What’s The Deal With Oil?

I admit it. I’ve not been paying any attention to oil for a year or two. I know it is fundamental to economic performance and a great indicator of global activity and all; but I was being lazy as the USA was in an oil boom.

Now this:

USO Oil ETF 1 year daily for 15 April 2018

USO Oil ETF 1 year daily for 15 April 2018

Gold isn’t on a rocket ride, so inflation fears and currency depreciation seem unlikely. We’ve got US vs USSR tensions, but that seems inadequate to be causal. To the best of my knowledge Russia is still pumping.

There was news that the Saudi / OPEC folks were in talks with Russia to constrain supply and raise rates, but I’ve not seen anything saying that was a done deal.

http://www.oil-price.net/

has WTI at $67.39 and Brent at $72.58. Significantly up from the $40-something of not that long ago. Gasoline is over $3.50 / gallon for regular and headed to $4 for super, here in California. That’s prices we saw at $100 / bbl oil, so out of line with crude prices anyway.

These folks seem to think it all nervous ninnies over “geopolitical risk” mixed with a ‘weaker dollar’:

https://oilprice.com/Energy/Energy-General/Why-Oil-Prices-Just-Rallied-To-70.html

Why Oil Prices Just Rallied To $70
By Julianne Geiger – Apr 10, 2018, 12:30 PM CDT
[…]
The price of a Brent barrel surpassed the $70 mark in morning trading on Tuesday, after a rather rocky start to the week. But is $70 Brent here to stay?

Both the WTI and the Brent benchmarks were trading up on Tuesday by almost 3 percent, with Brent reaching the psychologically important $70 threshold shortly after 9:00am EST. This was a dramatic one-day increase over Monday morning’s level of about $67.00 per barrel. The WTI barrel followed a similar upward trajectory.

In today’s volatile oil market, it can be tough to assign any single catalyst to oil price movements; often its many catalysts, other times it’s an undefinable one. While it may be tough to finger one specific catalyst, the weaker dollar, followed by geopolitical unrest over Venezuela, Iran, Russia, Syria, N Korea, and of course China, are likely culminating in somewhat of a perfect storm, helping to lift oil prices.

But with the USA a net exporter (or about on balance) of oil, why ought WTI spike up because the UK might have a tiff with Russia? Yeah, I know, oil is more or less fungible. But still, seems artificial to me. More Goldman Sachs trading gnomes and less reality of supply.

A Different POV

This article, from some time back in the $43 price range (Sept. 2015), is supportive of the ‘renewing oil’ idea:

https://journal-neo.org/2015/10/09/oh-oil-where-is-thy-peak/

09.10.2015 Author: F. William Engdahl
Oh Oil, where is thy peak?

There are two great myths used in recent years to convince the world of imminent catastophe unless we drastically change our living style in the direction of austerity. Both myths are based on scientific fraud and uncritical propagation by sympatheic mainstream and even some alternative media. One is the idea that world climate is warming, or at least “changing,” owing almost solely to us, to our man-made emissions. The second great myth, launched first in 1956 in Houston Texas by an employee of one of the world’s largest oil companies, was dusted off some 15 years ago at the start of the Dick Cheney-George W. Bush Administration. It’s called the theory of Peak Oil.

The most dramatic discoveries of new oil and gas reserves in recent years has come from the Mediterranean in areas off Cyprus, Israel, Lebanon and believed to be offshore Greece as well. In 2010 Israel and the Houston, Texas company, Noble Energy, discovered the largest offshore gas field, Leviathan. It was the world’s largest gas discovery in a decade, with enough gas to serve Israel for at least a century. The geophysics of the offshore areas around Greece suggest that that hapless country could also have more than enough undiscovered oil and gas to repay all foreign debt and more. Not surprisingly the Washington-led IMF demands that Greece privatize her state oil and gas companies, a near certainty that major Western oil firms would sit on their development as was done in past decades until leases expired in 2004 and reverted back to the Greek Government.

In 2006 Brazil’s Petrobras made the largest offshore oil discovery of the last 30 years, holding at least 8 billion barrels of oil in the Santos Basin 250 kilometers from Rio de Janiero. Then-President Lula da Silva proclaimed it would give the “second independence” for Brazil, that from Western oil imports. In 2008 nearby Petrobras, a state company, discovered an equally large natural gas field called Jupiter near their Santos oil discovery. Under Lula’s presidency, the Parliament passed measures to insure oil development would remain in Brazilian hands under Petrobras and not in those of the American and British or other foreign oil majors. In May 2013 after Lula retired and was succeeded by Dilma Rousseff as President, US Vice President Joe Biden flew to Brazil to meet with her and the heads of Petrobras. According to Brazilian sources, Biden demanded Rousseff remove the laws that kept American oil majors from controlling the huge oil and gas finds. She politely declined and soon after she was hit with a major US Color Revolution destabilization that continues to this day, not surprising, with a scandal around Petrobras at the center.

Then a half dozen more listed from Iceland to Gatwick to Cuba…

Any bolding by me.

In the 1950s a group of Soviet scientists was tasked with making the USSR self-sufficient in oil and gas as the Cold War heated up. The first step in their research was to critically investigate all known scientific literature on origins of hydrocarbons. As they looked closely at the so-called fossil fuel theory of oil, they were amazed how unscientific it was. One physicist estimated that for the huge oil that has come out of one giant well, Ghawar, in Saudi Arabia, it would require a block of dead dinosaurs, assuming 100% conversion of meat and bone to oil, that would reach 19 miles wide, deep and high. They soon looked for other explanations for the birth of oil.

They made exhaustive tests in the deep-earth research labs in Moscow of the Soviet military. They developed the brilliant hypothesis that oil was constantly being created deep in the bowels of the Earth below the mantle. It pushes upward towards the surface passing through beds of various elements such as ferrite. They did repeated laboratory experiments producing hydrocarbons under temperature and pressure imitating that in the mantle. These migration channels, as the Soviet scientists termed them, were fissures in the mantle caused over millions of years under the expanding of the earth and forced by the enormous temperatures and pressures inside the mantle. The path the initial methane gas takes upwards towards the surface determines whether it emerges and collects as oil or as gas, as coal, as bitumen as in Canada’s Athabasca Tar Sands, or even as diamonds which are also hydrocarbons. The Russian and Ukrainian scientists also discovered, not surprisingly, that every giant oilfield was “self-replentishing,” that is new oil or gas is being constantly pushed up from inside the mantle via the faults or migration channels to replace oil withdrawn. Old oilwells across Russia that were pumped far beyond their natural full rate during the end of the Soviet era when maximum production was considered highest priority, were then shut, considered exhausted. Twenty years later, according to Russian geophysicists I have spoken with, those “depleted” wells are being reopened and, lo and behold, completely refilled with new oil.

I’d like to see documentation / confirmation of the claim of “completely refilled” as usually it’s just tertiary production techniques of lower quantities…

The Russians have tested their hypothesis to the present day, though with little support until now from their own government, whose oil companies perhaps feared that a glut of new oil would collapse oil prices. In the west, the last thing Exxon or other Anglo-American oil majors wanted was to lose their (once) iron grip on the world oil market. They had no interest in a theory that would contradict their Peak Oil theory.

Today a geopolitical decision by Saudi Arabia to wipe out the market-disturbing recent emergence of the United States as world’s largest oil producer owing to the major increase in shale oil production, has temporarily collapsed world oil prices from over $100 a barrel in July 2014 to around $43 today in the US market. That is leading to a dramatic cut-back in oil exploration around the world. In a fair world, oil or gas should be available at affordable prices to every nation to serve its own energy requirements and not the monopoly of a tiny cartel of British or American companies. Good to know is the fact that the oil and gas are there in super-abundance that we need not freeze in the dark or turn to windmills until the time mankind develops completely different forms of energy that are clean and earth-friendly. Wars to control oil or gas would become silly nonsense.

So is it possible this is just the eventual drop of oil supply from lack of exploration and development at $43 / bbl come home to roost, and soon enough the worm will turn again?

One thing I wonder about, contrary to the ‘refilling’ notion from that article, is simply has Saudi Arabia seen a significant sign of dropping production from their major light oil fields? They are talking of selling off (listing) their oil company. You do that when you’ve creamed off the best profits and want to edge out the door before your failings show up. Saudi is busy “diversifying” all over the globe. Getting away from dependence on oil. You don’t do that when you own the market, as they have.

http://www.oil-price.net/en/articles/5-oil-price-predicitions-for-2018.php

Domestically this “anti-corruption” cleanup serves Saudi Arabia at least 4 purposes.

Saudi Aramco’s Initial Public Offering (IPO) needs transparency if it’s to take place in 2018. This open secret of an IPO is long in the tooth, nearly 3 years in the making and is yet to be cleared. As a result, pressure for transparency in mounting. Unfortunately for the IPO, Saudi billionaires have been using Saudi oil revenues as a piggy bank for years – under the shell of Aramco – with little to no record book-keeping. As you know, public exchanges demand transparency from all company regarding their financial statements in order to list their stock. The high level purge forces the hands of recalcitrant big Aramco players to turn over their ownership before it’s too late so that the IPO can move as planned. Let’s not forget, Saudi Arabia needs this IPO (and the money raised) in its efforts to diversify and move away from an oil dependent economy.

So Saudi short of cash, buying overseas assets and weapons at a prodigious rate, and looking to sell off the historical cash cow. Something smells fishy… but what?

The Fight over control of the US electrical grid

Back in June we reported that Blackstone Group LP and Prince Mohammed bin Salman of Saudi Arabia inked a deal allowing Saudi Arabia’s sovereign wealth fund to invest $100 billion dollar in US infrastructure. In the following days, for the brave reporting, we received monumental flak from many trolls in Riyadh. That wouldn’t cease us from ferreting out the truth, be assured.

The bitter irony is that, under the guise of “modernizing” the US infrastructure, the Trump administration is, in reality, busy in the process of privatizing power transmission lines in 20 western states currently operated by the Federal Government.

Among the budget proposals of President Trump was the plan to privatize publicly owned transmission assets, chief among them the assets of Bonneville Power Administration (BPA). Take the case of BPA itself, the system manages a high-voltage transmission grid that distributes power from 31 hydroelectric dams to provide electricity to more than twelve million people. This sell off, along with other assets of the Power Marketing Administration, is expected to save $5.5 billion. The rub is that the saving would roll off slowly over the course of a decade, if it does at all. As things stand, President Trump enjoys a cozy relationship with Prince M.M.S., swooning so far as to plead with the Saudis to list the IPO of Aramco on the New York Stock Exchange.

No guesses as to who will buy the assets, then. So, with dubious effects, this plan will hand over control to the Sandi Kingdom one of the most important strategic assets and chore engine of American innovation: electrical power in the western states, the same – currently inexpensive – power that make Google, Facebook, Data Centers and the Silicon Valley competitive. Every which way, expect both your power and internet bills to surge in 2018 should this proceed. Meanwhile, is privatization of the electric grid the norm everywhere? In the case of Saudi Arabia, the massive $300 billion privatization programme is moving slower than the slowest snail. As far as the power sector is concerned, 2018 is earmarked for the said privatization in the Kingdom. The rider is that the companies would be corporatized before the privatization process takes place. Would that happen to Saudi Arabia in 2050? Possibly.

The doubter in me wonders if this is a way for Saudi to get control of the “fuel supply” for electric cars to maintain their place as their oil runs low to out. Some years back I’d seen a report that Ghawar field had started producing up to 50% water in what was pumped. So first off, there’s no way to know the truth of that as Saudi holds that secret (but would need to divulge it to list stock… in the USA at least). But if true, that’s what happens at end of life of a field.

Now Russia is overtaking Saudi as the global leader in oil production. The USA is at balance or net exporter, depending on the month. Saudi is talking about an IPO, and would LOVE to have a high oil price at the moment it lists.

Is it maybe the case that Saudi is looking to restrict supply, raise demand, pump & dump on the IPO? Could the bombing in Syria, Yemen, etc. be at least in part to assure oil prices rise for that event? Cause strain with Russia, make their supply risky, block any Syria pipeline (just as wars in Iraq and Afghanistan have caused pipelines to not be built, keeping more supplies off global markets.)

I don’t know.

But I’m pretty sure that what’s in the papers and on TV has nothing true in it. The Silence on all things Saudi Oil in the MSM also makes me wonder. What does that “negative space” indicate?

What I do know is that $4 / gallon gasoline is staring me in the face ( saw $3.95 today). Who benefits? The Electric Car Cabal, the Loony Green Left Machine, The House of Saud, Goldman’s trading desk. Who loses? The average Joe & Jane Sixpack that are “Trump’s base”.

It just looks awfully artificial to me.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged , , , . Bookmark the permalink.

13 Responses to What’s The Deal With Oil?

  1. Pingback: What’s The Deal With Oil? – All Science by Alexandros G. Sfakianakis,Anapafseos 5 Agios Nikolaos 72100 Crete Greece,00306932607174,00302841026182,alsfakia@gmail.com

  2. Ralph B says:

    $2.39 here in VA for 87 octane. FL prices are spiking right now as the snowbirds head north and they are ~$2.50. You need to get on over here…

  3. H.R. says:

    Every Spring and Fall, the price hike “reason” has always been given that the refineries are switching from Winter/Summer blend to Summer/Winter blend. More than a few times the local news has covered the mystery of why pump prices go up when oil prices are down.

    I believe we’ll finally get some new oil refineries under the Trump Administration. I do think that prices at the pump are affected by our (USA) maxed out refineries as well as the price per barrel of oil. Whenever one of the refineries in my region shuts down for its scheduled 2-week preventive maintenance, prices jump 20-30 cents per gallon.

    @Ralph B: Your explanation regarding the increased demand by snowbirds passes my smell test. The Fall and Spring migration to Florida is probably the fuel centers’ equivalent of Black Friday, except they get to increase prices instead of offering door busters. In the off seasons when traffic is thin, they have to lower prices to tempt drivers to stop at their particular station.

    Mrs. H.R. and I experienced this first hand as we were late going to Florida (mid January) but came back at migration time (mid March). Gas was about 30 cents per gallon higher on the return trip. Once home, gas prices did not have the ~30-cent adder we were seeing on the road.

  4. Larry Ledwick says:

    That price bump also coincides with some other events like Easter weekend, Tax time (April 15) and spring break. Along with the switch over process of having to burn up winter blend stocks before the weather gets too hot to use them, and then re-filling tanks with summer blend fuels, you have a confluence of market forces that push prices slightly higher for a while as we move into summer season and highway travel miles increase substantially with the good weather.

    Instead of sitting at home and watching football, hockey or march madness basket ball folks start going to the ball park for opening days in baseball, start taking weekend fishing trips and other outings as the weather improves.

  5. John F. Hultquist says:

    Trudeau irretrievably committed himself to build Trans Mountain expansion …
    Kinder Morgan’s proposed $7.4-billion project to triple the flow of Alberta bitumen …

    Alberta is 3rd., I think, in the amount of oil to be harvested.
    Further, all the alt-fuel ideas (for whatever) leave more oil for other purposes, including autos with ICE, and may mean peak oil demand has been seen. Regardless of specifics, oil consumption will have a long tail.

  6. cdquarles says:

    Also, for me where I live, the EPA “summer” gas has to be sold beginning this month (never mind all of the budding and blooming plants, ’cause only petrol VOC count plus that high sun angle we get here, even higher in S. FL ;), 5 degrees higher in Orlando, 8 in Miami), our local prices are up to $2.43 to $2.50 for up to 10% alcohol 87 and $3 for 100% petrol. Prices locally keep rising until June, when summer gas production at the refineries has caught up.

  7. jim2 says:

    Oil usually goes up in times of uncertainty – lot of saber rattling and a couple of real sabers striking. This will just be a gift for the shale players. IIRC, it’s been going up since June ’17?

  8. Larry Ledwick says:

    It is possible that the new relationship with Saudi Arabia includes some quid pro quo regarding oil, I suspect it was a trade that if the Saudi’s maintained a sensible oil price so that shale drillers can stay in business we would open up arms sales and stay out of their way while they sort out their regional issues. It is strategically very important for both Israel and Saudi Arabia to put a leash on Iran, so it serves everyone’s interests if such a deal were struck. The Saudi oil lasts longer, they get more revenue for less oil and they don’t have to grovel for US weapons that they need to establish a stable group of Arab states which will tolerate Israel for their mutual benefit.

  9. jim2 says:

    Some shale drillers these days can make a profit a $30/bbl. Technology.

  10. jim2 says:

    SA has been cutting production, after having failed to drive the shale players bankrupt.

    “Oil prices will rise to $100 per barrel if Saudi Arabia gets its way.

    Only a week ago, news surfaced that Saudi officials were quietly hoping to push oil prices up to $80 per barrel, which would help boost the valuation of Saudi Aramco IPO. But why not $100 per barrel?”

    https://www.usatoday.com/story/money/energy/2018/04/19/100-dollar-oil-back-opec-tightens-production-limits/530860002/

  11. philjourdan says:

    The catch 22 is, if the price does rise to $100/barrel, that will open up more wells, flooding the market and crash it again. The worst thing the Saudis can do is run up the price that high.

    But they will. And the cycle will repeat.

  12. jim2 says:

    pj – yep, expect the shale and other regions in the US to go insane, economically speaking.

  13. nickreality65 says:

    “It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong.”
    Richard P. Feynman

    For the up/down/”back” radiation of greenhouse theory’s GHG energy loop to function as advertised earth’s “surface” must radiate as an ideal black body, i.e. 16 C/289 K, 1.0 emissivity = 396 W/m^2.

    As demonstrated by my modest experiment (1 & 2) the presence of the atmospheric molecules participating in the conductive, convective and latent heat movement processes renders this ideal black body radiation impossible. Radiation’s actual share and effective emissivity is 0.16, 63/396.

    Without this GHG energy loop, radiative greenhouse theory collapses.

    Without RGHE theory, man-caused climate change does not exist.

    Of course, that doesn’t stop hosts of pompous “experts” ‘splaining the mechanisms of this non-existent loop with quantum electro-dynamics, molecular level physics, photo-electrics which, when faced with real data, ends up as pretentious, handwavium, nonsense.

    (1) https://principia-scientific.org/experiment-disproving-the-radiative-greenhouse-gas-effect/

    (2) http://www.writerbeat.com/articles/21036-S-B-amp-GHG-amp-LWIR-amp-RGHE-amp-CAGW

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