OPEC++ Or A Dead Shale Industry?
Today there is a meeting by video of the OPEC states and Russia. Tomorrow the energy ministers of all G-20 states will likewise meet. Their discussions will be about the sinking global oil price caused by a lack of demand due to the novel coronavirus pandemic and record oil output from Saudi Arabia and Russia. 'Western' media have been optimistic that an agreement will be found:
The Organization of the Petroleum Exporting Countries and other producers including Russia, a group known as OPEC+, are expected to discuss record cuts equivalent to 10% to 15% of global supplies, although demand has plunged by up to 30%.
It is unlikely that OPEC will agree on any cut unless the U.S. and other large producers join the deal. The U.S. is, for now, unlikely to do that.
Until the end of the last OPEC+ agreement this month and the onset of the pandemic demand slump, the three top producers were the U.S. with 12.7 million barrels per day, Russia with 10.9 mbpd and Saudi Arabia with 9.8 mbpd.
Since 2016 OPEC and Russia had reduced their production to keep the oil price in the $60/b range. This effectively subsidized the U.S. shale industry. U.S. production kept growing while production by Russia and Saudi Arabia was artificially limited. It allowed the U.S. to grab more global market share at profitable prices.
Source: Macrotrends - bigger
Now, as the prices have dropped to $20 per barrel U.S. shale oil is no longer profitable and the shale companies are on the verge of going bankrupt. That is clearly one outcome that Russia would like:
As soon as U.S. shale leaves the market, prices will rebound and could reach $60 a barrel, Rosneft’s Igor Sechin said recently. As fate would have it, in what many would have until recently considered an impossible scenario, a lot of U.S. shale might do just that.Breakeven prices for U.S. shale basins range between $39 and $48 a barrel, according to data compiled by Reuters. Meanwhile, West Texas Intermediate (WTI) is trading below $25 a barrel and has been for over a week now.
But Russia also offered an alternative:
A new OPEC+ deal to balance oil markets might be possible if other countries join in, Kirill Dmitriev, head of Russia’s sovereign wealth fund said, adding that countries should also cooperate to cushion the economic fallout from coronavirus.
...
“Joint actions by countries are needed to restore the (global) economy... They (joint actions) are also possible in OPEC+ deal’s framework,” Dmitriev, head of the Russian Direct Investment Fund (RDIF), told Reuters in a phone interview.
That was an invitation to the U.S. to join a OPEC++ deal and to commit itself to production limits.
We discussed why the U.S. was unlikely to do that. Joining a cartel does not fit its neoliberal mindset:
“We’ve been benefiting from the lack of a free market for so long, the administration is torn about how to keep us a major producer while ostensibly keeping a free market, and I don’t think there’s a way to square that circle,” said [Randolph Bell, director of the Global Energy Center at the Atlantic Council].
Trump made a small counteroffer when he said that the U.S. oil output has already been reduced by 1.2 million barrels and that this was a sufficient U.S. contribution to limiting outputs:
“Nobody’s asked me, so if they ask I’ll make a decision,” Trump said on whether the U.S. would participate in cutbacks. U.S. producers are “already cutting back and they’re cutting back very seriously. I think it’s happening automatically.”
But for Russia that is hardly enough:
Russia does not consider a supply reduction driven by falling demand or lower prices to be a real output cut within the parameters of the proposed OPEC+ deal, the Kremlin said on Wednesday. It was the first statement from Moscow about this crucial aspect of the talks and indicated that President Vladimir Putin may be expecting a more significant contribution from the U.S. than his counterpart Donald Trump is willing to give.“You are comparing the overall demand drop with cuts aimed at stabilizing the global market,” Kremlin spokesman Dmitry Peskov told reporters at his daily conference call, when asked if Russia would accept U.S. production cuts driven only by market forces. “These are completely different things.”
Washington has so far offered what officials described as “automatic” and “market-driven” cuts, which are expected to happen as companies from Exxon Mobil Corp. to independent shale explorers slash spending in response to low prices.
If the U.S. insist that "automatic" and "market drive" cuts are all it will contribute then its shale oil industry will have to die.
A new OPEC++ deal will require hard production cuts and limits that the government of the U.S. will have to guarantee for several years. A few additional good will gestures towards Russia will likely also be required.
But the Trump administration is adverse to binding international agreements. Its officials instead play their usual game of issuing empty threats:
Republican U.S. senators who have introduced a bill that would remove U.S. defense systems and troops in Saudi Arabia unless it cuts oil output will hold a call with the kingdom’s officials on Saturday, a source familiar with the planning said on Tuesday.
Writing nasty letters which demand that Saudi Arabia carries the burden of the unprecedented demand slump are useless in this situation. The normal global demand is 100 mbpd. It has now fallen to nearly 70 mbpd and is unlikely to revive during the next 18 month. Even if Saudi Arabia would end all of its production the markets would still be oversupplied. It would also destabilize the country which depends on the sale of its oil for 70% of its budget.
If the U.S. insists that the Saudis cut their production to save its shale oil producers the Saudis might break the old deal that makes the U.S. dollar the leading currency of the globe. If they decouple their currency from the U.S. dollar and demand payments in Euros, Yen or Yuan the U.S. dollar is toast.
The threats will not help at all. They only make Saudi Arabia more determined to go its own way.
Some people in the U.S. oil industry have caught up with the new reality:
Some old-guard Texas oil drillers are urging state regulators to clamp down on crude production to halt a price collapse more severe than any of them have ever lived through.The largest U.S. oil-producing state hasn’t restricted crude production in almost 50 years but a growing chorus of explorers and related industries are advocating just such a move. The Texas Railroad Commission that has overseen the state’s industry for more than a century is scheduled to discuss so-called pro-rationing on April 14.
...
Kirk Edwards, an industry veteran and chief executive officer of Latigo Petroleum LLC, estimates that within a month the oversupply will be so massive that Permian Basin drillers will no longer be able to send crude to refineries in the Houston area and Louisiana.“Until two weeks ago, I was 100% against the use of proration in Texas to remedy these kinds of problems,” Edwards said in a letter to the agency. The commission and the Trump administration need to “step up to the plate and save Texas and the American energy industry right now, before it is too late.”
But the big industry players do not want a cut for everyone:
The appeals for supply caps highlights a growing schism between small, independent explorers and international behemoths like Exxon Mobil Corp. that oppose government intervention. In neighboring Oklahoma, oil-industry trade groups are at loggerheads over whether state regulators should step in.
The calculation for big and rich companies is different. They hope that the small producers will go bankrupt so that they can buy their already developed oil fields at record low prices. The would keep those shut down but would reopen them when prices are back to higher level.
Exxon is likely to have more political clout than the small producers who now fear for their companies.
Today's OPEC+ talks are ongoing and they seem to prepare an offer that will then be proposed at tomorrow's G-20 meeting. The U.S., Canada, Brazil, Norway and others would then have to commit to make proportionally similar cuts.
But how big is the chance for that to happen?
Posted by b on April 9, 2020 at 18:25 UTC | Permalink
re: Congress posturing to put pressure on Saudi Arabia
Much of the Saudi budget is recycled back into the US to buy military equipment and services... That industry is one of the very few that has as much influence on Congress than the oil/gas industry. The more likely "solution" is that they will receive a bailout.
Posted by: ptb | Apr 9 2020 19:28 utc | 2
US Shale Oil is a Ponzi Scheme that's only survived because of essentially free credit and most damning is it takes more energy to extract than it provides. The bonds issued by its companies are correctly regarded as Junk. If it were an actual profit making enterprise, its bonds would be A or better. The bond ratings have always told the truth about shale oil. Part of the massive bailout is to cushion the fall when all those bonds are defaulted. Shales actual affect on global market was to lessen the amount of US imports that when combined with domestic demand destruction lowered overall price. The key for the US oil market is its refinery capacity (Large PDF). Here's the latest from Bloomberg. Gasoline demand is down 50% Y/Y! and refiners are only now beginning to adjust. And when refiners don't refine, they don't make any money, and many were already on extremely tight margins causing them to delay the ongoing maintenance their facilities demand lest they blow up like the one in Philadelphia last year--it's now closed permanently.
There's going to be lots of blood spilt in the oil patch as the year goes forward, and the Ponzi Scheme will be exposed for what it really was--a very expensive jobs program.
@ptb #2
If the oil fracking industry is producing 6 million barrels per day and prices are $20+ below production costs, then the cost to subsidize the industry is $120 million dollars per day. 6 months of this subsidy will be $22 billion.
The subsidy would likely need to run at least a year, more like 2 or 3.
Is Trump willing to divert a mere $90 billion from the stimulus bills to the oil fracking industry?
Posted by: c1ue | Apr 9 2020 19:49 utc | 4
The calculation for big and rich companies is different. They hope that the small producers will go bankrupt so that they can buy their already developed oil fields at record low prices. The would keep those shut down but would reopen them when prices are back to higher level.
Indeed, that's also what I'm observing. The exploitative reforms post-2008 didn't work: the gig economy extracted some surplus value from the working class, but the space for a new cycle of accumulation revealed to be too small.
Now, with the COVID-19, the great bourgeoisie (big business) realized they can find more space for expansion by destroying small and medium businesses at the First World and at the "developing economies".
To be fair, the petit bourgeoisie was already at a "zombie state" (i.e. zero profit, zero growth) in the First World since the 2008 meltdown. They are indeed parasites of the system, and destroying them will indeed open new vital space for the expansion of capitalism (in the form of big business). However, my take is this margin will also be small: the petit bourgeoisie was mostly in capilary small scale businesses with naturally low productivity rates, mostly local restaurants, barber shops, small groceries and other stores, extremely capilarized self-employed services (plumbers, electricians, prostitutes, therapists etc. etc.). Those sectors give big business little space for automation, being more like a Uber scenario (i.e. deepening exploitation of labor). It won't save the system.
Capitalism is now, literally, devouring itself. Take pictures now, because that's a rare scene.
--//
Brazilian oil stock suddenly fell today (just one hour ago) - wiping out all its gains of two days. The OPEC++ deal will most likely fail.
--//
With the threat of the pandemic over, China is already attacking the USA and Western Europe on the financial sector, is prepared to eat up their market shares:
China eyes more market-oriented economy to spur growth
When Xi Jinping unified power in China in 2012, the country already was the industrial superpower. His "reform and opening up" doctrine's ultimate aim is to also make China a financial superpower. This is a necessary evil, as only being the industrial superpower makes you susceptible to outside strangling thanks to the control of the flux of money-capital from the financial superpower (the USA). Also, it supress the welfare of the people of the industrial superpower, since it needs to keep reclycling its money reserves in treasury debt papers of the financial superpower, creating the unjust scenario where the people of former keeps producing much more than it consumes, while the people of the latter keeps consuming much more than it produces.
Xi Jinping wants to end this circus. He wants China to unify the championship belts.
This "reform and opening up" is all about China rise to financial superpower status. If it fails, Xi will enter History as the Chinese Nikita Krushchev. It's all in for his project.
@ c1ue
Why would he budge? Right now someone has to go bankrupt in the oil budiness because of overproduction and because many countries actually make an effort with renewables mid to long term. So he might ask his advisors why it should be American companies which have to go bankrupt. They will tell him something rational like the increased costs of production in the US and he won't care. It's a weak move, especially until after the elections.
Posted by: Del | Apr 9 2020 19:57 utc | 6
survival of the fittest, except when russia and ksa are the fittest, lol... i thought russia was just a gas station?? fracking is expensive.. those who frack are going to lose out here...i would love to see ksa go off the us$, but i think they are smart enough to know that will be the end of ksa too.. i am curious to see what comes out of the talk today.. as @1 red ryder notes - putin/russia is in the drivers seat - again.... no wonder capitalism wanted open access to russia back in the early 90's and the dream of yukos oil got lost in the shuffle to where we are now..
Posted by: james | Apr 9 2020 20:11 utc | 7
OFF TOPIC
Has enyone spotted! There is a big argument going on !
At off guardian Twitter account attacking MOA. RIGHT NOW !!
Off Gardian full on denial based on truth deprivation syndrome ! It’s getting ugly !
Posted by: Mark2 | Apr 9 2020 20:23 utc | 8
To borrow a phrase from Mad John McCain, America is a (shale) gas station masquerading as a nation.
Posted by: ak74 | Apr 9 2020 20:24 utc | 9
Trump is not deal capable in this case. He cannot agree to regulate production because he is surrounded by ideologues that detest government and any form of self regulation. They will rather die off in a battle of attrition than yield to regulation.
Market crash on immense scale is likely over the next few days. No bears, no bulls, just ignorant pigs.
Posted by: uncle tungsten | Apr 9 2020 20:29 utc | 10
hmmm... does that mean that the longer we accept house arrest the better chance we have to see the fall of the houses of the US and KSA in our lifetime?
i would start to look at it positively!
Posted by: Mina | Apr 9 2020 20:31 utc | 11
What a thing to see shale being destroyed by the 'free trade' that the US imposes on weaker countries, and struggling to accept govt intervention despite facing an existential threat. The funny thing about the Americans is they believe much of the neoliberalism and other falsehoods they spout, a self-deception that leads, in times like this, to cognitive dissonance.
@ Red Ryder 1: "Trump can refuse. But then Trump kills shale, not Putin."
Yes, well played. Trump has to pull the trigger somehow, and in the meantime, more carnage while they fight over who gets shot.
As b points out, the USA-KSA relation is the crux. Marco Rubio and his ilk have been threatening the KSA, which is symptomatic of how Washington has ceased to understand what diplomacy means anymore; it only knows threats and bullying. Rubio and company seem insensitive to how times have changed. China is now the biggest buyer of oil in the world, so trading oil in yuan is a meaningful possibility; at first, it won't achieve a critical mass to affect the petrodollar, but change is not linear but can be fitful, sudden, and epochal, as this time of COVID reminds us.
In the meantime, I keep my ears peeled for the regime-change soundtrack, like human rights organizations putting Jamal Khashoggi back on their playlist of top-10 hits.
Posted by: occupatio | Apr 9 2020 20:31 utc | 12
"The calculation for big and rich companies is different. They hope that the small producers will go bankrupt so that they can buy their already developed oil fields at record low prices. The would keep those shut down but would reopen them when prices are back to higher level."
This is just like the situation with Walmart destroying all the small stores.
It amounts to totalitarianism by another name. The wealth becomes concentrated in the hands of a few individuals. Successful societies are not ideologically driven but use moderate regulation to enhance the lives of their people.
Good luck American plebs.
Posted by: Ike | Apr 9 2020 20:32 utc | 13
The calculation for big and rich companies is different. They hope that the small producers will go bankrupt. . .
It is the same calcuation that has been made for all the small businesses in the US. The trillion$$ being handed to the banksters are interest free, so they can loan to small businesses at 5.75%
Posted by: Perimetr | Apr 9 2020 20:49 utc | 14
why should Russia trust and sign any treaty with current american elites, especially after so many examples that USA is not agreement capable ?
US will never, ever agree to cuts - maybe temporary while they scheme and decide to renege on signed deals and strike Russia. Capital formation destruction's now gathering force as key factor lengthening and exacerbating economically as it did during 1930's depression. This acceleration is going to affect USA output for many years to come, as standard of living and employment prospects will continue 40+ years decline. Russia and their strategos are effectively showing how they can veto US re-industrialization prospects. Even Tariffs will guarantee american production as cost prohibitive for exports to challenge China-Eurasian bloc worldwide trade. Failing to make america great, stable genius and his gang of neo-confedederates are losing again even with modest deal.
The main purpose for shale was to profit from Russia and OPEC's deal and increase US market shares. Now the gas station masquerading as a revisionist state just said NIET. Orange degenerate and Pentagon will probably decide to strike Venezuela to escape vise grip. Anticipating ahead, Rosneft assets were quietly moved to Russian assets state books a few days ago. Putin's playing chess, while great white hope and cretins in white house are playing linear anglo-saxon golf... What will Russia, China, Cuba and Bolivarians do if war is declared on Venezuela to grab Carabobo fields and control Orinoco oil belt ? Interesting times.
Posted by: Sol Invictus | Apr 9 2020 21:10 utc | 15
@1 Red Ryder, apart from getting a lot of Ukraine recent history wrong, we both have to admit one very big similarity. The Uke cauldron was one of Ukraine/Nato's own making. No one forced them to advance into territory that they could not easily escape from. It was after all a well established Soviet tactic that you would have thought both Ukraine and Nato would have been aware of.
Commitment to producing oil when you are the knowing the marginal/highest cost producer is equally digging one's own grave. In the US/Canada in particular it is transport costs that kill them.
b talks short term oil markets (3-12 months). Long term it all looks much more gloomy. Alternatives will replace oil & gas for all land transport, heating and electricity generation in the next 30-40 years. Oil will soon be the next coal - justified purely by wrong-headed and financially dumb generator investments.
Posted by: Michael Droy | Apr 9 2020 21:57 utc | 16
Michael Droy
Rather than pushing forwards into a cauldron the ukies held that position while they where pushed back elsewhere. They could randomly shell the MH17 crash site from their positions at Debaltsevo which is why they held it as long as possible.
It was only after those positions were taken that the bulk of the aircraft debri was collected.
Posted by: Peter AU1 | Apr 9 2020 22:06 utc | 17
B can you put up a thread regarding off guardians position regarding corona virus —- lockdown / social isolation !
There good people but misinformed as you can see !!!
They need to here the truth (I don’t do Twitter out of principle)
Posted by: Mark2 | Apr 9 2020 22:07 utc | 18
The most likely move for Trump is to place tariffs on imported oil rather than subsidise.
US as others note is unlikely to join any opec++ agreement and direct cash subsidies to its oil industry would require a huge amount of cash.
Posted by: Peter AU1 | Apr 9 2020 22:13 utc | 19
ak74 9 "To borrow a phrase from Mad John McCain, America is a (shale) gas station masquerading as a nation."
More like some sort of mad max militarised oil raiding nation.
https://youtu.be/3P4LUt0qcX8?t=22
Posted by: Peter AU1 | Apr 9 2020 22:26 utc | 20
The Saudi royals are supposed to be self-isolating on an island off Jeddah. Only there aren't any such islands. Perhaps they mean the Farasan islands, well to the south, near the Yemen border. Very agreeable, I was once received there by the amir. Sounds like Prince Charles, who when the advice was to self-isolate at home, and not to leave for the second residence, hopped it to his country pile. The Saudi royals are not brave, evidently. The old man has been diagnosed, if I'm correct. They've called a temporary cease-fire in Yemen. Difficult to do otherwise when you're trying to run a war from Farasan, about the most isolated place one can imagine. Internet? They have internet?
Posted by: Laguerre | Apr 9 2020 22:32 utc | 21
Laguerre
I found one small island just to the north of Jeddah
https://www.google.com.au/maps/@22.0895912,39.0332909,1435m/data=!3m1!1e3
There are also the islands of Tiran and Sanafir further north
https://www.aljazeera.com/news/2018/03/egypt-court-upholds-tiran-sanafir-transfer-saudi-arabia-180303185036714.html
Posted by: Peter AU1 | Apr 9 2020 22:49 utc | 22
You're right that that island might serve for one prince and his entourage, if everyone else were thrown out. No place for the King, though, or other princes who were supposed to be included. Tiran is too far to the north.
Posted by: Laguerre | Apr 9 2020 23:13 utc | 23
@Del #6
The shale fracking companies do generate a lot of jobs, also decreased energy dependence/increased energy independence is very MAGA.
And the numbers aren’t so big given economic impact compared to say, Boeing.
Trump isn’t a Bush though, so hard to say what he will or will not do.
Ultimately, it is probably healthier for the US oil frackers to work with OPEC+ to stabilize prices at a reasonable level, because otherwise SA, Russia, UAE etc have made it clear they aren’t eager to cut their own production in order to subsidize US frackers.
However, it isn’t clear if the federal government actually has a way to set and enforce production quotas...
Posted by: c1ue | Apr 9 2020 23:44 utc | 25
b. says:
'Today's OPEC+ talks are ongoing and they seem to prepare an offer that will then be proposed at tomorrow's G-20 meeting. The U.S., Canada, Brazil, Norway and others would then have to commit to make proportionally similar cuts.
But how big is the chance for that to happen?'
It appears that OPEC+ has already agreed to the deal for a 23% production cut (https://www.zerohedge.com/energy/opec-drama-mexico-balks-production-cuts-threatens-withdraw-opec-group), about 10 mm bbls/day.
They don't need to agree with the U.S. and Canada for production cuts, as these seem to be already 'baked-in'. The U.S. produces 9 mm bbls/day of oil from shale, and another 5 mm bbls/day of natural gas liquids, mostly from shale, so approximately 13 mm bbls/day of petroleum liquids. Canada produces about 5.5 mm bbls/day. Most producers, in both Canada and the U.S., have already announced cutbacks in capital spending for drilling of the order of 40% or more, which will over the next couple of years reduce output by a similar amount. So petroleum liquids production from Canada and the U.S. will likely drop by about 5 mm bbls/day over the next couple of years, based on the actions already announced, which would be in alignment with the magnitude of the OPEC+ cuts.
I don't believe that shutting down the U.S. shale industry was the objective of Russia and KSA, from the start. After all, even if the current operators go bankrupt, the oil and the technology are still in place, and the industry would revive once oil prices hit $60, no matter what.
Rather I believe that the real target was the U.S. dollar, and its status as a reserve currency. By crashing the price of oil, and provoking fears of massive defaults in the energy sector, at a moment when the whole financial system was already in stress because of the Corona-virus, Russia and KSA essentially provoked a 'run on the banks' in the U.S. In order to prevent the collapse of the entire financial system, and combined with the $trillions of stimulus spending, the FED is now printing money on a scale, and with no end in sight, that threatens the status of the U.S. dollar as a reserve currency.
If (or rather when) the $U.S. loses its reserve currency status, the U.S. will no longer be able to get the rest of the world fund its shale industry, its wars, or its current standard of living.
This, I believe, is the real game that Russia is playing. The events have already been set in motion. There is no need to continue to suppress the price of oil.
Posted by: dh-mtl | Apr 9 2020 23:49 utc | 26
@ karlof1
>> most damning is it takes more energy to extract than it provides.
Link please?
I’m not (that) lazy. It’s just that initial search results are giving me sunshine and endless ribs.
Posted by: oglalla | Apr 10 2020 0:01 utc | 27
It looks as though an oil cut deal has been made,though from what I make of it, the cuts are too small to save the US frackers.
Perhaps brought about by Trump threatening MBS. $40 would be a good price. Low enough to end US fracking yet still bringing a profit for others.
Posted by: Peter AU1 | Apr 10 2020 0:26 utc | 28
IMO, the demise of the fracking industry can't come fast enough. Pumping god only knows what, underground and under pressure, is an affront to an already sick environment. Yeah, let's poison our ground water, that makes alot a' sense.
The affected workers can be retrained to build renewable sources of energy. No, we can't do that, is might reduce some fat cat's revenue stream.
Posted by: ben | Apr 10 2020 0:30 utc | 29
@ dh-mtl
I can understand Russia wanting to sabotage dollar's supreme position that way but why would KSA participate in this? After all dollar supremacy survived only thanks to KSA's conscious choice to prop it up by petrodollars. Why the sudden change of heart?
Posted by: frackinghell | Apr 10 2020 0:41 utc | 30
> Mark2 | Apr 9 2020 20:23 utc
OffGuardian and co have a point though.
At this point no one seem to clearly define even conditions, objectively measurable, about what should qualify for end of pandemy.
Covid seems to be used for controlled global economy demolition. No crisis to be wasted.
And that UK story about people detained and fined for going to wine shop, if true but no one on that tweet seem to challenge it, is absurd overboard.
Wine is "non essential" ? Close the shop then!
If the threat is not so really real to close the shop - then don't harass customers.
What a doublethink is to keep shops open and to crack down on customers?
This all is very dangerous and uncharteres. OG and SOTT can cast predictions as well as me, you or MoA.
Next question would come what side are govts allowed to err on, being too optimistic or too pessimistic?
I suspect no one, govts including, have full understanding of new virus now. So they are choosing which side of bell curve to fall upon, when finally any sure data gets established. Govts are forced to do guesswork and do it fast.
Still does not relieve them from their responses, if erratic in retrospect, should at least be consistent.
Posted by: Arioch | Apr 10 2020 1:02 utc | 31
Time to lay in some popcorn, & then roll on April 14th. Mos def do not have a dog in this hunt - since prices are coming down that means no change for us peons at the pump.
Only when prices go up does Aotearoa's rapacious energy industry (got kiwi taxpayers to fund a refinery which was then handed over to a Shell/BP/Exxon Mobile 'consortium', aka monopoly way back) immediately jack up prices saying "the replacement cost of our stock will be at the new price, therefore we have to charge that to maintain our inventory".
Yet somehow the same doesn't apply when prices go down. surprise surprise if the prices go back up too soon not even the consortium have the balls for an immediate about turn.
I suspect this is the same everywhere, so the low price the retail arm pay their own corporation's wholesale arm will maintain until the end of the lockdown, then when production cutbacks have happened and prices rise, the combination of alleged increased prices plus a somewhat resurgent demand will inspire the arseholes to push up the retail price - nevermind the fact that consumers were paying the former price for gas back pre-lockdown, when bulk crude was 20% more expensive.
Now I realise most round here rather rabbit on about the 'loftier' geo-strategic issues around 'energy' prices so my first telling observation was a couple of days back when aljazeera ran a 20 minute piece on this subject. It featured a zionist woman based in switzerland who had unstated credentials outside of being an expert advisor to investors, another euro based person, this time a bloke of M.E. heritage and a canadian expat working as a prof in resource economics at some mid western amerikan college or another.
The zionists are plainly terrified about the current situation. The woman did two takes of Russia blaming completely omitting any talk of amerikan shale oil (as did the aj talking head in the intro choose to 'forget' the big bugbear of amerika's refusal thus far, to co-operate) as it was all 'arab' greed combined with Putin trouble-making.
The amerikan prof went along with this but less emphatically, then the ME citizen threw a cat among the canaries by detailing amerikan duplicity & obstructionism since 2014 along with the fact that amerika had been eating up market share with its heavily taxpayer subsidised, totally inefficient shale oil industry.
AJ kept cutting off this one actual expert, but he got his point across sufficient for amerikan/canadian prof to concede shale oil would have to take a bath as well, although there would be much consolidation by big energy, but there was no such concession from the zionist, I suppose because even the invaders of occupied Palestine understand that if amerika doesn't keep getting its way in the Mid East not onlt won't there be enough money to keep israel afloat, there will be no purpose to it, given israel's primary role as forward operating base for the maintenance of 'arab' opression.
Posted by: A User | Apr 10 2020 1:03 utc | 32
Rueters headlines.
"Saudi, Russia agree record oil cut under U.S. pressure as demand crashes"
Sputnik.
"No Deal Reached During OPEC+ Thursday Talks - Kazakhstan Ministry of Energy"
Posted by: Peter AU1 | Apr 10 2020 1:03 utc | 33
@ dh-mtl 26
A very fluid situation. The "proposal to be agreed" is not written on granite. Still a lot of hoping with a BIG IF all joins the effort. And there is the unreliable the U.S. which threatens its allies and adversaries with the same ammo - sanctions and tariffs.
Reuters
BUSINESS NEWS
APRIL 8, 2020 / 8:12 PM / UPDATED AN HOUR AGO:
DUBAI/MOSCOW/LONDON (Reuters) - OPEC and its allies led by Russia agreed on Thursday to cut their oil output by more than a fifth and said they expected the United States and other producers to join in their effort to prop up prices hammered by the coronavirus crisis.The cuts by OPEC and its allies, a group known as OPEC+, amount to 10 million barrels per day (bpd) or 10% of global supplies, with another 5 million bpd expected to come from other nations to help deal with the deepest oil crisis in decades.[;]
An unprecedented 15 million bpd cut still won’t remove enough crude to stop the world’s storage facilities quickly filling up. And far from signalling any readiness to offer support, U.S. President Donald Trump has threatened OPEC if it did not fix the oil market’s problem of oversupply.
Trump, who has said U.S. output was already falling due to low prices, warned Riyadh it could face sanctions and tariffs on its oil if it did not cut enough to help the U.S. oil industry, whose higher costs have left it struggling with low prices.[.]
Trump does not read or listens. On top of an imploded credit cycle, there is this little matter of Demand shock, Debt and Storage capacity:
U.S. will not have a choice as bankruptcies in the Shale Sector began in January, 2020. Whiting Petroleum Corp, facing a quarter-billion dollar debt, filed for bankruptcy protection on April 1, 2020.
Meanwhile, the U.S. contract expiring in June rose to its highest premium over the front month CLc1-CLc2 since 2009, a signal that traders are worried that the U.S. would run out of most onshore storage in a matter of weeks, traders said.
Sanctions, Tariffs, cuts in production under a glut of oil won't fix it.
In fact Allstate, Geico, Liberty Mutual and American Family Insurance are making refunds on auto insurance - Stay-at-Home payments - less driving during COVID-19 lockdowns.
Posted by: Likklemore | Apr 10 2020 1:12 utc | 34
Posted by: frackinghell | Apr 10 2020 0:41 utc | 30
I am not sure that KSA wanted to sabotage the dollar. Apparently MBS was furious when Russia refused the previous agreement, and wanted to strike at Russia. Perhaps Putin set a trap and MBS took the bait.
Posted by: dh-mtl | Apr 10 2020 1:22 utc | 35
"Covid seems to be used for controlled global economy demolition. No crisis to be wasted." arioch.
Who is demolishing the capitalist economy and why? The only people that I can see are motivated to do so are revolutionary socialists and anarchists who want to smash up the old and build anew.
Are you arguing that they have seized the reins of government, taken over the mainstream media and are carrying out the revolution? Is OffGuardian suggesting that?
As to the wineshop customers, optimistically they were not behaving according to social distancing regulations.
More likely, though, the cops were being officious arseholes. That is the way they often act and their employers, who use them to intimidate the population, encourage them to do so.
Posted by: bevin | Apr 10 2020 1:26 utc | 36
I can tell you that numerous refineries in the US have shut down and the others are at low rates. The layoffs in the industry are massive. Contractors that have not seen a layoff in a long lifetime are being laid off. Demand has collapsed.
Russia has the least to lose and they appear to be in the best position to weather the storm. This proposed cut will make a small difference. They all may agree to do something but the oversupply and under utilization will be around for quite a while.
The fracking wells will still be there, they will just go into bankruptcy. They will be bought up and placed online when the demand and the price comes back. Some banks will take a colossal hit that will probably take them down.
The economy will try to sail along with its anchor dropped. This may get very ugly going forward and may take many months if not years to sort out.
Posted by: dltravers | Apr 10 2020 1:49 utc | 38
Posted by: Arioch | Apr 10 2020 1:02 utc | 31
"Covid seems to be used for controlled global economy demolition. No crisis to be wasted."
Nothing controlled about it, the fact that various airhead billionaires are trying to use it to forward their pet projects does not mean they will succeed. All current efforts (with a few possible exceptions) are aimed at restoring the old game as much as possible, hanging on to the past. These will all fail, the past isn't coming back, nobody is even in a position to manage it much, the dislocations in the old economic structures are just beginning to unwind, and it will take years to clear the debris and made new arrangements. China and Russia are best placed now to deal with the oncoming carnage, and China may be thinking now about what the new order should look like, but that's about it, and it is much too soon to really begin trying to implement something new. In the meantime it's going to get a lot more disorderly before it starts to get better.
Outside of those and perhaps a few other smaller nations, there are not even institutional structures that might try to address the problems seriously, effective regulatory agencies for example, those being contrary to neoliberal dogma.
Posted by: Bemildred | Apr 10 2020 1:51 utc | 39
dltravers
Its the drilling that counts. Shale produces well for the first few years and then drops fast. More fracking can give them an extra bit of life, but from what I can make of it, the setup cost of a shale well needs to be covered by the first few years of production.
Wells that are already drilled will produce small amounts of oil for a long time but nothing like what the US needs for self sufficiency. So long as oil doesn't go over the breakeven point for new wells the shale oil is finished.
Posted by: Peter AU1 | Apr 10 2020 2:05 utc | 40
Another U.S. (Big Oil) proposal
I heard this from U.S. Congressmen in the pocket of the oil industry, they want to ban oil imports and make the U.S. consumer a captive market to keep prices high, or in keeping w/Trump's style add massive tariffs on imported oil.
The downside of course is that the U.S. consumer might not like paying $50/bbl while the rest of the world is paying $20 but how would they know? Europe pays $5 a gallon no matter what and in the M.E. they pay well below a $1. The only saving grace is that CNN would beat him over the head with it.
Any other reason Trump and co would not be able to play this card?
Posted by: Christian J Chuba | Apr 10 2020 2:13 utc | 41
Reports that I read, earlier today, indicated an agreement between two parties to go around -1.6(ish) collectively.
Glut is quite obviously already to storage overflow stage.
Do the math.
There is so much oil in this world, that they cannot figure out how to run out of it, and not for lack of trying.
Anyone who is not operating in outright fraud can survive, pretty much indefinately, at almost any price per barrel, in the oil business.
These guys are not selling gold, they are selling gas.
it is a bit ironic that the country that says it represents the free world offers sanctions on a regular basis and the country that coincidentally has been sanctioned on such a regular basis is responding in a fair and free trade kind of way... i am sure the irony isn't lost on many... as for ksa, they seem like they are caught in the middle of this war between usa and russia.. in fact, i think they are going to be a casualty of this war.. i think the situation as dltravers notes, is kind of serious for many ordinary americans.. i know it is for many canucks in the tar sands of alberta and for the province of alberta in particular.. i am not sure how this plays out, but it seems to me russia is playing a winning hand, while the other players are in a much weaker position... so much for free trade in the free world...
Posted by: james | Apr 10 2020 2:16 utc | 44
Chuba@41
The oil industry does not want to sell its us produced oil only in US. They cant hide the profits that way and pay full tax. They prefer to import/export and book profits in the tax havens. As Michael Hudson described, they export at low prices to a shell company in Panama who then exports at higher price booking the profits in Panama. In the other direction they do the same in reverse (their long term contracts with oil producing nations are at below market prices ) . They pay no tax or at least only 1/2 (11%)what they would pay in US for selling all US produced oil to US
Posted by: Pft | Apr 10 2020 2:25 utc | 46
Christian J Chuba
I am not sure what is included in US fuel price but here a large part of the cost is taxes. State and federal and on top of that total figure per liter, goods and services tax - so we are taxed on the other two taxes. Government gets around the taxon tax by saying the first two are excises.
In the end, large changes in crude prices mean very small changes in bowser price here in AU.
Posted by: Peter AU1 | Apr 10 2020 2:30 utc | 47
james 44
Like Trump said, Saudi Arabia wouldn't last two weeks without the US. Saudis do attempt to move into the Russia China orbit, then I can see Trump bring up the Saudi involvement in 9 11. Saudi's will have nobody to protect them and and think most in the US would back a war on the Saudi's.
At the moment I think the Saudi's could be classed as caretaker managers of the Saudi oil patch for the US.
Posted by: Peter AU1 | Apr 10 2020 2:37 utc | 48
"OPEC++ Or A Dead Shale Industry?"
Trump's love of tariffs might mean a third option - a variable rate tariff that aims to keep the price of crude (to US refiners) "between $39 and $48 a barrel". He could offset the tariff with cuts elsewhere.
It's certainly possible that the OPEC countries might move against the dollar in response, especially if they have nothing to lose. The end result might be US picking up and leaving the ME, which would be good. The MICC wouldn't like that but the coronavirus provides Trump with cover.
Posted by: David Wooten | Apr 10 2020 2:48 utc | 49
@48 peter.. it is a wee bit late for the usa to be bringing up ksa 911 links, but on the other hand, i never underestimate the stupidity of the usa masses when it comes to what there msm tell them.. your description sounds about right - caretaker managers... the last facade of ksa is waiting to come down.. it is essentially all but down already, except the world has yet to be informed of it.. oil seems to central to the financial ponzi scheme that is presently running... this would take out one of the legs of it, were it to happen.. this might be the game in play at present... seems like a calculated move on russias part here with ksa caught unaware and usa in no position to do anything about it, short of war and i am not sure how that would get justified..
Posted by: james | Apr 10 2020 3:18 utc | 50
Laguerre
I found one small island just to the north of Jeddah
https://www.google.com.au/maps/@22.0895912,39.0332909,1435m/data=!3m1!1e3There are also the islands of Tiran and Sanafir further north
https://www.aljazeera.com/news/2018/03/egypt-court-upholds-tiran-sanafir-transfer-saudi-arabia-180303185036714.htmlPosted by: Peter AU1 | Apr 9 2020 22:49 utc | 22
Laguerre, sure "holed up in an island to the south near Yemen"
Lucky the Houthis and Yemen Army have no ballistic missiles and drones then eh?
Posted by: uncle tungsten | Apr 10 2020 4:40 utc | 51
OPEC statement following the meeting:
"Adjust downwards their overall crude oil production by 10.0 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 8.0 mb/d. It will be followed by a 6.0 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021.
Call upon all major producers to contribute to the efforts aimed at stabilizing market."
Will the USA contribute by likewise reducing output?
Posted by: uncle tungsten | Apr 10 2020 4:49 utc | 52
I am surprised that everybody is trapped in the well rehearsed narrative about oil prices must go up to save the world. Isn't there another side to this coin? the oil consumers?
I would like to hear from more plugged in experts what these low oil prices do to countries like China and Japan - I certainly have not hear them complaining and joining the chorus for doubling the oil prices again. What will lower oil prices do to the competitiveness of industrial countries specifically the Chinese economy? I can only speculate how much oil prices below $30 will enhance their balance of trade in their favor.
And while I am at it - transportation electrification could take a real hit, if filling up a tank of gas/diesel costs about the same as a coup of coffee at Starbucks. I can be a Tesla fanboi with all my might and cheer their $550 share price, but as a user of an EV, I need a lot more subsidies to feel brotherly with Greta's ideals.
Posted by: Peter Camenzind | Apr 10 2020 4:59 utc | 53
Oil is now in a buyers' market.
Maybe suppliers will now be willing to accept the customers' currencies instead of USD for oil payments.
India, China and other large oil consuming countries paying for oil in their own currencies would really be a revolutionary change.
Posted by: jiri | Apr 10 2020 7:19 utc | 55
Laguerre @ 21, 23, Peter AU 1 @ 22:
There are apparently as many as 150 Saudi royals, including several lesser family members, suffering from COVID-19. The article at the link does not say where they are at present. The Saudi king is self-isolating at an island palace near Jeddah. There is no suggestion that he has been infected; it is likely he is in self-isolation as he has chronic health issues including diabetes that would certainly kill him if he contracts COVID-19.
Posted by: Jen | Apr 10 2020 7:40 utc | 56
um... dumb question...
if the aim is to create the condition for recovery and resumption of various consumption, isn't low energy prices a good thing for the masses?
MSM is selling higher oil price is like a good thing...
Posted by: A.L. | Apr 10 2020 8:22 utc | 57
now that the Saudis have destroyed Syria, Lebanon, that Europe is not safe, nor is the USA, how will they spend their long summer holidays? we're gonna see a lot of games of thrones!! time to hoard popcorn, or to make it yourself.
Posted by: Mina | Apr 10 2020 8:50 utc | 58
Bevin
the capitalists are destroying the capitalist economy because the inherent contradictions of capitalism have brought them to it. After the controlled demolition, neo feudalism will be brought in. As Rosa Luxembourg said "In the end it will be either socialism or Barbarism". Barbarism itis then. Capitalists can read Karl Marx as well.
The age of the Anti-Christ has only just begun, slouching towards Bethlehem, etc.
Posted by: Johny Conspiranoid | Apr 10 2020 9:20 utc | 59
Arioch @31. Spudski @ 37. Moonie@54
Thanks for the input !!!
It’s OT here but this urgently needs discussing. Fog of war.
It’s all about ———The wrong people doing the right thing for the wrong reason.
If you suggest to off gardian people ‘it’s germ warfare they kinda implode’
And go ‘’ it dose not comput it dose not comput’’
Sad really ! Had there head up their arse for 10 years from what I can see !
But don’t give up on them, it’s a process of waking up !
Posted by: Mark2 | Apr 10 2020 9:34 utc | 60
A.L. @ 57:
The context in which energy prices fall or rise is important. At present prices are falling due to lockdowns around the world which are depressing demand for petroleum. If prices are too low then production becomes unprofitable because producers can't sell enough to cover their costs of production. Energy production can have quite large costs - they include the costs of research, exploration and building the necessary drilling infrastructure and pipelines to carry gas, and transporting amd housing workers involved in drilling. In fracking, huge amounts of water are injected into rock to split it and extract the oil. Chemicals might be used as well to dissolve rock. Shale oil extraction carries huge production costs because the amounts extracted aren't great and the areas being fracked are exhausted very quickly.
Even before lockdown prices were falling due to the KSA's need for money ro finance a war it foolishly initiated in 2015, in a global economic environment still suffering from the lingering effects of the 2008 GFC and austerity programs around the world which over time were leading to a situation of deflation (too many goods being produced chasing too little money, due to lack of demand because people do not have the money to buy much).
Low prices at the bowser are not necessarily a good thing, they can be a symptom of a serious economic problem.
Posted by: Jen | Apr 10 2020 9:54 utc | 61
moonie #54
Wrong thread moonie. Dont spray it around. We are quite capable of reading or not on the correct thread.
And moonie, please start using the html code to post links as it screws up lotsa folks reading tablets etc., when you post a naked URL.
Posted by: uncle tungsten | Apr 10 2020 9:55 utc | 62
Peter Camenzind #53
I am surprised that everybody is trapped in the well rehearsed narrative about oil prices must go up to save the world. Isn't there another side to this coin? the oil consumers?
I say keep it down and so do many of my friends. The difference in my rim of the world (not USA) is 40 cents a litre over the last few months or about 25%. Small and large business factor their shelf prices on oil cost and I am happy to see it low and stay low. My hybrid needs to run higher octane to stay operationally efficient and that means I pay premium price for my driving needs.
If low fuel prices unravel the USA hegemon I say drive it down LOW.
Greta's ideals !! give me a break. That fake poseur has only one ideal and she adores it in the mirror daily with a lot of coaching from mama and papa.
Posted by: uncle tungsten | Apr 10 2020 10:04 utc | 63
Oh yes oil !!!
Now let me see ???
With 50% of you dead, i’d Imagine the long term demand for oil will drop by nearly 50%. Perminatly.
So what we’re seeing is, again ———-
The wrong people doing the right thing for the wrong reasons.
Example -
Not a week ago a good freand disagreed with me saying ‘ but if they kill us off, who will they get to pick their strawberry’s ?
My answer - they’l need less strawberry’s !
This oil thing is’nt about oil or money. It’s about available finite resource versus population size. But we don’t get a say !
Posted by: Mark2 | Apr 10 2020 11:45 utc | 64
Why do people think that Russia and KSA/MbS have the same aims? Perhaps is it only a marriage of convenience ?
Russia plays the long game and they could have two aims, One is to remove the US dollar as reserve currency. Which will cramp the US Empire expansionist ambitions by limiting it's spending on wars, and proto wars.... OK, the Fed can print greenback rolls ad infinitum, and they are already buying their own bond issues along with all the other junk..... but how long is the credibility of the greenback going to last?.
The second is limiting the ability of the shale fields to "support" the US empire by opening up a reasonable financial "level playing field". (same aim as above, different means). Shale oil is supposed to be mixed with import oil to be usable, so imports will continue but perhaps not as much.
KSA I put down to simple greed on the part of MbS. He has screwed his own millionaire support base, Kashoggied dissenters, he has started wars (Yemen) and pays for others (In Syria notably). His super-city in the Hadramout is "Dead in the water". He likes money, but might not have very many freinds left.
...
Two other items: Many countries/Governments rely heavily on taxes on fuel. Particularly in Europe. These are calculated as a percentage, so as the price drops so does revenue. Mexico is not alone in wanting it's share of the loot for it's pet projects. Apparently they want to increase output to 2 mbd at the end of the year. Good luck with that.
Secondly, the "agreement" over limiting output is designed to be reduced over a short period of time. (10 mbd >8 etc,)I Notice that this corresponds with the filling up of all available stockage space. The US cannot pump if there is nowhere to put it. Even if the Oil stays in the ground, it cannot bring in any real revenue. Who cares about later? (except the ultra speculators in the Oil market.) "Support" for the dollar will be minimised.
Posted by: Stonebird | Apr 10 2020 12:11 utc | 65
Sounds like spoils of war a la Syria war wrap up and clearly the chess masters are in control of the board, making it painful for the rogue players to continue the slash and burn regime change business model.
I.e., its like a message is there, saying, "Go on, try your plan to invade Iran, Venezuela, target-flavor-of-the-day, but no matter which way moved, there are a thousand cuts waiting.
It is further masterful that for outside onlookers, it looks like the proverbial monkey in the coconut trap: the monkey can only get its hand out of the coconut if it loosens its grip on its imagined treasure, but cannot bring itself to do do, even though the alternative is enduring bondage. There is no way to save face so long as the spectacle goes on, and no doubt the Chinese find it amusing albeit in a poignant way. Even barbarians will likely appreciate the masterful sophistication, which is all the more impressive given it required little more effort than waiting ahead for the inevitable.
I hope b follows up on this development with updates on latest ME & South American geopolitical dynamics to fill out the details of broader contexts shaping the shake downs. Where are the Idlib head chopper refugees these days? Are any joining seasonal agricultural workers for fruit and veggie cultivation? Should be easy to track migrations from suddenly opening closed borders.
Posted by: Екатери́на | Apr 10 2020 12:34 utc | 66
"The troop & system hostage and foreign Oil & Gas Price Fix Blackmail Act<=private oil and gas Oligarch enrichment Act<= blackmail by rule of nation state law" better known as THE PRICE FIX BLACKMAIL ACT.
Imagine that, A member nation of the nation state system design its laws to force broke, jobless, home restricted people around the Covid 19 infected globe to pay more their oil and gas? I love it, The Price Fix Blackmail Act!
Posted by: snake | Apr 10 2020 14:01 utc | 67
Peter AU1 @ 40
That is true but there are shut in fracking wells that will be purchased and reused. I remember in the mid 70's Texans were traveling around the country selling old oil wells. They became valuable again in the fracking period and they sent out letters to buy them back. Every well is tracked.
I bet the lost loaned money on the old wells will be covered by the FED through monetary printing so with no potential losses more wells will be fracked as the price comes up. The businesses that go bankrupt have capital equipment and investment that can be bought cheaply.
One wonders if this is all part of the asymmetric was against Russia. Hammer them with propaganda, knock off their allies through proxies, damage their economy with low oil prices, take away their sales of military equipment through sanctions on the buyers, and so on.
Posted by: dltravers | Apr 10 2020 17:16 utc | 68
For those into prognostication, or even those attempting to understand current events in troubled times such as these, it can be hard to cut through the interminable media propaganda aimed at influencing our thinking, and even our very belief systems.
Sometimes, perspective from the past can be helpful, or at least provide some humorous respite from the ever roiling floods of crises the recent weeks and months have brought upon us.
Herewith, I present the readers of this blog with a blast from the MoA past -- from a mere decade and a half ago -- a more carefree time of silicone cause bracelets, trucker hats, layered polos, and Mariah Carey singing "We Belong Together."
Indeed, in a laid-back time before the arrival of mass pandemics, and the stern, expressionless visage of Greta Thunberg solemnly watching and moralizing over our every lifestyle choice and its effect on her childhood, we really only had one very small thing to worry about,... namely -- PEAK OIL, and the end of civilization as we know it.
Yes, my friends, in an absolutely unpredicted scenario (After all, who really can predict planes flying into buildings, or a sixth unexplained virus hitting China in six years), the world's petroleum experts (and geopolitical expert extraordinaire Noam Chomsky), were dumbfounded to discover that the world's vast labyrinthine chthonic caverns were suddenly running dry of the black gold we all covet and depend upon so much.
In response, like a beauteous garden of flowers that blooms for a single perfumed night, there arose a virtual plethora of "Oil" blogs, populated by literally thousands of "experts" -- some self-proclaimed, and others with vast hoary resumes which alone took an hour to dredge through -- all as solemnly as a raven intoning the same fear-inducing critique of our licentious ways, "Nevermore!"
Upon returning home from my day's labor, I would navigate to one of these oracular rabbit-holes only to find to my utmost astonishment that a post of a mere two hours age, a virtual babe of the innertubes, would frequently have over one thousand comments, and on occasion, over ten thousand! Attempting to read and digest every one of these considered, sagacious comments was, for me, a fate even worse than running out of oil, if you can believe that.
Each comment would considerately bring forth yet another wisened expert, display another graph ominously sloping down far too steeply for the toboggan of civilization to navigate, reproduce another table of learned numbers, or offer a polite but decidedly condescending, "Tsk, tsk."
Anyone evincing a contrarian positition was ridiculed as a self-centered greedy troglodyte, mentally unable to follow rational argument and civilized discourse.
Alas, such was the climate of complete mass hysteria that obtained just 15 short years ago. Truly a psyop for the ages (with no obvious discernible perpetrator), and a lesson for the future.
And what civilized citizen, while obviously morally against our wars in the middle east, could not begrudgingly admit that at least they understood its necessity -- if only for those less willing to tighten their belts than they were. We mere mortals are but ridiculous, poorly dressed, overweight lemmings at the best of times. Alas, Alas!
Well, enough introduction, here -- for the reader's edification and pleasure -- is an authentic MoA discussion of the obverse problem of that we are facing today, namely Peak Oil. The discussion begins at comment 10 and continues until the end, comment 40. Enjoy!
Posted by: Malooga | Apr 10 2020 17:43 utc | 69
Are the Saudis paying attention that they are being blackmailed?
Slash Oil Output Or Else! Senate Bill Would Remove US Troops From Saudi Arabia In 30 Days
WASHINGTON (Reuters) - A Republican U.S. senator introduced legislation on Thursday to remove American troops from Saudi Arabia, adding pressure on the kingdom to tighten its oil taps to reverse the crude price drop that has hurt domestic energy companies.
The legislation from Senator Bill Cassidy, of oil-producing Louisiana, would remove U.S. troops 30 days after enactment, a full month faster than similar legislation introduced by two other Republican senators in March.
[.]
The bill would also place tariffs on imports of oil from Saudi Arabia within 10 days of enactment. The tariff would ensure that the price of oil imports from Saudi Arabia would not be less than $40 a barrel, [.]
Oil tarriffs will be paid by financially stressed Americans. Not the Saudis.
Signal to Cassidy: the door swings both ways. Kill the petrodollar deal....
3.2.1. .. 0 we price our oil in euros and Yuan.
Posted by: Likklemore | Apr 10 2020 17:51 utc | 70
re: Slash Oil Output Or Else! Senate Bill Would Remove US Troops From Saudi Arabia In 30 Days
LOL.
Translation:
America to Saudi Arabia: Slash oil output or we will remove our military goons from your soil.
The Americans act as if removing their colonial occupation troops from Saudi Arabia (or any other country) is a negative thing.
Hell, that Senate Bill should not be viewed as a threat but rather as an enticement NOT to slash oil output.
Posted by: ak74 | Apr 10 2020 18:14 utc | 71
No hay cojones!
That day we will see the sudden end of the Empire
Posted by: DFC | Apr 10 2020 18:15 utc | 72
great article, as always, but really, excuse me - 1st paragraph "..the sinking global oil price caused by a lack of demand due to the novel coronavirus pandemic..." << doesn't make sense. How can a virus outbreak "cause" a lack of demand? Behaviour might 'cause' not so much a lack but rather a decrease in demand, while the virus outbreak might result in changes in behaviour. Is that what you mean?
Posted by: mary-lou | Apr 10 2020 18:19 utc | 73
Everyone seems to hate fracking. It is because of fracking we are now experiencing low prices at the pump. If a barrell of oil is $20 fracking can't compete. Private companies and their financiers will go belly up. However the fracking infrastructure remains in place. Other companies can buy the bankrupts' equipment for pennies on the dollar. Once prices go over $50/barrell the fracking starts again. The government run companies, and cartels, will do everything possible to raise the prices. They depend on these revenues. They would love to see $200/barrell oil. Fracking is a buffer against price gouging.
It is a peculiar free market effect which checks the nationalized companies and cartels. The alternative would be nationalization of the US energy industries. It is not certain that would be an improvement. Russia, Iran, Venezuela and Saudi Arabia are hardly flourishing economies. They are perrenial laggards and probably always will be.
We can hope for some other miracle source of energy. Despite incredible promise the nuclear industry can't get off th ground. Prices remain higher than hydrocarbons. Wind and solar will never amount to much for several reasons. Energy storage is the main problem. Large land acquisitions and expensive maintenance makes these inherently expensive despite the "free" wind and sunlight. Hydro-electric is pretty well played out. Anything else?
Posted by: Patricus | Apr 10 2020 19:12 utc | 74
@ Bevin 36, Why would capitalists be motivated to demolishing the capitalist economy:
Rather than a coherent class with unified interests, the capitalists are a universe unto its own. Arguably the most influential faction these days is the Private Equity sphere. No coincidence that the most ambitious and unsavoury politicians are retiring into lucrative posts there and that's certainly not for their outstanding successes in managing the public purse.
Just the last two weeks or so, there has been a record spate of successful PE fundraisings, often considerably smashing the targets. For this class of capital, the looming collapse promises untold riches - it's all about the upside and that will be astronomical. Yes their most recent fund vintages might suffer, but after having fattened themselves all the way up the bubble (and in any case 2% fees each year on huge volumes of capital), that's sufferable given the opportunity.
This collapse will bring about a gigantic transfer of wealth from the less influential capital holders to these funds. When everything goes for pennies on the dollar, cash is king more so than ever. And PE has "dry powder" cash stacked high to the heavens.
The tier below PE in terms of political influence will all get their bail-outs, we won't have to worry about them too much.
The further down the pyramid, the less enthusiasm there will be about the collapse of course, but also that's where the enthusiasm for the medieval Covid lock-down increases. They can't have it both ways I guess.
Posted by: Leser | Apr 10 2020 19:41 utc | 75
Another comment re: Slash Oil Output Or Else! Senate Bill Would Remove US Troops From Saudi Arabia In 30 Days
These US politicians seem to be particularly naive. Don't they realise that those 20,000+ est US troops etc in Saudi are not there for the benefit of Saudi. Protect them from who? Iran? There has never been any possibility that Iran would attack Saudi, unless attacked first and that would only happen at the instigation of the US.
No, they are there for the benefit of the US. Firstly, to give the Saudis some 'backbone' and to make sure that they stay on script, an army of occupation in other words. Secondly, for use incase the US decides, in conjunction with their ally of course, to attack Iran.
Either way, I doubt that they are leaving anytime soon.
Posted by: JohninMK | Apr 10 2020 19:48 utc | 76
JohninMK @76--
"These US politicians seem to be particularly naive. Don't they realise that those 20,000+ est US troops etc in Saudi are not there for the benefit of Saudi. "
Exactly. Even the president appears to think that US troops are in Saudi, South Korea, Germany , etc., to protect those countries from evildoers or somebody.
Believing your own bullshit.
Posted by: arby | Apr 10 2020 19:59 utc | 77
Not just those obvious ones arby. In mega faithful Norway there is a large US Marine contingent with even larger prepositioned equipment including tanks, the proper ones Abrams (only upgraded from APC a couple of years ago). They are near Trondheim, not even in the North near Russia.
If necessary a couple of flight of marines extra wouldn't arise suspicions and there is a 1000 strong strike force in place, the strongest in Scandinavia, not just Norway. Russia is over a 1000 miles away but Oslo is a few hundred down a tank supporting road.
Must concentrate the minds in the Norwegian Government.
We only have a load of USAF F-15, both -C and -E variants in the UK, no army.
Posted by: JohninMK | Apr 10 2020 20:54 utc | 78
"...the capitalists are destroying the capitalist economy because the inherent contradictions of capitalism have brought them to it. After the controlled demolition, neo feudalism will be brought in..." Johny Conspiranoid@59
I'm inclined to agree. Sensationalism and panic mongering in the capitalist media- motivated by greed for profit gets in the way of production.
This is seen in the half-hearted and unsystematic nature of controls over social distancing and isolation: the government of, for example the UK, doesn't really mean it. It remains wedded to herd immunity and the rationing of treatment by wealth. But it doesn't like to admit it, because it is afraid of public reaction. Hence: illogical, arbitrarily enforced quarantines and no commitment to the production of the equipment needed to treat masses of people.
The same is true in the United States, Chile and Ecuador etc.
But the basic contradiction of capitalism is that between the desire to exploit labour, which implies a commitment to public health, nutrition and education-all of which lead to boosted productivity- and a refusal to commit capital to the systems needed to increase Labour's utility to Capital.
As we know, as neo-liberalism gathered momentum- and the welfare state was shrunk and starved- Capitalists set off on a global hunt for pristine labour, the Asian and African equivalents of those displaced peasants (and stolen slaves) whose labour had fueled the establishment of capitalism in Europe and America. In doing so they actually sealed the doom that they were seeking to postpone, creating a proletariat with nothing to lose out of peasants and artisans integrated into their societies, albeit in weird and often mystical ways.
In short: I don't disagree that Capitalism assists in its own destruction. But that is a different matter from arguing that the ruling class is carrying out a course of economic destruction planned and prepared in order to achieve ends which it can only reach by such drastic measures.
The reality is that while capitalist contradictions prepare the destruction of the system, the actual work of knocking it down and replacing it requires an outside agent. Marxists have, traditionally, assigned this role to the class conscious proletariat. And I think that they are right.
But what is missing at the moment is not the identification of capitalism as the source of ills but the coming together of popular forces to battle against poverty, unemployment and an inhuman refusal to protect the vulnerable from this virus and the many other health problems that are unaddressed by a system which is essentially cannibalistic, vampirical and indifferent to anything which does not profit it directly and immediately.
Such a movement can only be born out of realism, including a realistic assessment of the weaknesses of the oligarchs and their political agents. Such a realism does not allow us to indulge in the childish fantasy that the Empire does whatever it wishes, whether that be to create mass unemployment, to destroy its own economic base, to hypnotise the public into believing its impossible claims and cull millions with impunity.
Those who doubt their own power and the ability of their neighbours to effect change are welcome to do so. But the repeated defeats of imperialism in the past eighty years cannot be dismissed. We may not make our own history- it might all be made for us by Bill Gates and other bogeymen- but people all over the world can and do take on the Empire and defeat it. The Cubans, minutes away from the US by air, did it and do it daily. The Vietnamese did it. The Iraqis did it once and will do it again. The Yemeni are doing it. The Taliban, like them or not, are doing it.
The idea that TPTB are omnipotent arbiters of our destiny is simply the intellectual luxury of those resigned to defeat, often because they are invested in the imperialism which they know to be evil.
Posted by: bevin | Apr 10 2020 21:02 utc | 79
Well i ve got a different proposal, to cut the throats of those recalcitrant yanks.
China and Japan make a deal and pass to import only from opec countries who cut their output by 8%.
The US is not even considered as supplier - either for crude or refined output.
So the excess oil and under consumption goes on for the US and all the rest who dont participate. But China and japan can negotiate a parallel list of compensations easily.
And let the shalers eat their oil.
augusto,
Why would China and Japan, huge importers of oil want to force a rise in the price?
Posted by: arby | Apr 10 2020 23:13 utc | 81
I believe China spent ~ $240b annually on oil imports in 2018, and I have no information on other Asia-Pacific countries, which heavily buy Middle East oil. If oil prices stay ~ 60% lower than 2018, that would save China ~ $130b annually, and that is less cash flowing to the Gulf Monarchies. That Gulf/Saudi money was largely invested in the Western financial markets (the September financial issues were due to Saudi Arabia withdrawing $80b from short term western investments).
What is the long term impact of $130b annually (probably $200b, including other Gulf states oil revenue) not flowing into the Western financial system via Petro $? If China and Asia-Pac countries can get back on their feet and if oil prices were to stay low, that is a large disruption in financial flows. Oil prices hit the mid $30s in 2016 briefly, but if this low pricing is sustained, it will be a large disruption in currency flows.
This does not consider LNG prices, which are also quite low. I have not been able to determine China's annual LNG imports despite several Google searches (why is that so difficult?).
Posted by: Schmoe | Apr 10 2020 23:13 utc | 82
Schmoe #82
Under the recent China trade deal that it obligingly got Trump to sign China committed to purchase a fixed percentage of oil from the USA as an offset for the USA imports - a balance for trade.
If the price of oil goes low and the consumption of China products remains stable then China has won an incredible deal and Trump looks like a chump.
At the same time if China suddenly builds a mega strategic reserve and imports lots of us oil at the rock bottom price Trump looks like a chump.
If the USA consumers stop purchasing China products because of Trump shutdowns and wages losses, China imports less oil to 'balance' payments and then Trump looks like a chump.
If the USA refuses to reduce its oil output consistent with the April 10 OPEC proposal then Trump looks incapable of making a deal.
etc etc.
Posted by: uncle tungsten | Apr 11 2020 2:05 utc | 84
So I read through the G20 statement after the oil meeting and it looks like a bunch of mush, and meanwhile I don't see that anybody is committed to anything much, even once May arrives.
I suppose we can consider this all part of the negotiation process.
But it doesn't appear the USA is able to do much, beside print money, and Mexico is sticking to its counter-offer, so it looks at the moment like "no deal", and that may well be intended by some of the negotiators.
Meanwhile three weeks of pump-like-mad before any "deal" comes into force, if it does.
Posted by: Bemildred | Apr 11 2020 15:35 utc | 85
How to save shale? Iraqi Shia militia attacks occupying US troops. Trump blames Iran and launches attacks on Iran. Iran shuts down Gulf and/or attacks Saudi oil fields. Price concern solved.
Posted by: Musburger | Apr 11 2020 17:06 utc | 86
"Since 2016 OPEC and Russia had reduced their production to keep the oil price in the $60/b range. This effectively subsidized the U.S. shale industry. U.S. production kept growing while production by Russia and Saudi Arabia was artificially limited. It allowed the U.S. to grab more global market share at profitable prices."
Can someone explain to me why keeping oil prices up helps U.S. shale oil? Because shale break-even is less than that? But in that case, why would Russia agree to that?
Thanks
Posted by: galerkin | Apr 11 2020 18:11 utc | 88
Can someone explain to me why keeping oil prices up helps U.S. shale oil? Because shale break-even is less than that? But in that case, why would Russia agree to that?
Yes, extracting shale has enormous costs. The revenue must be high enough to offset the cost of production. Why would Russia take the brakes off now? I'm not sure. Possibly Putin figures the damage to the entire global economy outweighs the benefits of gaining market share and putting shale out of business. Other than that explanation, like you it seems like he's foregone the opportunity to leverage his position to gain concessions from the US.
Posted by: Musburger | Apr 11 2020 18:20 utc | 89
I think Putin easily remembers the Saudi's increasing production two years ago (most likely at the behest of the US) to hurt Venezuela and Russia. I think they knew it would hurt the US shalers, but they could outlive it. Now when they haven't outlived it and Russia has grown stronger they Push the Sauds to restrict production. Putin the black belt just has to stick out his foot and watch the OPEC leader and it's master fall on their faces. All he had to do was say "no". That's it. It was MBS who it looks like got angry and raised Saudi production smashing the price of oil. Big Egos in play.
Posted by: arby | Apr 11 2020 19:23 utc | 90
@Musburger #86
The Saudis can't survive a Gulf shutdown any more than Iran or Iraq.
Not at all clear anyone wants a Gulf shutdown - which an attack on Iran would certainly make a real possibility.
Secondly, Iran has already made it clear that Saudi oil production can be seriously harmed even without a Gulf shutdown.
Posted by: c1ue | Apr 11 2020 22:12 utc | 91
The shale fracking companies do generate a lot of jobs, also decreased energy dependence/increased energy independence is very MAGA.
resume examples
Posted by: Irvin Fletcher | May 7 2020 6:39 utc | 92
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So typical of Putin that his timing and strategy are always "no choice but you sign the document".
This is like the Debaltsevo Cauldron. The Ukies and NATO troops are surrounded. Germany and France had to beg to save the NATO troops, while the Ukies were left to be slaughtered. Then they all signed the Minsk 2 Accords, without Russia signing anything.
Then, Putin took the Accords to the UNSC for its backing. That left the Ukies no way out of Minsk 2. It has choked them ever since.
Right now, U.S. shale will live or die based on what Putin wants. Trump can refuse. But then Trump kills shale, not Putin.
Everyone can have a $45-60 industry, but if not, then the US goes back to very little shale, no Energy Independence, and when they are busted and shuttered, the price will go to $60 like Igor Sechin (Rosneft) predicted.
Posted by: Red Ryder | Apr 9 2020 18:45 utc | 1