RI... "Still confused? You should be." The invaluable Pepe Escobar breaks it down in layman's terms.
The famous Hollywood adage – 'nobody knows anything' – seems to perfectly apply to the current turbulence in the oil market. So in an effort to clarify where the global oil economy is heading to, let’s engage in a Battle of the Oil Analysts.
Relying on these Oil Analysts (OA) does not necessarily mean you will be handed straightforward answers, but perhaps with some luck you will see a ray of light.
Saudi Arabia is saying that they are raising oil production to 12 million barrels a day. That’s highly debatable. Russia is saying that they can raise oil production to 13 million barrels a day. OA1 cuts to the chase: “Both are bluffing. Prices are still rising. That means no one believes them.”
OA2 kicks in, reminding that, “oil price is holding because of the 1.5 million barrels a day pulled off the market by a strike in Kuwait of about 10,000 workers. That cut their 3 million barrels a day production in half. Now they are going back to work. Yet the price of oil is still rising.”
I had explained before how the oil price was holding over $40.00 a barrel even with concerted Washington pressure over Saudi Arabia to keep it down. Then, OA3 had told me: “that’s because oil demand and supply is tightening.”
But then OA4 came up with a totally different outlook; the whole thing was about 'The Big Long', upon which I based my prediction of $45/$50 per barrel when I was in Tehran in November 2011 and the price was approaching $100 a barrel. The Saudis have been supporting the price and while they have plenty of capital to do so at high prices, storage is finite. Aligning with this, OA4 added that: “the market is about to crash, and is only being supported by the financial positions of the Saudi/GCC support operation, now unwinding."
OA5, predictably, could not agree that the Saudis are supporting the market and about to let it collapse. He elaborated on how “hard it is to predict day-to-day prices. The only way you can know what is happening is to watch by satellite or surface observation the tankers coming out of each exporter, assume they are full, check their names to look up their capacity, and then add up what is leaving each exporter. What they say otherwise means nothing. There are services that do this that cost about $300,000 a year.”
OA6 kicked in with some perspective, explaining what happened in the middle of 2014: “The oil price started to crash with no visible increase in production. The deduction had to be that the surplus in the Gulf - which was the only place where there was a surplus - was being dumped in the market by the Gulf States, under orders from Washington. And this fit geopolitically with the uprising in Kiev as a replay of Afghanistan.”
If there is a consensus amongst most OAs, it is that Saudi Arabia is hurting. OA7 says he’s been “watching the markets, and a lot of this static comes from Iran trying to break into the market. The Gulf States are trying to prevent that as much as possible and trying to cut Iran's throat.
However, I do not see overall that the situation is deteriorating. Such a severe drop in price restrains production. The amount of excess was not more than about 5 percent of the market; not 20 per cent, as in 1985. It has to be tight now based on macro-logic and that is why a famous Goldman Sachs former trader who picked the collapse is not massively buying.”
Still confused? You should be. Because now another variable kicks in – the rise of US gasoline demand. OA8 has a fine take on the matter:“I was expecting this in the second quarter, not now. We should be over fifty to sixty dollars a barrel then. Fundamentals always prevail in the end.”
The $2 trillion game
So a credible scenario seems to be a world not exactly awash in crude oil, and with the price of a barrel going up soon. And right at this juncture we find China’s CNPC making a play to become a major shareholder of Rosneft – Russia’s top oil producer, which plans to sell 19.5 percent of its shares.
Predictably, US analysts don’t seem to understand why Rosneft may become a top Russia/Chinese-owned corporation. This has nothing to do with selling oil assets when prices are down; Rosneft shares are doing fine, by the way. It’s about the energy/financial consolidation of the Russia-China strategic partnership – from Pipelineistan (those massive, $300 billion gas deals clinched in 2014) to the close connection of Moscow and Shanghai stock exchanges. Translation: all these sophisticated moves further bypass the US dollar.
Oil, in this complex equation, is just one component. For instance, the Ministry of Economic Development in Moscow works with two basic hypotheses: best case at $40 a barrel, and worst case at $25 a barrel. It is duly preparing for both.
And now comes what could be a potential game-changer: the House of Saud’s “vision” for a post-oil economy.
These are the basics, as announced by Warrior Prince Mohammed bin Salman, 30, the conductor of the – illegal - war on Yemen that is overflowing with “collateral damage”. Saudi Arabia’s power stems from its possession of Mecca and Medina, and geostrategic “Arab and Muslim depth”; it’s central to global trade, with 30 percent passing through the Red Sea and the Persian Gulf; and the future lies in the creation of a $2 trillion sovereign wealth fund, coming from the sale of 5 percent of shares in Aramco, the number one oil company on the planet.
Riyadh, we got a problem. Assuming that Aramco’s partial IPO will yield that astonishing $2 trillion, and these funds are invested all across the West, Saudi Arabia could collect around $100 billion a year. Not much; in fact, only 1/6 of Saudi Arabia’s GDP in 2015 ($653 billion, of which 70 percent come from oil exports). In a nutshell: this plan will not deliver Saudi Arabia a viable post-oil economy.
As if this was not enough, the oil hacienda is currently invested in two expensive wars – in Yemen (directly) and Syria (indirectly). Crucial: the Warrior Prince de facto conducts both. Moreover, the House of Saud will continue to buy spectacularly costly weapons from the usual suspects - the US, UK and France - like there’s no tomorrow.
Back to our OAs. OA8 says that the Saudis under the Warrior Prince made a major mistake: “They have now antagonized the Russians and the Americans. Brennan wants their blood no matter what he says as he thinks of them as terrorists. Also, he believes that they have nuclear tipped missiles from Pakistan. The US cannot reconcile themselves to this.”
Moscow, on the other hand, wants friendly relations with Riyadh, but there’s a perception Russia was betrayed at Doha (cutting oil production was a done deal until the Warrior Prince scuttled it on the very day of the signing.)
Which brings us to OA9: “The self-inflicted wound of cutting the oil price by the Saudis for market share is foolish. The time now is to conserve oil and refrain from selling it, awaiting the tripling of the Chinese economy with the Belt and Road plan. Demand in five or ten years would be massive and oil will be then near $200 a barrel.”
So, in the end, our oil thriller will be all about China; Beijing will need to buy all the energy it needs to pursue the completion of the New Silk Roads. Meanwhile, the House of Saud faces a stark choice. Its “post-oil economy” plan will fail, as others before failed. The Warrior Prince must decide which of the superpowers to ally with. If he thinks he can pull it off all by himself, there’s a cab driver gig waiting for him in London. If he can make it to Heathrow in one piece.
Comments: teddyfromcd Twisk •
i strongly suspect that the real background to it is:
BRITISH who were of course very ''in the middle east" with their remapping business...
ALREADY were smelling the oil under the sands -- AND THEREFORE threw their lot in with the nomadic SAUDI family tribe to be 'royals' = establish a ''country" amenable to western - particularly british control and influence -- and the rest -- we already know.
a bit later -- the americans come in - etc. etc. et .
teddyfromcd ...
-- it's just that as things connect - the centuries, the empires, the systems, the wars, ...it seems to point more and more
to a ver particular modern age ''system" out of which the modern world itself both OWES its modernity in industrial ways -- but also in its global financial arrangements in which the political systems, cultures, histories and ideologies are simply more or less forced to function under its ''arrangement"
NOT LEAST AND CENTRAL to which is the MONETIZATION -- what we today call ''financialization" of everything under the sun...
but which accelerated since the INDUSTRIAL revolution that also had as its center LONDON and the ''british countryside" -
which SOON after found out that the ISLES simply did NOT have the natural or market or labor resources to ''create more money" or by that means to accumulate more ''wealth"
AND THEREFORE -- instead of ''dominating the world" by means of INDUSTRY itself --
producing more coal from the soon to be depleted mines, more child labor as laws ran against it (thankfully - and to the great credit of the british people themsel;ves) -
more strawberries to export -- or more shoes to cobble, or more machines to manufacture...
why do that? when the world could be controlled by the EXPORT or more SWIFT export of something far more powerful and BINDING?
AND THAT IS --
THE MONETARY, BANKING, CURRENCY, TRADE -- and capitalist system..
which naturally found its early ''modern era" examples in south africa, in zimbabwe, kenya, egypt, middle east, india,
and take over -- by ''monetary and legal system" -- the lands and resources and labor , and markets -- of countries across the world - WRAPPING THE ENTIRE PLANET in a system INSIDE WHICH ALL others must function - INCLUDING all nationalist , and other political and economic ''systems" ...
much as we have seen SWIFT controlled by the west dictate 'global electronic payments" -- or the dollar system inheriting from the pound sterling in teh same way ..or ''trade rules' and economic rules" under global capitalism.
and NOT EXCLUDING REWRITING THE MAPS of the world LIKE countries are also commodities to be traded and ''monetized".
this would then mean :
instead of RELYING ON ''earning from exports of goods" --
britain embarked on a gliobal FINANCIAL SYSTEM EXPORT that would be forcibly written into the LAWS of international relations...
imo - basically starting in its real global expanse from maybe the early 19th century finding its zenith in VICTORIAN ENGLAND'S british rule over the globe's
'MODERN,K INDUSTRIAL ERA".
instead of building MORE factgories in britain -- it just built them OTUSIDE - with far cheaper labor -- instead of growing FOOD to export and earn from -- since it is a small country really -- it instead TOOK OVER the production of SALT , RICE, WHEAT...FRUITS, ETC...
AND their trade..instead of simp;ly printing more shillings -- it just made the currencies of others ''pegged in value" to the 'store of value" pound sterling...
and thus -- FINANCIAL AND LEGAL imperialism underpinning and empowered or enforced by ''gunboat diplomacy". ...
and its INHERITOR in the global scale is of course the USA..which also of course attracts like-minded "no nationality" FOLK who can shift allegiance according to where their particular generation finds best profit and power - just like LONDON attracted them in its place...
at least THIS is what seems to me to be the general history of the ''WORLD" IN the last 200 , 250 years. i mean -- i don't know the exact years and so on
but roughly perhaps
1850's - late - to today.
wes c •
If you want to even come close to understanding what is happening, first thing you do is LEAVE THE OIL ANALYSTS OUT OF IT! :) :) Take the idea of an "oil glut" out of the equation for now, then start your premise with the global melt down in 2008. Focus on the reaction by leaders of the G20 in 2009 ( ie , FSB, UN DESA, G20 summit, IMF reform ). It is a clear stand against US hegemony in our monetary and financial system. Use this as your story line, follow the events there after, and in the end a perspective will arise that makes much more sense.
I have attached a research narrative by Morgan Stanley as one of the reasons I question the "oil glut" consensus. It poses an interesting idea that what happened in 2014 was the very same scheme used in 1986. **Notice the chart within. www.morganstanley.com/i...
This was posted this morning here in the west : www.msn.com/en-ca/money... I can't tell you how much this excited me :):)))))
Crypto • a day ago
This is all irrelevant - like inspecting the paint work on the Titanic to see if it needs another coat. I would suggest that oil price rise is correlated with the sudden opening of the Chinese credit spigots in the first quarter of this year - at an incredible rate of $4 trn per year - thus spurring another spurt in economic activity. At some point however, the credit bubble will collapse, and so will oil prices.
IllyaK •
Let's break it down even more: oil price - and everything else - is manipulated in the futures market by 'too big to fail' banks. Exactly WHY banks are allowed to gamble with money they don't have is another matter.
The world consumes more oil every year than it did the previous year. The oil 'glut' is a fantasy. The market is beginning to correct now and oil will be back to $100+ by the end of the year,
Poster Comment:
Saudis had to drop oil price to match that of half-price oil Israel was getting via Turkey from Syrian rebels. Price began recovering after Russian and Iraqi air forces bombed the oil convoys.