Summit

It is going to be really interesting to see if OPEC actually agrees on anything tomorrow. They Sauds have been positioning for a cut for a while. They are producing at record levels for over a year. Slashing a million barrels per day of production would be nothing for them. Iran and Iraq know this and are playing a game where they say that they will not cut production. So the Sauds came back on the weekend and said that they are willing to not cut production and wait for the market to balance itself in 2017. Considering OPEC is an organization that likes to think of itself as a cartel, there is a lot of public posturing and infighting going on. This is all happening while Argentina is rolling around on fire, begging for a shred of relief. And Nigeria like Hydra desperately hopes that the Avengers don’t show up again.

The odds of an OPEC production cut are slim to none. The best case scenario for the market is a production freeze. It would be meaningless and accomplish almost nothing, but would be held up by the group as an accomplishment while they blame the rest of the world (America) for the oil glut.

Trump And OPEC

It will be interesting to see what the Trump administration will do in regards to oil and OPEC. Trump is a hater of all things middle eastern, and all “bad deals”. Obama lifting the sanctions on Iran qualifies as both. Leading up to the election Trump was outspoken against that deal, as is the Republican party as a whole. So it would make sense for Trump to reverse it and put the sanctions back. It’s no skin off his nose, and he gets to both spite Obama and win praise from congress. It would also take millions of barrels of production per day out of the market which would significantly boost the price of oil and make a lot of US petroleum companies happy. It seems like a no brainer. The fallout of that deal would be interesting to see. The Sauds would be thrilled. It would both boost the price and oil and reduce Iran’s clout in the region. While also allowing OPEC to flatten their production numbers without Saudi Arabia or Iraq being forced to cut their production. It would mess with Russia and their aspirations in the region. Russia has been making large investments into the Iran. However it would push the Iranians further under Russia’s umbrella strengthening Russia’s alliances in the region. The Chinese would be put in an interesting position. They have been purchasing as much cheap oil as possible to build their reserves and offset the continuing decline of their domestic production. As the largest importer of oil and exporter of manufactured goods, this period of cheap oil is helping them immensely. However as much as they can threaten to cut off the US supply of iphones, they are terrified of getting on the wrong side of Trump. They know he can and will sanction the hell out of them, even if it will hurt the US more. So with renewed US sanctions they will have to avoid Iranian oil completely. We will have to wait and see when happens when Trump is finally able to put pen to legislation.

The Problems With Fracking

Over the weekend Oklahoma suffered a 5.0 magnitude earthquake. Normally something like this wouldn’t even be a blip in the news, except that it happened just a few miles from Cushing. The same Cushing where the US has a half trillion barrels of oil in storage. And that should be deeply troubling. Those tanks are not built to withstand earthquakes, and why should they be. They are in Oklahoma, not normally a hotspot of seismic activity. Except that in recent years it has become one. And all of it can be traced directly to the oil and gas industry. Oklahoma is the poster child of hydraulic fracturing, so it is no surprise that they are the first place to feel the negative effects of it. It has long been established that pumping fracking fluid into the ground will contaminate drinking water, but the earthquakes are a new phenomenon. It turns out that fracturing rock and then pumping waste water deep underground will mess with fault lines and create man made earth quakes. This has been going on for years, but the quakes have been mostly so small that they are only perceptible to seismometers. They are now ramping up. Multiple quakes have now happened over a 5.0, a strength where they can now be felt and cause damage. And as the state continues fracking this will not stop. Right now they are still in the slight denial/make it go away stage. Oil companies are being forced to stop injecting waste water near towns that are experiencing earth quakes. It will be interesting to see how far this continues and just how strong these man made quakes can become. This is all uncharted territory to geologists. Never before has human kind been able to create earth quakes. And we are now creating thousands with no sign of stopping.