Trump Oil Conspiracy

It will be very interesting to see what Trump and Tillerson decide to do to the oil market. Trump wants the US to pump more oil and be independent from the middle east. That would require massive amounts of new drilling from the US and Canada. Which requires a high price of oil. Tillerson has a large stake in arctic drilling, which requires the US to remove its sanction on Russia, and a higher price of oil. The sanctions will be lifted from Russia. With all of the Putin cronies surrounding Trump, that will happen almost immediately. The trick is then raising the price of oil to hold steadily over $70 a barrel. That will be harder. OPEC introduced their production cut, but it is too little and all of the countries involved will cheat and over produce. So while the price will slowly creep up, it could take years before the price gets to where those two men want it. The fastest way to reach their goals is to suddenly take a few million barrels per day off the market. And the easiest way to do that is the re sanction Iran. Trump has been laying the ground work for months now. And we now live in the Trump world where the right thing to do and the best thing for Trump to do are far apart. Screwing over Iran means nothing to Trump or his supporters. They are all dangerous terrorists. And of all the fights that the Democrats will need to make in the next few years, Iran is not worth the effort. And its an action that will win kudos at home. The surge in oil prices will be an immediate help to the US oil industry. And as much as they have plans in the country Russia will not stop the US. They benefit from high oil prices by just as much. So now we all wait for January 20th when Trump is officially sworn it and the anti Iran rhetoric starts.

Numbers In Perspective

Here is the thing about OPEC, Russia, and their proposed production cuts. Those numbers look well and good, but are quite misleading. Lets take Russia. They have said that they will join in the OPEC deal and cut production by 300K barrels per day. Great. That’s a lot, and should ease the glut. But it really doesn’t when you look at the big picture. Because the Ruble has been almost halved in value since 2014 and oil is all sold in good old American greenbacks, the price slide of the past few years has barely affected the big Russian oil companies. And they have spent the past few years ramping up production hard. In November they were able to output 11.2 million barrels per day. They now have production almost up to the peak levels of the old Soviet Union. And in November they were able to product almost a half million barrels more per day than they were in August of this year. So while yes they will cut production, they are still producing at almost record levels. And this cut is if anything, it is just a way to bring output down to sustainable levels while looking like heroes who are helping the entire industry. And to really put the scope of this con in perspective, Russia was only producing about 10.6 million barrels per day at the time of the price crash. So while OPEC and the US were pointing fingers and blaming each other for record outputs, it was actually Russia who has been quietly unbalancing the market.

Vienna

They done did it. OPEC actually reached a deal with significant production cuts. Now we will have to see if they will actually follow through with this. They say that they want to rest of the world to cut production by 600k BPD. And that will be a lot harder to enforce. If there is to be any hope of any other global reduction it will have to come from Russia. The US is made up of two many small operators, and Trump will be president. The man who wants to bring back coal. There is no way he would even consider a production cut.

And today Russia said that they will cut production by 300k BPD. Now what that actually means to Russia is a whole other matter. Does that mean 300k barrels less than they are producing now? Or 300k barrels less than what they budget their production to be in 2017. Or will they just do what they want, and say what the market wants to hear so that they can make a few extra dollars. Who knows. And as I have learned from following OPEC, words are wind and proof is in the pudding.