OPEC Says Jump

OPEC agreed to a production cut. This is huge. This is game changing. This is probably not going to happen. What they did was an amazing head fake. They announced that they would cut production, but said they would not announce any details until the next meeting in November. What an amazing con. No one expected any production caps to be enacted, so then they go and surprise everyone with the announcement. No one looks at more than the surface of the announcement, and the price of oil spikes. All the OPEC countries make a few extra millions, and no one is the wiser. And the status quo gets to be maintained for a few more months. And once November rolls around the bickering can begin anew, the Sauds and Iranians can blame each other and this “deal” can fall apart.

OPEC Got Fucked

To the surprise of no one OPEC will not get a deal done on a production freeze. Was it due to some backdoor deal with Russia? Is it to keep kicking the US in the nuts? Is it because everyone hates Venezuela? Nope. It is because the Sauds hate the Iranians. The story is the Saudi Arabia will not just freeze production, but decrease it if Iran agrees to a production cap. Something that Iran will absolutely not do as they are trying to ramp back up to pre sanction levels. So now the Sauds can act all shocked that such a reasonable offer of theirs was rejected by the barbaric Iranians, and keep flooding the world in cheap oil. All the while shrugging and saying that there is nothing they can do, its all Iran’s fault. The question now is how much is that needless BS, and will the Sauds decrease production anyways. Saudi Arabia is currently producing at record levels, and has been for a few years now. But how long can they really sustain that. Its not like they have tapped into fresh new wells. Most of their production is coming from very old fields and from all indications all of them are producing at maximum. And despite what tricks are used, all oil fields decline. And the Sauds are running out of tricks. They have been injecting both water and CO2 into Ghawar for decades. The only way they were able to increase production and maintain those levels is to bring every well they have online and run them at full capacity. So the only question that remains is can they use their inevitable decline and drag down Iranian production, or will they just concede and roll production levels back and try to suck up a little good will.

OPEC = Fail

So it sounds like there with not be an OPEC deal at their meetings this month. And that is really not surprising. As much as the low price of oil sucks for them, it is not severly hurting Russia and the Sauds. Both are weathering this price deflation, and can easily continue to do so for the rest of the year. So what reason do they have to cave. The Sauds don’t wont Iran to receive foreign investment that will boost up their economy, and Russia would love to swoop in and low ball some Iranian contracts. As for the rest of OPEC, there is nothing they can do. They are all small fish to be led about by the Sauds. And Saudi Arabia still dangles the struggling US industry in front of them. And they have numbers. Aside from the Permian basin, all US shale fields are in major decline. And despite the “analysts” freaking out about insignificant weekly rig count changes, they will continue to do so. Even with the boost from the Permian and few new wells in the gulf of Mexico coming online, US production is holding flat. And once the cheap plays in the Permian are all tapped, US production will sharply decline. This is the end goal of the Sauds and has been since 2014. And as much as the rest of OPEC may want a deal, the Sauds are inevitable the only ones who can enact it.

Cash All Gone (Or Why The Petro's Have Cancelled All Megaprojects)

For all the talk about the US shale fields, their wildcat operators, and their impact on the global oil market, the present and future of oil is the large mega projects. Huge platforms and fields of wells over vast deposits. Where shale wells put out a few hundred barrels per day, the big fields produce hundreds of thousands. The latest one that might coming online is the Kashagan (cash all gone) field in Kazakhstan. However, it is the boogey man that has spooked the big petro’s away from big projects since the price crash.

First discovered in 2000, it sits offshore in the north end of the Caspian sea. But it is a big field, one of the largest ones found in the past decade with an estimate 13 billion barrels of crude. This had people drooling despite its risks. And this field is no walk in the park. It sits in the middle of the Caspian sea where the weather is about as inhospitable as it gets. Highs of 40C in the summer with lows of -40C in the winter. Temperatures so cold in the winter that sea ice becomes an issue that must be accounted for.  And the oil itself is laced with sodium hydroxide. But risks be damned that is a whole lot of oil. Some three hundred billion worth in 2001 oil prices. So in 2001 construction started, and went on, and on with innumerable delays and cost overruns. The companies in charge estimate the total cost of the project is currently just over $50 billion, CNN thinks that it is double that amount. Plus there are the fines. The sodium hydroxide is strong enough that it corroded the pipes planned for transport that lead to leaks and the excess gas being burned. That led to tens of millions in fines. But it appears now that most of the kinks have been worked out and production will start in earnest this fall. They claim that this will be producing 370k barrels per day. A lot of experts doubt that they will be able to hit that number for at least a decade due to ongoing issues. But lets look at what happens if they do. Not in terms of how it will affect the global market, but what it will do to the bottom line of everyone involved. 370K barrels per day at current prices is about $16 million dollars per day, almost six billion dollars per year. A lot of money, but not when it is paying down a fifty or hundred billion dollar investment. Until the price of oil skyrockets this project will run in the red. Even when oil gets back to $100 per barrel it will take decades before it breaks even. And that is why investment dollars have dried up. When a huge field like this one is such a money hole, why take a chance. A lot of the petro’s are barely skating by. The thought of investing so much money in something this risky makes no sense. They will keep biding their time, investing in smaller, sure things and wait until they are flush with cash again before embarking on projects like this.

Venezuela And China

It is starting to look like Venezuela is losing their last friend in the world. China seems to be done with them. This is not too surprising as Venezuela is such a disaster that they rate below Syria for safety. The bigger issue is of course money. Venezuela is fast running out of hard cash, and has almost none coming in. More than any other OPEC country, the Oil crash is hurting them the hardest. The drop in income is affecting their infrastructure and ability to keep producing oil. Production rates have steeply declined, and that is affecting their relationship with China.

The leader of Venezuela Nicolás Maduro is an idiot. One who desperately clings onto his belief in socialism. And when oil prices were high he could. Because he was flush with oil money, he could institute price caps for basic goods. This made the poor happy, but made it so that it was not profitable for anything to be produces domestically, be it goods or food. This was OK. He just took that pile of oil money and threw it at neighboring countries for food, and traded oil to China for cheap manufactured goods. Some 600K barrels per day. China loved this. They needed oil, and could get it for the price of some cheap electronics. They started throwing money at Venezuela, some sixty billion dollars worth of loans. They gained what they needed an ally with oil. A socialist friend. And a toe hold in Latin America where they could keep the US in check. Now with Venezuela struggling to produce any oil, they don’t have anywhere near the capacity required to trade oil for goods. They need to sell every drop they can just to keep creditors at bay. And of course China is the biggest creditor. They are owed some $40 billion dollars still, and it doesn’t look like they will be getting it any time soon. Maduro has been pleading with them for more loans so he can keep his country afloat. But it looks like China has finally had enough. No more money appears to be incoming. And there are rumblings that China is speaking to Maduro’s opposition about how they plan on addressing China’s loans when they finally take power. If that is they case, then there is absolutely no hope left for the current regime. They country is in a death spiral. And if China is now on the sidelines waiting for it to play out, then there is no hope of recovery until the government is overthrown. Maduro has no more friends, and no more lifelines.

The Futility Of The Sauds (Or How The US Is Getting Rich From Dead Shiite Muslims)

Because history loves to repeat itself, Saudi Arabia is again waging proxy wars against Iran. In the eighties they threw money at Sadaam to fight Iran. This worked out well, because the Soviets were supplying military hardware, and the US had the CIA meddling. Oil prices had surged and they easily had the capital to write some cheques and know that it was going towards furthering their causes. That war ended and Iran may have “won”, but it was a pyrrhic victory. Their economy and infrastructure was in shambles, and the western world had sanctioned the hell out of them. Short of their absolute destruction, this was pretty much a best case scenario for the Sauds. With Iran (and Iraq) in down and out, and the Soviet Union collapsing, they were then able to leverage their huge oil fields to become the global oil power. Then the Sauds spent the next two decades peddling their influence into all sorts nonsense and groups that the US now declares as terrorists. And no one could do anything except kiss ass, because they had the oil. Well, now we live in the era of the shale boom, and a resurgent Russia. Saudi Arabia by keeping the taps open, has lost enough global influence that he could unleash Iran without much backlash. So the Sauds are doing what they can to retain regional power. Fighting Shiites. With the war in Yemen and their meddling in Syria. However this time is different. Unlike the eighties, no one really cares about Iran. So the Sauds are alone in their wars. They are now both bankrolling and supplying the military hardware. And unlike the Russians make their own military hardware, the Sauds import everything and are paying markup prices. They are handing the US billions a year for arms and munitions. And while the US is normally super happy to sell guns to anyone, there are even a few rumblings that maybe congress shouldn’t sell weapons to a country that is using them to bomb schools and hospitals. So now the Sauds are waging multiple proxy wars with no one on their side against a country that now has the backing of Russia. While also depressing the price of oil. Waging an economic war against America, military one against Yemen, and ideological one against Iran is bleeding them dry. It will be really interesting to see what gives first over there. 

Oklahoma

Oklahoma, once the poster child for US hydraulic fracturing may be on the way out.
The state has long been one of the most important oil producers in the US. Despite peaking at over 700k barrels per day in the twenties, they were still producing over four hundred thousand BBD well into the late eighties. However like a lot of the US onshore fields, they rapidly aged and production dropped below 200k BPD. When hydraulic fracturing came to be in vogue the state benefitted immensely. Production more than doubled from numbers in the year 2000. Peaking at over 450k BPD in 2015. numbers not seen since the early eighties. Things are not looking so rosy these days though. Due to its higher cost per well, rig counts have plummeted. Most of the new shale drilling has moved to more profitable fields in Texas. And what happened this weekend may be the death knell. A 5.6 magnitude earthquake. We have known for a while that fracking causes little quakes. With the number in the state increasing from around five a year to hundreds. But this last one was big. Not an in perceptible tremor, but one with some force. It will be interesting to see if this causes enough of a public panic that a fracking ban or hiatus is instituted.

Apache

The Apache Corp just dropped a bombshell on the world. They claim to have found three billion barrels of oil and 75 trillion cubic feet worth of gas in west Texas. A tiny portion of the greater Permian formation, called the Delaware basin. The US estimates that they have 36 billion barrels of reserves left. So this find is of huge importance. It’s a game changer, and true paradigm shifter, and probably too good to be true.
The area has long been known to geologists and avoided. The rock is thought to be in too much of a jumble and the ground too permeated by clay. Both factors would severely limit the effectiveness of hydraulic fracturing. The area is also pockmarked with dry exploratory wells.
We will have to see if the geologists have been wrong all this time, and Apache did find a huge haul. We won’t know for sure until they start drilling in earnest or release some seismological data.

Russia And Iran

Well, well, well. There just might be an OPEC freeze after all.
The two stumbling blocks to a deal have always been Iran and Russia. Iran wants to be free to increase their production levels to what they were before all the international sanction. And Russia are just dicks who like to meddle. Well Russia has now said that they will horror a freeze as long as Iran gets to produce at pre sanction levels. This is kind of a big deal. It means that a freeze will probably happen at the OPEC meetings later this month. OPEC will be able to save a little face and retain some semblance of a cohesive entity, and the markets will stop fearing the Sauds and their empty threats to produce another million barrels or two per day.
But why is this happening. Well Iran will get their production up regardless of what OPEC decides. Saudi Arabia might be able to drive the oil price back up for their Aramco auction without being obvious about it, and the rest of OPEC gets to keep doing what they are doing and make more money. So what does Russia get out of all of this. More power in the region, and the ability to continue their proxy way with the US along the Sunni/Shiite split.
It is becoming more and more clear that Russia has its sights set on the region. They swooped in after the attempted coup in Turkey to be their BFF’s, and have long been assisting the Assad regime in Syria. This also draws a line in the sand. Russia is firmly behind the Shiite Iran and Assad. While the US is supporting the Sunni Saudi Arabia and Iraq, and the Syrian rebels. Its like Vietnam all over again, hooray!

Oh Those Sauds

After two years of being dicks, Saudi Arabia finally appears willing to play ball and do something about oil prices. Shocking! It's almost as of they realized that they are holding an auction next month for shares of a multi trillion dollar company, whose value is tied directly to the price of oil.
And to reiterate, this auction is to earn some cash for them to cover part of their $100 billion dollar yearly budget deficit.  THAT THEY CAUSED BY TANKING THE PRICE OF OIL.
I would almost feel bad for their incompetence except for the fact that the Saudi government are complete assholes.
A young man was sentenced to 10 years jail and 2000 lashes for declaring that he is an atheist.
And their military is fighting a proxy war against Iran in Yemen where the Sauds are bombing schools and hospitals.
So fuck them.