following detailed report BAKKEN - Single Well Economics  (Jan 4, 2016).

Here is a pretty telling graph from  Scotiabank (they have way too optimistic price for Bakken I think: adding $10 to $47 we get $57 for Bakken, which is probably 10 to 20 dollars low):

 

Source Why oil prices keep falling — and throwing the world into turmoil - Vox

As you can see plausible minimum for shale oil wellhead costs is around $55( $45+$10) per barrel ( and that  does not include the cost of servicing of junk bond debt).  If prices in 2016 remain under $50/bbl (as many forecaster expect), shale oil production in the United States will likely see a substantial decline in output and many shale companies will face merger or pushed into bankruptcy. But as for total US output, this decline will be partially offset by Gulf oil coming into production so for the first six months of 2015 total decline probably will be around 0.5Mb/d or lower. 

In any case, as 2015 has shown low prices became sticky and self reinforcing via Wall Street financial mechanisms. So chances for quick reversal in 2016 are close to zero. That spells real trouble for the US shale oil industry as well as Canada oil sands production  (QE At Work Pouring Cheap Debt Into The Shale Ponzi David Stockman's Contra Corner) as well as speculators in oil futures who will be wiped out via EFN  (outside major banks and those who shorted oil):

There are two pieces of the economic puzzle when it comes to shale. First is that most shale oil deposits are not profitable to extract except at current high prices. This drilling/extraction method is not cheap. Breakeven prices vary by region but it is safe to say that no shale oil deposits are profitable below $50/barrel and most areas require much higher prices. An average might be in the range of $65 and there are plenty of areas where the price needs to be above $80 before anyone makes a nickel.

I would just note that oil traded, albeit briefly, at $34 in the last recession. Second is the production profile of shale wells; production drops off rather precipitously after the first year (in contrast with traditional wells which deplete over much longer time frames). Combine high extraction costs with rapid depletion and the economics of shale become not only dubious but frankly insane.

Usually forecasts of oil prices are not work the paper or electrons. but there are some exceptions to this rule. For example  Bill Connoly in his Oil Price Forecast 2015-2016 - Forbes was one of the few forecasters who proved to be right as for 2015; remains to be seen for 2016.

My price forecast is that today’s $60 price is likely to be the high end for the coming two years. There may be temporary market volatility higher, but don’t expect a higher price to be sustained. At the low end, $50 seems like a floor absent a global recession.

OilPrice.com analysts think that the bankruptcy of shale companies and drastic reduction of the number of new projects and capital expenditures will eventually move the oil price up to $70+ range. And that the production of shell oil in the USA will drop 1 Mb/d in 2016 or even more, while consumption rises as record number of cars was sold in 2015.  But this process in not immediate and can take more then one year as in 2015 oil production defied gloomy forecasts and remains relatively stable (Oil Price Scenarios For 2015 And 2016 OilPrice.com_

The spare capacity data suggests that demand/supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot. But this is all I have to go on.

The downturn in the current price cycle began last July and we are therefore just 6 months in. Another year of pain to go for the producers, that is unless OPEC decides to intervene.

In we count start of mid cycle from December of 2014 then we can see some upward pressure in July of 2016 or so.

Low prices also might mean that only selected shale projects ("sweet spots") with continue to be explored, diminishing of flow of oil from this source to the market ( Oil under US$60 beyond 2016 suggests market rethinking shale - Channel NewsAsia). Those places will be exhausted in two-three years making extraction more expensive on average.

If U.S. shale drillers - the world's new 'swing' producers - can still turn a profit at below US$60 a barrel, then the fall in long-dated oil prices may be rational. If not, as some bullish market analysts worry, then lower prices could be choking off new supplies the world may need as soon as next year.

"If you take the curve at face value, it appears to be saying that U.S. shale can grow ... if WTI stays below US$60 for three years. That doesn’t seem very likely," Paul Horsnell, global head of commodities research at Standard Chartered, said, referring to West Texas Intermediate crude.

"One would guess that all those companies that had been holding back from cutting projects and jobs over the past few months are not going to hold on much longer, and another shakeout will start. And it probably won’t be long before U.S. rig counts start to dive again."

Link to chart: http://link.reuters.com/tef25w 

... ... ...

U.S. oil futures for December 2017 delivery have dropped by as much as US$5 a barrel, or 8 percent, in the past two days, an even deeper retreat than last November when OPEC's surprise decision to maintain oil output despite a global glut sent markets into a deepening tailspin.

CLZ17 Commodity Futures Price Chart for Crude Oil WTI December 2017

[Note that they are close to $58 as of July 24, 2015 -- NNB]

EIA forecasts change with market prices

Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

In December 2015 EIA predicted average price of oil in 2016 much lower, around $51 a barrel, so EIA forecasts change really fast with future prices and as such are just educated guesses.

  2013 2014 2015 2016
WTI Crude Oila
(dollars per barrel)
97.98 93.17 49.08 50.89
Brent Crude Oil
(dollars per barrel)
108.56 98.89 52.93 55.78

Sustained low oil price will cut capital investment in oil dramatically

An extended period of lower oil prices would benefit consumers but would trigger energy-security concerns by heightening reliance on a small number of low-cost producers, or risk a sharp rebound in price if investment falls short, says the International Energy Agency (EIA) in the 2015 edition of its  World Energy Outlook publication (WEO-2015).We need to distinguish between oil as a chemical substance, a source used by chemical companies to produce all kind of useful things and oil as a source of motor fuel.  Oil is irreplaceable resource and burning it now deprive of oil future generations. As simple as that.

The US government policy of allowing (or, most probably, facilitating/engineering) very low oil prices is extremely unwise (I would use a stronger word) because at least for one segment of transportation (which is around 70% of total oil consumption in the USA) alternative does already exist. Small hybrid and electrical cars with prices of oil over $100 (and gasoline above $4 per gallon) are absolutely viable.

Instead now we have a huge jump in SUVs sales which became No.1 personal car category. To say nothing about light trucks. Which is the last thing we need.

Switch to natural gas in large vehicles such as buses (and small delivery trucks) also experiences a dramatic slow down (transit buses in Europe already are using this fuel on mass scale).

Again I think that it is the US government which is the culprit of destruction of the US shale industry which was build with such great effort and expense and is now on the verge of extinction. By really great people working in very difficult, challenging conditions.

The US government could buy excessive oil into strategic reserve or do something similar to keep prices at least above $70 dollars level. They could also prohibit short oil ETNs and other Wall Street machinations and for good effort jail couple of too aggressive traders for violation of some New Deal era laws(after all this is gambling, plain and simple) which are still on books after all this deregulation efforts by Clinton and Bush II administrations.

My point is that wind and solar might well be not the best choices. Other alternatives of renewable fuels exists. Meanwhile we need to save oil and the best way to do it is to ramp up oil price to above $100 level, which ensure the survival of frackers, which unfortunately became a collateral damage in some larger, possibly geopolitical play.

Actually EIA recognizes the danger of oil price spikes caused by sustained low oil prices and low capex investments Sustained low oil prices could reduce exploration and production investment - Today in Energy - U.S. Energy Information Adminis

Low oil prices, if sustained, could mark the beginning of a long-term drop in upstream oil and natural gas investment. Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply. Greater supply, in turn, typically requires increased investment in exploration and production (E&P) activities. Lower prices reduce investment activity.

Overlaying annual averages of the domestic first purchase price (adjusted for inflation) on oil and natural gas investment reveals that upstream investment is highly sensitive to changes in oil prices. Given the fall in oil prices that began in mid-2014 and the relationship between oil prices and upstream investment, it is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average.

Oil production is a capital-intensive industry that requires management of existing production assets and evaluation of prospective projects often requiring years of upfront investment spending on exploration, appraisal, and development before reserves are developed and produced.

Previous investment cycles provide insights into how investment responds to crude oil price changes. In 1981 and 1982, after crude oil prices significantly increased, investment topped out at more than $100 billion (in 2014 dollars) and then averaged $30 billion to $40 billion per year into the early 2000s as crude oil prices fell and remained in the $20-$30 per barrel (b) range. From 2003 to 2014, investment spending increased from $56 billion to a high of $158 billion as crude oil prices increased from $34.53/b to $87.39/b, including several months of prices reaching more than $100/b. EIA's 2015 Annual Energy Outlook Reference case projects real domestic first purchase prices to average about $70/b in 2020. This price level could result in substantially lower annual oil and natural gas investment over the 2015-20 period than the annual average of $122 billion spent during the 2005-14 investment cycle crest period

 

Additional "end of cheap energy" readings

See also my introduction to the topic of "End of cheap energy":


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[Nov 18, 2017] The Second Russia-China Oil Pipeline Completed

Nov 18, 2017 | russia-insider.com

The 942-kilometer pipeline will become operational in January when the flow of Russian pipeline oil to China will double from 15 to 30 million tons

[Nov 16, 2017] MoA - Revealed - Saudis Plan To Give Up Palestine - For War On Iran

Notable quotes:
"... The document, which is being unveiled for the first time, proves all that has been leaked since President Trump's visit to Saudi Arabia last May on the launch of US efforts to sign a peace treaty between Saudi Arabia and Israel. This was followed by information on the exchange of visits between Riyadh and Tel Aviv, the most important being the visit of the Saudi Crown Prince to the Zionist entity. ..."
"... The document reveals the size of concessions that Riyadh intends to present in the context of the liquidation of the Palestinian issue, and its concern to get in return the elements of power against Iran and the resistance, led by Hezbollah. ..."
Nov 16, 2017 | www.moonofalabama.org

Revealed - Saudis Plan To Give Up Palestine - For War On Iran

The tyrants of Saudi Arabia developed a plan that sells away Palestine. They see this as necessary to get U.S. support for their fanatic campaign against their perceived enemy Iran.

An internal Saudi memorandum, leaked to the Lebanese paper Al-Akhbar , reveals its major elements. (Note: The genuineness of the memo has not been confirmed. In theory it could be a "plant" by some other party. But Al-Akhbar has so far an excellent record of publishing genuine leaks and I trust its editors' judgement.)

According to the memo the Saudis are ready to give up on the Palestinian right of return. They forfeit Palestinian sovereignty over Jerusalem and no longer insist of the status of a full state for the Palestinians. In return they ask for a U.S.-Saudi-Israeli (military) alliance against their perceived enemy on the eastern side of the Persian Gulf.

Negotiations on the issue were held between the Saudis and the Zionist under the aegis of the United States. Netanyahu and Trump's "shared personal assistant, wunderkind Jared Kushner", is the point men in these negotiations. He made at least three trips to Saudi Arabia this year, the last one very recently.

The Saudi operations over the last month, against the internal opposition to the Salman clan as well as against Hizbullah in Lebanon, have to be seen in the context and as preparation of the larger plan. To recap:

Since the warnings, which could threaten the new Palestinian unity agreement signed by Fatah and the Iranian-backed Hamas in the Gaza Strip, Palestinian media displayed a rare degree of unity in recent days by coming out against Iran.
Donald J. Trump‏ @realDonaldTrump - 3:03 PM - 6 Nov 2017
I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing....

(The tweet was heavily promoted by Saudi Twitter bots .)

The left-wing Lebanese paper Al-Akhbar has obtained a copy of the plan (Arabic) in form of a memorandum by the Saudi Foreign Minister Adel Al-Jubeir to the Saudi clown prince Mohammed Bin Salman ( English machine translation ):

The document, which is being unveiled for the first time, proves all that has been leaked since President Trump's visit to Saudi Arabia last May on the launch of US efforts to sign a peace treaty between Saudi Arabia and Israel. This was followed by information on the exchange of visits between Riyadh and Tel Aviv, the most important being the visit of the Saudi Crown Prince to the Zionist entity.

The document reveals the size of concessions that Riyadh intends to present in the context of the liquidation of the Palestinian issue, and its concern to get in return the elements of power against Iran and the resistance, led by Hezbollah.

The Saudi foreign ministry memo starts by laying out its strategic perspective:

To face Iran by increasing sanctions on ballistic missiles and reconsidering the nuclear deal, the Kingdom has pledged in the strategic partnership agreement with US President Donald Trump that any US-Saudi effort is the key to success.
...
Saudi Arabia's rapprochement with Israel involves a risk to the Muslim peoples of the Kingdom, because the Palestinian cause represents a spiritual and historical and religious heritage. The Kingdom will not take this risk unless it feels the United States' sincere approach to Iran, which is destabilizing the region by sponsoring terrorism, its sectarian policies and interfering in the affairs of others.

The Saudi paper describes the issues and process steps towards a deal in five points:

First : The Saudis demand a " parity of the relationship " between Israel and Saudi Arabia. On the military level they demand that either Israel gives up on its nuclear weapons or Saudi Arabia is itself allowed to acquire such

Second : In exchange Saudi Arabia will use its diplomatic and economic power to push through a 'peace plan' between Israel, the Palestinians and Arab countries along the lines that the U.S. will lay out. Within such a peace plan the Saudis, according to the memo, are willing to make extraordinary concessions:

Third : After reaching an agreement of the "main principles of the final solution" for Palestine between Saudi Arabia and the U.S. (Israel), a meeting of all foreign ministers of the region would be convened to back these up. Final negotiations would follow.

Fourth : In coordination and cooperation with Israel Saudi Arabia would use its economic power to convince the Arab public of the plan. The point correctly notes "At the beginning of normalizing relations with Israel, normalization will not be acceptable to public opinion in the Arab world ." The plan is thus to essentially bribe the Arab public into accepting it.

Fifth : The Palestinian conflict distracts from the real issue the Saudi rulers have in the region which is Iran: "Therefore, the Saudi and Israeli sides agree on the following:

  1. Contribute to counter any activities that serve Iran's aggressive policies in the Middle East. Saudi Arabia's affinity with Israel must be matched by a sincere American approach against Iran.
  2. Increase US and international sanctions related to Iranian ballistic missiles.
  3. Increase sanctions on Iran's sponsorship of terrorism around the world.
  4. Re-examination of the group (five + 1) in the nuclear agreement with Iran to ensure the implementation of its terms literally and strictly.
  5. Limiting Iran's access to its frozen assets and exploiting Iran's deteriorating economic situation and marketing it to increase pressure on the Iranian regime from within.
  6. Intensive intelligence cooperation in the fight against organized crime and drug trafficking supported by Iran and Hezbollah."

The memo is signed by Adel al-Jubeir. (But who were the 'advisors' who dictated it to him?)

The U.S. plan for peace in Palestine is to press the Palestinians and Arabs into anything Israel demands. The Saudis will agree to that, with minor conditions, if only the U.S. and Israel help them to get rid of their nemesis Iran. But that is impossible. Neither Israel nor the U.S. will agree to a "parity of relationship" for Saudi Arabia. Saudi Arabia lacks all elements to become a supreme state in the Arab Middle East. Iran can not be defeated.

Iran is the at the core of the Shia constituency and at the core of resistance to "western" imperialism. Shia and Sunni aligned populations in the Middle East (ex Egypt) are of roughly equal size. Iran has about four times the number of citizens the Saudis have. It is much older and cultured than Saudi Arabia. It has an educated population and well developed industrial capabilities. Iran is a nation, not a conglomerate of desert tribes like the desert peninsula under al-Saud. Its geographic position and resources make it unconquerable.

To defeat Iran the Saudis started proxy-wars in Iraq, Syria, Yemen and now Lebanon. They needed foot soldiers to win these wars. The Saudis hired and sent the only significant infantry they ever had at their disposal. Their hordes of al-Qaeda and ISIS fanatics were defeated. Tens of thousands of them have been killed on the battle fields in Iraq, Syria and Yemen. Despite a global mobilization campaign nearly all the potentially available forces have been defeated by the local resistances on the ground. Neither the colonial settler state nor the U.S. are willing to send their soldiers into battle for Saudi supremacy.

The grant plan of the Trump administration to achieve peace in the Middle East is high on hopes but lacks all the necessary details. The Saudi's promise to support the U.S. plan if the Trump administration is willing to fight their nemesis Iran. Both leaderships are hapless and impulsive and both of their plans have little chance of final success. They will be pursued anyway and will continue to create an enormous amount of collateral damage. The Zionist entity feels no real pressure to make peace. It is already dragging its feet on these plans and will try to use them to its sole advantage.

Posted by b on November 14, 2017 at 05:42 AM | Permalink

x | Nov 14, 2017 5:59:54 AM | 1

"... I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing...."

Yes, exactly what they are told to do by the usual suspects. Stay on script, ... or else!

arbetet | Nov 14, 2017 6:02:31 AM | 2
Donald Trump on Twitter (5 h ago):


Donald J. Trump‏
@realDonaldTrump

I will be making a major statement from the @WhiteHouse upon my return to D.C. Time and date to be set.

https://twitter.com/realDonaldTrump/status/930320191699017730

Lea | Nov 14, 2017 6:13:23 AM | 3
This reeks of despair. How long should one give to the clown prince MBS before he achieves the final collapse of Saudi Arabia is the only question I have.
somebody | Nov 14, 2017 6:29:53 AM | 4
This did not need a leak, it was clear. The "leak" might as well have been invented from what has transpired anyway.

There is an Arab peace plan from 2002 which Israelis find unacceptable.

Israelis will find this new peace plan unacceptable, too, as it would mean a one state solution - Palestinian struggle for a state would be changed to an equal rights campaign Israelis would find very difficult to counter.

The 'new' plan is too late anyway, Israel cannot directly engage in any war without being existentially threatened themselves, last time proved in Gaza. Hamas might have been forced to allow the Palestinian authority back but they did not give up their weapons.

And neither the US nor Israel can politically afford to lose many soldiers in a ground war. So if Saudi wants to fight against Iran, they have to do it themselves.

Eugene | Nov 14, 2017 7:29:28 AM | 5
Never ceases to amaze the repeated rhetoric about how Iran is the bogyman, when Saudi Arabia financed the destruction in Syria. Israel fermenting discourse, has been going on for so long, to where the world looks upon it as being the "boy who cried wolf". Israel give up its Nukes? Parity, if you believe in the tooth fairy. Exactly who meddles in others foreign affairs there in the MENA?
stonebird | Nov 14, 2017 7:45:36 AM | 6
Seems like this could be a "deliberate pre-emptive leak" - to see what the reactions will be.

The alternative is a potential turn of Saudi Arabia - towards China and Russia. https://www.peakprosperity.com/blog/113426/if-saudi-arabia-situation-doesnt-worry-youre-not-paying-attention

Either way, the new "owner" of Saudi Arabia will have to make several choices if he wants to do anything at all without running out of cash. Wars are expensive (particulrly if you have to pay mercenaries) and the recent asset seizures will only go so far.


...The actual "plot" mentioned by b seems to have included too many "wish-list" items for the Israelis, for it to be accurate. Although there is definitely a possibility of Saudi and Israeli collusion, Israel for one would prefer the US AND the Saudis to attack Iran. Note that overflying by Israel to attack Iran would probably be over Saudi which makes it into a direct target. The "other" route via Greece would be used on the return (or outward first). Which is why the inclusion of foreign airforces in familiarisation drills in Soutern Israel, actually lends credence to the leak - in spite of what I said earlier.

Mina | Nov 14, 2017 7:50:31 AM | 7
On RT Arabic, article saying that Aoun's aid has been informed that they indeed a war on Lebanon is coming.
In exchange for letting humanitarian business-help reach the Yemenis, they need to kill ppl elsewhere?
But what if the 350,OOO Lebanese leave KSA (and why don't they already do it?)
I believe KSA will suffer of that much more than Lebanon.
Mina | Nov 14, 2017 7:51:54 AM | 8
Ppl can get organized from now on: "not in my name"
Withdraw all money from banks, stop consuming. That's the only war they know.
somebody | Nov 14, 2017 7:55:05 AM | 9
4) To clarify the situation Israel is in - from tiny Gaza strip -
The incident increased tensions along the southern sector and threatened to disturb the calm that has prevailed there since the end of the traumatic summer of 2014, which left Gaza in ruins and Israel licking its wounds. As of the writing of this article, silence has been maintained. None of the parties are lashing out, despite the casualties from Islamic Jihad and Hamas.

Ever since the tunnel was destroyed, senior Egyptian intelligence officials have set off on a long round of mediation between the parties in an effort to prevent a conflagration from erupting. Both sides are well-aware that the previous round of violence, in 2014, was not planned. Rather, it was the result of a deteriorating situation and the loss of control on both sides. Neither of the parties needs another round of violence like that right now. The IDF has clarified that it did not know that there were excavators or fighters in the tunnel at the time, and that it did not plan to launch a "targeted killing." It simply wanted to destroy the tunnel.

I have been wondering about the Hamas-Fatah reconciliation. Saudi does not want it - if Hamas keeps contact with Iran .

So why it is happening? Israel?

There is no certainty Israel is not interested in a deal with Iran. It might be the safest bet.

virgile | Nov 14, 2017 8:05:33 AM | 10
I have been saying that for the last year.

As Obama will be remembered for the Iran nuclear deal, Trump wants to be remembered as the maker of the Arab-Israeli deal to end the state of wear.
Since Trump came to power he has been following a clear strategy of weakening all the parties involved, including Saudi Arabia and Israel!
Syria, Lebanon, Hamas, Fatah, Turkey and Iran are been thrown into deep crisis while Saudi Arabia and Israel are been brought to panic by agitating the "Iran and Shia threat'. Regional leaders reluctant to make concessions are coerced, bribed or quietly removed in all these countries. Local allies such as the Kurds and ISIS have been pampered to move against the reluctant leaders.
Jared is the architect of that strategy. He is in charge of manipulating the Saudis and Israel into a deal that will be then be imposed on the other countries.
Russia is NOT opposed to such a deal, provided it keeps its influence in the region. Therefore Trump is cozying up with Putin to get his collaboration in convincing his allies of the benefits of such a deal.
The hard to break Arabs are Bashar al Assad's Syrians, and the Moslem Brotherhood (Hamas) .
Qatar and Turkey are been blackmailed to put pressure on the Moslem Brotherhood and any opponent to a 'forced' peace deal.

The Saudis are the key to the deal as they will be asked to contribute to the financial compensation Palestinians will ask for to accept the deal. They are also the most eager to humiliate Iran and Turkey.
The train is on track, despite failure to tame Syria that remains a nut hard to crack.

Jackrabbit | Nov 14, 2017 8:07:28 AM | 11
I'm not convinced that this document is genuine because:
>> as b notes, 'parity' on nukes is a non-starter;

>> discussions with Israel about the Palestinians are unlikely to be phrased as a "final solution" with the severe negative historical connotations of that phrase;

>> this wording is also odd: "rapprochement with Israel involves a risk to the Muslim peoples of the Kingdom" because there is no need to make special reference to "Muslim peoples" when 99.9% of KSA is Muslim.

>> Does KSA really have the wherewithal to bribe the Muslim world?

>> The accusation that Iran engages in "organized crime and drug trafficking" seems planted. I haven't seen such a charge before. The standard accusation (in the US) has been that Iran supports terrorism (meaning Hezbollah) and "destabilizes the region" (meaning they don't bow to US-Israeli-Saudi masters).

somebody | Nov 14, 2017 8:13:57 AM | 12
10 There will be no deal without Iran.

Israel is not stupid. The outcome of the war in Syria is an Iranian base on its border .

Russian Foreign Minister Sergey Lavrov said Tuesday that a recently announced agreement on the terms of a ceasefire in Syria did not include a Russian commitment to ensure Iran-linked militias would be pulled out of the country.

Lavrov said Iran maintained a "legitimate" presence in Syria, according to the Interfax news agency.

virgile | Nov 14, 2017 8:26:56 AM | 13
Trump's Middle East peace initiative still on hold

"What will the initiative include? According to various sources, it will consist of regional negotiations along three channels: Israeli-Palestinian with American mediation, Israeli-regional and international (rehabilitation of the refugee camps and mobilization of the world for a regional agreement). It is possible that the initiative will redefine the concept of "sovereignty" in a way that allows the Israelis and Palestinians to share territory creatively. The initiative may even resuscitate the Palestinian-Jordanian confederation idea. Perhaps even a Palestinian-Jordanian-Israeli configuration is possible."

catface | Nov 14, 2017 8:29:52 AM | 14
Excellent article, thanks. yet I am left somewhat confused, Harir just talk on TV saying: He was running for a fear for his life (hezbollah wants him dead, like they did with his father), he added that Hezbollah is the danger to Lebanon, he added that he is not held by force and will return to Lebanon.

Something feels wrong, don't you have this feeling as well regarding this story?

somebody | Nov 14, 2017 8:36:31 AM | 15
13 Yes, that is the Israeli dream - Jordan to take over the rest of the West-Bank and Egypt take over Gaza.

Russia says US providing cover for ISIS - add to the BBC article.

nudge | Nov 14, 2017 8:48:55 AM | 16
@11...Jackrabbit:
How convenient that you forget the phrase, "...by deception thou shalt do war", when you rationalize Israeli motivations/sensibilities.
Yul | Nov 14, 2017 8:51:06 AM | 17
Interesting thread from the former US Amb to Israel under Obama:
https://twitter.com/DanielBShapiro/status/930425842555027457

and then we have this:

https://www.timesofisrael.com/us-delegation-headed-to-israel-to-discuss-syria-border-deal/

In addition to the Syria agreement, the officials are likely to discuss Iran's alleged construction of a military base less than 50 kilometers (30 miles) from Israel's Golan border.

and from Mattis:
https://www.reuters.com/article/us-mideast-crisis-usa-syria/u-s-to-fight-islamic-state-in-syria-as-long-as-they-want-to-fight-mattis-idUSKBN1DE037

"We're not just going to walk away right now before the Geneva process has traction," he added.


Jackrabbit | Nov 14, 2017 8:56:09 AM | 18
@11 follow-up

The leaking of a secret Israeli cable and publishing by an Israeli news organization also seems suspicious.

The past, such blatant Israeli support for an Arab State/Monarch would be the kiss of death, wouldn't it?

The best explanation I can muster for these leaks is this: to further the notion that an attack on Lebanon is imminent so as to distract from the real target of an attack: Qatar.

somebody | Nov 14, 2017 9:14:05 AM | 19
17
Yep. The last sentence of the Reuters article is ominous
One key aim for Washington is to limit Iranian influence in Syria and Iraq, which expanded during the war with Islamic State.

So the US military now works for Saudi?

Anonymous | Nov 14, 2017 9:24:45 AM | 20
So lets see:

Israel gets the Palestinians dumped.
Israel gets somebody else to attack Iran who will be destroyed in return.

Israel: +++ (Palestine, Iran, Saudi)
Saudi: +- (Iran, Saudi)

Only the Saudis could come up with a plan like this /sarc.

Anonymous | Nov 14, 2017 9:27:30 AM | 21
So lets see: (Updated as I forgot the Hezbollah angle)

Israel gets the Palestinians dumped.
Israel gets somebody else to attack Iran who will be destroyed in return.
Israel gets Hezbollah weakened, allowing takeover of Lebanese oil interests / access for its planned Israel-Cyprus energy route therough Lebanese territorial waters.

Israel: ++++ (Palestine, Iran, Saudi, Lebanon)
Saudi: +- (Iran, Saudi)

Only the Saudis could come up with a plan like this /sarc.

Don Bacon | Nov 14, 2017 9:43:39 AM | 22
Palestine is a dead duck anyhow, and there won't be any war on Iran because of the extensive US presence (missile targets) in the Gulf. So IMO the idea that Israel would give up its nukes might be the main issue here.
Meanwhile Iran will be working behind the scenes to weaken both Israel and Saudi Arabia, especially in the key KSA Eastern Province where Shi'as predominate and ARAMCO will have new owners. The Persians have been around for centuries and they know how to deal with these matters, as evidenced recently.
Yul | Nov 14, 2017 9:44:11 AM | 23
@ 19

Yep, get the Saudis to plonk down billions in weapons that they won't , can't use and take part of that cash to help the Israelis to bomb their Arab brethren.

virgile | Nov 14, 2017 10:00:17 AM | 24
The US politicians appear as dummies compared to Iranians, Russians and Chinese.
One may have serious doubts about these expensive and famous US universities that seem to breed political morons.
They all look like vicious children playing dirty and cruel games in a kindergarten
somebody | Nov 14, 2017 10:07:03 AM | 25
20/21

Israel will not attack Hezbollah (never mind Iran) without the US leading .

Saudi cannot get full support from the US for Yemen, never mind Iran .

Last/not least - whilst Trump has fully bought into Saudi and Israeli aims (they might not be the same), his presidency might end in three years. US (and Russian) interest is to balance the interests of Middle East actors not to become a proxy for one of them.

This here is James Mattis from 2013

"I paid a military security price every day as the commander of CentCom because the Americans were seen as biased in support of Israel, and that moderates all the moderate Arabs who want to be with us, because they can't come out publicly in support of people who don't show respect for the Arab Palestinians," he said Saturday at the Aspen Security Forum in Colorado in response to a question about the peace process.

....

He called the current situation in Israel "unsustainable" and blamed the settlements for harming prospects for peace. The chances for an accord between Israel and the Palestinians, said Mattis, "are starting to ebb because the settlements and where they're at are going to make it impossible to maintain the two state solution."

Mattis then described a hypothetical in which 500 Jewish settlers live among 10,000 Arabs, and the implications of where Israel draws the border. He called it a choice between giving up the idea of a Jewish state or becoming an apartheid state.

Saudi is desperate. Israel is not far behind. Whatever they did since 2006 worsened their strategic position.

never mind | Nov 14, 2017 10:11:56 AM | 26
The Zionist entity feels no real pressure to make peace.

Making peace, in any shape or form, with the palestinians is antithesis to the zionist mission. Israel's survival, as a jewish state, hinges on this.

The same could also be said about the first point; Israel would never accept a technologically advanced state in the region that could threaten its hegemony. A nuclear Saudi Arabia will never see the light of day.

Jack | Nov 14, 2017 10:29:12 AM | 27
Great article; well researched and documented.

I have a theory and I can't back it up but here goes...

I believe that The Donald gave Saudi two choices; go forward with his plan for the new Middle East or he throws his weight and support in with the 9/11 families in their lawsuit against Saud.

The Saudis have so seldom been out front on foreign policy and certainly never played on the front line solo prior to the past couple of years.

I believe that the Donald's plan is to emerge with the 3 strong actors of the US, Israel and SA and everyone else aligned with them and against Iran. It may actually work.

CarlD | Nov 14, 2017 10:33:23 AM | 28
26,

Of course Israel might appear to be in line with the Saudis
in order to weaken Iran and the pro palestinians.
Then after Iran were vanquished, it would take on the Saudis.

dh | Nov 14, 2017 10:49:15 AM | 29
Dear B,

Excellent reporting.

I view the agreement, not as a threat to Iran, but as an alliance agreement between three weak actors, Trump, bin Salman and Netanyahu, who need all the friends that they can get. The rhetoric against Iran looks like their traditional positions.

Both Trump and bin Salman are each already in a war for survival with the Globalists (the clique of global elitists, whose members include Soros, Clinton, Tony Blair, Bandar Bush, etc. and who own the U.S. Deep State, the European Union structures, and Western media). Both Trump and bin Salman came to power after the Globalists fight against Russia (for example via the orchestrated drop in oil prices) did serious harm to their respective countries. Both are undoing the Globalist policies. The Globalists will continue to do everything possible to remove them from power.

Netenyahu is also no friend of the Globalists after they tried to rehabilitate Iran with the nuclear deal in order to draw Iran away from Russia. He has also been weakened by the disastrous outcome, for him, in Syria. (Are the Globalists behind the allegations of corruption against him?)

In this context I have difficulty to see that any of these three are in a position, or would be willing to take the risks involved, to launch a war with Iran.

Grieved | Nov 14, 2017 10:59:15 AM | 30
It was on October 1st that Sayed Nasrallah made his attention-getting statement that the Zionist occupiers should go back to the countries they came from, because if the US-Israeli command launched a war on Lebanon there would be no time for the settlers to flee. It was a pretty dramatic escalation of warning, and almost seemed to come out of the blue, but perhaps not, if crazy ideas like the ones in this memorandum were swirling around the region. And they are crazy ideas, all highly dubious propositions.

Jackrabbit @18 makes a point if all this is smoke for the real attack, which is against Qatar. This seems much more plausible. Beirut-based Paul Cochrane laid out this possibility: Behind the Saudi Troublemaking

"... the global powers would vocally oppose such a move but likely not exercise military intervention a la 1991 when Iraq invaded Kuwait. The U.S. troops based in Qatar would just stay in their base; the Trump administration has signaled it has sided with Riyadh, even though the State Department has been more nuanced towards Doha. As for the Turks and the Iranians, they would not want to be brought into a conflagration with Riyadh and the ATQ. That really would tear the MENA apart.

Ultimately, there's not much to stop a Saudi gas grab. There's not much desire internationally for yet another Middle Eastern military "adventure" following the debacles in Iraq and Libya, while nobody's lifted a finger against Saudi Arabia for its war against Yemen. As long as Qatari gas exports remain uninterrupted, the global powers might readily accept a change of management.

Mercouris at the Duran picked this up too, and makes a decent case that Saudi could actually get away with this. It seems to make much more sense than the appalling logistics of trying to attack either Hezbollah or Iran. And by grabbing the Qatari half of the massive gas field shared with Iran, Saudi would have achieved an ironic taste of "parity" with its true enemy.

The question is, how possible is such a move for Saudi Arabia?

Fernando Arauxo | Nov 14, 2017 11:13:11 AM | 31
HAHAHA the jews consider the Al Sauds a joke and they want parity with them? HAHAHAHA Allowed to have nuclear weapons? HAHAHAHA!!! Too funny
Pnyx | Nov 14, 2017 11:16:44 AM | 32
Israel's government would be foolish if it were to engage in a deal that promises them what they already have de facto and demands that they abandon the greatest strategic advantage Israel has; the exclusive regional possession of nuclear weapons.
Piotr Berman | Nov 14, 2017 11:39:51 AM | 33
The most dubious part of the "Saudi plan" is that it may be good for Saudis, in some deluded princely perspective, but there is really nothing of value for USA. Goodies for USA -- Palestinians giving up on the right of return? USA does not consider that right seriously, so value is zero, numerically speaking (zero shows a the result if you are not using exponential notation, 10^-50). Goodies for KSA: the status of "Grand Prince" in Golden Horde.

Golden Horde was a successor state of Mongolian empire that had supremacy over Rus among its various holdings. Rus was split into a number of principalities ruled by princes but one of them was given the function of Grand Prince, and he collected the taxes from all other princes and passing them to the Khan of the Horde. While the power of Grand Prince was considerable, he could be recalled (one way ticket to the capital of the Horde).

KSA imagines having that position in the Arab (or Muslim??) words, of course without the last detail -- obligatory invitation to D.C. with a dinner that may be wholesome, but then again, it may be poisoned. But it is much better to USA to deal with a number of small states that do not cooperate with each other. What if a single change of power in the Kingdom is followed by a request to close all bases? This is a type of bother that is better to prevent from even being contemplated. Mind you, Americans were disinvited from the Kingdom in the past. Trump may trust MbS, but Pentagon does not KSA.

Anna | Nov 14, 2017 11:47:18 AM | 34
You forgot to mention Macron's recent surprise visit. For some reason, Macron may be on the hook to them. He was awarded with a military contract (navy vessels) from UAE, KSA ally.
Piotr Berman | Nov 14, 2017 11:51:12 AM | 35
Macron on the hook? Like a hooker? But that lady has no intention to be restricted in the choice of customers. Over time, she will have a kind word (not just words) for everyone.
karlof1 | Nov 14, 2017 11:53:39 AM | 36
Grieved @30--

It would seem Nasrallah's/Hezbollah's intel reach is quite deep. As someone commented, the plan reeks of desperation; since it's founded on numerous falsehoods, it has no chance of success. I expect the Umma to denounce Saudi's betrayal of Palestine regardless of what their governments say.

fastfreddy | Nov 14, 2017 12:03:27 PM | 37
An array of unrealistic, unobtainable goals and a leak. Football analogy: It's a pump fake. Look for the hand off and a running play.

Also see a limited hangout: Warm the Arab public to the concept of totally screwing the Palestinians in Palestine's stolen land (Israel).

J Swift | Nov 14, 2017 12:07:23 PM | 38
I wrote a couple weeks ago that because of several years of weak chief executive, the power blocks in the US were pursuing their respective interests more independently and openly than ever (which they are); and in Arabia MbS is a power hungry Machiavellian prince who is also naive and thus hard to predict, but who must understand that he will need allies, and those allies will likely have an influence on him, for better or worse (which is also true). I was naturally hoping that his daddy's trip to Russia, as his last state visit, might indicate that the king was trying to open an option for MbS to turn to Russia for support against the CIA/State sponsored factions within SA, which might in turn lead to at least the opportunity for Russia to exert some calming influence on the region over time.

Well, that may have been the king's thought, but obviously his son has been getting his advice from elsewhere. In the US, a most unlikely alliance appears to have formed (at least with respect to the ME). Because of the vitriol existing between the neocons and Trump, and the fact that the office of the president has largely been taken over by the Pentagon (which often but does not always see eye-to-eye with the Zionist/Neocons), it was easy to overlook the growing power and influence of the Zionist worm in the White House, Kushner.

I think Trump never had a strong foreign policy concept in his own mind--mostly boiled down to a quasi-isolationist, so he hasn't fought hard against turning things over to the Pentagon and Kushner. It is now clear that Kushner, the US's own power hungry prince who is eager to prove his chops in an area he has no clue in--international politics--has fallen completely into the loving arms of Israel. It is clear now that the Trump/Kushner plans for SA are entirely a Nuttyahoo wet dream. The visit to SA, where they were persuaded to spend $110B of money they don't really have mostly on huge numbers of THAAD and other missile defense systems and front-line fighters. Next MbS was persuaded to confront Qatar, as any breaks in a united front against Iran must be spanked (notice how all these events keep happening a couple days after a visit from Kushner, who is usually hot off a meeting with his masters in Israel). Then MbS is apparently advised to go all in to remove opposition within the kingdom, which gives Trump glee because it also punishes Hillary's friends, but also commits MbS to the path, and makes him totally reliant on Israel/Kushner for protection (cutting RF's increasing attraction). Now the crude attempt to boil the pot in Lebanon.

So in short order there will be far more missile defenses than Riyadh needs (but exactly what Israel desires). Israel doesn't want to be first in on a direct attack on Iran, but if there is a whole air force worth of planes with Saudi markings just waiting for Israeli/US/Wahabi pilots to take first blood--once it's a regional war on, who will notice who's planes are attacking Iran after that? And MbS (under careful direction) has now set up trigger points from Yemen to Qatar to Lebanon, just waiting until the preparations are done and an event to be blamed on Iran, and away we go. Israel finally gets its wish. The good news is that MbS has likely bitten off more than he can chew by taking on all of his internal opposition at the same time as Iran, and done so in such a heavy handed manner that I doubt he can buy a life insurance policy. And Russia and Iran have maintained a steady and "back seat" approach to their assistance of everyone who seems to need it--and the US and Israel have been so brazen in their duplicity and untrustworthiness--most countries in the area (and the world) don't seem so eager to follow the US lead any more (plus, the Pentagon is still very strong in the US executive, and I don't think they're quite so anxious to tear into Iran). So there is hope this latest Israeli plan to drag the world into war against Iran will melt down just like it did in Syria, but who knows how much damage will be done before it does.

Temporarily Sane | Nov 14, 2017 12:16:56 PM | 39
@4 somebody
And neither the US nor Israel can politically afford to lose many soldiers in a ground war. So if Saudi wants to fight against Iran, they have to do it themselves.

MBS would have to be absolutely deranged to fight Iran directly. The KSA's regular troops are mostly foreigners from Pakistan and other poorer nations. They are well-equipped but poorly trained. In addition, fighting wars for a country one has no stake in makes for poor morale. They are getting their asses handed to them on a regular basis by the relatively poorly-equipped (but highly motivated) Houthi rebels in Yemen.

It is possible that MBS is wildly deluded but I can't see him facing Iran alone. What is more likely is covert and indirect warfare from the US and Israel with special forces and proxies (like the MEK terrorist group inside Iran and perhaps some Wahhabi fanatics) providing boots on the ground and the whole thing backed up by USAF air power and bankrolled by MBS.

William | Nov 14, 2017 12:19:44 PM | 40
Someone mentioned that 'parity on nukes is a non-starter. That is bullshit. SA already has 85 American B-61 nukes that were delivered to them by Israel at the time when it appeared that McStain's plan of raising an Arab Army out of Turkey would eventually defeat Syria.

No on has ever accounted for those nukes, and I seriously doubt, that once they got their hands on them, that SA would give them back. Matter of fact, video exists somewhere out in the ether of a SA attack on Yemenn in which one of the B-61 nukes was used, it just happens to have 'disappeared'.

I'd say this is a non-starter. The Palestinians though may take a page out of the Zionist playbook, take the money and then just keep fighting, after all, most of world opinion in now firmly with them.

PeacefulProsperity | Nov 14, 2017 12:25:14 PM | 41
From b's report:

"The Saudi tyrant abducted the Prime Minister of Lebanon, Saad Hariri, and declared war on the country. The purpose of this move is to remove or isolate Hizbullah, the Shia resistance of Lebanon which is allied with Iran and opposes the Saudi plans for Palestine."

That's absurd, ridculoous, doesn't make sense at all.

Hariri is a mortal enemy of Hizb, even accused them of assassinations attempts. Saudis keeping Hariri in house arrest gives the control of all Lebanon over to Hizb - a dream come true for them.

Add arresting plotters of 9/11 ponce Talal (also a major sponsor of Clinton/Bush criminal enterprise, CNN lies and Twitter censorship) and ponce Bandar (a butcher of Syria) to the picture and you can see that this all turns conveniently into Russia's advantage. Plus:

Russia, Saudi Arabia sign air defense contracts

And Turkey is already in the fold:

Putin says relations between Russia and Turkey may be considered as fully restored

Ghostship | Nov 14, 2017 12:27:17 PM | 42
>>>> stonebird | Nov 14, 2017 7:45:36 AM | 6
The "other" route via Greece would be used
.

Which one is that? Over the Caspian Sea, through the Caucasus(Armenia, Azerbaijan, Georgia, Turkey or Russia), across the Black Sea, through Bulgarian or Turkish airspace to Greece. That would be available one time only and the fuel loads the aircraft would have to carry would severely restrict the bomb load they could carry. Also, going by previous experience the first time any Iranian SAM batteries locked their radar onto the Israeli aircraft, they'd dump their drop tanks and bomb loads to head out of Iranian airspace ASAP.

Any attempt by Israel to attack Iran would be a disaster for Israel which is why the conspiracy is aimed at getting Hezbollah to launch missiles at Israel and Iran to launch missiles at Saudi Arabia in response to a Saudi attack on Hezbollah. Then the United States could argue that it's intervention against Hezbollah and Iran was legitimate, well at least legitimate enough satisfy the American public and the poodles.

PeacefulProsperity | Nov 14, 2017 12:31:24 PM | 43
Everything has been going well according to the Putin-Trump plan:

Trump: 'Time to Get Back to Healing a World That is Shattered and Broken'

McCain and the rest of war-mongers (e.g. Lynn de Rothshild) are scared to death by this:

US Senator McCain Slams Donald Trump Over 'Believing in Sincerity' - Sputnik International

Peace is coming to the ME Lebanon's Maronite Patriarch arrives in Riyadh on first visit

Remaining terror state is in the cross-hairs: US breaks ground for new permanent base in Israel

PeacefulProsperity | Nov 14, 2017 12:35:43 PM | 44
FWIW interesting info-crumbs Arrested: Saudi Prince Alwaleed bin Talal. His Ties to Las Vegas

This is the same Saudi Prince Alwaleed bin Talal who, together with Bill Gates, owns the Four Seasons Hotel that is located within the 5 top floors of the Mandalay Bay Hotel in Las Vegas.

That would be the same Mandalay Bay Hotel in Las Vegas that was the sight of the deadliest mass shooting in our nation's history.

The Four Seasons Hotel-within-a-hotel boasts its own private elevators and separate entrance.
His arrest may or may not reveal more ties to the Las Vegas Massacre. But it does reveal that he's a pretty shady character.

Prince Alaweed's arrest was the result of King Salman's decree to create an anti-corruption committee chaired by his son, Crown Prince Mohammed bin Salman.

King Salman decreed late on Saturday the creation of an anti-corruption committee chaired by Crown Prince Mohammed bin Salman "

"The allegations against Prince Alwaleed include money laundering, bribery and extorting officials, one official told Reuters, while Prince Miteb is accused of embezzlement, hiring ghost employees and awarding contracts to his own companies including a $10 billion deal for walkie talkies and bulletproof military gear worth billions of Saudi royals."

Prince Alaweed bin Talal is also Twitter's second largest shareholder. That would be the same Twitter that allows ISIS, Antifa and anyone who threatens to assassinate our President free reign on their platform but blocks conservative American patriots' accounts.

Speaking of information flow-the Prince's investment company, Kingdom Holding Company, is a major shareholder in Time Warner Cable. The same Time Warner cable that owns CNN. Oh- and they also own a major chunk of AOL that owns the Liberal multi-author blogging platform posing as a news source-Huffpost.
Jim Murren, CEO of MGM dumped millions of dollars worth of his stocks in the weeks leading up to the massacre.

That would be the same MGM that owns the Mandalay Bay Hotel. How fortunate that he dumped his stocks before the mass shooting.

MGM Stock Selloff and Saudi Connections to Mandalay Bay Hotel.

CEO Jim Murren circulated an internal memo that stated that he would match donations to CAIR ( a terrorist organization) and the ADL-a very anti-Trump, pro-Islamic organization. He must like Twitter.
The Saudis partnered with the MGM

Reuters reported that back in '07 Dubai World became partners with MGM.

"Dubai World, the investment holding firm of the Dubai government, will acquire a 9.5 percent stake in MGM Mirage and 50 percent of the casino operator's CityCenter development project for $5 billion."

Dubai World referred to the deal as a "long term strategic partnership."

Prince Alwaleed bin Talal hails from Saudi Arabia.

That would be the same country as the Saudi Royal Air Force-that just happened to be doing some "realistic combat training" in Las Vegas.

From a previous post,

It may or may not be "routine," but during the month of August, from the 5th to the 28th, the Saudi Air Force booked an entire tower of "SLS," a beleaguered Las Vegas hotel. They didn't stay there to ogle scantily clad Las Vegas women. Arrangements were made to keep all female staff away from them. Some areas were closed to the public and pictures of females were yanked from the walls.

The purpose was for "realistic combat training" and they're planning on making a habit of it. The Las Vegas Review Journal reported,

"Saudi Arabia's 10th Squadron Royal Saudi Air Force will be taking part in Red Flag 17-4 at Nellis Air Force Base, according to airwingspotter.com, a site dedicated to military aviation photography and spotting. Red Flag, combat training involving the air, space and cyberforces of the United States and its allies, will be held Aug. 14-25.

"Depending on the year, the Royal Saudi Air Force will bring 175-210 members to these realistic combat exercises," S&K said in the 2014 post."

Who needs a military base when you can rent a hotel? Food's better too.

Caught up in King Salman's sweep was the Commander of the Saudi Navy as well as the Minister of the National Guards. No mention yet of the Royal Saudi Air Force.

dognuke | Nov 14, 2017 12:43:17 PM | 45

Nuclear strike by proxy, Saudi Arabia purchased(or given) nuclear bomb(s). Temporary nuke parity.
The clown prince MbS is the perfect proxy to strike Iran.
Ghostship | Nov 14, 2017 1:04:26 PM | 46
>>>> Jackrabbit | Nov 14, 2017 8:07:28 AM | 11
I'm not convinced that this document is genuine because:

>> discussions with Israel about the Palestinians are unlikely to be phrased as a "final solution" with the severe negative historical connotations of that phrase;

>> this wording is also odd: "rapprochement with Israel involves a risk to the Muslim peoples of the Kingdom" because there is no need to make special reference to "Muslim peoples" when 99.9% of KSA is Muslim.

You are aware this is a machine translation? So unless you are fluent in Arabic and can translate the original article, your comment has little value just like Liz Sly's and Anne Barnard's reporting from Beirut.

As for "final solution" why would an Arab be concerned since beyond the Mufti of Jerusalem, Arabs played little or no part is the Holocaust. And the position and role of the Mufti of Jerusalem is heavily overstated by Zionists.

>> this wording is also odd: "rapprochement with Israel involves a risk to the Muslim peoples of the Kingdom" because there is no need to make special reference to "Muslim peoples" when 99.9% of KSA is Muslim.

Firstly this could again be down to machine translation but it's more likely to be that 30% of the population of Saudi Arabia are migrant workers so 99.9% of the population are not necessarily Muslims. If you'd bothered to check the CIA World Fact Book, the only honest publication that the CIA produces, you would have known this.

>> The accusation that Iran engages in "organized crime and drug trafficking" seems planted. I haven't seen such a charge before. The standard accusation (in the US) has been that Iran supports terrorism (meaning Hezbollah) and "destabilizes the region" (meaning they don't bow to US-Israeli-Saudi masters).

You obviously haven't be paying attention to the bilge about the Tri-border region in South America. I would guess that this is Kushner's contibution to the ploy - most Americans are deeply infected with a disease known as projection and thus assume their enemies would act as they do because being the exceptional country everybody wants to do what Americans do. In this case with the CIA funding their illegal activities prior to about 2001 with money raised from drug smuggling, Americans assume that is what the Iranians are also doing which is ironic when you understand that the Iranians are fighting an existential war against drugs.

Yul | Nov 14, 2017 1:06:55 PM | 47
https://www.ynetnews.com/articles/0,7340,L-5042362,00.html
Greenblatt: no resumption of Israel-Palestinian talks in sight

For sure: Abu Mazen must have told the Saudi Pretender and his senile father: Go and take a hike !

Ghostship | Nov 14, 2017 1:15:39 PM | 48
>>>> PeacefulProsperity | Nov 14, 2017 12:25:14 PM | 41

Oh, a Zionist troll talking bullshit as usual.

Ghostship | Nov 14, 2017 1:17:35 PM | 49
>>>> William | Nov 14, 2017 12:19:44 PM | 40

You could include a link or two to justify your staggering claim.

james | Nov 14, 2017 1:17:41 PM | 50
thanks b!

i agree with @20/21 anonymous.. this isn't a saudi plan! (The memo is signed by Adel al-Jubeir. (But who were the 'advisors' who dictated it to him?) )

this is a memo thought up in some neo cons head - whether they are located in israel, or some washington stink tank..

@29 dh.. i agree with much of what you say, but don't you think israel/saudi/usa trio are batshit crazy enough to do something stupid? witness their war on syria.. plenty of stupidity to continue on in the same fashion.

@18/30 jr and grieved... yes - qatar is a thorn in the side of the terrorist state saudi arabia.. nothing like another terrorist state calling you out, lol.. one of them has to be silenced... i doubt the attack is going to be on qatar myself..

@38 j swift.. thanks.. makes sense..

@45 dognuke.. unfortunately that is true and a possibility.. the clown prince is a really unstable dude..

Laguerre | Nov 14, 2017 1:21:30 PM | 51
It should be born in mind, of course, that this is only MbS plotting. It can't be spoken of publicly in Saudi Arabia, because the Saudi population is strongly pro-Palestinian. But all the media are owned by members of the royal family, so the population is kept in ignorance and quiet. I don't know whether that number of al-Akhbar has been suppressed in Saudi, but this news has sort of got out anyway, as it will be on the social media, which Saudis are dedicated to.

The fourth point is to bribe the public into accepting the plan. That'll cost a lot. And I don't think it will work. Another risk for MbS's power.

Ghostship | Nov 14, 2017 1:22:54 PM | 52
>>>> Anna | Nov 14, 2017 11:47:18 AM | 34

Airbus Industries also just received a large order for A-380s from Dubai (Emirates) - since Abu Dhabi pretty much owns Dubai after there financial troubles a few years back. it wouldn't surprise me if this was an MbZ bribe to various European countries to look the other way when things kick off.

Jackrabbit | Nov 14, 2017 1:27:18 PM | 53
Ghostship @46

Military usually want some measure of surprise. If only for this reason, signaling an attack on Lebanon would seem foolish. Unless it was a distraction.

Anyway, we then see a "leaking" of a secret Israeli cable (happens all the time, right?) that supports KSA's anti-Lebanon stance. Hmm... K.

Now we have another leak(!) that implicitly explains Israel's support of KSA as part of a larger "peace deal" (really a "war deal", isn't it?) that includes a betrayal of the Palestinians. Yeah that betrayal makes it totally believable, sure/sarc - but parity on nukes?!?

Ghostship | Nov 14, 2017 1:29:32 PM | 54
Posted by: Don Bacon | Nov 14, 2017 9:43:39 AM | 22
Palestine is a dead duck anyhow...

That's what the western MSM with support from Israel, Gulf governments and some Islamists want you to believe. Elsewhere it's still an important issue but US pressure means that many are reluctant to speak out but not Celtic supporters

Jackrabbit | Nov 14, 2017 1:35:27 PM | 55
Tomorrow's leak:

From Lebanese Government affirming Iran's support for Hezb and willingness to arm them with nuclear missiles.

Oh, and they will do the same for the Houthi in Yemen.

And they killed Kennedy.

/sarc

CarlD | Nov 14, 2017 1:36:09 PM | 56
Re: 40

Video evidence of tactical weapons used in Yemen and other
conflicts:
https/www.youtube.com/watch?v=neKIaVGj-9Y

CarlD | Nov 14, 2017 1:37:20 PM | 57
re 40:

please add missing slash

https://www.youtube.com/watch?v=neKIaVGj-9Y

james | Nov 14, 2017 1:53:48 PM | 58
related...Alastair Crooke - gambling all on black at the roulette wheel..

"This US-Israeli-Saudi-UAE project is, at bottom, an attempt to overturn reality, no less – it is rooted in a denial of the setback suffered by these states by their multiple failures to shape a New Middle East in the western mode. Now, in the wake of their failure in Syria – in which they went to the limits in search of victory – they seek another spin of the roulette wheel – in the hope of recouping all their earlier losses. It is, to say the least, a capricious hope."

Peter AU 1 | Nov 14, 2017 2:08:32 PM | 59
It is hard to see how they would go about attackiung Iran unless it is just a quick strike/raid and then they all go home again. For the US, military cargo planes with backloads of US boots neatly packaged in body bags is not acceptable.
Trump wants US to be a major energy exporter, but oil prices must go up to get fracking viable in a big way. A play to bump up oil prices? Another option is Trump and Kushner playing MBS to get Aramco listed in the US and prevent China from puchasing the full offering.
dh | Nov 14, 2017 2:16:59 PM | 60
@50 Thank you james for agreeing with my thoughtful and erudite post but unfortunately it was written by one of the other dh s. I've pretty much retired.

To answer your question....yes I think Israel and Saudis are crazy but maybe not crazy enough to strike Iran without a green light from Washington.

frances | Nov 14, 2017 2:52:32 PM | 61
Given the first demand: "First: The Saudis demand a "parity of the relationship" between Israel and Saudi Arabia. On the military level they demand that either Israel gives up on its nuclear weapons or Saudi Arabia is itself allowed to acquire such." This entire plan/proposal IMO is a nonstarter because of this initial and presumably most important (it is #1)requirement and whoever wrote it/approved it knew it.
james | Nov 14, 2017 3:00:33 PM | 62
@dh... that is interesting as i was surprised at the longer post by you.. now it makes sense!

i guess they will have to work on a false flag before they get the green light from washington... iran won't do something stupid.. that is reserved for the clown prince/nutjob duo at this point..

dh | Nov 14, 2017 3:20:38 PM | 63
@62 A false flag will require a substantial number of US fatalities. Thinking back to the US boat that 'strayed' into Iranian waters some time ago wonder how Donald would handle something similar. Those sailors or whatever they were got soundly humiliated but released unhurt. Hardly a casus belli.
Mina | Nov 14, 2017 3:28:41 PM | 64
so The Guardians' journalists don't watch the BBC
https://www.theguardian.com/world/2017/nov/14/russia-us-isis-syria-video-game-still
pantaraxia | Nov 14, 2017 3:28:56 PM | 65
@30 Grieved

The problem with this idea is that Turkey has already instituted a blocking action by placing Turkish forces in Qatar in response to the original Saudi threat. While the contingent was small, approximately one thousand men, the message was quite clear - hands off. Any move by the Saudis or their allies risks Turkish retaliation. it's a no-go zone.

Red Ryder | Nov 14, 2017 3:31:25 PM | 66
Regarding the Saudi military, as pointed out, they are out of troops.
They could not get Egyptians to fight in Yemen or Syria, nor could they get the Pakistanis to fight on their side in either war.

They are desperate.

A war on Qatar would be to ignite Turkey and Iran's support for Qatar, and thus the Israeli-US coalition could punish both those nations, a goal the US would enjoy doing.

The aim is to regain Hegemony over the ME. The Russia-Iran-Turkey alliance has pushed the US aside, if not away. Whatever allows the US to hurt Russia by striking Turkey and Iran would be the goal, and Israel would benefit along with the US.

It would be an air war and the US and Israel would win it.

It isn't about Saudi goals and needs. It's about the Hegemon and Jr. Hegemon in Tel Aviv.

CarlD | Nov 14, 2017 4:06:21 PM | 67
66

If it remains an air war, the probability is that US/Israel would overwhelm
at the beginning of a combined attack unless defenses are upgraded.

However, if in view of the probability of war, Russia were to rush AA
systems to Syria and Iran, the probability that substantial air forces
would be decimated is high. The US forces would certainly be pummeled
in their bases around the Gulf and their naval forces in the Gulf sunk
with the numerous Iran assets in the region.

Without resorting to nukes, the US is probably not going to win because
it cannot field sufficient boots on the ground in Iran. And remember, the
stakes are high for China to get its fuel from somewhere and the US will
have to take this into account. Depriving China of its needed fuel is no
laughing matter.

They are in Djibouti for a reason.

I believe Israel is trying to chew too big a bone. It will choke.

stonebird | Nov 14, 2017 4:16:23 PM | 68
@42 ghostship

This was originally proposed as a "one-off" bombing route. ie. via the Med to cross (at that time Turkey) Now could cross Greek airspace (would need NATO laisser-passer"). Caspian to Azerbaijan. (Has close links with Israel and just tried out an Israeli suicide drone on Armenia for a "client"). From there a short hop to Iran. Fueling over greek airspace.
Return route, nowadays, would be via Saudi Arabia (plus refueling and no need to go any further). It's actually easier than a few years ago.

The second para I agree with.
.....
General opinion.
Palestine. The single state AND the two state solution have probably been junked by Israel. Neither of the alternatives gives an ethnically pure "Jewish" state. So what to do with them? At the moment the Palestinians are being dispossesed (of land, houses), forcibly displaced (at the moment the focus is on the Jordan Valley and Bedouin villages anywhere). They are put in "camps" where they are subject to daily harassment and destruction of living amenities (including water). The desired effect is ethnic cleansing (a la Serbia). Gaza is a humanitarian disaster - under-developed children suffer stunting - and as well the IDF concentrate on children as it is easy to make them submit.

Where could they go? . Jordan - doesn't want them, as they would make up the majority, and put in peril the stability of the country.
Egypt - doesn't want them either.
"Gulf" countries - you must be joking, many are already minorities in their own countries. (Abu Dhabi,)
Leaves the neighbours, Lebanon, Syria and the EU (via Turkey?).
EU - Soros is taking care of that and destroying national unity at the same time.
Lebanon. Over-populated by refugees already.
Syria - Too many displaced persons, plus Palestinian refugee camps.

Maybe Israel imagines the solution is to force them on the latter two countries by means of military action as they won't take them voluntarily.

@29 dh | Nov 14, 2017 4:16:52 PM | 69
@50, @60

Sorry for using dh. Didn't realize that it was already taken.

I think that the real war, right now, is between the Globalists and Trump/MBS. Trump and MBS are both fighting for their survival. I can't see how attacking Iran would help them, quite the opposite.

@66 The Globalists want Hegemony over the ME. I'm not sure that Trump does. However, the Globalists first priority is to regain control over the U.S. (i.e. impeach Trump), and then continue their war with Russia. I can't see how driving Turkey and Iran into Russia's hands will help them either to tame Russia or to reassert Hegemony over the ME.

Jen | Nov 14, 2017 4:43:56 PM | 70
I think people here - and the KSA for that matter too - need to know that attacking and invading Iran won't be at the same (lower) scale as attacking and invading Lebanon, Qatar, Syria and even Iraq. These countries are flat and a major part of their territories is desert. Their populations are not that great either - the largest is Iraq with about 35 million.

Iran on the other hand is mostly mountainous (especially in its west and south) and its population reached 81 million some time in October 2017. An attack on Iran from the west is going to need foot soldiers to be effective. Where will Israel, the US or the KSA stump up the armies needed to invade Iran? Using ISIS and al Qaida / Jabhat al Nusra failed.

If an invasion comes from the east, how will Afghanistan (chaotic?) and Pakistan be brought on board to allow their use of airspace for air attacks?

A third option would be to stage air and naval attacks from India. That might be plausible if India under Narendra Modi and the BJP is friendly towards Israel and the US.

nottheonly1 | Nov 14, 2017 4:44:40 PM | 71
A number of thoughts comes to mind.
1) Divide and conquer
2) The Enemy of my enemy is my friend
3) Do as I say, not as I do
4) You are either with us or with the terrorists
5) Birds of a Fascist feather flock together

As to the "not in my name" shirt and withdrawal from the machine, it won't happen.
Remember the analogy about the frog in the water that will start to boil? No frog would ever do that. It is humans who threw the frog into the pot and watched.
Karma can be a nasty bitch. It has transformed humanity into a frog and the masses will be boiled.
To implement change, people would have to turn off the propaganda hammering down on them from all sides. But that won't happen. People are programmed to believe the lies they are dished out. No de-programming - no change.
Americans and their Fascist alies will have to go through their own collapsing 4th Reich.
And of course: Support your troops. Sell everything and donate the money to the MIC. Because they will come for it anyways. Only in a Fascist country, warriors are elevated over any civil person. This morning at court: people congratulating a father because his son just joined the troops.

Reject anything the parasites in the legislative tell you. Like George Carlin said: "I never believe what the government tells me."
End of story.
Spend as much time as you can with your loved ones. The Motherearthfuckers are about to turn the heat on. And it is already way too hot here.

Temporarily Sane | Nov 14, 2017 4:49:04 PM | 72
@44 Peaceful Prosperity

From the Sputink piece you linked to:

US President Donald Trump has said that heavy sanctions imposed on Russia should not become a barrier to future friendly cooperation between the two nations, adding that cordial international relations would be likely to help resolve the North Korean threat and many other global issues.

How noble and considerate of Trump. "Vlad, my friend, I know we are waging economic warfare on your people, surrounding your borders with nukes and want to take over and "regime change" your country. But, hey, never mind all that stuff and let us be friends! Then you can help us do to other sovereign nations what we are doing to you."

Touching, very touching It raises the question: What "many other global issues" is Trump trying to solve? Climate change, perhaps? Ending the war in Yemen? Rapprochement with Iran? Curbing corporate and Israeli influence in American elections and foreign policy?

Peaceful Prosperity...you are not still holding a candle for this duplicitous shitbag, are you?

Trumpets are the new Obots.

Joe | Nov 14, 2017 4:55:50 PM | 73
Just my 2 cents but it seems to me the real target has always been Russia, more specifically Gazprom, why not just take control of Qatar and their gas field which is also Irans gas field as well, which correct me if I'm wrong could be completely controlled/exploited from Qatar without anyone having to step foot into Iran, couple this with limited strikes on Irans gas infrastructure in the name of removing their ability to be "evildoers" and before you know it Aramaco, which now controls a third plus of the world's nat gas is listed on the NY exchange and it still only accepts dollars. Wonder what countries that pipeline would pass through...
Seby | Nov 14, 2017 5:00:52 PM | 74
Pleazzzzzz!!!!

What have the british installed wahabist medieval hole in the sand copulators ever really done for Palestine?

Mina | Nov 14, 2017 5:10:50 PM | 75
Ts
Trump has been busy planning a huge karaoke with his new buddy Duterte. Guns are on option, courtesy of the NRA
Tacitus | Nov 14, 2017 6:22:47 PM | 76
I am a new poster to this board. I've tried twice to post something and the message said it was posted successfully, but it is not visible in the comments section. Is there some mediator process that it has to go through first, or is there something else that I need to do? (I left the email and url boxes empty; could that be the issue?)
Yeah, Right | Nov 14, 2017 6:30:55 PM | 77
The way in which this plays out is almost pre-ordained.

There is no way that a formal, signed document will exist that states that when-you-shaft-Palestine then we-will-attack-Iran.

What will happen instead is that Trump will broker that "understanding" between Israel and Saudi Arabia. A nod and a wink, and maybe even a handshake.

But the Israelis will insist that the Saudis have to do that Palestine-shafting first, and in The Most Public Way Possible so that the House of Saud can't take it back. Trump will say that this is reasonable, and the dumb-ass Saudis will mull over it then say "OK, sure, if the Yanks vouch for you then so will we".

The Saudis will then dump on Abbas.
The USA will then heap congratulations on the Saudis.
The Israelis will shout Yipeeeeeeeeeeeee!!!!!!!!!!!!
The Palestinians will descend into a deep despair.

And then...... [sound of crickets chirping].

Saudi: Hey, when are you going to attack Iran?
Israel: We're working on it. Give us time.
USA: Hey, I thought we had an understanding!
Israel: We do, this takes a lot of planning.
[crickets]
[crickets]
[crickets]
Saudi: What gives, guys?
USA: When are you were going to attack Iran?
Israel: We changed our mind. Bite me.

Let's get real here: the Israelis have a track-record of "agreeing" to a quid-pro-quo, then immediately pocketing the "quid" while somehow, some way, never actually getting around to delivering on the "quo"

The Saudis will shaft the Palestinians.
The Israelis will then shaft the Saudis.
The Americans will fume (in private) but ultimately do nothing and say nothing.

And years later there will be an off-mike recording of Netanyahu boasting about how he f**ked over the Saudis, and gleefully explain that the reason why he could do that is because the Americans are at least as dumb-ass stoooooopid as, well, a Saudi Clown Prince.

I mean, haven't we seen this movie before?

james | Nov 14, 2017 6:31:02 PM | 78
tactus - it should go thru, unless you linked to the odd url that doesn't go thru - southfront is one of them going on memory..
BraveNewWorld | Nov 14, 2017 6:34:38 PM | 79
Sorry if some one has mentioned this already, but Jerusalem belongs neither to the Palestinains or the Israelis. It belongs to Jordan and Jordan is it's designated protector just as the freaks in KSA are the protectors of Mecca and Medena. The NATO countries on orders of Israel have burred the Palestinian cause. But if the children running the US and KSA tried giving the third holiest site in Islam (and likely the most important heritage site in the world) to the Jews so they could blow it up to build a Jewsih temple on top of it ,the back lash among the 1.5 billion Muslims in the world would be immense. Not to mention basically righting off international law in it's entirety. China, Russia and the EU would never allow it.serious

It has been obvious for years that Bibi and the KSA have have been cooking this up but it wasn't till last year they had any one stupid enough in the White House to try and take a run at it. If you want total war in the Middle East this is how you acheave it. The outcome will be a Palestinian state. Whether there will be a Jewish one if this is tried is up for debate.

Just Sayin' | Nov 14, 2017 6:48:08 PM | 80
Wonder what countries that pipeline would pass through...

Posted by: Joe | Nov 14, 2017 4:55:50 PM | 73

It's a source of not only bewilderment, but also amusement, that there are people so dumb/dishonest (delete as applicable) that after all we have seen in the last few years, even just what we have seen in the last few weeks, that still pretend/think/pretend-to-think that this has something to do with pipelines?

Seriously, would all you "It's the pipelines, stoopid!" gobshites kindly just stfu.

A dumber more gullible bunch of eejits would be hard to find

Debsisdead | Nov 14, 2017 7:06:41 PM | 81
Posted by: Tacitus | Nov 14, 2017 6:22:47 PM

Typepad insists on a viable email address - not your real one just a viable one whose mail server will respond to a call. mailinatorDOTcom (remove the DOT & replace with . to visit) is one of many spam dodging sites which will enable a poster to post here, plus let you use it to sign up to all sorts of BBs forums etc. They have a rotating list of email server suggestions. otherwise joblo(or whatever) at gmail will do the trick most times.

Curtis | Nov 14, 2017 7:26:18 PM | 82
Another plan to get the US to fight another war that benefits zionists, this time against Iran. I wonder who is in the role of Lord Balfour.
I like the idea of an independent religious Jerusalem city, I doubt either party will go for it. The same goes for an Israeli agreement for nuke parity with Saudis or a single open state for Palestinians. While many Palestinians want their own state and even some in Israel want this (including some Shin Bet officials) there are others who say it is too late due to the proliferation of settlements in West Bank. These others (like Miko Peled) say a single state as the only option left. It seems to be a very convoluted (Rube Goldberg?) solution to getting a united front to attack Iran and "solve" the Palestinian issue.
Joe | Nov 14, 2017 7:38:35 PM | 83
@Just sayin, perhaps you could spell it out for me then, but if all you got is name calling maybe you should stfu, kindly that is
Ghostship | Nov 14, 2017 7:45:48 PM | 84
>>>> CarlD | Nov 14, 2017 1:36:09 PM | 56
Video evidence of tactical weapons used in Yemen and other conflicts:

I doubt it, they all look like large conventional explosions to me.

The ones in Ukraine are from a detonation of a large weapons dump while the Saudis managed to hit a rocket manufacturing plant in Yemen that resulted in a very large explosion.

Daniel | Nov 14, 2017 7:46:39 PM | 85
Thanks for the link, CarlD. I think it entirely possible that 'tactical nukes" have been used. I would expect that at some point, a credible, government-tied group will report that these weapons have been used. This will serve to normalize their use in the future. People will feel that since they'd been used already, and we all survived, that using them again will not be so horrifying/dangerous.

More and more I'm thinking that humanity has reached the end of our rope, and we will have deserved it when the trapdoor finally springs.

Daniel | Nov 14, 2017 7:57:51 PM | 86
Mina @64. BBC is running that same "video game" story. In fact, on their Middle East News page earlier, they had both this and their "expose" of the US helping ISIL escape arrangement.
anonimo | Nov 14, 2017 8:11:53 PM | 87
and the big plan goes on:

get Jerusalem for the Vatican !!!

Grieved | Nov 14, 2017 8:42:04 PM | 88
@73 Joe

I hadn't even considered the aspect of that gas trading in dollars. Now there's a resource grab the US could really like.

I'm not actually at the point of thinking anything will happen, anywhere. There are simply no geopolitical advantages in any of the plays being mooted.

But there actually does seem at first glance to be some potentially cost-effective gain in plundering Qatar. Kind of wish no one had thought of it - I'd much rather see a cooperation develop between Iran and Qatar, the way it recently started to look like it might go.

As to your getting trolled, I will say that with what I've seen in the last few years, even with what I've seen in just the last few weeks, there's nothing I've ever encountered anywhere that says it's NOT the pipelines.

Perimetr | Nov 14, 2017 9:36:42 PM | 89
RE: Daniel | Nov 14, 2017 7:46:39 PM | 85, CarlD | Nov 14, 2017 1:36:09 PM | 56

I agree with Ghostship, no nukes have been used. The thermal signature from a nuclear detonation is unmistakable, it is many, many orders of magnitude greater than produced by a conventional explosive. Not to mention the by-products of fission, which are always produced by a nuke and are always detectable.
You will know when a nuke is used, believe me.

Peter AU 1 | Nov 14, 2017 10:15:21 PM | 90
Joe / Grieved
Best to discount nothing. Qatar gas the target? Quite possible. Pipelines for Qatar or in Joes theory, Saudi gas. Again possible.
Most depends on what Trump is behind the facade. The facade is the simple minded buffoon that makes a decision on what he has last seen on Fox news. What he has just pulled off with MBS...
My thoughts on Trump at the moment, what is real and not facade. He wants to return the US to the power is was post WWII and through the cold war era. Manufacturing power ect. The big thing, prevent China from overtaking US economicaly which would also mean overtaking the US in science tech and military. Hence the many meetings with Kissinger earlier, Kissinger meeting Putin ect.
Trump needs to seperate Russia and China. Russia is no threat to the US whereas economicaly China is the only threat the US faces (apart from itself).

Back to making America great again and gas. Saudi Arabia has oil (supposedly) and US has shale gas. Oil and gas are complementary to each oither rather than competitors. Gas prices are basicaly set by oil prices. The main competitors to US shale is Russian gas and Pars, both of which can be piped to where the gas is in demand. In my reading of Trump, which may not be right, Pars would have to be either US controlled/owned or unable to pipe gas.
The option there I guess is joint US Saudi control of pars.

All depends on what Trump is behind the facade.

Thoughts ??

Daniel | Nov 14, 2017 10:27:25 PM | 91
Perimetr @89

I would agree that it would be impossible to mistake a powerful hydrogen bomb for any sort of conventional bomb. That's not what is being proposed here, though.

Do you know about the "Davy Crocket" mini-nuke from the 1950s?

https://www.youtube.com/watch?v=eiM-RzPHyGs

Those were even carried in backpacks by the 1950s version of Special Ops soldiers. Since then, fission-fusion hybrid, mini-hydrogen and neutron bombs have been made. As I'm sure you'd agree, military technology is always far beyond what the public is allowed to know.

Like today's B61-12, the Davy Crockets could be dialed to produce explosions of greatly varying power.

https://www.globalsecurity.org/wmd/systems/b61.htm

The Soviet Union actually developed nuclear bullets!

https://southfront.org/nuclear-bullets-dangerous-soviet-project/

So, the range of even publicly known nuclear weapons is pretty great. Some of the explosions recorded in the past few years can be clearly seen as INCREASING in power as the explosion progresses. Though not impossible in some sort of thermobaric bomb, that is a signature of many nuclear bombs.

heath | Nov 14, 2017 10:31:40 PM | 92
Point 1 why would Israel give up its nukes?
Alaric | Nov 14, 2017 10:36:12 PM | 93
I don't buy this at face value. I suspect MBS used the threat of war on Lebanon as a distraction from his counter coup. The possibility of battle with Iran is a fear factor he exploits to stop a revolt against him.

The leaked plan and leaked Israeli wire to its embassies are both quite suspicious. Its possible the Israelis are helping MBS. It's just as possible that MBS' foes in Saudi, or the CIA, are leaking these things to embarrass MBS. All are in fact embarrassing to MBS. I don't know but everything about this is surreal. For all we know MBS' moves are just an aid to finish the counter coup and to drive up oil prices. Saudi needs cash. We should expect the very wealthy Saudi opposition to strike back in the media, and it's possible the intelligence community and state department support different sides here.

LNG man | Nov 14, 2017 10:41:32 PM | 94
To enable LNG, Kushner's army [US_I:SA] has been designed to colonize the Syria:Russian: Yemen:Qatar:Iran:Libya (SRYQIL) oil, gas competition, so that LNG can be port to port marketed. All eyes on LNG.

Posted by: LNG man |


Yeah, Right | Nov 14, 2017 10:47:39 PM | 95
@92 "Point 1 why would Israel give up its nukes?"

They wouldn't.

The Israelis might be willing to discuss this - maybe - but only if those discussions are "decoupled" from the issue of the Saudis altering the 2003 Saudi Peace Initiative so that Israel gets everything it wants, while the only thing the Palestinians get is their marching orders.

The Israelis will then pocket that neutered Saudi Peace Initiative (in essence, it would become the Netanyahu Land Grab Initiative, with the Saudis in the role of stenographer) and then proceed to endlessly delay, deflect and derail any negotiations towards a Middle East Nuclear Free Zone.

Something for nothing, which MbS ending up holding that Big Ol' Bag Of Nothin'.

Peter AU 1 | Nov 14, 2017 11:11:29 PM | 96
LNG man | Nov 14, 2017 10:41:32 PM | 94

LNG port to port is not competitive with Russian piped gas. From what I can see, US needs to either ensure they have control of alternative piped gas, or try and shut down pipes so they can flog shale LNG.

Stumpy | Nov 14, 2017 11:31:52 PM | 97
b's post here is articulate and cogent as ever and I cast no aspersion at him or fellow commenters. However, as far as I'm concerned the KSA-Israel drawing up these "accords" is all a pile of sabre-rattling and poseurism crap.

Anything touched by the KSA is a pile of B.S. e.g. the Qatar ultimatum. Anything said by Israel fits the purpose at the time if it varies with their expansionist/farengi code of conduct.

The only way I see any of this playing out is an interlocking web of extortion that compels the two weaker parties to conform to the will of the stronger, in my opinion Israel.

Who knows if Lebanon will cower under the threat but if the Iranian alliance bares its teeth, let's remember that their reach is likely global and likely already in place at key targets. The stupidity of launching a shooting war in the ME with Iran and Israel involved does not mean that someone will not dance the situation right up to the brink.

It's the Asian thrust we should consider, from China to Turkey via Russia. I would guess, and only guess, that Russia and China would most likely wait it out and pick up the pieces during ending credits, or become minimally involved only to prevent a breakout. Can't assume anything here.

Wouldn't it be interesting if the US/KSA/IZ trio throws everything into beating Iran only to have another player open a play to seize the Pacific? Pretty wild.

Debsisdead | Nov 15, 2017 12:40:03 AM | 98
Posted by: Stumpy | Nov 14, 2017 11:31:52 PM |

I reckon you're correct Stumpy. Over the years there have been many "amerika will attack Iran" scares - all have passed by without major incident despite the concerns of MoA-ites that "anything could happen in the next two hours"
It is highly likely that eventually some greedy opportunist with a hat size about 4 times larger than his dick measurement will eventually have a crack at taking down Iran, but I don't reckon we're anywhere near that point yet.

As far as 'world peace' & justice for suffering indigenous people goes, today I'm much more concerned about events in Zimbabwe.
Hopefully the military is acting out in order to protect the socialist revolution from greedies & nepotists, and not using the occasion of President Mugabe's age disorders to subvert the revolution by aiding africacom and the world bank oecd mob to boost the amerikan empire's consumption of one of the few remaining independent sovereign entities still surviving on this old rock.

Whatever does happen in Zimbabwe over the next week, few will be paying much interest whilst corporate media distracts so many with tall tales of the dissolute instincts of poor people everywhere.

Hmpf | Nov 15, 2017 2:01:08 AM | 99
@57

Utter nonsense! Large scale conventional; exploding tightly stacked munitions in a large ammo dump by means of sympathetic detonation. Large quantities of explosives going off must create a mushroom cloud - this is gas dynamics. Afterburning in the rising cloud results from hot oxygen-deficient stythe mixing with air which in return helps sustaining the upward momentum of the plume.

somebody | Nov 15, 2017 2:06:02 AM | 100
Posted by: Debsisdead | Nov 15, 2017 12:40:03 AM | 98

Look, Mugabe is 93. Have you ever been around anyone that age? It is very likely that he is not in any power, but the people who wake him up.

According to German media, Mugabe's wife made him dismiss the vice chancellor who probably had been doing the real work.

So all the army might be doing is to prevent the family from taking over.

[Nov 13, 2017] An attempt to drive up oil and distract from the MBS purge?

Nov 13, 2017 | www.moonofalabama.org

http://www.zerohedge.com/news/2017-11-12/arab-league-hold-urgent-meeting-iran-saudis-mobilize-f-15-fighter-jets

Posted by: Alaric | Nov 12, 2017 4:12:40 PM | 5

[Nov 11, 2017] If The Saudi Arabia Situation Doesn't Worry You, You're Not Paying Attention Zero Hedge

Nov 11, 2017 | www.zerohedge.com

This pivotal agreement allowed KSA to secretly recycle its surplus petrodollars back into US Treasuries while receiving US military protection in exchange. The secret was kept for 41 years, only recently revealed in 2016 due to a Bloomberg FOIA request:

The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America's spending.

It took several discreet follow-up meetings to iron out all the details, Parsky said. But at the end of months of negotiations, there remained one small, yet crucial, catch: King Faisal bin Abdulaziz Al Saud demanded the country's Treasury purchases stay "strictly secret," according to a diplomatic cable obtained by Bloomberg from the National Archives database.

"Buying bonds and all that was a strategy to recycle petrodollars back into the U.S.," said David Ottaway, a Middle East fellow at the Woodrow Wilson International Center in Washington. But politically, "it's always been an ambiguous, constrained relationship."

( Source )

The essence of this deal is pretty simple. KSA wanted to be able to sell its oil to its then largest buyer, the USA, while also having a safe place to park the funds, plus receive military protection to boot. But it didn't want anybody else, especially its Arab neighbors, to know that it was partnering so intimately with the US who, in turn, would be supporting Israel. That would have been politically incendiary in the Middle East region, coming as it did right on the heels of the Yom Kipper War (1973).

As for the US, it got the oil it wanted and – double bonus time here – got KSA to recycle the very same dollars used to buy that oil back into Treasuries and contracts for US military equipment and training.

Sweet deal.

Note that this is yet another secret world-shaping deal successfully kept out of the media for over four decades. Yes Virginia, conspiracies do happen. Secrets can be (and are routinely) kept by hundreds, even thousands, of people over long stretches of time.

Since that key deal was struck back in the early 1970s, the KSA has remained a steadfast supporter of the US and vice versa. In return, the US has never said anything substantive about KSA's alleged involvement in 9/11 or its grotesque human and women's rights violations. Not a peep.

Until recently.

Then Things Started To Break Down

In 2015, King Salman came to power. Things began to change pretty quickly, especially once he elevated his son Mohammed bin Salman (MBS) to a position of greater power.

Among MBS's first acts was to directly involve KSA into the Yemen civil war, with both troops on the ground and aerial bombings. That war has killed thousands of civilians while creating a humanitarian crisis that includes the largest modern-day outbreak of cholera, which is decimating highly populated areas. The conflct, which is considered a 'proxy war' because Iran is backing the Houthi rebels while KSA is backing the Yemeni government, continues to this day.

Then in 2016, KSA threatened to dump its $750 billion in (stated) US assets in response to a bill in Congress that would have released sensitive information implicating Saudi Arabia's involvement in 9/11. Then-president Obama had to fly over there to smooth things out. It seems the job he did was insufficient; because KSA-US relations unraveled at an accelerating pace afterwards. Mission NOT accomplished, it would seem.

In 2017, KSA accused Qatar of nefarious acts and made such extraordinary demands that an outbreak of war nearly broke out over the dispute. The Qatari leadership later accused KSA of fomenting 'regime change', souring the situation further. Again, Iran backed the Qatar government, which turned this conflict into another proxy battle between the two main regional Arab superpowers.

In parallel with all this, KSA was also supporting the mercenaries (aka "rebels" in western press) who were seeking to overthrow Assad in Syria -- yet another proxy war between KSA and Iran. It's been an open secret that, during this conflict, KSA has been providing support to some seriously bad terrorist organizations like Al-Qaeda, ISIS and other supposed enemies of the US/NATO. (Again, the US has never said 'boo' about that, proving that US rhetoric against "terrorists" is a fickle construct of political convenience, not a moral matter.)

Once Russia entered the war on the side of Syria's legitimate government, the US and KSA (and Israel) lost their momentum. Their dreams of toppling Assad and turning Syria into another failed petro-state like they did with Iraq and Libya are not likely to pan out as hoped.

But rather than retreat to lick their wounds, KSA's King Salman and his son are proving to be a lot nimbler than their predecessors.

Rather than continue a losing battle in Syria, they've instead turned their energies and attention to dramatically reshaping KSA's internal power structures:

Saudi Arabia's Saturday Night Massacre

For nearly a century, Saudi Arabia has been ruled by the elders of a royal family that now finds itself effectively controlled by a 32-year-old crown prince, Mohammad bin Salman. He helms the Defense Ministry, he has extravagant plans for economic development, and last week arranged for the arrest of some of the most powerful ministers and princes in the country.

A day before the arrests were announced, Houthi tribesmen in Yemen but allied with Iran, Saudi Arabia's regional rival, fired a ballistic missile at Riyadh.

The Saudis claim the missile came from Iran and that its firing might be considered "an act of war."

Saudi Arabia was created between the two world wars under British guidance. In the 1920s, a tribe known as the Sauds defeated the Hashemites, effectively annexing the exterior parts of Saudi Arabia they did not yet control. The United Kingdom recognized the Sauds' claim shortly thereafter. But since then, the Saudi tribe has been torn by ambition, resentment and intrigue. The Saudi royal family has more in common with the Corleones than with a Norman Rockwell painting.

The direct attack was undoubtedly met with threats of a coup. Whether one was actually planned didn't matter. Mohammed Bin Salman had to assume these threats were credible since so many interests were under attack. So he struck first, arresting princes and ex-minsters who constituted the Saudi elite. It was a dangerous gamble. A powerful opposition still exists, but he had no choice but to act. He could either strike as he did last Saturday night, or allow his enemies to choose the time and place of that attack. Nothing is secure yet, but with this strike, there is a chance he might have bought time. Any Saudi who would take on princes and clerics is obviously desperate, but he may well break the hold of the financial and religious elite.

( Source )

This 32 year-old prince, Mohammed bin Salman has struck first and deep, completely upending the internal power dynamics of Saudi Arabia.

He's taken on the political, financial and religious elites head on. For example, pushing through the decision to allow women to drive; a provocative move designed to send a clear message to the clerics who might oppose him. That message is: "I'm not fooling around here."

This is a classic example of how one goes about purging the opposition when either taking over a government after a coup, or implementing a big new strategy at a major corporation. You have to remove any possible opponents and then install your own loyalists. According the Rules for Rulers , you do this by diverting a portion of the flow of funds to your new backers while diminishing, imprisoning or killing all potential enemies.

So far, Mohammed bin Salman's action plan is par for the course. No surprises.

The above article from Stratfor (well worth reading in its entirety) continues with these interesting insights:

The Iranians have been doing well since the nuclear deal was signed in 2015. They have become the dominant political force in Iraq . Their support for the Bashar Assad regime in Syria may not have been enough to save him, but Iran was on what appears to be the winning side in the Syrian civil war. Hezbollah has been hurt by its participation in the war but is reviving, carrying Iranian influence in Lebanon at a time when Lebanon is in crisis after the resignation of its prime minister last week.

The Saudis, on the other hand, aren't doing as well. The Saudi-built anti-Houthi coalition in Yemen has failed to break the Houthi-led opposition. And Iran has openly entered into an alliance with Qatar against the wishes of the Saudis and their ally, the United Arab Emirates.

Iran seems to sense the possibility of achieving a dream: destabilizing Saudi Arabia , ending its ability to support anti-Iranian forces, and breaking the power of the Sunni Wahhabis. Iran must look at the arrests in Saudi Arabia as a very bad move. And they may be. Mohammad bin Salman has backed the fundamentalists and the financial elite against the wall.

They are desperate, and now it is their turn to roll the dice. If they fall short, it could result in a civil war in Saudi Arabia. If Iran can hit Riyadh with missiles, the crown prince's opponents could argue that the young prince is so busy with his plans that he isn't paying attention to the real threat. For the Iranians, the best outcome is to have no one come out on top.

This would reconfigure the geopolitics of the Middle East, and since the U.S. is deeply involved there, it has decisions to make.

So given Yemen, Syria, and its recent domestic purges, Saudi Arabia is in turmoil. It's in a far weaker position than it was a short while ago.

This leaves the US in a far weaker regional position, too, at precisely the time when China and Russia are increasing their own presence (which we'll get to next).

But first we have to discuss what might happen if a civil war were to engulf Saudi Arabia. The price of oil would undoubtedly spike. In turn, that would cripple the weaker countries, companies and households around the world that simply cannot afford a higher oil price. And there's a lot of them.

Financial markets would destabilize as long-suppressed volatility would explode higher, creating horrific losses across the board. That very few investors are mentally or financially prepared for such carnage is a massive understatement.

So..if you were Saudi Arabia, in need of helpful allies after being bogged down in an unwinnable war in Yemen, just defeated in a proxy war in Syria, and your longtime 'ally', the US, is busy pumping as much of its own oil as it can, what would you do?

Pivot To China

Given its situation, is it really any surprise that King Salman and his son have decided to pivot to China? In need of a new partner that would align better with their current and future interests, China is the obvious first choice.

So in March 2017, only a very short while after Obama's failed visit, a large and well-prepared KSA entourage accompanied King Salman to Beijing and inked tens of billions in new business deals:

China, Saudi Arabia eye $65 billion in deals as king visits

Mar 16, 2017

BEIJING (Reuters) - Saudi Arabia's King Salman oversaw the signing of deals worth as much as $65 billion on the first day of a visit to Beijing on Thursday, as the world's largest oil exporter looks to cement ties with the world's second-largest economy.

The deals included a memorandum of understanding (MoU) between giant state oil firm Saudi Aramco and China North Industries Group Corp (Norinco), to look into building refining and chemical plants in China.

Saudi Basic Industries Corp (SABIC) and Sinopec, which already jointly run a chemical complex in Tinajin, also agreed to develop petrochemical projects in both China and Saudi Arabia.

Salman told Xi he hoped China could play an even greater role in Middle East affairs, the ministry added.

Deputy Chinese Foreign Minister Zhang Ming said the memorandums of understanding and letters of intent were potentially worth about $65 billion, involving everything from energy to space.

( Source )

This was a very big deal in terms of Middle East geopolitics. It shook up many decades of established power, resulting in a shift away from dependence on America.

The Saudis arrived in China with such a huge crowd in tow that a reported 150 cooks had been brought along to just to feed everyone in the Saudi visitation party.

The resulting deals struck involved everything from energy to infrastructure to information technology to space. And this was just on the first visit. Quite often a brand new trade delegation event involves posturing and bluffing and feeling each other out; not deals being struck. So it's clear that before the visit, well before, lots and lots of deals were being negotiated and terms agreed to so that the thick MOU files were ready to sign during the actual visit.

The scope and size of these business deals are eye catching, but the real clincher is King Salman's public statement expressing hope China will play " an even greater role in Middle East affairs."

That, right there, is the sound of the geopolitical axis-tilting. That public statement tells us everything we need to know about the sort of change the Salman dynasty intends to pursue.

So it should have surprised no one to hear that, in August this year, another $70 billion of new deals were announced between China and KSA . The fanfare extolled that Saudi-Sino relations had entered a new era, with "the agreements covering investment, trade, energy, postal service, communications, and media."

This is a very rapid pace for such large deals. If KSA and China were dating, they'd be talking about moving in together already. They're clearly at the selecting furniture and carpet samples stage.

As for the US? It seems KSA isn't even returning its calls or texts at this point.

You Ain't Seen Nothing Yet...

All of the above merely describes how we arrived at where things stand today.

But as mentioned, the power grab underway in KSA by Mohammed bin Salman is unfolding in real-time. Developments are happening hourly -- while writing this, the very high-profile Prince Bandar bin Sultan (recent head of Saudi Intelligence and former longtime ambassador to the US) has been arrested .

The trajectory of events is headed in a direction that may well end the arrangement that has served as the axis around which geopolitics has spun for the past 40 years. The Saudis want new partners, and are courting China hard.

China, for reasons we discuss in Part 2 of this report, has an existential need to supplant America as Saudi Arabia's most vital oil customer.

And both Saudi Arabia and China are inking an increasing number of strategic oil deals with Russia. Why? We get into that in Part 2, too -- but suffice it to say, in the fast-shifting world of KSA foreign policy, it's China and Russia 'in', US 'out'.

Maybe not all the way out, but the US clearly has lost a lot of ground with KSA over the past few years. My analysis is that by funding an insane amount of shale oil development, at a loss, and at any cost (such as to our biggest Mideast ally) the US has time and again displayed that our 'friendship' does not run very deep. In a world where loyalty counts, the US has proved a disloyal partner. Can China position itself to be perceived of as a better mate? When it comes to business, I believe the answer is 'yes.'

In Part 2: The Oil Threat we couple these developments with China and Russia's recent efforts to drop the dollar from trade, especially when purchasing oil, and clearly see the unfolding of the biggest new driver of the world's financial, monetary and geopolitical arrangements in 50 years.

We also explain why, unless something very dramatically changes in either the supply or demand equation for oil, and soon, we can now put a timeline in place for when the great unraveling begins. Somewhere between the second half of 2018 and the end of 2019 oil will dramatically increase in price and that will shake the foundations of the global mountain of debt and its related underfunded liabilities. Think 9.0 on the financial Richter scale.

Let me be blunt - you have to have your preparations done before this happens. You really, really want to be a year early on this (at least). When it starts happening, the breakdown will progress faster than you can react.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Escrava Isaura -> bobcatz , Nov 11, 2017 1:59 PM

The reason that the world is moving towards China this fast, it's because of Trump.

Trump is too radical, and that's why these nations are running for the exit.

"Trump's policies are taking a whole bunch of countries that were already worried about America's commitment to lead and America's commitment to its alliances. China also wants to be seen now as promoting globalization, promoting free trade, particularly for countries in Asia that don't want to count on the U.S." -- Ian Bremmer

TeethVillage88s -> Escrava Isaura , Nov 11, 2017 2:31 PM

Wot about Dick Cheney, Alberto Gonzales, Don Rumsfeld, G.W.B., Weapons of Mass Destruction in Iraq, Colin Powell, John Bolton, Condaleza Rice, Samantha Powers, Kagan, Susan Rice, Hilary Clinton, Clinton Foundation, noecons, McCain, Lindsey Graham, Phil Gramm, TBTF

Stuck on Zero -> williambanzai7 , Nov 11, 2017 1:09 PM

Grab your popcorn and watch to see whether the New Ottoman or New Persian Empire emerges the victor.

Grimaldus -> Stuck on Zero , Nov 11, 2017 2:08 PM

You seem to know the difference, a very basic one at that but the author does not.

"In 2017, KSA accused Qatar of nefarious acts and made such extraordinary demands that an outbreak of war nearly broke out over the dispute. The Qatari leadership later accused KSA of fomenting 'regime change', souring the situation further. Again, Iran backed the Qatar government, which turned this conflict into another proxy battle between the two main regional Arab superpowers."

Iran is Arab? I don't think so.

I tend to be skeptical when I see "breathless enthusiasm" touting the sky is falling geopolitically (which it always is ) and then the "Iran is Arabs" thing just killed it for me.

Oh well. I apologize for nit-picking and will get some popcorn.

Escrava Isaura -> Grimaldus , Nov 11, 2017 2:32 PM

That aside, the article still pretty good.

The core issues for the American living standards are:

The price of oil

And the Petrodollar

Lose control of these two and American living standard is over.

The only alternative left is force -- war.

apoplectic query , Nov 11, 2017 11:54 AM

Look on the bright side. Many of those rounded up were funding corrupt polititians in DC. And ISIS. And terrorist acts in the US, like Vegas and 911.

2banana -> apoplectic query , Nov 11, 2017 12:05 PM

"the kingdom also provides with full enthusiasm 20 percent of the cost of Hillary Clinton's campaign,"

-- Prince Mohammed bin Salman, 2016

The Clinton Foundation, which is chaired by both Hillary and her husband Bill Clinton, disclosed in 2008 that it had accepted up to US$25 million from the Saudi Kingdom in the same year.

Other foreign governments who have donated money to the Clintons include Norway, Kuwait, Qatar, Brunei, Oman, Italy and Jamaica, which together donated around US$20 million.

fearnot -> DelusionalGrandeur , Nov 11, 2017 12:18 PM

Now I see the big picture. The fuse to the mother of all "Truth bombs" as Bill Holter coined has just been lit and the fuse is short. Until now I personally never really saw the Rockefeller- Langley clan and its comrades all getting cleaned out with the fall of Petro Dollar. But it is the only way. And with that the NY Fed as Dudley knows will lose its narco money and means to support the dollar and its terror on mankind. The fall of Petro Dollar is the only means to the end of the evil and the evil doers of the last 40 years perpetrated by the psychopaths using the petro dollar as its fuel to the weapon of mass destruction. Alice in Wonderland America is about to go Mad Max.

The 1 hour Perpetual Asset interview "The Saudi Straw That Broke the Petro Dollar's Back" with Jim Willie on October 10 is well worth listening. https://m.youtube.com/watch?v=yY9j6vvCFE0 The conclusion laid out in interview is simple and brilliant, Langley (Bush-Clinton- Narco-CIA-Banker-Neo-Psycopaths) and the clear headed leaders in the Pentagon are having it. Peacock MBS caught in the middle trying to save his own neck and Kingdom is collateral damage.

After listening to interview, I ran across two zero hedge links below. The first article makes some very poignant and interesting points that reinforce the dollars end game that we are approaching. The markets have not caught on yet but will with a vengeance.

In the second article taking Bandar out must worry the Bush-Clinton- Narco-CIA-Banker-Neo-Psycopaths more than we can imagine. The last two paragraphs of article sum it up nicely. Time to pay the piper & the devil wants souls. All the gold, wealth, and power won't save them. From the looks of Trump/Putin in Vietnam not to mention Trump's warm welcome from Xi in China the heads of state seem jubilant in what is quickly spinning out of control for the psychopaths of debt, destruction, conquer, divide and slavery. Trump "strangely" pointed out that China and US need to jointly oversee security in Afghanistan which of course will be necessary to police while eliminating 1300 tons of opium production.

The PPT NYFed's actions in paper gold market this week seemed desperate. GS has to be feeling the heat.

1- Fischer and now Dudley resign. Hopeful to hear the latter is leaving BIS as well.

2- Powell a Carlye Group flunky was a brilliant FED appointment to appear to be status quo to ignorant market but is more likely a double agent than Bush butt buddy.

3- expect Cohn to give his resignation soon.

4- Expect NY Attorney General Eric Tradd Schneiderman to resign or do a 180

5- expect David A. Markowitz hired by Goldman in 2010 from the New York Attorney General's office to resign. He defended GS in their NYFed collusion/corruption case

http://www.zerohedge.com/news/2017-11-10/end-end-history-us-mid-east-pol...

http://www.zerohedge.com/news/2017-11-10/saudi-deep-state-prince-bandar-...

SoDamnMad -> otschelnik , Nov 11, 2017 2:11 PM

I have heard for almost a decade that KSA has been pumping some of their fields too fast requiring huge amounts of seawater to be pumped in to get the flow rates to stay high. Some oil professionals who know this also scoffed at the huge Aramco IPO value saying the oil isn't all there. Not sure what will happen with the teams set to rumble but I will bet Israel will make the first strike to use the element of surprise. I hope the fleet is ready and gets the carriers out of the Persion Gulf.

silverer -> Cluster_Frak , Nov 11, 2017 1:16 PM

Actually, the Saudi group is just climbing onto another life boat. They're the ones that made the US Ponzi possible by nodding to the US dollar as the reserve currency many years ago. They will force the US to face the music holding a 20 trillion debt. Now China gets a 20 to 30 year fiat ride like the US had. If they're careful, it could last much longer. In the US, there's nothing left floating to hang onto. Maybe some fracked oil for awhile, but it will have to go at a bargain price. The Saudis and Russia can cover a huge amount of the world's consumption. Big bank loans are piled all over the entire US economy. In order for the banks to save themselves, they've weighted down even the grunts at the bottom with eight year car loans which should have never been issued. With everything underwater, and the inability to export inflation by holding the reserve currency exclusively, the US is in for a major ass whooping. Better learn some basic camping skills.

Herdee , Nov 11, 2017 12:26 PM

Alasdair Macleod shines light on the current situation:

https://www.silverdoctors.com/gold/gold-news/london-analyst-first-the-cr...

[Nov 10, 2017] Kingdom Of Fear Saudi Arabia On Lockdown OilPrice.com

Nov 10, 2017 | oilprice.com

It is difficult to predict where all this will lead. Some, like Dennis Gartman, warn that although the immediate impact of the latest Saudi events is positive for prices, it will turn negative in the longer run as this sort of instability is unsustainable. Others, such as Morgan Stanley's commodity analysts, are revising upwards their oil price forecasts, encouraged by these same events. OPEC's Vienna meeting, where the cartel will discuss the extension of the oil production cut it agreed almost a year ago, is less than a month away. There are voices suggesting that Saudi Arabia could make a U-turn on its support for the deal in light of the now higher prices resulting from its internal tumult and the spike in tensions with Iran.

In the meantime, the Ritz-Carlton in Riyadh is fully booked until February, as per the hotel's website, and all guests were asked to leave or had their reservations cancelled.

[Nov 10, 2017] Why Saudi Arabia's Crackdown Sent Oil Prices Soaring OilPrice.com

Nov 10, 2017 | oilprice.com

The short-term outlook was bullish: MBS is seen as a key supporter for the OPEC policy of measured production cuts, and his consolidation of power means the cuts are likely to be maintained and extended through the rest of next year.

Conversely, rising prices may also signal increase instability in Saudi Arabia: there are signs that the crackdown may have been meant to stave off a more substantive challenge to MBS from upper-echelon figures in the Saudi hierarchy. The uncertainty in future Saudi oil policy has created a bull market. While MBS is known to favor an extension of production cuts, the turmoil within the Saudi ruling elite could signal a shift in policy in advance of the November 30 OPEC meeting in Vienna, where an extension to production cuts is expected to dominate the agenda

[Nov 10, 2017] Massive $43bn US-China gas deal seen as far from reality

That's another big set back for Russia
Notable quotes:
"... Alaska LNG, backed by the state-run Alaska Gasline Development Corp, anticipates a long pipeline carrying the fuel from the North Slope, which has proven gas reserves of over 35 trillion cubic feet. The state governor Bill Walker plans to sign final agreements by the end of next year, with groundbreaking in 2019. ..."
Nov 10, 2017 | www.rt.com

A preliminary gas deal worth over $43 billion sealed between China and the US State of Alaska is far from guaranteed, according to experts. On Thursday, China's biggest state-run energy corporation Sinopec, along with one of the country's top banks and a sovereign wealth fund agreed to go ahead with an export terminal for liquefied natural gas (LNG) in Alaska as well as a 1,290-kilometer pipeline to deliver fuel to China. The project is aimed at developing facilities so gas can be piped to the Alaska coast, where it can be liquefied and shipped to China and other Asian countries.

The announcement, which lacked any details about binding agreements or financing, was made during US President Trump's visit to China. However, some analysts are saying the project is not likely to go ahead.

"This is a typical announcement that comes out of these big summits. You really can't build, or get financing for a big project, unless all those pieces are in place," said Jason Feer of energy consultancy Poten & Partners, as quoted by Reuters.

Alaska LNG, backed by the state-run Alaska Gasline Development Corp, anticipates a long pipeline carrying the fuel from the North Slope, which has proven gas reserves of over 35 trillion cubic feet. The state governor Bill Walker plans to sign final agreements by the end of next year, with groundbreaking in 2019.

The lengthy pipeline could cost a billion dollars, according to Larry Persily, former US coordinator for Alaska natural gas projects. Persily added that multinationals such as BP, ExxonMobil and ConocoPhillips had been working on the pipeline enterprise, but stepped away.

"If companies don't think this is a good time to put their money into it, why should the state? As the governor has explained, the state has an overriding interest in getting this done -- companies have other places they can invest their money," he said as quoted by AP.

China is trying to fight pollution and get rid of its reliance on coal and is chasing more supplies of natural gas, according to Mark Barteau, director of the University of Michigan's Energy Institute, as quoted by the agency.

"They have exhibited a long-term interest in having a large and secure gas supply, and I think this is just perhaps the largest -- but by no means the first -- step they've taken to achieve that," he said.

See also

[Nov 10, 2017] Paradise Papers Reveal U.S. Selling Russian LNG In Europe by Irina Slav

Nov 10, 2017 | oilprice.com

Nov 10, 2017

The documents suggest that a company with U.S. ownership is buying Russian gas from petrochemical giant Sibur, and then selling it -- at a profit, of course -- to the European Union, which is in a rush to build as many LNG terminals as it can in a bid to reduce its dependence on Russian gas.

If the reports are true, the situation is an ironic one for Europe: while trying to reduce its dependence on Russian gas it is inadvertently increasing it and is even paying more for it than it would if it bought the extra loads directly from Gazprom.

One might wonder how a U.S. company is able to do business with a Russian one. It's simple: Wilbur Ross himself said earlier this week that Sibur is not a subject to sanctions, so for Navigator Holdings and the petrochemical giant, everything is business as usual.

[Nov 10, 2017] Beware MSM propaganda: CNBC is claiming the US set a "record" with regard to oil production last week.

Nov 10, 2017 | peakoilbarrel.com

shallow sand

says: 11/08/2017 at 1:12 pm
CNBC is claiming the US set a "record" with regard to oil production last week.
Dennis Coyne says: 11/08/2017 at 1:57 pm
Hi Shallow sand,

As I am sure you know the record was Nov 1970 at 10,044 kb/d for the monthly average US C+C output.

This past week was 9620 kb/d, over 400 kb/d below the record. (This weekly data is probably too high by at least 300 kb/d and perhaps as much as 600 kb/d.)

If they are talking about C+C+NGL, we don't have data going back to 1970, but maybe they are talking about C+C+NGL which might be higher than Nov 1970, no NGL data so it would be a claim that is hard to refute with data.

Not a record for crude plus condensate. Also not a record for products supplied that was 21,666 kb/d in August 2005, last week was 21,301 kb/d.

shallow sand says: 11/08/2017 at 3:18 pm
Dennis. Yes. Just pointing out another dubious MSM story.
Dennis Coyne says: 11/09/2017 at 2:34 pm
Hey shallow sand,

WTI is looking pretty good, here's to $65/b soon!

Despite impressions to the contrary, I do hope all you oil guys do well.

I expect prices will tend to be high from now until 2030 so it will be good for the nest egg, or for selling your property at retirement time.

OFM says: 11/10/2017 at 5:54 am
I likewise wish all the regulars here, and all the hands on people in the oild industry, well. And there's every reason in my own personal opinion to believe that times will be good for them for another ten or twenty years at least.

But I wouldn't advise a child of my own to make a career out of oil. There's no stopping depletion. It can't even be fought to a draw like the sea, one voyage at a time.

Somebody somewhere must have compiled a list of oil towns and communities in the USA that went broke when the oil ran out, locally. I'm hoping to discover it someday and put it in my book. It's probably a pretty long list.

A lot of people think otherwise, but I'm dead sure there will be a market for oil even at two hundred dollars a barrel, in present day money, for at least another twenty or thirty years. It would be much smaller market, but it would still be there, because it's not likely imo that we can electrify all the industries that depend on oil any quicker if we can do it at all in some industries.

After a century plus of constant improvement, we don't have internal combustion engines five times as good as we did a century ago. There's no guarantee we will ever have batteries five or more times as good as the ones we have now.

shallow sand says: 11/10/2017 at 9:03 am
OFM. When our field came in during the first decade of the 1900s, a stop on the railroad grew to over 10,000 people, many living in tents. A post office, bank, hotel and 13 saloons were built.

Current poplulation is 100. Just houses, no businesses. But hundreds of oil wells still pumping in all directions, to this day.

Eulenspiegel says: 11/10/2017 at 9:22 am
Is this stripper business, or still active development?

I can't imagine hundreds of wells in maintainance without a local support industry: repairing shops, truck yards for all the special vehicles, a burger shop for the wait times and so on – business around oil. Mainly maintaince, but you can't order always a worker from hundred miles away to fix broken pumps, electric, mechanics, pipes, valves, have transport trucks (or is it all pipelined?).

Oil business is not my speciality, but when I was in the USA in the oil provinces there was lots of business around oil. Lots of installations means lots of people having to do with them normally.

shallow sand says: 11/10/2017 at 6:22 pm
I was just referring to a boom town in the middle of the field.

There are roughly 25,000 people that live within a half hour of the field. Two supply stores. Lots of service companies. Proabably 100 or so directly employed. Most are not employed directly re upstream, but many others who have jobs related to ff.

Nick G says: 11/10/2017 at 5:38 pm
we don't have internal combustion engines five times as good as we did a century ago.

I'd bet that automotive ICE's last 10x as long now as they did a century ago. I'd bet that they cost 10% as much per horsepower.

shallow sand says: 11/10/2017 at 8:58 am
Dennis. Thanks.

We don't know what the future will bring, but I'm just hoping for $55-65 WTI for awhile. Gasoline here is $2.51 per gallon, which I don't think is hurting consumers all that much.

I don't think you are wishing anyone ill. Actually, I think most would not think poorly of operations like ours or Mike's.

There is no debate that some petroleum will need to be produced in the future, even by the most ardent of those anti oil.

Operations like ours are producing high quality crude from mostly pre-existing wells, with new ones added in small quantities only when economics merit. The typical land taken up by a well we operate is about 12' x 20'. A typical tank battery takes up 30' x 25' x 3.5' high.

A high percentage of royalty owners in our field are retired. For example, one lease we operate is located on 40 acres. It is owned by a widow who lives on it. The lease produces right around 1,000 BO per year. The cumulative production is over 50,000 BO since the early 1980s.

The landowner receives 1/8 of the oil sold, free of all expemses except taxes. Even at $40 oil, $5,000 per year gross.

I am sure there are many examples like mine.

[Nov 10, 2017] OPEC World Oil Outlook 2017

Nov 10, 2017 | peakoilbarrel.com

George Kaplan

says: 11/08/2017 at 7:08 am
OPEC World Oil Outlook 2017 (just released):

https://woo.opec.org

Jeff says: 11/08/2017 at 7:59 am
Thank you George. IEA will release their WEO next week (14th).

From the OPEC-report:
"Total non-OPEC liquids supply is now forecast to grow from 57 mb/d in 2016 to 62 mb/d in 2022, with the US alone making up 75% of that increase."

The section on decline rates was interesting too (p.184): "the WOO analysis suggests an average implied decline rate of around 4.4 mb/d in the 2018–2028 period, or 7%, of underlying non-OPEC suply. Note that this compares with previous, more in-depth, work done by the Secretariat, which indicated
that underlying observed decline rates in non-OPEC were lower – on average around 5.4% – though with significant regional variations.

On the one hand, this analysis shows the challenge facing the upstream sector, with a requirement for more than 5 mb/d p.a. of new supply, if annual average demand growth of 0.9 mb/d in the Reference Case is added to the implied 4.4 mb/d 'lost' due to natural decline. On the other hand, the calculated implied decline rates and substantial new upstream volumes coming online suggest that overall upstream investment activity is perhaps higher than a quick glance at headline capex numbers would suggest "

"with tight oil making up a substantial and growing share of total non-OPEC supply (around 12% in 2016), and given its innate rapid decline rates after initial production, this may in a sense have accelerated the underlying decline. In other words, the system can said to be coping, with supply growth meeting demand needs at the moment"

George Kaplan says: 11/08/2017 at 8:13 am
"that overall upstream investment activity is perhaps higher than a quick glance at headline capex numbers would suggest "

Nope it would suggest that the developments coming on line now follow a normal project S-curve with the big investment costs in the middle then slowing down during installation and commissioning.

There aren't many projects in the middle of the development so costs are down but the new production coming on line is still fairly high (until the second half of next year). The investment problem isn't going to show up really until a couple of years out, but it can't be halted by anything that's done now, just like the over-investment impact kept running even as oil prices crashed.

George Kaplan says: 11/08/2017 at 7:59 am
With all the kerfuffle in Saudi whatever happened to the independent assessments of their reserves? There was a leaked report that said everything was exactly as the Saudi had been reporting, which couldn't possibly have credibility as it came out about a week after the consultants had started work so they wouldn't even have got their computers working properly yet, and then something about the reports being released early next year – and since then nothing.

[Nov 10, 2017] EIA weekly change in ending stocks (crude+products).

Nov 10, 2017 | peakoilbarrel.com

Energy News says: 11/08/2017 at 12:18 pm

EIA weekly change in ending stocks (crude+products).

George Kaplan says: 11/08/2017 at 4:26 pm
Overall stocks down 0.56%, pretty much inline with recent trends, crude up 2.2 mmbbls, gasoline down 3.3 and distillate down 3.4. But the only number that matters to the traders is the crude and because it is up price falls and it's reported we must be back in a glut. Bonkers.
FreddyW says: 11/09/2017 at 3:55 am
I think we are in refinery maintenance season now, so crude stocks should increase normally. Interesting to note is that gasoline and distillate stocks are back to normal levels. So they will have to draw a lot more from crude stocks going forward.
Guym says: 11/09/2017 at 10:30 am
Same principle drives lemmings, I think. They have to be over the cliff, before they will recognize it is there.

[Nov 10, 2017] 600,000 Bpd At Risk As Venezuela Delays The Inevitable by Nick Cunningham

Nov 10, 2017 | oilprice.com

For the oil markets, the implications are pretty significant. Venezuela has already lost an estimated 20,000 bpd each month for the past year, according to Reuters estimates. And in September, Venezuela's output plunged by more than 50,000 bpd compared to a month earlier. Production could fall by an additional 240,000 bpd in 2018, a decline made worse by U.S. sanctions.

But that isn't even the worst-case scenario. A default could set off a scramble to seize Venezuela's overseas assets. That could lead to much steeper production declines. One OPEC source told Reuters that they see a potential for production declines on the order of 300,000 to 600,000 bpd next year.

[Nov 10, 2017] Will Backlash Against Prince Purge Begin Within Military The American Conservative by Michael Horton

Don't forget Yemen war is expensive and oil ins still hovering around $60 not $80 needed for KSA to balance the budget. . KSA might run out of money just about the same time the old king dies. Going to be an interesting transition
Notable quotes:
"... The son of the eighty-one year old King Salman, Muhammad bin Salman, known as MbS, has amassed more power in the last two years than any member of the House of Saud, including its kings. The young prince, who before his father came to power held no position of significance, is now the heir to the throne, minister of defense, chairman of the newly launched "anti-corruption" committee, and, by royal decree, the man in charge of Saudi Arabia's primary source of wealth, Saudi Aramco. ..."
Nov 10, 2017 | www.theamericanconservative.com

Will Backlash Against Prince Purge Begin Within Military? Firing popular Saudi guard leader may have been a critical miscalculation. November 10, 2017 Saudi security forces on parade, 2009. Credit: AlJazeera/Omar Chatriwala/Creative Commons Muhammad bin Salman, the 32-year-old crown prince of Saudi Arabia, has been called bold, brash, and even an anti-corruption crusader in the press this week. But his arrest of hundreds of potential rivals, including 11 royal princes and many influential Saudi businessmen, can only be described as a pre-emptive coup.

If this was his aim, however, his firing of one prince -- the head of the Saudi Arabian National Guard -- may have been his fatal mistake.

The son of the eighty-one year old King Salman, Muhammad bin Salman, known as MbS, has amassed more power in the last two years than any member of the House of Saud, including its kings. The young prince, who before his father came to power held no position of significance, is now the heir to the throne, minister of defense, chairman of the newly launched "anti-corruption" committee, and, by royal decree, the man in charge of Saudi Arabia's primary source of wealth, Saudi Aramco.

... ... ...

Muhammad bin Salman's betrayal of decades of rule by consensus and consultation in favor of determined autocracy has undoubtedly made enemies of hundreds, if not thousands, of wealthy and influential princes and businessmen. These princes and businessmen are unlikely to wait for their invitation to the Ritz Carlton.

Michael Horton is a senior analyst for Arabian affairs at the Jamestown Foundation. He is a frequent contributor to J ane's Intelligence Review and has written for numerous other publications including: The National Interest The Economist , and West Point's CTC Sentinel.

[Nov 08, 2017] Don't Believe the 'Reformer' Hype About MBS The American Conservative

Nov 08, 2017 | www.theamericanconservative.com

Craighead) Rosie Bsheer warns Westerners not to fall for Mohammed bin Salman's reformer act:

Even as Western governments and media outlets sing his praises, the young crown prince is viewed domestically as an incompetent and corrupt ruler who hides behind liberalism, tolerance and anti-corruption rhetoric [bold mine-DL]. This view is shared by ruling members of the monarchy, economic elites and the population at large, who see bin Salman as someone who has disturbed the status quo for the sake of massive personal enrichment and political aggrandizement.

Many Westerners are often eager to promote individual foreign leaders in as "reformers" or "moderates" so that it makes it easier to justify a close U.S. relationship with these leaders. Few would openly argue that the U.S.-Saudi relationship should remain the same or become even closer if the next king is a reckless incompetent who is actively destabilizing the surrounding region. For that reason, there is great reluctance on the part of supporters of the relationship to judge MBS on what he has actually done rather than what he says he wants to do in the future.

Bsheer comments on MBS' recent power grab and how it benefits him and his father:

These arrests, cloaked in populist rhetoric trumpeting a purported campaign to end corruption, actually aim to silence and disempower, if not to completely purge, bureaucrats and members of the ruling family who hold economic and political power and are still not on board with Salman's rise to power.

The arrests benefit Salman in two ways. Politically, they upend the balance of power in the Saudi regime, leaving Salman with few rivals. Financially, they make it easier to claim his rivals' assets as his own, part of a two-year effort to consolidate economic power.

When stripped of their official justifications, we can see that these actions are not those of a reformer at all. They are the actions of a despot engaging in a massive abuse of power. If an adversarial authoritarian regime conducted such a purge and justified it in the same way, the near-unanimous response from the West would be criticism and ridicule, and that response would be appropriate. When MBS and his father do it, they are embraced by the president and their justification is taken at face value by far too many news outlets.

At the very least, MBS and his father should be subject to the same skepticism and criticism as any other authoritarian government. We should be wary of accepting the "reformer" credentials of a person who has so far distinguished himself for his hubris and incompetence while compiling a record of failure and repeated violations of international law. Perhaps we could refrain from labeling the man who is helping to starve millions of people to death as a "moderate." Ideally, the U.S. should take the opportunity provided by MBS' rise to recognize that the relationship with the Saudis has become a liability and put as much distance between us and Riyadh as possible.

The Terror , says: November 8, 2017 at 12:10 pm

The world has plenty of experience – all too much – with "reformers" who arrest and kill their rivals, and who commit mass atrocities against civilian populations, as MBS is doing in Yemen.

Our "friendships" in the Middle East have damaged and soiled us more than any foreign relationships in our history that I can think of.

At least when we "opened" to China we did it fairly clear-eyed, and one could credibly argue that it was necessary and served our national interest. But our sick, codependent relationships with Saudi Arabia and Israel have only entangled us in pointless messes, put America itself at risk, fouled us morally, and made us simultaneously a frightening, destabilizing force on the world stage, and an international laughingstock.

When and where will it end? I had some hope that Trump might do it, but so far he seems to be doubling down on the Bush the Younger / Obama stupidity.

[Nov 07, 2017] Neuters via Euractiv: EU plans big rule change to snag Nord Stream 2

Nov 07, 2017 | marknesop.wordpress.com

et Al , November 6, 2017 at 7:51 am

Neuters via Euractiv: EU plans big rule change to snag Nord Stream 2
https://www.euractiv.com/section/energy/news/eu-plans-big-rule-change-to-snag-nord-stream-2/

The EU executive sees Russia's plan to double the gas it could pump under the Baltic Sea to Germany, bypassing traditional routes via Ukraine, as undercutting EU efforts to reduce dependence on Moscow and its support for Kyiv.

The move dovetails with the Commission's proposal for a mandate from member states to negotiate with Russia over objections to the pipeline.

Even with the changes, EU regulators say they may need to seek talks with Russia as it cannot impose its law on the stretch of the pipeline that is outside its territory.

"This proposal does not solve all the problems and some of those need to be negotiated," an EU official said.

Under the proposed changes to the gas directive, seen by Reuters, all import pipelines would have to comply with EU rules requiring pipelines not be owned directly by gas suppliers, non-discriminatory tariffs, transparent operations and at least 10% of capacity be made available to third parties.

"The Gas Directive in its entirety will become applicable to pipelines to and from third countries, including existing and future pipelines, up to the border of EU jurisdiction," the proposals says .
####

More stupidity at the link, but this looks like the same rubbish leaked to EUObserver a week or so ago that I posted here. I have a question. If this is actually becomes the case, then will Brussels rule that TAP and 'field pipes' which currently have an exemption from EU law then become illegal ?

I don't see how they could keep them as exceptions. Brussels is just trying itself in knots to make is seem relevant where it is actually powerless to do anything. As for the line above ' may need to seek talks with Russia..', WTF?

[Nov 07, 2017] Moon of Alabama: Saudi Arabia This 'Night Of The Long Knives' Is A Panic-Fueled Move

Nov 07, 2017 | marknesop.wordpress.com

et Al , November 6, 2017 at 8:04 am

Moon of Alabama: Saudi Arabia – This 'Night Of The Long Knives' Is A Panic-Fueled Move
http://www.moonofalabama.org/2017/11/saudi-purge.html

Yesterday the ruling Salman clan in Saudi Arabia executed a Night of the Long Knives cleansing the state of all potential competition. The Saudi King Salman and his son Clown Prince Mohammad bin Salman initiated a large arrest wave and purge of high ranking princes and officials. Part of this internal coup was the confiscation of huge financial estates to the advantage of the Salman clan.

The earlier forced resignation of the Lebanese Prime Minister Saad al-Hariri is probably related to the last night's events. The Israeli Prime Minister Netanyahoo endorsed the resignation. This guarantees that Hariri will never again be accepted in a leading role in Lebanon .
####

Plenty more at the link and don't forget to check the comments, of which PaveWay IV & guidoamm are enlightening, the latter: I know from someone that, till last month, managed a fleet of personal jets for the great and the good in Saudi Arabia, that there is an exodus under way. The great and the good are literally taking the cuckoo clocks onboard their 380s and relocating to their foreign residences. Owners of the fleets have not been paying their bills for months neither to the crews, nor to the management nor, indeed, to the facilities.
####

Just what Europe needs, a bunch of Saudi princes permanently flaunting themselves away from home in various capitals.

saskydisc , November 6, 2017 at 1:56 pm
Saudi declares war on Lebanon, by claiming that Lebanon declares war on Saudi Arabia . Given that the Saudis have made their alliance with Israel open, this is a threat to the Lebanese government and society, and a dare to the Russian government regarding its anti-ISIS and anti-Al Qaeda policy.
marknesop , November 7, 2017 at 8:28 am
Not to mention the S-400 sale.
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