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Peak Cheap Energy and Temporary Oil Price Slump

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

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

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

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

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

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

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

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


Introduction

Nemesis eventually catches hubris.

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

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

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

As IEA noted in iea.org

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

—George Carlin

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

Walter Scott, Marmion, Canto vi, Stanza 17

 

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

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

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

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

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

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

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

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

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

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

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

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

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

The end of cheap oil hypothesis

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

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

    Reference:

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

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

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

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

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

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

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

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

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

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

Note on the term "conspiracy theories"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

April 5, 2002

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Aug 18th, 2015 | Ticker Report

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Oil futures

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

Que Bono and Wall Street HFT games with oil futures

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

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

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

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

 

Production by country and total world production

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

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

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

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

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

Here is a chart from  Bloomberg Business

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

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

Now let's discuss Iran and Iraq

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

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

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

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

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

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

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

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

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

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

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

What MSM do not discuss: depletion rates

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

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

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

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

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

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

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

US oil production and forecast for 2016

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

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

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

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

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

Projections of the U.S. crude oil production

Saudi Arabia oil production and forecast for 2016

Oil production

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

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

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

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

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

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

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

Exports

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

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

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

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

Business Insider

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

... ... ...

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

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

Internal consumption

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

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

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

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

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

Russia oil production and forecast for 2016

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

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

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

 

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

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

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

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

... ... ...

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

... ... ...

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

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

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

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

Mystery Benefactor

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

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

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

18 December 2015
Rosneft Holds Board of Directors Meeting

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

The following decisions were taken:

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

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

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

... .... ...

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

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

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

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

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

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

Oil producing countries with civil wars/sanctions/military conflicts  

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

Oil consumption

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

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

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

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

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

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

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

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

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

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

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

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

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

Per country picture: not all countries are created equal

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

Not all consumers of oil are created equal.

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

See also: Oil consumption per capita bar chart

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

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

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

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

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

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

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

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

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

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

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

Here are the ELM Mathematical Facts of Life:

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

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

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

Here’s the Available Net Exports problem:

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

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

The USA consumption

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

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

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

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

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

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

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

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

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

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

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

China consumption

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

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

India consumption

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

Russian consumption

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

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

Compare that with the USA

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

India

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

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

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

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

Analyzing India’s oil consumption

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

Per sector consumption

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

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

Consumption by transportation sector

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

In the USA consumption is depicted on the following picture

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

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

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

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

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

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

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

Chemical industry consumption

Chemical industry consumes approximately 30% of oil.

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

Military consumption

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

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

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

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

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

Hurting Russian economy

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

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

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

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

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

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

... ... ...

What is Riyadh’s game?

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

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

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

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

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

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

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

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

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

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

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

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

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

Aug 07, 2015  |  The Guardian

annamarinja airman23 8 Aug 2015 09:09

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

yemrajesh  -> psygone 8 Aug 2015 07:36

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

Kaiama 8 Aug 2015 06:07

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

AlbertEU  -> alpamysh 7 Aug 2015 17:09

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As Reuters reported:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Barack Obama:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Iraq war was a war for oil

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

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

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

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

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

The Bush Agenda

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

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

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

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

After the U.S. corporate invasion of Iraq

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

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

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

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

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

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

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

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

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

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

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

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

Winning Iraq’s oil prize: 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

brian  Dec 30, 2015

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

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

Si

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

 

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

Hedging and junk debt: shale oil as subprime oil


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

Zero Hedge

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

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

There are various hybrids and modifications of the above.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

...

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

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

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

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

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

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

Source: CapIQ

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

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

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

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

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

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

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

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

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

Vultures start circling shale companies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6344498 Magooo

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

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

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

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

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

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

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

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

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

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

 

Floor for oil prices for 2016

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

... ... ...

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

CLZ17 Commodity Futures Price Chart for Crude Oil WTI December 2017

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

EIA forecasts change with market prices

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

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

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

Sustained low oil price will cut capital investment in oil dramatically

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

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

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

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

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

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

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

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

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

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

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

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

 

Additional "end of cheap energy" readings

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


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[Dec 17, 2017] Oil from Canada's oil sands is now selling at a $27-per-barrel discount relative to WTI, the sharpest difference in more than four years

Dec 17, 2017 | www.zerohedge.com

Uh-Oh Canada! Tyler Durden Dec 17, 2017 3:15 PM 0 SHARES Authored by Nick Cunningham via OilPrice.com,

Oil from Canada's oil sands is now selling at a $27-per-barrel discount relative to WTI, the sharpest difference in more than four years

Western Canada Select (WCS), a benchmark for oil from Alberta's oil sands, has plunged in December, falling to just $30 per barrel at the end of this past week. WCS typically trades at a discount to WTI, reflecting the differences in quality from lighter forms of oil, as well as the extra transportation costs to move oil hundreds of miles out of Alberta.

But a discount is usually something like $10 per barrel, not more than $25. A price deterioration of this magnitude has not been seen in years.

... ... ...

At the end of the day, the current $27-per-barrel discount is being acutely felt in Canada's oil industry. Kevin Birn, a director at IHS Energy in Calgary, told Bloomberg that a $25-per-barrel WCS discount translates into a loss of $20 million per day for Canada's oil producers.

Lore -> east of eden , Dec 17, 2017 6:27 PM

Tyler should consider doing his audience a really big favor by addressing critical market fundamentals, because it's clear that there is a lot of ignorance here, still.

There is a TEMPORARY surplus, yes, but production in domestic American formations is collapsing (no exaggeration, the entire sector is engaged in a conspiracy of silence), and the U.S. Government is about to lose its ability to pay by issuing endless mountains of debt (hence all the distractive war-mongering and pathological adventures overseas). A new civil war is coming.

America is NOT a desirable trading partner, going forward.

Prime Minister Justin Trudeau is a clueless buffoon, pandering to the Victim Industry, Progressivists and other debased groups. Somebody in Ottawa needs to give him a good shake and remind him of his priorities regarding practical matters, starting with expansion of Canadian refining capacity and port access to international markets, which ought to be considered a matter of national security.

zebra77a -> Lore , Dec 17, 2017 7:28 PM

The big dirty secret is Saudi Arabia, THERE oil bed's are collapsing and pumped into total failure, and there was some articles they were buying oil BACK from New York. We could be sitting on the largest price swing in history.

Question is - when is Israel going into Iran...?

jaxville -> zebra77a , Dec 17, 2017 9:34 PM

Get a grip! Israel is never going into Iran. They will get the USA and other "allies" to do that for them.

Rock On Roger , Dec 17, 2017 3:30 PM

We've got the same problem with gas in Alberta. Lotsa new production and not enough export capacity. Friday Alberta spot price @$1.77 Canadian dollars per gigajoule. More or less $1.35/mcf.

zebra77a -> In.Sip.ient , Dec 17, 2017 7:35 PM

The reality was the oilsands never had to be profitable, just attractive.

No not visually attractive, investment attractive for stock markets and pensions.. The oilsands was always created on the coffer of the public investment. The oilsands were built off of pension funds and excess money flows from the fiat expansion of the Central Banks. It never had anything to do with profitability grant you if Oil had stayed at $100 a barrel big oil would of built plants the size of California.

More oil now goes into making plastic than goes into driving. Price of oil is completely and utterly delinked from it's availability. When is it going back to $100 / barrel ask when Israel is invading Iran..

shitshitshit , Dec 17, 2017 3:50 PM

I don't understand why would they lose money selling their production instead of stopping the production until conditions are reunited to sell at a decent price. Sometimes you have to be willing to suffer a but to make things good again otherwise they might drag on forever.

The oil market is like a masochist market. People try to be three first ones to sell at any price instead of patiently waiting for the right moment.

johnnycanuck -> shitshitshit , Dec 17, 2017 4:20 PM

Because you can't just stop. It takes years and enormous amounts of money to put all the pieces needed in play.

It's not like a Vietnamese food truck start up

zebra77a -> shitshitshit , Dec 17, 2017 7:46 PM

-40 for weeks up there. Boiler shuts off, pipes freeze up in hours. Water expansion will crack it all apart. They don't even want air touching the inside of the pipes to prevent oxidation. The fun one is the Texans they don't know they because they think they can run a Fort Mcmurray oilsand plant like the ones they run in Texas. The only thing keeping the plant running is a pipeline of money..

Heat Trace has put many electricians kids through a lot of colleges and universities..

Profitability is not a big concern, grandmas pension money is stuck into companies like Exxon oil, it's not going anywhere, they'll pump at a loss for 3-5 years potentially before they will shut it all down..

But they'll drop the wages and lay people off in hours... Fort McMurray' s biggest export is skilled tradesmen now not oil..

CHX13 , Dec 17, 2017 3:58 PM

The future of the canadian oil sands stand on a slippery slope... ;-)

johnnycanuck , Dec 17, 2017 4:12 PM

That's what happens when CONswervatives sell out their country's ability to control it's resources and it's means to get them to market.

They sold out Canada's publicly owned railway, then they sold out one of the last remaining Crown Jewels, the Canadian Wheat Board which not only owned it's own rail cars, but successfully managed export shipments for decades via it's reliable and well managed access to ports

Said hoakey Free Market sales pitch is just another means of screwing a country and it's citizens out of it's wealth.

The Koch bros for example, have made out like bandits at the expense of Canadian citizens right to fair profits from it's oil reserves that the likes of Koch had nothing to do with it's expensive development stage. Perhaps more appropriate description of Koch Ind is, like a Bedouin Sheik vanishing in the night with their plunder.

Said CONswervatives even went so far as to screw up Canada's grain marketing system in favor of...drum roll please.. A US hedge fund and Saudi Arabia.

But then, when their political nemisises, the Liberal Party of Canada trades off with said CONswervatives, in our times, they do nothing except extol the virtues of Free Trade. Which, all bullshit aside, means they are on the same side and what few differences there once were, like where you can stick your thingy, and into whom, are fast disappearing.

I don't expect Murikans to understand the landscape of Canadian politics, as Canada isn't a major part of the centre of their consumer society oriented Universe.

[Dec 16, 2017] IEA Dashes Bullish Sentiment In Oil OilPrice.com

Notable quotes:
"... Big Finance not shying away from shale ..."
Dec 16, 2017 | oilprice.com

Big Finance not shying away from shale . Hedge funds and private equity are pouring money into the shale patch despite a growing chorus of investors demanding higher returns from shale companies, according to Reuters . The pressure from investors raised questions about Wall Street's commitment to the shale industry, but Reuters says that the flow of money has continued to flood in unabated.

[Dec 16, 2017] Mohammed bin Salman's ill-advised ventures have weakened Saudi Arabia, by Patrick Cockburn - The Unz Review

Notable quotes:
"... We are the ones who have been fomenting destabilization all throughout the region some of whom would have been allies of the Saudis in some common cause. ..."
"... I think there are more effective choices concerning Yemen and Qatar. But figuring out what the choices are is not going to be easy. And harder still perhaps is implementing them. As for backfire -- we are just not in a position to judge, at the moment. Anyone hoping that another major state collapses in that region is probably miscalculating the value of instability. ..."
Dec 16, 2017 | www.unz.com

Crown Prince Mohammed bin Salman (MbS) of Saudi Arabia is the undoubted Middle East man of the year, but his great impact stems more from his failures than his successes. He is accused of being Machiavellian in clearing his way to the throne by the elimination of opponents inside and outside the royal family. But, when it comes to Saudi Arabia's position in the world, his miscalculations remind one less of the cunning manoeuvres of Machiavelli and more of the pratfalls of Inspector Clouseau.

Again and again, the impulsive and mercurial young prince has embarked on ventures abroad that achieve the exact opposite of what he intended. When his father became king in early 2015, he gave support to a rebel offensive in Syria that achieved some success but provoked full-scale Russian military intervention, which in turn led to the victory of President Bashar al-Assad. At about the same time, MbS launched Saudi armed intervention, mostly through airstrikes, in the civil war in Yemen. The action was code-named Operation Decisive Storm, but two and a half years later the war is still going on, has killed 10,000 people and brought at least seven million Yemenis close to starvation.

The Crown Prince is focusing Saudi foreign policy on aggressive opposition to Iran and its regional allies, but the effect of his policies has been to increase Iranian influence. The feud with Qatar, in which Saudi Arabia and the UAE play the leading role, led to a blockade being imposed five months ago which is still going on. The offence of the Qataris was to have given support to al-Qaeda type movements – an accusation that was true enough but could be levelled equally at Saudi Arabia – and to having links with Iran. The net result of the anti-Qatari campaign has been to drive the small but fabulously wealthy state further into the Iranian embrace.

Saudi relations with other countries used to be cautious, conservative and aimed at preserving the status quo. But today its behaviour is zany, unpredictable and often counterproductive: witness the bizarre episode in November when the Lebanese Prime Minister Saad Hariri was summoned to Riyadh, not allowed to depart and forced to resign his position. The objective of this ill-considered action on the part of Saudi Arabia was apparently to weaken Hezbollah and Iran in Lebanon, but has in practice empowered both of them.

What all these Saudi actions have in common is that they are based on a naïve presumption that "a best-case scenario" will inevitably be achieved. There is no "Plan B" and not much of a "Plan A": Saudi Arabia is simply plugging into conflicts and confrontations it has no idea how to bring to an end.

MbS and his advisers may imagine that it does not matter what Yemenis, Qataris or Lebanese think because President Donald Trump and Jared Kushner, his son-in-law and chief Middle East adviser, are firmly in their corner. "I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing," tweeted Trump in early November after the round up and confinement of some 200 members of the Saudi elite. "Some of those they are harshly treating have been 'milking' their country for years!" Earlier he had tweeted support for the attempt to isolate Qatar as a supporter of "terrorism".

But Saudi Arabia is learning that support from the White House these days brings fewer advantages than in the past. The attention span of Donald Trump is notoriously short, and his preoccupation is with domestic US politics: his approval does not necessarily mean the approval of other parts of the US government. The State Department and the Pentagon may disapprove of the latest Trump tweet and seek to ignore or circumvent it. Despite his positive tweet, the US did not back the Saudi confrontation with Qatar or the attempt to get Mr Hariri to resign as prime minister of Lebanon.

For its part, the White House is finding out the limitations of Saudi power. MbS was not able to get the Palestinian leader Mahmoud Abbas to agree to a US-sponsored peace plan that would have given Israel very much and the Palestinians very little. The idea of a Saudi-Israeli covert alliance against Iran may sound attractive to some Washington think tanks, but does not make much sense on the ground. The assumption that Trump's recognition of Jerusalem as the capital of Israel, and the promise to move the US embassy there, would have no long-term effects on attitudes in the Middle East is beginning to look shaky.

It is Saudi Arabia – and not its rivals – that is becoming isolated. The political balance of power in the region changed to its disadvantage over the last two years. Some of this predates the elevation of MbS: by 2015 it was becoming clear that a combination of Sunni states led by Saudi Arabia, Qatar and Turkey was failing to carry out regime change in Damascus. This powerful grouping has fragmented, with Turkey and Qatar moving closer to the Russian-backed Iranian-led axis, which is the dominant power in the northern tier of the Middle East between Afghanistan and the Mediterranean.

If the US and Saudi Arabia wanted to do anything about this new alignment, they have left it too late. Other states in the Middle East are coming to recognise that there are winners and losers, and have no wish to be on the losing side. When President Recep Tayyip Erdogan called a meeting this week in Istanbul of the Organisation of Islamic Cooperation, to which 57 Muslim states belong, to reject and condemn the US decision on Jerusalem, Saudi Arabia only sent a junior representative to this normally moribund organisation. But other state leaders like Iranian President Hassan Rouhani, King Abdullah of Jordan and the emirs of Kuwait and Qatar, among many others, were present. They recognised East Jerusalem as the Palestinian capital and demanded the US reverse its decision.

MbS is in the tradition of leaders all over the world who show Machiavellian skills in securing power within their own countries. But their success domestically gives them an exaggerated sense of their own capacity in dealing with foreign affairs, and this can have calamitous consequences. Saddam Hussein was very acute in seizing power in Iraq but ruined his country by starting two wars he could not win.

Mistakes made by powerful leaders are often explained by their own egomania and ignorance, supplemented by flattering but misleading advice from their senior lieutenants. The first steps in foreign intervention are often alluring because a leader can present himself as a national standard bearer, justifying his monopoly of power at home. Such a patriotic posture is a shortcut to popularity, but there is always a political bill to pay if confrontations and wars end in frustration and defeat. MbS has unwisely decided that Saudi Arabia should play a more active and aggressive role at the very moment that its real political and economic strength is ebbing. He is overplaying his hand and making too many enemies.

Svigor , December 16, 2017 at 6:24 am GMT
The only hope someone as cloistered as a Saudi crown prince can have of being an effective ruler is either by being an extraordinary person (very curious, love learning for its own sake, etc), or be at least moderately intelligent, and listen to consensus.

For its part, the White House is finding out the limitations of Saudi power. MbS was not able to get the Palestinian leader Mahmoud Abbas to agree to a US-sponsored peace plan that would have given Israel very much and the Palestinians very little.

Lies and Jew-hatred. Everyone knows that despite their infamous sharpness in business dealings, the world's longest history of legalism, a completely self-centered and ethnocentric culture, and their longstanding abuse of the Palestinians, every single deal the Jews try to sign with the Palestinians heavily favors the Palestinians, and the only reason the Palestinians won't sign is because they're psychotic Jew-haters.

The idea of a Saudi-Israeli covert alliance against Iran may sound attractive to some Washington think tanks, but does not make much sense on the ground. The assumption that Trump's recognition of Jerusalem as the capital of Israel, and the promise to move the US embassy there, would have no long-term effects on attitudes in the Middle East is beginning to look shaky.

Hey, you skipped the part where you did anything to support the idea that a Zionist-Saudi alliance doesn't make sense.

K, let's all wait for Art Deco to come in and spew some Hasbara then tell us he's not a Zhid.

Avery , December 16, 2017 at 6:28 am GMT
{Mohammed Bin Salman's Ill-Advised Ventures Have Weakened Saudi Arabia}

GREAT news. Hopefully the evil, cannibalistic terrorism spreading so-called 'kingdom' of desert nomads will continue on its path of self destruction, and disappear as a functioning state.

Tammy , December 16, 2017 at 9:51 am GMT
Once more a Saudi Firster was detained in KSA. This time the owner of Arab Bank, a Jordanian with dual Jordan and KSA citizenship. Saad Hariri a Lebanese was the first one who was dual Lebanon and KSA citizens and who lost his diplomatic immunity in KSA.

I wonder if the Israel Firster who are dual citizens are now sweating? Wonder, if Netanyahu is still an USA citizen? Happy days are coming back .

Jake , December 16, 2017 at 12:31 pm GMT
"Saudi relations with other countries used to be cautious, conservative and aimed at preserving the status quo. But today its behaviour is zany, unpredictable and often counterproductive:"

Saudis allied with Israelis, backed by the wealth and might of the US? Guaranteed to bring out the worst in Saudis (which is bad enough at base) and Israelis and Americans.

cbrown , December 16, 2017 at 1:07 pm GMT
Machiavellian skills really ? I'd see 6 months ahead if this was true. MBS just made a show that they are a de facto Mafia not a businessman to the whole world. I'd bet he just quashed a lot of efforts and money spent on raising the racing horses of the saud monarch and in turn destroyed some serious connection that were vital but aren't readily available to them. Just how potent money they thought it would be ? Sure all is businesses and it will work so long you can pay the right person. The problem is where to find the right person.
Joe Hide , December 16, 2017 at 1:53 pm GMT
Come on Cockburn, look at the Big Picture, not the little one. This the old fallacy of looking at the trees and not seeing the forest. What is happening in Saudi Arabia is a piece of the much bigger puzzle being put together over years, decades, and maybe generations.

The psychopaths at the top of the power pyramid have been engaged in this hidden global game for generations, it's always been part of their longterm strategy.

Very recently Highly intelligent, realistic, morally and ethically centered, and practically oriented individuals, have also formed secret powerful groups to arrive at beneficial goals for humanity. These truly Good Guys have learned that the criminal, murderous, lecherous, degenerate, deviate, psychopaths in positions of great power are irredeemable and should be eliminated where possible. What you see in Saudi Arabia is merely a tree, not the forest. Just the same, to the author, keep writing but research the subject much much more before you put pen to paper, as you do have apersuasive and talented style.

EliteCommInc. , December 16, 2017 at 2:25 pm GMT
I am going to come to the defence here.

1. We have been screaming about the unintended consequences of Saudi giving to charities since 2004.

2. We removed the buffer of Iraq from Iranian ambitions (as unclear as it may be debated) creating issues not only for Saudi Arabia, but others in the region as well.

3. We are the ones who have been fomenting destabilization all throughout the region some of whom would have been allies of the Saudis in some common cause.

4. No one is escaping the negative consequences of our Iraq invasion.

5. We have been complaining about rogue and irresponsible wealthy Muslims ad naseum.

Now when someone steps up the plate to meet the challenges many caused by the US – our first complaint is not astute counsel but rather a series of articles highlighting failure. I would not contend that I support every choice. But I think we should at least take a wait and see perspective. He is operating in a region rife with intrigue and ambitions, not to mention -- Muslims bent on spreading Islam as one would expect a muslim to do. Frankly I am not sure how one governs in the arena of the middle east – especially now – it's a region in major shift.

I think there are more effective choices concerning Yemen and Qatar. But figuring out what the choices are is not going to be easy. And harder still perhaps is implementing them. As for backfire -- we are just not in a position to judge, at the moment. Anyone hoping that another major state collapses in that region is probably miscalculating the value of instability.

DESERT FOX , December 16, 2017 at 2:39 pm GMT
The Saudis are the U.S. and ISISRAELS puppet, they do what the Zionist neocons tell them to do, which is to be the Zionist agent provocateur in the Mideast.

The Saudis have helped the U.S. and ISISRAEL create and finance ISIS aka AL CIADA and for this the Saudis can rot in hell, and by the way the reason for the attack on Yemen is that the Saudis oil reserves are diminishing and so the Saudis figured they would take Yemens oil.

The main creators of ISIS aka AL CIADA are the U.S. and ISISRAEL and BRITAIN ie the CIA and the MOSSAD and MI6.

Anon , Disclaimer December 16, 2017 at 4:55 pm GMT
The irony is that Saudis, before MbS and during his dominance, are making exactly the same suicidal blunders as the US. No enemy could have damaged the US and its positions in the world more than its Presidents and the Congress in the last 17 years. The same is true for KSA, with the same mistakes being made: undermining the financial system of the country, global over-reach that forces all opposition to unite, crazy military expenses, etc.
Art , December 16, 2017 at 5:57 pm GMT
Sorry, but these people dressed in 14 century robes and garb, cannot be taken seriously. They look like play-people feigning a furious grandeur. Without their petrochemicals – they would be laughed at by everyone – including their own kind. They should not be respected because they are religious – they are old world tribalist thugs hiding behind a religion. They use and abuse their people – holding them back from modernity.

Think Peace -- Art

Anon , Disclaimer December 16, 2017 at 6:17 pm GMT
@Z-man

Thing is, Saudi regime was rotten through and through before MbS, remains rotten under his rule, and will remain rotten when some other jerk kicks him out and establishes himself at the helm.

neutral , December 16, 2017 at 6:31 pm GMT
It does not matter how smart Saudi Arabia is with their foreign policy now, they became allies with Israel, that means Saudi Arabia can never claim to be a power working for the interests of Islam. MBS is a marked man, no matter how many purges he undertakes in his army, or even if he just hires Pakistani soldiers, if he has Muslims fighting in his army he will always be carrying the risk of being assassinated by somebody who has seen him cross the red line and become pro jewish.
Svigor , December 16, 2017 at 6:51 pm GMT
I don't really understand the constant hopes that the Saudi regime will fall. How is that any different from cheering Bush's disastrous regime change in Iraq? How will the fallout be any better in Arabia than it was in Iraq, Libya, etc?
cbrown , December 16, 2017 at 7:43 pm GMT
@Svigor

It's not that there's a constant hope it's just they'd fall in the near future and fortunately it will balance the geopolitical power in the future. Their fallout aren't going to be as bad unless the people pulling their string persistent in keeping them in power.

neutral , December 16, 2017 at 8:14 pm GMT
@Svigor

It will be better because it means Israel loses an ally, also with the Saudis gone Egypt will also be unable to keep their population in check. The fall of the Saudis means that Israel will be surrounded by regimes that oppose it...

someone , December 17, 2017 at 12:14 am GMT
Another Junior Gaddafi that is going to ruin his entire nation while intoxicated with NYT or other Western media coverage. He talks of corruption after spending 1.1 Billion dollars on a yacht and a painting.
Netenyahu is much the same. He has weakened Israel immensely by playing the scary wolf.
anon , Disclaimer December 17, 2017 at 12:33 am GMT
@neutral

South Africa was never in danger from their hostile neighbors . They committed suicide. Egypt cannot control its own territory let alone start wars , ditto for Syria and Lebanon. Jordan is a client state of Israel and lacks a functioning army. ...

[Dec 16, 2017] Is The Oil Glut Set To Return

Notable quotes:
"... Old "classic" land-based oil fields deteriorate to the tune of 5% per year, while deep sea deteriorate more and subprime wells much more. You can probably double the figure for each, although much depends on particular geology. Infill drilling accelerates depletion, allowing to maintain high production for sometimes so changes can be abrupt. ..."
"... Moreover, with each year, "subprime wells" (multi-stage shale well) costs more and now are at a range of n 6-10 million depending on the number and the length of horizontals and number of fracking stages and other factors. Only few area (sweet spots) can recover this capital investment during the life of the shale well at current prices). More at around $80 and almost all around $100 per barrel. The later is also the price that KSA needs to remain solvent (rumored to be in low 90th). ..."
"... The shale oil produced in the USA is really "subprime" because large part of it has lower energy content (by 20% or more) and different mix of various hydrocarbons that "classic" oil. Especially condensate from gas wells. Which optimally can be used only as diluter for heavy oil. EIA does not differentiate between different types oil and use wrong metric (volume instead of weight). May be intentionally. ..."
"... Another factor is that world consumption continue to grow and will do so because population in large part of Asia and Africa is still growing and number of cars on the road increase each year requiring on average 1-1.4 MB/d additionally. ..."
"... By continuing its' easy money policies well past any recession or growth scare, the Fed has created a monster. Most shale companies aren't profitable and are in fact losing money using any kind of GAAP. However, cheap financing allows them to survive and "drill baby drill." The unintended consequences may include destabilizing Saudi Arabia to the point of an economic and political collapse. One can always hope ..."
"... Economic collapse in Venezuela due to low oil prices – good! Economic collapse in Saudi Arabia due to low oil prices – bad! Solution – extend cheap financing to Saudi Arabia via Aramco IPO! ..."
"... The 36″ North Sea Forties pipeline is currently shut down for repairs. Short and medium term prices will carry the effect of that supply loss. In the long term, unexpected developments are common. Considering how completely wrong so many oil analysts have been over the past ten years, including the IEA, there is not a lot of credibility in oil market predictions. ..."
Dec 16, 2017 | www.nakedcapitalism.com

likbez , , December 17, 7935 at 3:13 pm

My impression is that this a gap (could be intentional) between IEA statistics and predictions and the reality. This is propaganda agency after all, with the explicit agenda of keeping the oil price for Us consumers low. So typically that produce too "rosy" forecasts that later are quietly corrected. Their short-term forecasts are based on oil futures and as such has nothing to do with the reality on the ground. Which is quite disturbing.

It is undeniable that shale boom which played such a beneficial role for the USA allowing to squeeze oil price (with generous help from KSA) for two and half years is dead.

Now is kept artificially alive by junk bonds and directs loans that will never be repaid. In other words, the USA now enjoys a period of "subprime oil. Unless there is a new technological breakthrough there will be an only minor improvement in efficiency of drilling and oil extraction in the next couple of years, but the lion share of those was already implemented, and on the current technological level we are close to the "peak efficiency" in drilling and services.

Those minor efficiencies will be negated by rising prices of service industries, which can't take the current pricing any longer and need to raise prices for their services.

Old "classic" land-based oil fields deteriorate to the tune of 5% per year, while deep sea deteriorate more and subprime wells much more. You can probably double the figure for each, although much depends on particular geology. Infill drilling accelerates depletion, allowing to maintain high production for sometimes so changes can be abrupt.

In any case each year you need somehow to find 5 MB/d of oil, finance new wells in those areas and infrastructure required. All Us shale production is around 6 MD/day. So you get the idea.

Moreover, with each year, "subprime wells" (multi-stage shale well) costs more and now are at a range of n 6-10 million depending on the number and the length of horizontals and number of fracking stages and other factors. Only few area (sweet spots) can recover this capital investment during the life of the shale well at current prices). More at around $80 and almost all around $100 per barrel. The later is also the price that KSA needs to remain solvent (rumored to be in low 90th).

The shale oil produced in the USA is really "subprime" because large part of it has lower energy content (by 20% or more) and different mix of various hydrocarbons that "classic" oil. Especially condensate from gas wells. Which optimally can be used only as diluter for heavy oil. EIA does not differentiate between different types oil and use wrong metric (volume instead of weight). May be intentionally.

So the future remains unpredictable but general trend for oil prices might be up with some spikes, not down. Although many people, including myself, thought so in early 2015 ;-)

Another factor is that world consumption continue to grow and will do so because population in large part of Asia and Africa is still growing and number of cars on the road increase each year requiring on average 1-1.4 MB/d additionally.

So it looks like the situation gradually deteriorate despite all efforts and related technological breakthrough which allow to extract more from the old wells and more efficiently extract shale oil.

The problem is that new large deposits are very hard to find now and several previously oil-exporting countries gradually became oil-importers. Mexico is one, which will be huge hit.

Obama administration screw the opportunity to move US consumers to hybrid cars so the situation in the USA deteriorates too despite rise of percentage of more economical vehicle in the personal car fleet each year. Rumors were that they pursue vendetta against Russia and that was primary consideration - to crash Russian economy and install a new "Yeltsin".

The USA generally is in better position then many other countries as the switch to natural gas and hybrid electric cars for personal transportation is still possible. It already happened in several European countries for selected types of cars, buses and trucks (taxi, in-city buses and "daily round trip or short trips trucks).

But there is no money for infrastructure anymore and for example many miles of US rail remain non-electrified. Burning diesel instead.

As maintenance was neglected for two and half year disruption of existing supply might became more frequent. also mid Eastern war is also a possibility with Trump saber-rattling against Iran. Recently the leak in undersea pipeline removed 0.5 MB/d from the market and caused a price spike to $65 for Brent (WTI remains cheaper and never crosses $60 this time).

Also with a young prince in charge and the revolution against "old guard" KSA became more and more unstable so the next "oil shock" might come from them. They also have problem of depletion which until now they compensated pitting more and more heavy high sulfur oil deposits online. At some point they will be exhausted too. They also pitch for war with Iran, but they would prefer somebody else to do heavy lifting.

The only one or countries still can significantly increase oil production now – Libya (were we have problem because of the civil war after US-sponsored Kaddafi removal and killing), and Iraq where there are still untapped areas that might contain some oil; nothing big, but still substantial in the range of 1 MB/d. Looks like Iran now exports all it could. Same is true for KSA and Russia. In this sense OPEN oil production cuts might an attempt to preserve impression that they are untapped reserved. I doubt that there are much and those cuts are just a reasonable insurance policy against quick depletion of existing wells as higher price gives some space for innovation.

There is also such thing as EBITRA which gradually deteriorates everywhere and can become negative for certain types of oil (for oil sands it depends on the price of natural gas and they are primary candidate if the price doubles or triples from the current level).

Jim Haygood , December 15, 2017 at 7:07 am

' The surplus will be front-loaded – the first half of the year will see a glut of about 200,000 bpd. '

That don't square at all with WTI futures being backwardated from Feb 2018 ($57.08) to Dec 2022 ($49.79).

http://data.tradingcharts.com/futures/quotes/cl.html

Me so bullish

ChrisFromGeorgia , December 15, 2017 at 7:46 am

By continuing its' easy money policies well past any recession or growth scare, the Fed has created a monster. Most shale companies aren't profitable and are in fact losing money using any kind of GAAP. However, cheap financing allows them to survive and "drill baby drill." The unintended consequences may include destabilizing Saudi Arabia to the point of an economic and political collapse. One can always hope

nonsense factory , December 15, 2017 at 11:19 am

Economic collapse in Venezuela due to low oil prices – good! Economic collapse in Saudi Arabia due to low oil prices – bad! Solution – extend cheap financing to Saudi Arabia via Aramco IPO!

Meanwhile, China says it will be moving to all-electric cars and trucks to help solve its horrible urban air pollution problem. . . Meaning global demand has nowhere to go but down.

Why do I feel that this will not end well for the American hegemon? Particularly with Trump in office working overtime with boy genius Rick Perry to promote coal and sabotage renewable energy. . .

Octopii , December 15, 2017 at 8:14 am

The 36″ North Sea Forties pipeline is currently shut down for repairs. Short and medium term prices will carry the effect of that supply loss. In the long term, unexpected developments are common. Considering how completely wrong so many oil analysts have been over the past ten years, including the IEA, there is not a lot of credibility in oil market predictions.

[Dec 16, 2017] Condensate is not oil and now wells produce more and more condesate. So the IEA volume of condesate probably should be discounted 30% as energy content is lower. And not counted along with "real" oil.

Notable quotes:
"... There's no industry capability to put this figure as a fact. They still have people looking at tankers with binoculars figuring out how much the Sauds are putting out. Even better the WSJ printed in a story last week that the Sauds were putting out oil at $2.25 a barrel! ..."
"... Anyway, all oil numbers should be taken with a grain of salt, always. Shale is meeting with increasing geological limits, going to cost even more to produce, this in an industry that's never made a profit, even at $100 and is some $280 billion in debt, which I guess its good debt doesn't mean anything. ..."
"... Condensate is not the oil, "black gold, Texas tea" of old and fact is that type of oil basically peaked a decade ago in low 70s mbd. Shale fields have always produced a lot of condensate and are now producing more and increasing amounts of just gas. ..."
"... Anyway "oil glut" has always been at best a nebulous term for many reasons, but then we here in the US just think, as Mr. Obama proudly stated in his last State of the Union, "$2 a gallon gas ain't bad either." ..."
Dec 16, 2017 | www.nakedcapitalism.com

joecostello , December 15, 2017 at 8:26 am

"OPEC production fell by 130,000 bpd in November, due to lower output in Saudi Arabia,"

There's no industry capability to put this figure as a fact. They still have people looking at tankers with binoculars figuring out how much the Sauds are putting out. Even better the WSJ printed in a story last week that the Sauds were putting out oil at $2.25 a barrel!

Anyway, all oil numbers should be taken with a grain of salt, always. Shale is meeting with increasing geological limits, going to cost even more to produce, this in an industry that's never made a profit, even at $100 and is some $280 billion in debt, which I guess its good debt doesn't mean anything.

And the band played on

joecostello , December 15, 2017 at 9:23 am

https://www.bloomberg.com/news/articles/2017-12-14/u-s-oil-cocktails-spoil-chemistry-in-budding-asian-love-affair

this is good piece on Asia refiners having trouble with US shale as US refiners have previously.

Condensate is not the oil, "black gold, Texas tea" of old and fact is that type of oil basically peaked a decade ago in low 70s mbd. Shale fields have always produced a lot of condensate and are now producing more and increasing amounts of just gas.

Anyway "oil glut" has always been at best a nebulous term for many reasons, but then we here in the US just think, as Mr. Obama proudly stated in his last State of the Union, "$2 a gallon gas ain't bad either."

[Dec 09, 2017] The great Middle East energy game Winners and losers - Opinion

Dec 09, 2017 | www.jpost.com

Simultaneously, it has managed to develop fairly profitable, albeit at times tense relationships with other major or rising world powers. Those include Russia, China and Turkey. At the same time it is engaging a large number of European countries, South Korea, India, and others in assorted trade agreements. Iran has managed to place itself front and center – not only as a bad actor bent on colonization of the "Shi'a Crescent" and possibly beyond – it has also gained increasing political and economic legitimacy among its former adversaries.

Iran has even managed to get the United States under the Trump administration to wage limited war against ISIS, first in Iraq and Syria and to a lesser extent in Afghanistan, despite conflicts and occasional confrontations between US forces and the terrorist group's own militias. While Iran's various financial deals are to some extent being tracked, what remains noteworthy is the issue of energy control in the region, a factor that fuels the numerous conflicts, or at least finances them.

... ... ...

The US has miscalculated by believing other countries are incapable of pursuing independent interests without its involvement, or by thinking such nations cannot use energy markets effectively to marginalize any state that is not already in an active leadership position. The US should take stock of the way the energy assets are being played by various states. It should either separate the authoritarian regimes which only grow stronger with the greater access and interconnections such valuable assets provide, or by outplaying those states at their own game.

[Dec 08, 2017] Putin opens Russia's $27bn Arctic LNG plant

The US sanctions were partially anticompetitive move to block Russia selling its hydrocarbons to lucrative EU market. Now Russia is becoming a major player in LNG and things might become more complex for the USA as all US efforts to built LNG infrastructure int he USA in order to export the US LNG to Europe now are can backfire.
Notable quotes:
"... Russia plans to build 15 tankers as big as the 'Christophe de Margerie'. ..."
"... "Russia must accelerate work on development capacity to produce liquefied natural gas," Putin said at the ceremony. ..."
"... Costing $27 billion, the plant will have three production lines and a total capacity of 16.5 million tons of LNG per year. ..."
"... Shareholders of the Novatek project - Total and CNPC - will purchase LNG on a long-term basis. ..."
"... The ceremony was also attended by a member of Saudi Aramco's board of directors. The kingdom is considering taking part in Novatek's new project, Arctic LNG 2, according to Russian Energy Minister Aleksandr Novak. ..."
Dec 08, 2017 | www.rt.com

Russia has opened a liquefied natural gas (LNG) plant in the country's northern region of Yamal. The first tanker with LNG was launched on Friday by Russian President Vladimir Putin. The ice-breaking tanker is named after the former CEO of Total Christophe de Margerie who died in a plane crash in Russia. The tanker can carry up to 173,000 cubic meters of LNG. Russia plans to build 15 tankers as big as the 'Christophe de Margerie'.

"Russia must accelerate work on development capacity to produce liquefied natural gas," Putin said at the ceremony.

The controlling stake in the enterprise belongs to Russian energy major Novatek. Twenty percent each is owned by Total, and China's CNPC, and the remaining 9.9 percent belongs to the China-based Silk Road Fund. Costing $27 billion, the plant will have three production lines and a total capacity of 16.5 million tons of LNG per year.

Almost 96 percent of the Yamal LNG plant's production has already been contracted. The main customers will be the countries of the Asia-Pacific region, Novatek reported. Shareholders of the Novatek project - Total and CNPC - will purchase LNG on a long-term basis.

The ceremony was also attended by a member of Saudi Aramco's board of directors. The kingdom is considering taking part in Novatek's new project, Arctic LNG 2, according to Russian Energy Minister Aleksandr Novak.

Read more Russian LNG unfazed by US sanctions

[Dec 08, 2017] Trump Is Bashing The 'Salvator Saudi' - Why

Notable quotes:
"... Trump has just declared that the U.S. recognizes Jerusalem as the capital of Israel. Did the administration expect the applause of the Saudis for its breaking of international law with regards to Jerusalem? Does it lash out to the Saudis to get their agreement? ..."
"... If so the miscalculation is clearly on the U.S. side. It is impossible for the Saudis to concede the Haram al-Sharif, the mosque on the so called temple mount, to the Zionists. The Saudi King would no longer be the "custodian of the two holy mosques" in Mecca and Medina but the "seller of the third holy mosque" of Islam in Jerusalem. The people would kill him and his whole family. ..."
"... My pet hypothesis is Trump's recognizing Jerusalem was the bone he was willing to throw the Israelis after his generals told him attacking Iran would be catastrophic for the US military and world economy. The Saudis, who are as rabid about bombing Iran as the Zionists, were pissed as they probably had been led to believe the attack was a matter of time. ..."
"... That sacked FM - Is that the little fellow that Col Lang calls "The Chihuahua"? ..."
"... Saudi in all likelihood were not part of the Jerusalem declaration. Israeli sources spread a plan they said was agreed to by Saudi, trying to embarrass them. ..."
"... Jerusalem: The reaction is deeper than expected. Not in the way of street, easily contained, violence, but by a gut reaction of the whole ME..The religious aspect seems to have been totally ignored by the US. Removing one of the major symbols of about 1.2 billion people - is not going to go down well. ..."
"... wahabbi is a tavistock british demented fiendish virus injected into islam for gang counter gang pseudogang hagel control ..."
"... I do wonder...knowing that real or false-flag violence could ensue against Israeli or US targets, it could be a useful pretext for the US waging war in the ME against Hezbullah or anyone else we accuse. With our intelligence agencies providing the "evidence" and a compliant media to sell it, as usual a majority of Americans would support it. ..."
"... This Jerusalem declaration has me genuinely scared. Violence (real or false flag) could be the expected Reaction to this Problem, resulting in the long-planned Solution of finishing off MENA. If Russia is sincere in its alliance with Syria and Iran, and interest in a multi-polar world with self-determination for sovereign nations, this war could easily escalate to the End Timer's dreamt of Final Battle of Armageddon. ..."
"... Most of the MSM coverage of Reactions I've seen name Muslim/Arab countries as opposing, and others as "concerned," even though almost all official state responses have denounced President Trump's® declaration. This "Clash of Civilizations" type narrative is not encouraging. ..."
"... something stinks in trumptoon. really small world what are the chances A. whenever Donald Trump has left the White House and ventured anywhere, Dmitry Rybolovlev (aka the "Russian King of Fertilizer") has tended to show up in the same city. The latter possibility has long been bolstered by the fact that Trump sold Rybolovlev a mansion a few years ago that neither of them lived in nor cared about, suggesting the sale was mere cover for shifting money from Russia to Trump. ..."
"... Western media called Putin unpredictable, but that was because he could see moves that others didn't see. ..."
Dec 08, 2017 | www.moonofalabama.org

Just the day before the administration leaked to the WSJ about the art deal, President Trump had publicly scolded MbS about the situation in Yemen:

President Trump called on Saudi Arabia to lift its crushing blockade against its war-torn neighbor Yemen on Wednesday, hours after defying the kingdom and saying the U.S. would recognize Jerusalem as the capital of Israel .

In a statement Wednesday afternoon, Mr. Trump said he had directed members of his administration to reach out to the Saudi leadership "to request that they completely allow food, fuel, water, and medicine to reach the Yemeni people who desperately need it."

Today Secretary of State Tillerson again pushed that line :

Speaking in Paris on Friday, Rex Tillerson, US secretary of state, called on Saudi Arabia to be "measured" in its military operations in Yemen.
...
Tillerson urged Saudi restraint.

"With respect to Saudi Arabia's engagement with Qatar, how they're handling the Yemen war that they're engaged in, the Lebanon situation, we would encourage them to be a bit more measured and a bit more thoughtful in those actions to, I think, fully consider the consequences," he said.

He once again demanded a "complete end" to the Saudi-led blockade of Yemen so that humanitarian aid and commercial supplies could be delivered.

Embarrassing MbS about the art buy and publicly(!) scolding hm for the situation in Yemen, for which the U.S. is just as much responsible as the Saudis, is quite an assault. What has MbS done - or not done - to deserve such a punishment?

Trump has just declared that the U.S. recognizes Jerusalem as the capital of Israel. Did the administration expect the applause of the Saudis for its breaking of international law with regards to Jerusalem? Does it lash out to the Saudis to get their agreement?

If so the miscalculation is clearly on the U.S. side. It is impossible for the Saudis to concede the Haram al-Sharif, the mosque on the so called temple mount, to the Zionists. The Saudi King would no longer be the "custodian of the two holy mosques" in Mecca and Medina but the "seller of the third holy mosque" of Islam in Jerusalem. The people would kill him and his whole family.

If the issue of this public hustle it is not Jerusalem, what else might it be that the Trump administration wants and the Saudis can not, or are not willing to concede?

A few hours ago the Saudi King fired his ankle biting Foreign Minster Adel al-Jubair. A relative of the king, Khaled bin Salman, will take the job. Is this related to the spat with Trump?

arbetet , Dec 8, 2017 3:02:14 PM | 1

This came up:
Breaking: Saudi FM allegedly sacked by regime

The Saudi Foreign Minister, 'Adel Al-Jubeir, has been allegedly sacked by the Kingdom's regime, several prominent political activists reported this evening.

According to the claims, Jubeir was fired and replaced by a close confidant of Crown Prince Mohammad bin Salman.

The confidant that is allegedly replacing Jubeir is none other than Prince Khaled bin Salman, the Crown Prince's brother.

The Saudi regime has yet to confirm or deny these rumors.

https://www.almasdarnews.com/article/breaking-saudi-fm-allegedly-sacked-regime/

Madderhatter67 , Dec 8, 2017 3:14:21 PM | 2
It was Jerusalem. They were not willing to sacrifice Jerusalem.
Quentin , Dec 8, 2017 3:20:29 PM | 3
Where does MbS's interpretation of Salvator Mundi come from. The Saudi's have something with crystal orbs, like the one Trump so fondly stroked in Riyadh after giving a masterful interpretation of the sword dance.
BX , Dec 8, 2017 3:20:30 PM | 4
Yes. It is puzzling what is going on between MbS and the Trump administration. I was sure MbS, the reformer, secretly okayed the Jerusalem move. His negative statement might be just theater, I figured. But I am not so sure anymore. Yes, MbS wants a peace deal (any deal with "peace" written on it) between Palestinians and Israelis. But both he and Trump/Kushner are novices in politics and diplomacy (and that ain't the same as getting a deal for a new tower) and absolutely underestimated the effort. Totally.

Word is that Kushner made Trump delay delivering his campaign promise because he needed more time for his peace plan (and that would be 6 months???). This is the level they are at. And now, they placed an obvious obstacle in the path go their peace plan - out of folly. Complete folly. Because Trump wanted to deliver. I believe they are already backtracking as good as they can. But the damage is done. I think Palestinians were just waiting for a good opportunity/reason to get rid of the US in the process and found it now. Also, the single state solution is being talked about.

The source for the WSJ need not be the Trump administration in the narrow sense but some stray intelligence official ("U.S. intelligence reports") wanting to throw a wrench because that story is absolutely damaging. Absolutely, because it is embarrassing and I don't think MbS enjoys that. Note, the story began to become known around the time it became obvious Trump would not sign the waiver and reached its epitome (WSJ) just after that. Trump set himself up for this.

Don Wiscacho , Dec 8, 2017 3:38:33 PM | 5
My pet hypothesis is Trump's recognizing Jerusalem was the bone he was willing to throw the Israelis after his generals told him attacking Iran would be catastrophic for the US military and world economy. The Saudis, who are as rabid about bombing Iran as the Zionists, were pissed as they probably had been led to believe the attack was a matter of time. In order to remind them of their position and get them on board with the "peace" deal Tillerson has been hinting about, they've been turning the screws on MBS as a taste of what's to come if he puts up stink about the wonderful Kushner- concocted "plan".
fx , Dec 8, 2017 3:42:39 PM | 6
$450 mil... MbS's Egyptian torturer-in-chief must have just torn a few princely nails and whip a few feet for that, just a few days' worth of "anti-corruption" "campaigning".

Wait, wasn't the Saudi populace all behind MbS because he was going to spend the money on them? If there is no bread, let them non-royals eat paint.

somebody , Dec 8, 2017 3:56:36 PM | 7
About the picture - after the shake down of Saudi Arabia's rich princes MBS must have a lot of enemies. Some of these princes might have been close to the Trump administration.
Bart Hansen , Dec 8, 2017 4:01:43 PM | 8
That sacked FM - Is that the little fellow that Col Lang calls "The Chihuahua"?
somebody , Dec 8, 2017 4:09:19 PM | 9
Good Patrick Cockburn article on the mess .

Gazan military groups are warming up to a rocket competition. I am sure the real stuff is not involved yet. What were they thinking? That people did not take the chance to unite on the only issue they all agree on?

4
I agree, Saudi in all likelihood were not part of the Jerusalem declaration. Israeli sources spread a plan they said was agreed to by Saudi, trying to embarrass them.

stonebird , Dec 8, 2017 4:54:47 PM | 10
MbS is in it for himself, no one else. Leave him aside for the moment.

However, Trump probably thought he had a marvellous peace plan for Palestine which he would show the world.... errr... tomorrow. This was supposed to have the backing of the Saudis and the Israelis and all the other ME "actors" would be lined up behind MbS.

ie. Saudis would provide the backing, which included the "Arab" states as per the recent gathering of them all (excluding Iran and Iraq). Abbas would be blackmailed to go along in order to keep his position (Moneywise), and the Palestinians as well - but by the withholding of funds. (New vote in Congress).

Leaks of the plan (unverified) suggest that the PA's would be held in walled-in isolated camps, with all contact subject to the harassement and nightly raids of the IDF, the land still open to theft by settlers (this has been "legalised" in Israel !) and so on. ie they get nothing except a tissue-paper "treaty" . They seem not to have even been consulted by Kushner and the Israelis. ie who possibly expected to be able to impose whatever Netanyahu and the Israeli Generals might allow.

BUT, when have either the US or Israel kept to an agreement - never. and the PA's and the rest of the ME know it.

Jerusalem: The reaction is deeper than expected. Not in the way of street, easily contained, violence, but by a gut reaction of the whole ME..The religious aspect seems to have been totally ignored by the US. Removing one of the major symbols of about 1.2 billion people - is not going to go down well.

Those countries with a large Palestinian refugee population, either fear them, or may be outnumbered if there are more arriving (Jordan), or will find that they now have a potential source of militants at their disposal.. (Syria?, Lebanon?). The Syrians and Lebanese have not let the Palestinians get more arms - yet, as they might have become targets themselves. But, there have been PA's in the Syrian counter-terrorist forces, even when Yarmouk camp was held by Daesh (or one of the others).

So I think that the "bit" players have got cold feet. They cannot go along with the eradication of the Palestinians or their confinement to concentrated internement camps such as Gaza, whose conditions are WORSE that prisons. Otherwise the whole "Rulers-People and the power-structures that keep them in place" would be in jeopardy.
......
The Leonardo ? .... acquiring "class" by buying expensive "cultural" artifacts. You can buy a lot of "class" with $450.3 million.

psychohistorian , Dec 8, 2017 5:06:51 PM | 11
I think that answer to b's question has a lot to do with trying to incite war in the ME

I think that SA does not want to be the global elite's proxy in a war with Iran....especially to start/incite the war.

It really is becoming a public spectacle and that plays into the desire of the masses to see such incompetence writ large.

I entreat everyone's spirits to keep these kooks away from the nukes.

Jef , Dec 8, 2017 5:17:11 PM | 12
Yo b or any of the commentariat - Any speculation as to the connection to the Russian Oilagarck....you know, follow the money?
Scotch Bingeington , Dec 8, 2017 5:18:55 PM | 13
Maybe that canvas Jesus is meant to be a hostage one day, potentially.
terry tibbs , Dec 8, 2017 5:26:21 PM | 14
a simple question who gets the 100s of millions? who is the seller? the fake painting is cover for a payoff or tribute yes no maybe friends of kushner own the painting maybe it is to help kushner and his 666 moloch tower block mortgage. the bank of gorge soros must need some fund back quick for a new hungary regime change operation.

wahabbi is a tavistock british demented fiendish virus injected into islam for gang counter gang pseudogang hagel control

uae and the house of saud are donmeh jews
satanist hate jesus.
simply google talmud quotes about jesus and all will become clear.

Kabobyak , Dec 8, 2017 5:27:13 PM | 15
As to how the Jerusalem actions play out, the posting here (MOA) a couple of days ago was informative as to reasons and timing (including info about Sheldon Adelson's hundred million to Trump campaign). I do wonder...knowing that real or false-flag violence could ensue against Israeli or US targets, it could be a useful pretext for the US waging war in the ME against Hezbullah or anyone else we accuse. With our intelligence agencies providing the "evidence" and a compliant media to sell it, as usual a majority of Americans would support it.
Daniel , Dec 8, 2017 5:37:14 PM | 16
Great stuff, b et al. This Jerusalem declaration has me genuinely scared. Violence (real or false flag) could be the expected Reaction to this Problem, resulting in the long-planned Solution of finishing off MENA. If Russia is sincere in its alliance with Syria and Iran, and interest in a multi-polar world with self-determination for sovereign nations, this war could easily escalate to the End Timer's dreamt of Final Battle of Armageddon.

Most of the MSM coverage of Reactions I've seen name Muslim/Arab countries as opposing, and others as "concerned," even though almost all official state responses have denounced President Trump's® declaration. This "Clash of Civilizations" type narrative is not encouraging.

Flatulus , Dec 8, 2017 6:09:23 PM | 17
Terry Tibbs 14 - The family trust of Rybolovlev is the seller of the painting. Rybolovlev was also a buyer of Trump estate in Florida previously.
psychohistorian , Dec 8, 2017 6:22:05 PM | 18
@ Daniel ending with "This "Clash of Civilizations" type narrative is not encouraging." That is exactly what they want you to focus on as a narrative rather than the simple truth about the demise of private banking. On the previous thread about the Republican: Ryan deficit BS there was a commenter ex-SA with a John H. Hotson link that I want to see go viral because it simply explains the history of the Gordian Knot we face as a species

The link to a 1996 article: Understanding Money by John H. Hotson. The take away quote

"Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine."

Clash of Civilizations is as vapid a meme as the common understanding of the Capitalism myth as that article so clearly states. Spread his word far and wide to wake up the zombies. It is time!

terry tibbs , Dec 8, 2017 6:45:52 PM | 19

17
something stinks in trumptoon. really small world what are the chances A. whenever Donald Trump has left the White House and ventured anywhere, Dmitry Rybolovlev (aka the "Russian King of Fertilizer") has tended to show up in the same city. The latter possibility has long been bolstered by the fact that Trump sold Rybolovlev a mansion a few years ago that neither of them lived in nor cared about, suggesting the sale was mere cover for shifting money from Russia to Trump.

Deutsche Bank in Germany busted for laundering more than ten billion dollars out of Russia and into places like New York. This stood out because Deutsche has also loaned more than a billion dollars to Donald Trump, who just happens to be based out of New York.

james , Dec 8, 2017 6:56:26 PM | 20
thanks b.. fascinating.. i wait for the next shoe to drop.. it's coming... hopefully we get the back story on this sooner then later..

i would think the timing of Foreign Minster Adel al-Jubair being fired has something to do with all this.. he revealed something that he wasn't supposed to? i would also imagine those heavies still hanging at the saudi ritz carlton might be pulling some strings from behind the scenes? meanwhile mbz is doing a hell of a fine apprentice with mbs, lol..

nice pic in the post btw!! clown prince as savior of ksa, lol...

jezabeel , Dec 8, 2017 7:02:46 PM | 21
Belief in Jerusalem as the Jew capital is the same as belief in the intrinsic value of fiat currency, or the exceptionalism of the US. It's just mental illness. The Kingdom of God is within you, not in temples of stone and wood. We'd be better just cultivating our own personal relationship with our higher selves and leave the deluded to scrap it out over ash and sand. That said, if someone with a big nose came to my door and said my house was going to get knocked down because Shalom etc, that would be the day I would have to really figure out how to proceed without becoming the necessary victim in another's persecutor drama complex. I guess that's what Palestinians have to deal with every day. Horrible situation.

I heard a story once that when the British were throwing the Aborigines of Australia off cliffs en masse in their Australian version of the Middle East story of dispossession and demonization, the Aborigines would look up calmly at the officers as they fell and in their own language say: "You have a problem, bro". Sometimes death is better than becoming a victim. And as a worshiper of Lord Shiva the Destroyer, I wish you all completely liberating and renewing deaths from yourselves.

terry tibbs , Dec 8, 2017 7:08:16 PM | 22
probably nothing kosher burger. Russian Oligarch Rybolovlev Saved Trump Financially.
https://new.euro-med.dk/20170314-russian-oligarch-rybolovlev-saved-trump-financially-courier-of-the-tsar-putin-to-president-trump.php

Confirmed: Rybolovlev's Jet & Yacht were in Dubrovnik the same time as Ivanka and Jared Kushner

https://www.dailykos.com/stories/2017/3/17/1644558/-Confirmed-Rybolovlev-s-Jet-Yacht-were-in-Dubrovnik-the-same-time-as-Ivanka-and-Jarred-Kushner

elsi , Dec 8, 2017 7:20:02 PM | 23
But, has not The Donald declared that this media NYT, Bloomberg , etc...were all "fake news"? Then why is anybody going to trust them when publishing whatever?
Sounds quite clumsy, or simply, demential ( as every move of this administration ) to try to leak something through those media you have widely discredited during all your election campaign and beyond....

I, by a norm, do not trust any move coming from Trump could be for any good. This is, simply, "smoke and mirrors" and an intent of whitewashing a bit the already deplorable image of this admnistration in front of the world wide reaction in rejection of his bold and clumsy declaration of Jerusalem as capital of the Zionist regime.
The same for the clearly hypocritical call for to alleviate the suffering of the Yemeni people, just another intent of whitewashing when they are main puppet-masters in that war torn country, as it happens with every conflict in the world.

What it is beyond me is that the Russians, are always amongst those who swallow this theater plays....I wonder why....

In front of the demential way this administration makes fun of every event, people, country... in the world, in spite of the suffering they could inflict on them, I concur with Terry in that this just could be some esotheric issue more proper of unoccupied people with too much money to waste. Most probably something involving "Damian" Kushner, his 666,Madison Avenue penthouse and an occult message from The Messiah in the reverse of the canvas of that Jesus paint with a codified message on the results of the coming final battle of Armaggedon amongst the forces of evil and those of good, when Russia will be santified as the real Promised Land and The Saker will be ( finally! ) crowned as the saint he always claimed to be along with Saint Nicolas Romanov, and they will all eat sardinas together with the Trumps, the Kushners and the Netanyahus in Mar a Lago or in the super-yatch of Abramovich during the summer, but in winter they will go together to Sochi´s Putin dacha, since they love to meet super-intelligent, well educated, cool people....well, the elite of everything...

The surviving Arabs and the rest of us, plebeian ignorant clumsy sinners not so white as them, ( what they call "the sheeple", vaya )we will continue working from sunrise to sunset for crumbs, but, who cares? We will continue having good times with our peers and loved ones and laughing as usual with the little things of real life...Do not despair....

elsi , Dec 8, 2017 7:25:15 PM | 24
This is the real Christmas spirit of The Donald, alias Orange Agent Dotard : https://www.rebelion.org/imagenes/p_08_12_2017.jpg
elsi , Dec 8, 2017 7:44:26 PM | 25
The poster above was drawn by Basque artist Josetxo Ezcurra
Peter AU 1 , Dec 8, 2017 7:46:42 PM | 26
Western media called Putin unpredictable, but that was because he could see moves that others didn't see. Erdogan looked unpredictable and irrational while moving from the hedgemon to the multi-polar world. Trump? Like Erdogan, trying to move US to the multi polar world? Too many moves he makes puts sand in the hedgemon's gears.
elsi , Dec 8, 2017 8:15:30 PM | 27
For you to see that all this is not but theater, look what worries them most, meanwhile, in The Vatican: Pope Francis supports the idea of changing a phrase in the Lord's Prayer

[Dec 05, 2017] Further sabotage of the Iran deal would not bring success -- only embarrassment

This is two years old article. Not much changed... Comments sound as written yesterday. Check it out !
The key incentive to Iran deal is using Iran as a Trojan horse against Russia in oil market -- the force which helps to keep oil prices low, benefitting the USA and other G7 members and hurting Russia and other oil-producing nations. Iran might also serve as a replacement market for EU goods as Russian market is partially lost. Due to sanctions EU now lost (and probably irrevocably) Russian market for food, and have difficulties in maintaining their share in other sectors (cars, machinery) as Asian tigers come in.
Notable quotes:
"... The waning clout stems from the lobby siding with the revanchist Israeli Prime Minister Binyamin Netanyahu, whose Iran strategy since the 2012 US presidential campaign has been to unabashedly side with Republican hawks. AIPAC's alignment with the position effectively caused the group to marginalize itself; the GOP is now the only place where AIPAC can today find lockstep support. The tens of millions AIPAC spent lobbying against the deal were unable to obscure this dynamic. ..."
"... Senator Lindsey Graham of South Carolina took to the floor during the debate and pulled out an old trick from the run-up to the Iraq war: blaming Iran for 9/11 and saying a failure to act would result in a worse attack – is any indication, even Democrats like the pro-Israel hawk Chuck Schumer will find it untenable to sidle up to AIPAC and the Republicans. ..."
"... The problem with the right in the USA is that they offer no alternatives, nothing, nada and zilch they have become the opposition party of opposition. They rely on talking point memes and fear, and it has become the party of extremism and simplicity offering low hanging fruit and red meat this was on perfect display at their anti Iran deal rally, palin, trump, beck and phil robinson who commands ducks apparently. ..."
"... Is it any wonder the Iranians don't trust the US. After the US's spying exploits during the Iraqi WMD inspections, why are you surprised that Iran asks for 24 days notice of inspection (enough time to clear out conventional weapons development but not enough to remove evidence of nuclear weapons development). ..."
"... Most Americans don't know the CIA overthrew the Iranian government in 1953 and installed the Shaw. Most Republicans know that most Americans will believe what Fox news tells them. Republicans live in an alternate universe where there is no climate change, mammon is worshiped and wisdom is rejected hatred is accepted negotiation is replaced by perpetual warfare. Now most Americans are tired of stupid leadership and the Republicans are in big trouble. ..."
"... AIPAC - Eventually everything is seen for what is truly is. ..."
"... Israel is opposed because they wish to maintain their nuclear weapons monopoly in the region ..."
"... With the threat you describe from Israel it seems only sensible for Iran to develop nuclear weapons - if my was country (Scotland) was in Iran's place and what you said is true i would only support politicians who promised fast and large scale production of atomic weapons to counter the clear threat to my nation. ..."
"... Netanyahu loves to play the victim, but he is the primary cause that Jews worldwide, but especially in the United States, are rethinking the idea of "Israel." I know very few people who willingly identify with a strident right wing government comprised of rabid nationalists, religious fundamentalists, and a violent, almost apocalyptic settler community. ..."
"... The Israeli electorate has indicated which path it wishes to travel, but that does not obligate Jews throughout the world to support a government whose policies they find odious. ..."
"... As part of this deal the US and allies should guarantee Iran protection against Israeli aggression. Otherwise, considering Israel's threats, Iran is well justified in seeking a nuclear deterrent. ..."
"... AIPAC's defeat shows that their grip on the testicles of congress has been broken. ..."
"... Their primary goal was to keep Iran isolated and economically weak. They knew full well that the Iranians hadn't had a nuclear program since 2003, but Netanhayu needed an existential threat to Israel in order to justify his grip on power. All of this charade has bee at the instigation of and directed by Israel. And they lost They were beaten by that hated schwartze and the liberals that Israel normally counts on for unthinking support. ..."
"... No doubt Netanyahu will raise the level of his anger; he just can't accept that a United States president would do anything on which Israel hadn't stamped its imprimatur. It gets tiresome listening to him. ..."
"... It is this deal that feeds the military industrial complex. We've already heard Kerry give Israel and Saudi Arabia assurances of more weapons. And that $150 billion released to Iran? A healthy portion will be spent for arms..American, Russian, Chinese. Most of the commenters have this completely backwards. This deal means a bonanza for the arms industry. ..."
"... The Iran nuclear agreement accomplishes the US policy goal of preventing the creation of the fissionable material required for an Iranian nuclear weapons program. What the agreement does not do is eliminate Iran as a regional military and economic power, as the Israelis and Saudis -- who have invested hundreds of millions of dollars to lobby American politicians and brainwash American TV viewers -- would prefer. ..."
"... Rejection equals war. It's not surprising that the same crowd most stridently demanding rejection of the agreement advocated the disastrous invasion and occupation of Iraq. These homicidal fools never learn, or don't care as long as it's not their lives at risk. ..."
"... And how did the Republicans' foreign policy work out? Reagan created and financed Al Qaeda. Then Bush II invades Iraq with promises the Iraqis will welcome us with flowers (!), the war will be over in a few weeks and pay for itself, and the middle east will have a nascent democracy (Iraq) that will be a grateful US ally. ..."
"... I've seen Iranian statements playing internal politics, but I have never seen any actual Iranian threats. I've seen plenty about Israel assassinating people in other countries, using incendiaries and chemical weapons against civilians in other countries, conducting illegal kidnappings overseas, using terrorism as a weapon of war, developing nuclear weapons illegally, ethnically cleansing illegally occupied territories, that sort of thing. ..."
"... Iran is not a made-up country like Iraq it is as old as Greece. If the Iraq war was sold as pushover and failed miserably then an Iran war would be unthinkable. War can be started in an instant diplomacy take time. UK, France, Germany & EU all agree its an acceptable alternative to war. So as these countries hardly ever agree it is clear the deal is a good one. ..."
"... Rank and file Americans don't even know what the Iran deal is. And can't be bothered to actually find out. They just listen to sound bites from politicians the loudest of whom have been the wildly partisan republicans claiming that it gives Iran a green light to a nuclear weapon. Not to mention those "less safe" polls are completely loaded. Certain buzz words will always produce negative results. If you associate something positive "feeling safe" or "in favor of" anything that Iran signs off on it comes across as indirectly supporting Iran and skews the results of the poll. "Iran" has been so strongly associated with evil and negative all you have to do is insert it into a sentence to make people feel negatively about the entire sentence. In order to get true data on the deal you would have to poll people on the individual clauses the deal. ..."
"... American Jews are facing one of the most interesting choices of recent US history. The Republican Party, which is pissing into a stiff wind of unfavorable demographics, seems to have decided it can even the playing field by peeling Jews away from the Democrats with promises to do whatever Israel wants. So we have the very strange (but quite real) prospect of Jews increasingly throwing in their lot with the party of Christian extremists whose ranks also include violent antiSemites. ..."
"... The American Warmonger Establishment (that now fully entrenched "Military Industrial Complex" against which no more keen observer than President Dwight Eisenhower warned us), is rip-shit over the Iran Agreement. WHAT? We can't Do More War? That will be terrible for further increasing our obscene 1-percent wealth. Let's side with Israeli wingnut Netanyahu, who cynically leverages "an eye for an eye for an eye for an eye" to hold his "Power." ..."
"... AIPAC is a dangerous anti-american organization, and a real and extant threat to the sovereignty of the U.S. Any elected official acting in concert with AIPAC is colluding with a foreign government to harm the U.S. and should be considered treasonous and an enemy of the American people. ..."
Sep 14, 2015 | The Guardian

The waning clout stems from the lobby siding with the revanchist Israeli Prime Minister Binyamin Netanyahu, whose Iran strategy since the 2012 US presidential campaign has been to unabashedly side with Republican hawks. AIPAC's alignment with the position effectively caused the group to marginalize itself; the GOP is now the only place where AIPAC can today find lockstep support. The tens of millions AIPAC spent lobbying against the deal were unable to obscure this dynamic.

We may not look back at this as a sea change – some Senate Democrats who held firm against opposition to the deal are working with AIPAC to pass subsequent legislation that contains poison pills designed to kill it – but rather as a rising tide eroding the once sturdy bipartisan pro-Israeli government consensus on Capitol Hill. Some relationships have been frayed; previously stalwart allies of the Israel's interests, such as Vice President Joe Biden, have reportedly said the Iran deal fight soured them on AIPAC.

Even with the boundaries of its abilities on display, however, AIPAC will continue its efforts. "We urge those who have blocked a vote today to reconsider," the group said in a spin-heavy statement casting a pretty objective defeat as victory with the headline, "Bipartisan Senate Majority Rejects Iran Nuclear Deal." The group's allies in the Senate Republican Party have already promised to rehash the procedural vote next week, and its lobbyists are still rallying for support in the House. But the Senate's refusal to halt US support for the deal means that Senate Democrats are unlikely to reconsider, especially after witnessing Thursday's Republican hijinx in the House. These ploys look like little more than efforts to embarrass Obama into needing to cast a veto.

If Republicans' rhetoric leading up to to their flop in the Senate – Senator Lindsey Graham of South Carolina took to the floor during the debate and pulled out an old trick from the run-up to the Iraq war: blaming Iran for 9/11 and saying a failure to act would result in a worse attack – is any indication, even Democrats like the pro-Israel hawk Chuck Schumer will find it untenable to sidle up to AIPAC and the Republicans.

Opponents of the deal want to say the Democrats played politics instead of evaluating the deal honestly. That charge is ironic, to say the least, since most experts agree the nuclear deal is sound and the best agreement diplomacy could achieve. But there were politics at play: rather than siding with Obama, Congressional Democrats lined up against the Republican/Netanyahu alliance. The adamance of AIPAC ended up working against its stated interests.

Groups like AIPAC will go on touting their bipartisan bona fides without considering that their adoption of Netanyahu's own partisanship doomed them to a partisan result. Meanwhile, the ensuing fight, which will no doubt bring more of the legislative chaos we saw this week, won't be a cakewalk, so to speak, but will put the lie to AIPAC's claims it has a bipartisan consensus behind it. Despite their best efforts, Obama won't be the one embarrassed by the scrambling on the horizon.

TiredOldDog 13 Sep 2015 21:47

a foreign country whose still hell bent on committing war crimes

I guess this may mean Israel. If it does, how about we compare Assad's Syria, Iran and Israel. How many war crimes per day in the last 4 years and, maybe, some forecasts. Otherwise it's the usual gratuitous use of bad words at Israel. It has a purpose. To denigrate and dehumanize Israel or, at least, Zionism.

ID7612455 13 Sep 2015 18:04

The problem with the right in the USA is that they offer no alternatives, nothing, nada and zilch they have become the opposition party of opposition. They rely on talking point memes and fear, and it has become the party of extremism and simplicity offering low hanging fruit and red meat this was on perfect display at their anti Iran deal rally, palin, trump, beck and phil robinson who commands ducks apparently.

winemaster2 13 Sep 2015 17:01

Put a Brush Mustache on the control freak, greed creed, Nentanhayu the SOB not only looks like but has the same mentality as Hitler and his Nazism crap.

Martin Hutton -> mantishrimp 12 Sep 2015 23:50

I wondered when someone was going to bring up that "forgotten" fact. Is it any wonder the Iranians don't trust the US. After the US's spying exploits during the Iraqi WMD inspections, why are you surprised that Iran asks for 24 days notice of inspection (enough time to clear out conventional weapons development but not enough to remove evidence of nuclear weapons development).

mantishrimp 12 Sep 2015 20:51

Most Americans don't know the CIA overthrew the Iranian government in 1953 and installed the Shaw. Most Republicans know that most Americans will believe what Fox news tells them. Republicans live in an alternate universe where there is no climate change, mammon is worshiped and wisdom is rejected hatred is accepted negotiation is replaced by perpetual warfare. Now most Americans are tired of stupid leadership and the Republicans are in big trouble.

ByThePeople -> Sieggy 12 Sep 2015 20:27

Is pitiful how for months and months, certain individuals blathered on and on and on when it was fairly clear from the get go that this was a done deal and no one was about cater to the war criminal. I suppose it was good for them, sucking every last dime they could out of the AICPA & Co. while they acted like there was 'a chance'. Nope, only chance is that at the end of the day, a politician is a politician and he'll suck you dry as long as you let 'em.

What a pleasure it is to see the United States Congress finally not pimp themselves out completely to a foreign country whose still hell bent on committing war crimes. A once off I suppose, but it's one small step for Americans.

ByThePeople 12 Sep 2015 20:15

AIPAC - Eventually everything is seen for what is truly is.

ambushinthenight -> Greg Zeglen 12 Sep 2015 18:18

Seems that it makes a lot of sense to most everyone else in the world, it is now at the point where it really makes no difference whether the U.S. ratifies the deal or not. Israel is opposed because they wish to maintain their nuclear weapons monopoly in the region. Politicians here object for one of two reasons. They are Israeli first and foremost not American or for political expediency and a chance to try undo another of this President's achievements. Been a futile effort so far I'd say.

hello1678 -> BrianGriffin 12 Sep 2015 16:42

With the threat you describe from Israel it seems only sensible for Iran to develop nuclear weapons - if my was country (Scotland) was in Iran's place and what you said is true i would only support politicians who promised fast and large scale production of atomic weapons to counter the clear threat to my nation.

nardone -> Bruce Bahmani 12 Sep 2015 14:12

Netanyahu loves to play the victim, but he is the primary cause that Jews worldwide, but especially in the United States, are rethinking the idea of "Israel." I know very few people who willingly identify with a strident right wing government comprised of rabid nationalists, religious fundamentalists, and a violent, almost apocalyptic settler community.

The Israeli electorate has indicated which path it wishes to travel, but that does not obligate Jews throughout the world to support a government whose policies they find odious.

Greg Zeglen -> Glenn Gang 12 Sep 2015 13:51

good point which is found almost nowhere else...it is still necessary to understand that the whole line of diplomacy regarding the west on the part of Iran has been for generations one of deceit...and people are intensely jealous of what they hold dear - especially safety and liberty with in their country....

EarthyByNature -> Bruce Bahmani 12 Sep 2015 13:45

I do trust your on salary with a decent benefits package with the Israeli government or one of it's slavish US lobbyists. Let's face it, got to be hard work pouring out such hateful drivel.

BrianGriffin -> imipak 12 Sep 2015 12:53

The USA took about six years to build a bomb from scratch. The UK took almost six years to build a bomb. Russia was able to build a bomb in only four years (1945-1949). France took four years to build a bomb. https://en.wikipedia.org/wiki/France_and_weapons_of_mass_destruction

The Chinese only took four years. http://www.china.org.cn/english/congress/228244.htm

steelhead 12 Sep 2015 12:48

As part of this deal the US and allies should guarantee Iran protection against Israeli aggression. Otherwise, considering Israel's threats, Iran is well justified in seeking a nuclear deterrent.

BrianGriffin -> HauptmannGurski 12 Sep 2015 12:35

"Europe needs business desperately."

Sieggy 12 Sep 2015 12:32

In other words, once again, Obama out-played and out-thought both the GOP and AIPAC. He was playing multidimensional chess while they were playing checkers. The democrats kept their party discipline while the republicans ran around like a schoolyard full of sugared-up children. This is what happens when you have grownups competing with adolescents. The republican party, to put it very bluntly, can't get it together long enough to whistle 'Yankee Doodle Dandy' in unison.

They lost. Again. And worse than being losers, they're sore, whining, sniveling, blubbering losers. Even when they've been spanked - hard - they swear it's not over and they're gonna get even, just you wait and see! Get over it. They lost - badly - and the simple fact that their party is coming apart at the seams before our very eyes means they're going to be losing a lot more, too.

AIPAC's defeat shows that their grip on the testicles of congress has been broken. All the way around, a glorious victory for Obama, and an ignominious defeat for the republicans. And most especially, Israel. Their primary goal was to keep Iran isolated and economically weak. They knew full well that the Iranians hadn't had a nuclear program since 2003, but Netanhayu needed an existential threat to Israel in order to justify his grip on power. All of this charade has bee at the instigation of and directed by Israel. And they lost They were beaten by that hated schwartze and the liberals that Israel normally counts on for unthinking support.

Their worst loss, however, was losing the support of the American jews. Older, orthodox jews are Israel-firsters. The younger, less observant jews are Americans first. Netanhayu's behavior has driven a wedge between the US and Israel that is only going to deepen over time. And on top of that, Iran is re-entering the community of nations, and soon their economy will dominate the region. Bibi overplayed his hand very, very stupidly, and the real price that Israel will pay for his bungling will unfold over the next few decades.

BrianGriffin -> TiredOldDog 12 Sep 2015 12:18

"The Constitution provides that the president 'shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two-thirds of the Senators present concur'"

http://www.senate.gov/artandhistory/history/common/briefing/Treaties.htm

Hardly a done deal. If Obama releases funds to Iran he probably would be committing an impeachable crime under US law. Even many Democrats would vote to impeach Obama for providing billions to a sworn enemy of Israel.

Glenn Gang -> Bruce Bahmani 12 Sep 2015 12:07

"...institutionally Iranclad(sic) HATRED towards the west..." Since you like all-caps so much, try this: "B.S."

The American propel(sic) actually figured out something else---that hardline haters like yourself are desperate to keep the cycle of Islamophobic mistrust and suspicion alive, and blind themselves to the fact that the rest of us have left you behind.

FACT: More than half of the population of Iran today was NOT EVEN BORN when radical students captured the U.S. Embassy in Teheran in 1979.

People like you, Bruce, conveniently ignore the fact that Ahmedinejad and his hardline followers were voted out of power in 2013, and that Supreme Leader Ali Khamenei further marginalized them by allowing the election of new President Hassan Rouhani to stand, though he was and is an outspoken reformer advocating rapprochement with the west. While his outward rhetoric still has stern warnings about anticipated treachery by the 'Great Satan', Khamenei has allowed the Vienna agreement to go forward, and shows no sign of interfering with its implementation.

He is an old man, but he is neither stupid nor senile, and has clearly seen the crippling effects the international sanctions have had on his country and his people. Haters like you, Bruce, will insist that he ALWAYS has evil motives, just as Iranian hardliners (like Ahmedinejad) will ALWAYS believe that the U.S. has sinister motives and cannot EVER be trusted to uphold our end of any agreement. You ascribe HATRED in all caps to Iran, the whole country, while not acknowledging your own simmering hatred.

People like you will always find a 'boogeyman,' someone else to blame for your problems, real or imagined. You should get some help.

beenheretoolong 12 Sep 2015 10:57

No doubt Netanyahu will raise the level of his anger; he just can't accept that a United States president would do anything on which Israel hadn't stamped its imprimatur. It gets tiresome listening to him.

geneob 12 Sep 2015 10:12

It is this deal that feeds the military industrial complex. We've already heard Kerry give Israel and Saudi Arabia assurances of more weapons. And that $150 billion released to Iran? A healthy portion will be spent for arms..American, Russian, Chinese. Most of the commenters have this completely backwards. This deal means a bonanza for the arms industry.

Jack Hughes 12 Sep 2015 08:38

The Iran nuclear agreement accomplishes the US policy goal of preventing the creation of the fissionable material required for an Iranian nuclear weapons program.

What the agreement does not do is eliminate Iran as a regional military and economic power, as the Israelis and Saudis -- who have invested hundreds of millions of dollars to lobby American politicians and brainwash American TV viewers -- would prefer.

To reject the agreement is to accept the status quo, which is unacceptable, leaving an immediate and unprovoked American-led bombing campaign as the only other option.

Rejection equals war. It's not surprising that the same crowd most stridently demanding rejection of the agreement advocated the disastrous invasion and occupation of Iraq. These homicidal fools never learn, or don't care as long as it's not their lives at risk.

American politicians opposed to the agreement are serving their short-term partisan political interests and, under America's system of legalized bribery, their Israeli and Saudi paymasters -- not America's long-term policy interests.

ID293404 -> Jeremiah2000 12 Sep 2015 05:01

And how did the Republicans' foreign policy work out? Reagan created and financed Al Qaeda. Then Bush II invades Iraq with promises the Iraqis will welcome us with flowers (!), the war will be over in a few weeks and pay for itself, and the middle east will have a nascent democracy (Iraq) that will be a grateful US ally.

He then has pictures taken of himself in a jet pilot's uniform on a US aircraft carrier with a huge sign saying Mission Accomplished. He attacks Afghanistan to capture Osama, lets him get away, and then attacks Iraq instead, which had nothing to do with 9/11 and no ties with Al Qaeda.

So then we have two interminable wars going on, thanks to brilliant Republican foreign policy, and spend gazillions of dollars while creating a mess that may never be straightened out. Never mind all the friends we won in the middle east and the enhanced reputation of our country through torture, the use of mercenaries, and the deaths and displacement of hundreds of thousands of civilians. Yeah, we really need those bright Republicans running the show over in the Middle East!

HauptmannGurski -> lazman 12 Sep 2015 02:31

That is a very difficult point to understand, just look at this sentence "not understanding the fact in international affairs that to disrespect an American president is to disrespect Americans" ... too much emperor thinking for me. We have this conversation with regard to Putin everywhere now, so we disrespect all 143 million Russians? There's not a lot of disrespect around for Japanese PM Abe and Chinese Xi - does this now mean we respect them and all Japanese and Chinese? Election campaigns create such enormous personality cults that people seem to lose perspective.

On the Iran deal, if the US had dropped out of it it would have caused quite a rift because many countries would have just done what they wanted anyway. The international Atomic Energy Organisation or what it is would have done their inspections. Siemens would have sold medical machines. Countries would grow up as it were. But as cooperation is always better than confrontation it is nice the US have stayed in the agreement that was apparently 10 years in the making. It couldn't have gone on like that. With Europe needing gazillions to finance Greece, Ukraine, and millions of refugees (the next waves will roll on with the next spring and summer from April), Europe needs business desparately. Israel was happy to buy oil through Marc Rich under sanctions, now it's Europe's turn to snatch some business.

imipak -> BrianGriffin 11 Sep 2015 21:56

Iran lacks weapons-grade uranium and the means to produce it. Iran has made no efforts towards nuclear weapons technology for over a decade. Iran is a signatory of the NPT and is entitled to the rights enshrined therein. If Israel launches a nuclear war against Iran over Iran having a medical reactor (needed to produce isotopes for medicine, isotopes America can barely produce enough of for itself) that poses no security threat to anyone, then Israel will have transgressed so many international laws that if it survives the radioactive fallout (unlikely), it won't survive the political fallout.

It is a crime of the highest order to use weapons of mass destruction (although that didn't stop the Israelis using them against Palestinian civilians) and pre-emtive self-defence is why most believe Bush and Blair should be on trial at the ICJ, or (given the severity of their crimes) Nuremberg.

Israel's right to self-defense is questionable, I'm not sure any such right exists for anyone, but even allowing for it, Israel has no right to wage unprovoked war on another nation on the grounds of a potential threat discovered through divination using tea leaves.

imipak -> Jeremiah2000 11 Sep 2015 21:43

Iran's sponsorship of terrorism is of no concern. Such acts do not determine its competency to handle nuclear material at the 5% level (which you can find naturally). There are only three questions that matter - can Iran produce the 90-95% purity needed to build a bomb (no), can Iran produce such purity clandestinely (no), and can Iran use its nuclear technology to threaten Israel (no).

Israel also supports international terrorism, has used chemical weapons against civilians, has directly indulged in terrorism, actually has nuclear weapons and is paranoid enough that it may use them against other nations without cause.

I respect Israel's right to exist and the intelligence of most Israelis. But I neither respect nor tolerate unreasoned fear nor delusions of Godhood.

imipak -> commish 11 Sep 2015 21:33

I've seen Iranian statements playing internal politics, but I have never seen any actual Iranian threats. I've seen plenty about Israel assassinating people in other countries, using incendiaries and chemical weapons against civilians in other countries, conducting illegal kidnappings overseas, using terrorism as a weapon of war, developing nuclear weapons illegally, ethnically cleansing illegally occupied territories, that sort of thing.

Until such time as Israel implements the Oslo Accords, withdraws to its internationally recognized boundary and provides the International Court of Justice a full accounting of state-enacted and state-sponsored terrorism, it gets no claims on sainthood and gets no free rides.

Iran has its own crimes to answer, but directly threatening Israel in words or deeds has not been one of them within this past decade. Its actual crimes are substantial and cannot be ignored, but it is guilty only of those and not fictional works claimed by psychotic paranoid ultra-nationalists.

imipak -> moishe 11 Sep 2015 21:18

Domestic politics. Of no real consequence, it's just a way of controlling a populace through fear and a never-ending pseudo-war. It's how Iran actually feels that is important.

For the last decade, they've backed off any nuclear weapons research and you can't make a bomb with centrifuges that can only manage 20% enriched uranium. You need something like 90% enrichment, which requires centrifuges many, many times more advanced. It'd be hard to smuggle something like that in and the Iranians lack the skills, technology and science to make them.

Iran's conventional forces are busy fighting ISIS. What they do afterwards is a concern, but Israel has a sizable military presence on the Golan Heights. The most likely outcome is for Iran to install puppet regimes (or directly control) Syria and ISIS' caliphate.

I could see those two regions plus Iraq being fully absorbed into Iran, that would make some sense given the new geopolitical situation. But that would tie up Iran for decades. Which would not be a bad thing and America would be better off encouraging it rather than sabre-rattling.

(These are areas that contribute a lot to global warming and political instability elsewhere. Merging the lot and encouraging nuclear energy will do a lot for the planet. The inherent instability of large empires will reduce mischief-making elsewhere to more acceptable levels - they'll be too busy. It's idle hands that you need to be scared of.)

Israelis worry too much. If they spent less time fretting and more time developing, they'd be impervious to any natural or unnatural threat by now. Their teaching of Roman history needs work, but basically Israel has a combined intellect vastly superior to that of any nearby nation.

That matters. If you throw away fear and focus only on problems, you can stop and even defeat armies and empires vastly greater than your own. History is replete with examples, so is the mythologicized history of the Israeli people. Israel's fear is Israel's only threat.

mostfree 11 Sep 2015 21:10

Warmongers on all sides would had loved another round of fear and hysteria. Those dark military industrial complexes on all sides are dissipating in the face of the high rising light of peace for now . Please let it shine.

bishoppeter4 11 Sep 2015 20:09

The rabid Republicans working for a foreign power against the interest of the United States -- US citizens will know just what to do.

Jeremiah2000 -> Carolyn Walas Libbey 11 Sep 2015 19:21

"Netanyahu has no right to dictate what the US does."

But he has every right to point out how Obama is a weak fool. How's Obama's red line working in Syria? How is his toppling of Qadaffi in Libya working? How about his completely inept dealings with Egypt, throwing support behind the Muslim Brotherhood leaders? The leftists cheer Obama's weakening of American influence abroad. But they don't talk much about its replacement with Russian and Chinese influence. Russian build-up in Syria part of secret deal with Iran's Quds Force leader. Obama and Kerry are sending a strongly worded message.

Susan Dechancey -> whateverworks4u 11 Sep 2015 19:05

Incredible to see someone prefer war to diplomacy - guess you are an armchair General not a real one.

Susan Dechancey -> commish 11 Sep 2015 19:04

Except all its neighbours ... not only threatened but entered military conflict and stole land ... murdered Iranian Scientists but apart from that just a kitten

Susan Dechancey -> moishe 11 Sep 2015 19:00

Israel has nukes so why are they afraid ?? Iran will never use nukes against Israel and even Mossad told nuttyyahoo sabre rattling

Susan Dechancey 11 Sep 2015 18:57

Iran is not a made-up country like Iraq it is as old as Greece. If the Iraq war was sold as pushover and failed miserably then an Iran war would be unthinkable. War can be started in an instant diplomacy take time. UK, France, Germany & EU all agree its an acceptable alternative to war. So as these countries hardly ever agree it is clear the deal is a good one.

To be honest the USA can do what it likes now .. UK has set up an embassy - trade missions are landing Tehran from Europe. So if Israel and US congress want war - they will be alone and maybe if US keeps up the Nuttyahoo rhetoric European firms can win contracts to help us pay for the last US regime change Iraq / Isis / Refugees...

lswingly -> commish 11 Sep 2015 16:58

Rank and file Americans don't even know what the Iran deal is. And can't be bothered to actually find out. They just listen to sound bites from politicians the loudest of whom have been the wildly partisan republicans claiming that it gives Iran a green light to a nuclear weapon. Not to mention those "less safe" polls are completely loaded. Certain buzz words will always produce negative results. If you associate something positive "feeling safe" or "in favor of" anything that Iran signs off on it comes across as indirectly supporting Iran and skews the results of the poll. "Iran" has been so strongly associated with evil and negative all you have to do is insert it into a sentence to make people feel negatively about the entire sentence. In order to get true data on the deal you would have to poll people on the individual clauses the deal.

It's no different from how when you run a poll on who's in favor "Obamacare" the results will be majority negative. But if you poll on whether you are in favor of "The Affordable Care Act" most people are in favor of it and if you break it down and poll on the individual planks of "Obamacare" people overwhelming approve of the things that "Obamacare does". The disapproval is based on the fact that Republican's have successfully turned "Obamacare" into a pejorative and has almost no reflection of people feelings on actual policy.

To illustrate how meaningless those poll numbers are a Jewish poll (supposedly the people who have the most to lose if this deal is bad) found that a narrow majority of Jews approve of the deal. You're numbers are essentially meaningless.

The alternative to this plan is essentially war if not now, in the very near future, according to almost all non-partisan policy wonks. Go run a poll on whether we should go to war with Iran and see how that turns out. Last time we destabilized the region we removed a secular dictator who was enemies with Al Queda and created a power vacuum that led to increased religious extremism and the rise of Isis. You want to double down on that strategy?

MadManMark -> whateverworks4u 11 Sep 2015 16:34

You need to reread this article. It's exactly this attitude of yours (and AIPAC and Netanyahu) that this deal is not 100% perfect, but then subsequently failed to suggest ANY way to get something better -- other than war, which I'm sorry most people don't want another Republican "preemptive" war -- caused a lot people originally uncertain about this deal (like me) to conclude there may not be a better alternative. Again, read the article: What you think about me, I now think about deal critics like you ("It seems people will endorse anything to justify their political views.)

USfan 11 Sep 2015 15:34

American Jews are facing one of the most interesting choices of recent US history. The Republican Party, which is pissing into a stiff wind of unfavorable demographics, seems to have decided it can even the playing field by peeling Jews away from the Democrats with promises to do whatever Israel wants. So we have the very strange (but quite real) prospect of Jews increasingly throwing in their lot with the party of Christian extremists whose ranks also include violent antiSemites.

Interesting times. We'll see how this plays out. My family is Jewish and I have not been shy in telling them that alliances with the GOP for short-term gains for Israel is not a wise policy. The GOP establishment are not antiSemtic but the base often is, and if Trump's candidacy shows anything it's that the base is in control of the Republicans.

But we'll see.

niyiakinlabu 11 Sep 2015 15:29

Central question: how come nobody talks about Israel's nukes?

hello1678 -> BrianGriffin 11 Sep 2015 14:02

Iran will not accept being forced into dependence on outside powers. We may dislike their government but they have as much right as anyone else to enrich their own fuel.

JackHep 11 Sep 2015 13:30

Netanyahu is an example of all that is bad about the Israeli political, hence military industrial, establishment. Why Cameron's government allowed him on British soil is beyond belief. Surely the PM's treatment of other "hate preachers" would not have been lost on Netanyahu? Sadly our PM seems to miss the point with Israel.

http://www.telegraph.co.uk/news/politics/david-cameron/10692563/David-Cameron-tells-Israelis-about-his-Jewish-ancestors.html

talenttruth 11 Sep 2015 13:12

The American Warmonger Establishment (that now fully entrenched "Military Industrial Complex" against which no more keen observer than President Dwight Eisenhower warned us), is rip-shit over the Iran Agreement. WHAT? We can't Do More War? That will be terrible for further increasing our obscene 1-percent wealth. Let's side with Israeli wingnut Netanyahu, who cynically leverages "an eye for an eye for an eye for an eye" to hold his "Power."

And let's be treasonous against the United States by trying to undermine U.S. Foreign Policy FOR OUR OWN PROFIT. We are LONG overdue for serious jail time for these sociopaths, who already have our country "brainwashed" into 53% of our budget going to the War Profiteers and to pretending to be a 19th century Neo-Colonial Power -- in an Endless State of Eternal War. These people are INSANE. Time to simply say so.

Boredwiththeusa 11 Sep 2015 12:58

At the rally to end the Iran deal in the Capitol on Wednesday, one of the AIPAC worshipping attendees had this to say to Jim Newell of Slate:

""Obama is a black, Jew-hating, jihadist putting America and Israel and the rest of the planet in grave danger," said Bob Kunst of Miami. Kunst-pairing a Hillary Clinton rubber mask with a blue T-shirt reading "INFIDEL"-was holding one sign that accused Obama, Hillary Clinton, and John Kerry of "Fulfilling Hitler's Dreams" and another that queried, "DIDN'T WE LEARN ANYTHING FROM 1938?"

His only reassurance was that, when Iran launches its attack on the mainland, it'll be stopped quickly by America's heavily armed citizenry."

That is indicative of the mindset of those opposed to the agreement.

Boredwiththeusa 11 Sep 2015 12:47

AIPAC is a dangerous anti-american organization, and a real and extant threat to the sovereignty of the U.S. Any elected official acting in concert with AIPAC is colluding with a foreign government to harm the U.S. and should be considered treasonous and an enemy of the American people.

tunejunky 11 Sep 2015 12:47

AIPAC, its constituent republicans, and the government of Israel all made the same mistake in a common episode of hubris. by not understanding the American public, war, and without the deference shown from a proxy to its hegemon, Israel's right wing has flown the Israeli cause into a wall. not understanding the fact in international affairs that to disrespect an American president is to disrespect Americans, the Israeli government acted as a spoiled first-born - while to American eyes it was a greedy, ungrateful ward foisted upon barely willing hands. it presumed far too much and is receiving the much deserved rebuke.

impartial12 11 Sep 2015 12:37

This deal is the best thing that happened in the region in a while. We tried war and death. It didn't work out. Why not try this?

[Dec 04, 2017] End of cheap oil will probably bring more wars as nations will try to get to remaning reserves

Notable quotes:
"... The fact is that the rise of the West to global dominance is due to a historical anomaly. It was fuelled (literally) by the discovery and harnessing of the chemical energy embedded in coal (late 18thC) and then oil (late 19thC). The first doubled the population, and as first movers gave the West a running start. The second turned on the afterburners, and population grew >3.5 fold. Again the West led the way. To fuel that ahistorical step-function growth curve, control of resources on a global scale became its civilizational imperative. ..."
Dec 04, 2017 | www.unz.com

@Vidi

From Patrick Armstrong's article (a good one, by the way):
A Russian threat is good for business: there's poor money in a threat made of IEDs, bomb vests and small arms. Big profits require big threats.
Actually, I'd say the Russian threat is necessary to keep the Europeans too frightened to protest while the U.S. steals wealth from them. After all, when the U.S. imports goods and "pays" for them with printed money, it is basically stealing those goods. The U.S. is draining a lot of wealth from Europe (like $150 billion a year), so something must be done to keep them docile. Russia's perfect for that.
@Erebus

"(Failed) West and a multipolar Rest". The latter is what I think will actually happen in the near and medium term.

I think we already have it, except I don't think West has failed yet. Or it has in a way, the process of failing goes on, but the consequences have not been felt much in the West yet.

Well, exogenous events aside, "decline and fall" is necessarily a process. A series of steps and plateaus is typical. A major step occurred in 2007/8, when the money failed. The bankers, in a frankly heroic display of coordination, propped up the $$$ and the West got a decade long plateau. Things are going wobbly again, financially speaking and I suspect the next step function to occur rather soon. Stays of execution have been exhausted, so it'll be interesting how the West handles it, and how the RoW reacts.
Europeans have been invited to join the Eurasian Project, to create a continental market from "Lisbon to Vladivostok". Latent dreams of Hegemony hold at least some of their elites back. The USA has also been invited, but its dreams remain much more virile. That is, until Trump who's backers seem to read the writing on the wall better than the Straussians.
I don't see any other power than the West (=US) aspiring to 'manage the world'....
The other 'powers' have very modest, regional aspirations... US seems to be obsessed with it.
The fact is that the rise of the West to global dominance is due to a historical anomaly. It was fuelled (literally) by the discovery and harnessing of the chemical energy embedded in coal (late 18thC) and then oil (late 19thC). The first doubled the population, and as first movers gave the West a running start. The second turned on the afterburners, and population grew >3.5 fold. Again the West led the way. To fuel that ahistorical step-function growth curve, control of resources on a global scale became its civilizational imperative.

That growth curve has plateaued, and the rest of the world has caught/is catching up developmentally. The resources the West needs aren't going to be available to it in the way they were 100 years ago. Them days is over, for everybody really, but especially for the West because it has depleted its own hi-ROI resources, and both of its means of control (IMF$ System & U$M) of what's left of everybody else's are failing simultaneously. So its plateau will not be flat, or not flat for long between increasingly violent steps.

The West rode an ahistorical rogue wave of development to a point just short of Global Hegemony. That wave broke, and is now rolling back out into the world leaving the West just short of its civilizational resource requirements. No way to get back on a broken wave. In any case, China now holds the $$$ hammer, and Russia holds the military hammer, and they've now got the surfboard. Both of them, led by historically aware elites, know that Hegemony doesn't work, so will focus on keeping their neck of the woods as stable & prosperous as possible while hell blazes elsewhere.


What is really going on is that West has over-reached and can barely handle its own problems.
IMHO, what's really going on is that the West's problems are simply symptomatic of what "decline and fall", if not "collapse" looks like from within a failing system. A long time ago I read the diary of a Roman nobleman who in the most matter-of-fact style wrote of exactly the same things Westerners complain about today. How this, that or the other thing no longer works the way it did. For all of his 60+ years, every day was infinitesimally worse than the day before, until finally he decides to pack up his Roman households and move to his estates in Spain. It took 170(iirc) more years of continuous decline until Alaric finally arrived at the Gates of Rome. If wholly due to internal causes, collapse is almost always a slow motion train wreck.
...

'there would be a vacuum' and 'Russians would move in'. This is obvious nonsense and only elderly paranoid Cold Warrior types believe it (peterAUS?).
Actually, it's just stupid. Cold Warrior or not, the view betrays a deep and abiding ignorance of both history and a large part of what drove the West's hegemonic successes. That both militate against anyone else ever even trying such a thing on a global scale can't be seen if you look at historical developments and the rest of the world through 10' of 1" pipe.

The idea that Russia wants/needs the Baltics is even more laughable than that it wants/needs the Ukraine or Poland. None of these tarbabies have anything to offer but trouble. Noisome flies on an elephant, it is only if they make themselves more troublesome as outsiders than they would be as vassals would Russia move.

[Dec 03, 2017] Carrying Capacity, Overshoot and Species Extinction by Ron Patterson

Notable quotes:
"... Carrying Capacity : Carrying capacity is a well-known ecological term that has an obvious and fairly intuitive meaning: "the maximum population size of a species that the environment can sustain indefinitely, given the food, habitat, water and other necessities available in the environment". Unfortunately, that definition becomes more nebulous the closer you look at it – especially when we start talking about the planetary carrying capacity for humans. Ecologists claim that our numbers have already surpassed the carrying capacity of the planet, while others (notably economists and politicians ) claim we are nowhere near it yet! ..."
"... Overshoot : When a population surpasses its carrying capacity it enters a condition known as overshoot. Because carrying capacity is defined as the maximum population that an environment can maintain indefinitely, overshoot must by definition be temporary. Populations ..."
"... to (or below) the carrying capacity. How long they stay in overshoot depends on how many stored resources there are to support their inflated numbers. Resources may be food, but they may also be any resource that helps maintain their numbers. For ..."
"... one of the primary resources is energy, whether it is tapped as flows (sunlight, wind, biomass) or stocks (coal, oil, gas, uranium etc.). A species usually enters overshoot when it taps a particularly rich but exhaustible stock of a resource. Like oil, for instance ..."
"... The zoomass of wild vertebrates is now vanishingly small compared to the biomass of domestic animals. In 1900 there were some 1.6 billion large domesticated animals, including about 450 million head of cattle and water buffalo (HYDE 2011); a century later the count of large domestic animals had surpassed 4.3 billion, including 1.65 billion head of cattle and water buffalo and 900 million pigs (FAO 2011). Calculations using these head counts and average body weights (they have increased everywhere since 1900, but the differences between larger body masses in North America and Europe and lower weights elsewhere persist) yield estimates of at least 35 Mt C of domesticated zoomass in 1900 (more than three times the total of all wild land mammals) and at least 120 Mt C in the year 2000, a 3.5-fold increase in 100 years (and 25 times the total of wild mammalian zoomass). And cattle zoomass alone is now at least 250 times greater than the zoomass of all surviving African elephants, which in turn is less than 2 percent of the zoomass of Africa's nearly 300 million bovines (Table 2). ..."
"... Carrying Capacity, Overshoot and Species Extinction ..."
"... let go/ get out ..."
"... until which time as I say otherwise ..."
"... until which time as I or you opt out ..."
Dec 03, 2017 | peakoilbarrel.com

11/29/2017 Notice: Please limit your comments below to the subject matter of this post only. There is a petroleum post above this one for all petroleum and natural gas posts and a non-petroleum post below this one for comments on all other matters.

First, let us define carrying capacity and overshoot. And none has done that better than Paul Chefurka .

Carrying Capacity : Carrying capacity is a well-known ecological term that has an obvious and fairly intuitive meaning: "the maximum population size of a species that the environment can sustain indefinitely, given the food, habitat, water and other necessities available in the environment". Unfortunately, that definition becomes more nebulous the closer you look at it – especially when we start talking about the planetary carrying capacity for humans. Ecologists claim that our numbers have already surpassed the carrying capacity of the planet, while others (notably economists and politicians ) claim we are nowhere near it yet!

Overshoot : When a population surpasses its carrying capacity it enters a condition known as overshoot. Because carrying capacity is defined as the maximum population that an environment can maintain indefinitely, overshoot must by definition be temporary. Populations always decline to (or below) the carrying capacity. How long they stay in overshoot depends on how many stored resources there are to support their inflated numbers. Resources may be food, but they may also be any resource that helps maintain their numbers. For humans one of the primary resources is energy, whether it is tapped as flows (sunlight, wind, biomass) or stocks (coal, oil, gas, uranium etc.). A species usually enters overshoot when it taps a particularly rich but exhaustible stock of a resource. Like oil, for instance

When we talk about carrying capacity we need to define exactly who or what we are carrying. Are we talking about humans, all animals or what? Well, let's just talk about terrestrial vertebrate biomass.

Okay, Vaclav Smil and Paul Chefurka (and the estimates of most earth biologists) are correct, the long-term carrying capacity of terrestrial vertebrate biomass is a little over 200,000,000 tons. But how do we know that amount is correct? Easily, because that is what it was for millions of years before the advent of agriculture and other things brought about by modern day Homo sapiens.

Plant and animal species all struggle to survive. In doing so they have evolved to fill every available niche on earth. If a plant can grow in an area, any area, it will do so. If an animal can find a habitat in any area on earth, it will do so. At least since the mid-Triassic, about 225 million years ago, plants and animals have occupied every available niche on earth. If any animal overshot its habitat, dieoff would soon correct that situation. So for many millions of years, the terrestrial vertebrate biomass remained at about two hundred million tons, give or take. I say that because climate change, sea levels rising and falling, continental drift would cause the long-term carrying capacity to wax or wane. Also, the estimate is just that, an estimate. It could be slightly higher or lower. But the long-term carrying capacity of the earth always remained at one hundred percent of what it was possible to carry.

Then about 10,000 years ago man invented agriculture. At first, this only enabled a slight increase in population. Soon only plants that produced the most grain, fruit or tuber per plant, or per area of ground, was selected for replanting. Genetic engineering goes back thousands of years.

Then they discovered fertilizer. Animal and human waste could greatly increase plant production. Animals were domesticated and the plow was invented. More food per area of ground could be produced. Then chemical fertilizers were invented and the population floodgates were opened. At first phosphates from bird guano dramatically increased agricultural production but around the middle of the last century nitrate fertilizers from the Haber Bosch process enabled the green revolution and enabled the population to expand three fold.

It's mostly cows, then humans, then pigs then chickens then Interesting that the biomass of chickens is ovwe three times that of all the wild animals combined. If this chart does not shock you then you are totally unable to be shocked by anything concerning the earth's biosphere.

The world population is still expanding at an alarming rate. By 1989 the population was expanding by about 88 million people per year. Then by the year 2000 population growth had slowed to about 77 million per year. Then the slowdown stopped and started to increase again. it stands at about 79 million per year according to the US Census Bureau.

Now they are saying it will start to slow. But that slowdown has not yet started. True, the fertility rate has been dropping but that has been offset by the increase in population. The fertility rate is dropping but on more and more people.

Notice the U.S. Census Bureau starts the slowdown at almost the exact date this chart was drawn, August 2017. If they had drawn this chart in 1995, then no doubt they would have started their prediction of constant decline in 1995.

But I have no doubt that the population will start to decline. It must, it must because we are destroying the ability of the planet to feed all its people.

Paul Chefurka created the above graph in May 2011. I think he was a little off. He has the world population hitting almost 8 billion then starting to drop around 2030.

I am more inclined to agree with the U.S. Census Bureau who thinks the world population will hit 9.4 billion around 2050. Then I believe the population will start to fall. The rate of population decline and how far it will fall is hard to predict. That will depend on many things but primarily on if and when globalization collapses. The collapse of globalization will bring about civil strife, border wars, and famine around the world.

I want to call your attention to the green, wild animal, portion of the second graph at the top of this post. Notice the wild animal portion of the terrestrial vertebrate biomass, by 1900, had dropped to about 20% of its historical value. Then by 2000, it had dropped to half that amount. Then by 2050, we expect that 2000 value to be cut in half again.

By 2100, it will very likely all be gone. Well, almost all gone. There will still be plenty of rats and mice and perhaps a few other small vertebrates will still survive, but all the large megafauna, except humans, will be gone. Gone forever or at least for the next million years or so. It will take that long for new megafauna to evolve after the human population has been greatly reduced to a billion or even a few million people.

But the far distant future is of little concern to us now. The sad fact of the matter is your descendants will live in a world completely free of wild megafauna. There is no way to avoid that fact now, it is already too late to stop the destruction.

WHY?

Yes, why? Why are we destroying the earth's ecosystem? Why are we driving most all wild animals into extinction? Why have we dramatically overpopulated the planet with human beings? Why did all this happen? However, when you ask why, you are implying that all this had a cause, that someone or some group of people are to blame for this damn mess we have gotten ourselves into.

Was it the early farmers who invented agriculture. Or was it the early industrialists like James Watt or Thomas Edison? Or was it Fritz Haber and Carl Bosch, are they the villains that got us into such a damn mess? No, it was none of these people. It was no one person or no group of people. It was not even any revolution like the industrial revolution, the medical revolution or the green revolution. There is no one to blame and there is nothing to blame.

Agriculture enabled the very small early population to expand. The industrial revolution and later the green revolution enabled more people to be fed. The medical revolution enabled more babies to survive and people to live much longer. Our population has exploded simply because it could. We have always lived to the limit of our existence and we always will. It was just human nature pure and simple.

Now many will say that we are now controlling our population, that we have learned how to limit our fertility rate. Well, yes and no. Reference the below chart and table that were produced by the Population Reference Bureau in 2012.

In the developed world, where most of the world's energy is consumed, we almost have zero population growth. But in the less developed world, the population is still growing.

Here is the perfect example of what is happening, what is still happening , in much of the world. Notice the difference in the infant mortality rate and the annual infant deaths. Most of the world's people are still living at the very limit of their existence.

<sarc>But not to worry. The death rate is rising, babies are dying, the population will soon start to fall in the undeveloped world. </sarc>

Note: The Paul Chefurka graphs in this post were created, primarily, with data from the research of Vaclav Smil and is published in this 24 page PDF file: Harvesting the Biosphere: The Human Impact . The file includes over 2 pages of notes and 4 pages of references where Smil sources and documents every stat he quotes. Below are a table and some text from the paper.

The zoomass of wild vertebrates is now vanishingly small compared to the biomass of domestic animals. In 1900 there were some 1.6 billion large domesticated animals, including about 450 million head of cattle and water buffalo (HYDE 2011); a century later the count of large domestic animals had surpassed 4.3 billion, including 1.65 billion head of cattle and water buffalo and 900 million pigs (FAO 2011). Calculations using these head counts and average body weights (they have increased everywhere since 1900, but the differences between larger body masses in North America and Europe and lower weights elsewhere persist) yield estimates of at least 35 Mt C of domesticated zoomass in 1900 (more than three times the total of all wild land mammals) and at least 120 Mt C in the year 2000, a 3.5-fold increase in 100 years (and 25 times the total of wild mammalian zoomass). And cattle zoomass alone is now at least 250 times greater than the zoomass of all surviving African elephants, which in turn is less than 2 percent of the zoomass of Africa's nearly 300 million bovines (Table 2).

Please comment below but only on the subject matter of this post.

This entry was posted in Uncategorized and tagged Megafauna Extinction , Overpopulation , Overshoot , Peak Oil , Population Explosion , Species Extinction . Bookmark the permalink .

295 Responses to Carrying Capacity, Overshoot and Species Extinction

George Kaplan says: 11/29/2017 at 8:23 am

Great summary. Mainly so I don't have to think about all the depressing aspects: do you not think if humans disappeared but even a few of our larger domesticated animals survived that evolution could go bonkers and we'd have new familes and species springing up all over in far less than a million years. After all homo sapiens are only a few hundred thousand years, and dogs (admittedly still technically wolves) only a few thousand. It would depend a bit whether we left much of the planet that was actually habitable of course – i.e. there'd need to be plenty of evolution pressure, but not too much. I guess your point would be we'd get new species but not the mega fauna, but I think there's evidence that isolated small islands can lead to either pygmy species or giants depending on the exact environment.
Ron Patterson says: 11/29/2017 at 9:28 am
George, I would have to start by saying that humans are not going to disappear. Other than extinction via natural disaster, like a giant meteorite hitting the earth, species are driven into extinction. That is they are outcompeted for territory and resources. Humans are the drivers of extinction, no species will drive us into extinction. We occupy every habitable niche on earth and will likely continue to do so even after our numbers have been dramatically reduced.

If we have a collapse of globalization, and I believe that is inevitable and will happen within the next one hundred years, then the human population will be devastated by civil strife, border wars, and famine. Seven to nine billion hungry people will be a disaster for all other animal life, domestic as well as wild. So I do not believe there will be enough domestic animal life to kick-start evolution of new wild species of megafauna. As I have said before, we will eat the songbirds out of the trees. So there sure as hell will not be any cows left.

Okay, so perhaps it will not take a million years for other large megafauna to evolve. Perhaps it will only be in the hundreds of thousands of years.

The Cunning Linguist says: 11/29/2017 at 10:18 am
So, after we eat the songbirds from the trees, what the hell will we eat then?

Is it not possible that the human species will drive itself to extinction because we are so successful at destroying the natural environment which we depend upon for our survival?

After industrial civilization collapses, the great human die-off will rapidly reduce human numbers by more than 90%. Life for the remaining humans will be extraordinarily hard. If the overall stress level is high enough, it will be very difficult for humans to raise enough offspring to reproductive age to maintain the species over time. Biologists call this pre-extinction phase die out. Once a species numbers fall below replacement level, they go extinct.

And what the hell do you mean: "If we have a collapse of globalization, and I believe that is inevitable and will happen within the next one hundred years "? Within the next 100 years? You are dreaming! We are in the early stages of apocalypse right now! Rapid die-off will begin within the next few years. 100 years from now, there will be no one alive who will remember it.

Ghung says: 11/29/2017 at 10:44 am
Cunning said; "After industrial civilization collapses, the great human die-off will rapidly reduce human numbers by more than 90%." ..

..while what is left of nature will rapidly move into the niches vacated by species humans have wiped out. If (big if, maybe) there are remaining reproductively viable human populations, they will exploit those recovering niches at rates which will be far below the astounding rates of exploitation during the industrial age. Where humans have abandoned their schemes of destroying the natural world for their own purposes, nature, in some form, recovers quite quickly.

On the other hand, if global warming goes off the scale (ala Guy McPherson, et al), all bets are off. Everything larger than a shrew will be toast.

Ron Patterson says: 11/29/2017 at 10:59 am
Once a species numbers fall below replacement level, they go extinct.

The replacement level for animals in the wild and the replacement level for domestic animals are two different things entirely. For animals in the wild, the replacement level may be several hundred to several thousand. Animals in the wild have to find each other in order to reproduce. For domestic animals, the replacement level is two.

In this regard, we Homo sapiens are far more like domestic animals than wild animals. An example would be the Polynesians who migrated to distant islands in sailing outrigger canoes. Their numbers, in those canoes, likely numbered only a dozen or so. Yet huge numbers eventually sprang from tiny numbers.

Yes, stress during periods of great strife and famine will be great. Stress will likely take a great toll. But there will always be survivors. Everyone is not equally affected by stress. Some can overcome, some cannot. It is a little like a plague or disease. There are always some who are immune or otherwise escape the problem.

As for rapid die-off coming within a few years, yes that may happen but I doubt it. Humans societies are far more resilient than you might expect. For instance, look at Somalia, or Venezuela. Somalia, a failed state, has been in turmoil for decades yet no massive die-off has occurred. Venezuela is in a state of almost total anarchy, yet no massive die-off as of yet.

I believe the die-off will start within the next hundred years. Next week is within the next hundred years. But I doubt it will happen by then, or even within the next few years or so. In my opinion, it will take several decades for things to really fall apart.

The Cunning Linguist says: 11/29/2017 at 12:01 pm
Ron,

You said:
"But I doubt it will happen by then, or even within the next few years or so. In my opinion, it will take several decades for things to really fall apart."

What about Limits to Growth? That study forecast that real problems would begin in the first or second decade of the 21st century, in other words, now. Why is Limits to Growth wrong? How do we avoid sudden, catastrophic collapse once world economic growth comes to an end?

What about the fragile, debt ridden financial/credit/monetary system? Have you read the Korowicz paper? How will industrial civilization gradually unwind over many decades when the world economy freezes very suddenly and food stops arriving at the grocery stores? That should lead to a very rapid die-off as every city suddenly becomes uninhabitable.

Ron Patterson says: 11/29/2017 at 12:27 pm
What about Limits to Growth? That study forecast that real problems would begin in the first or second decade of the 21st century, in other words, now. Why is Limits to Growth wrong?

Hey, I have a copy of Limits to Growth right here in my hand. On what page do they predict catastrophic collapse before 2050. Help me out here but I just can't seem to find it.

As to real problems, hell yes, we are having real problems right now. We have been having real problems in Venezuela and a lot of other places. But there is a tremendous difference between real problems and catastrophic collapse.

And what about all the other terrible things you are say are happening right now. Hell yes, they are happening and they are terrible. But they have not yet led to catastrophic collapse. But it is very likely they will lead to collapse in three or four decades from now.

Ghung says: 11/29/2017 at 12:37 pm
The LTG graphs appear to show economic and industrial peaks @2025-2030, if not sooner, dropping off quickly.

https://i.guim.co.uk/img/static/sys-images/Guardian/Pix/pictures/2014/9/1/1409550981593/cc68cfc8-072c-4e53-a741-b28c3d6bcea3-573×1020.jpeg?w=620&q=55&auto=format&usm=12&fit=max&s=1ec7d319d599211c6d4adb5d287cced8

Ron Patterson says: 11/29/2017 at 12:59 pm
Ghung, what page is this on?
Ghung says: 11/29/2017 at 1:17 pm
It's actually from a Guardian article, taken from Bardi's "The Limits to Growth Revisited". I don't know what page the original graph was on, but I have a copy of the original 1972 graph which shows the same curves, without the more recent data curves.

Guardian article "Limits to Growth was right. New research shows we're nearing collapse" :

https://www.theguardian.com/commentisfree/2014/sep/02/limits-to-growth-was-right-new-research-shows-were-nearing-collapse

George Kaplan says: 11/29/2017 at 1:17 pm
Ron – that graph is from the Graham Turner LtG update: http://sustainable.unimelb.edu.au/sites/default/files/docs/MSSI-ResearchPaper-4_Turner_2014.pdf
Ron Patterson says: 11/29/2017 at 1:32 pm
Shit? Is this real? I had no idea that we might be this close to collapse.

Nevertheless, I just can't believe we are that close. I think it will be at least 20 to 30 years from now.

George Kaplan says: 11/29/2017 at 1:43 pm
It depends on what you call collapse. The UK and USA are both following the curve such that life expectancy is starting to decline. I think industrial productivity might be going the same way in UK, and definitely our health and old age care systems (which is one of the measures he uses for "services") are in decline (though the government always finds a way to massage the numbers so far). One of the authors of LtG has said that once one of the main curves is definitely through an extrema then the models probably don't work any more – which I took to mean possible accelerating chaos, but might mean something else.
Hightrekker says: 11/29/2017 at 7:37 pm
Shit? Is this real? I had no idea that we might be this close to collapse.

Yep -- -
Population overshoot, ecocide, environmental destruction, deforestation, ocean acidification, mass loss of pollinators–
I could go on --

It doesn't take a weather man to tell which way the wind blows.

Alice Friedemann says: 11/29/2017 at 8:02 pm
This a unique, one-time only collapse because we never relied on fossil fuels in the past, and we certainly won't in the future. If you look at energyskeptic/3) Fast Crash, you'll see the many reasons I think collapse will unfold quickly. Turchin, who has looked at the patterns of collapse in civilizations going back to Mesopotamia, says it takes about 20 years on average. That is in line with Hook's estimate of a 6% exponential decline, which is the rate at which the 500 giant oil fields decline on average after peaking (something like 270 of them last I checked), all others (offshore, shale, smaller, and so on) decline much faster, hence Hooks estimate of an exponential increase of .0015 a year as non-giants increasingly contribute to what's left of production (giants are now 60% of world oil production). If Hook (2009) is right, that means we'll be down to 10% of what we produce after global peak production in 16 years. At that point, even if governments are rationing oil wisely to grow and distribute food, you're reaching the breaking point. Oil makes all other resources possible, so although many resources reaching their limits, the decline of oil will be the true beginning of the end. No more pumping water from the Ogallala 1,000 feet down, going 10,000 miles on factory farm fishing boats, and so on. Oil is masking how incredibly far we are over overshoot. Above all, 99% of the supply chain transport – trucks, rail, ships – depends on oil. 80% of communities in the U.S. depend entirely on oil, by far the least efficient mode of transportation of the three. Well, it is too big a topic to cover in a comment. I have a lot more to say in my book "When Trucks Stop Running".

Oh, and when I heard Dennis Meadows speak at the 2006 Pisa Italy ASPO conference, he said that if anything Limits to growth was head of schedule, with collapse starting as early as 2020. We'll see, too many factors. Also in the past, nations avoided collapse way past their carrying capacity by trading or conquering other nations, like the Roman Empire, which had to import food from Carthage and Egypt, no way to grow enough food in Italy.

Hook, M., Hirsch, R., Aleklett, K. June 2009. Giant oil field decline rates and their influence on world oil production. Energy Policy 37(6): 2262-2272
https://www.diva-portal.org/smash/get/diva2:225443/FULLTEXT01.pdf

OFM says: 11/30/2017 at 7:14 am
Hi Alice,

I'm hoping to see more comments from you in the future, and not just in this one thread, lol.

It's very common for experts in any given field to presume there are none in other fields that are capable of solving the problems they see as civilization killers.

There are no guarantees of success, but success is possible when it comes to finding and implementing solutions to problems such as the eventual depletion of oil.

Once the shit starts hitting the fan pretty hard and fast in terms of declining oil supplies, both good and bad things will happen on a scale that will take the breath away.

The bad will unquestionably include economic collapse across large swathes of some and maybe most societies.

The good will come in the form of action on the part of awakened LEVIATHAN, the nation state. Those of us who cannot see that once LEVIATHAN stirs and focuses on such problems as we FORCED to deal with soon have little understanding of history , human nature, and technology.

Now WHETHER , or NOT, Leviathan, Uncle Sam, John BULL, the Russian BEAR, et al, can do enough to keep the wheels on and turning, instead of falling off, is an open question.

I believe they can, depending on how far gone things are once they begin to come to grips with the various troubles that will threaten their existence.

People CAN AND DO come together, and work together, sometimes. Consider the case of the USA. We were mostly all isolationists the day before Pearl Harbor, but within a couple of days after, we were all ready to to go flat out to murder our enemies on the grand scale, and DID.