Tag Archives: oil price

March 16, 2022 · 09:31

A symphony in only two parts?

That is the question at times. We see two events, two articles and we forget that there are a dozen other connections. I am not different, at times I overlook them too, not always but frequently. It is a mix of a larger stage, more connections, more unregistered events. Yet for now we start with the first nail in the coffin of American economy. The article from Reuters (at https://www.reuters.com/world/middle-east/saudi-arabia-invites-chinas-xi-visit-wsj-2022-03-14/) gives us ‘Saudi Arabia invites China’s Xi to visit’, the article states that this could be as early as may. Right before the Midterms in November 2022 the US is now likely to face that dozens upon dozens of billions walk from the US side straight into the hands of China (and me missing out on commission, darn). Is this a given? No, of course not. There could be a dozen reasons why President Xi Jinping might be visiting. But how often has ANY Chinese president done that? And Crown Prince Mohammed bin Salman Al Saud is eager to set his defence and SAMI to higher values and I was clear in the two years that this was coming and as far as I can tell, President Biden has soured the waters enough for this to become a reality. Some focusses on weapons being sold, I say in THIS economy you should not ignore the nations Saudi Arabia, India, Egypt, who are the largest importers. In this stage where the US HELD 37% and China only 5.2% the stage is now set where China can progress a lot higher on that list and should they get the bulk of Saudi and SAMI attention there is a clear stage where the new numbers will represent (2023/2024) could state that the US hold 25% and China then could be holding 17.2%, it then places China right next to Russian exports and the US a lot more to that stage, a stage where it is now an almost fair fight between the US, Russia and China, but to be clear was that EVER an economic stage where you WANT a fair fight? A stage where China overtakes both France and Germany as supplier? This is the stage that could inhabit the Middle East and that is merely the beginning. You see the partnerships that the Kingdom of Saudi Arabia and Egypt have also sets Egypt in the sights of China as a defence trade partner, a stage a few people overlooked and that drives Chinese export achievable needs up a lot more. So the damage to the US might increase over the coming year and those who want to be in denial, go right ahead, the article with ““The crown prince and Xi are close friends and both understand that there is huge potential for stronger ties,” the report quoted a Saudi official as saying. “It is not just ‘They buy oil from us and we buy weapons from them’.”” I like the part “It is not just ‘They buy oil from us and we buy weapons from them’” the best, it might not be merely just, for China that is a good deal in several ways and when that deal gives China more oil, it will mean that it gives the US less oil a stage they feared for some time and the oil market has been volatile on these fears alone. So when I was mentioning that whatever relief the oil prices give us today, tomorrow will be different and now we see that fear come to fruition, not immediately mind you, but the price of fuel will go up again and again, how high? I cannot tell but the stage where we saw the American administration make statements like “You can pump more oil, so pump more oil!”, it was nice but there is now every chance that the extra oil (plus a little more) goes to China. Will the UAE do the same? I cannot tell, but the US better become best buddies with Sheikh Khalifa bin Zayed Al Nahyan and Sheikh Mohammed ibn Rashid Al Maktoum, because if I see this right, the US will need every friend it can muster in their oil needs (a few others too) and in that need they better realise that catering to Iran will not merely be unrewarding, it will soon become dangerous on more than one field as well. I mentioned two years ago that yielding the Middle East to China would be one of the most dangerous things ever, and that was merely economically. Now we see one field exposed and the construction opportunities in Neom could also go towards China, a stage that makes the US (EU too) more and more irrelevant, a stage the US themselves threw upon their own economic needs. Now that it is becoming more and more realistic these people will not be allowed to cry with the “Why oh why” statement like little chihuahua’s. Or as my grandmother used to say “You do not bite the hand that feeds you” a practical lesson that the US will now face within the next 3 months and the 2 years that follow. A stage that the Biden Administration failed to spot in some stage of ignorance and now as we see it optionally unfold (it might be that President Xi Jinping is visiting to buy real estate in Neom) some might see the dangers that are coming the next year or so and the impact over the next decade. I merely loose out on commission (oh, poor poor me).

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Tagged as arms race, China, Egypt, Eu, Khalifa bin Zayed Al Nahyan, MBS, Mohammed bin Salman, Mohammed bin Salman Al Saud, Mohammed ibn Rashid Al Maktoum, Oil, oil price, President Xi Jinping, reuters, SAMI, Saudi Arabia, UAE, Wall Street Journal

October 20, 2020 · 23:06

Is the link real?

Apart from the continuation of the IP I promised as public domain for Sony exclusive products, I was in doubt of some information on ISIS I got my fingers on. This is besides the information that is out in Israel where we see: ‘ISIS urges attacks on westerners, oil infrastructure in Saudi Arabia’, the danger of the nfrmaetion I saw is that they are merely parts of something. I need to painty a picture. In one courtyard there is a person selling sweet fruits, they are orange in colour and in the other courtyard there is a person selling sweet fruits but red in colour. Now, I cannot tell if the first one is selling oranges, tangerines or perhaps nectarines. The other person is selling cherries, strawberries, red currant or even tomatoes (are tomatoes fruit). Some will set the stage that fruit sellers are in these two courtyards. Yet I do not know are these sellers an outlier, is fruit all they sell, can I confirm what exactly they sell and what do they call themselves? Even the issue if the two sellers are related is in question. But some intelligence is set on too little data and too often dubious data. Then there is the stage what do they call themselves? Are they actual sellers, or merely two people in a closed setting where they have something for sale? All questions on the stage we see here, so when I see “An Islamic State spokesman called on the terrorist group’s supporters to target westerners, oil pipelines and economic infrastructure in Saudi Arabia”. This set a few issues. In the first the reliability of it all, the western media has actively avoided a few settings in these places, so there is little to go on and for the most they merely copy one another. In the second Saudi Intelligence is pretty efficient in Saudi Arabia, as such ISIS is calling for activity in a place where they do not have any, so is it a hollow threat, is it a call to arms or a red herring to mess with Saudi Intelligence. The additional problem is that any attack could only happen with a much larger support from Iran and ISIS and Iran do not really mix, which gets me to a slightly inappropriate joke. Two hooligans, one Swede one Dane have an argument over Football, they both grab their knives and stab each other in the chest, instantly killing one another. What is the Score? Answer: Norway leads by two points.

OK, not the nicest joke, but the issue gets across (I hope). ISIS is leaking and making claims, yet the stage is not set and there is debate on how effective ISIS is in Saudi Arabia, and that is the larger truth here. ISIS might have followers in Saudi Arabia, but that is hear say, there is speculation, but no active data supporting this. Iran has activity (to some degree) in Saudi Arabia, but there is still debate on how much and how effective it remains.

In a stage where we see: “Saudi Arabia has stressed the need to step up efforts to reach a lasting and sustainable peace agreement among the Palestinians and the Israelis” we see one side, we see ISIS in opposition, yet no one is looking on where Israel Hayom got its data (at https://www.israelhayom.com/2020/10/20/isis-urges-attacks-on-westerners-oil-infrastructure-in-saudi-arabia/) from. This was not some leak, this was not intelligent by Mossad, the article given to us is from Reuters and ILH Staff, OK, we can accept that, so why doesn’t Reuters have this as front page news on their Middle East section page? And as such, who at ILH had this and more important when did they have it? An article by Reuters not on their website, especially one involving ISIS is a larger set of weird, and guess what, it was about Saudi Arabia, another reason to have it, and the only other source I saw pushing this was oilprice.com. That and the stage of ‘Offshore Oil & Gas Poised For A Major Rebound’, as such, in light of all this, I have questions, don’t you?

The assumption of right

This happens, it happens almost every day and we all (including me) see that happen. My view was that oil prices would go up. It is a logic set to demand and supply, a basic principle. As OPEC cut production by 1.2 million barrels a day, we would have expected a rise, maybe not directly, but overall when you get less of a product, the prices rise. It is the basic foundation of commerce; shortage tends to drive prices up. Yet a Forbes article proves me wrong (at https://www.forbes.com/sites/gauravsharma/2018/12/10/opecs-output-cut-not-enough-to-provide-short-term-70-oil-price-floor/#668312a8d58d).

This is fine, I never proclaimed to have all the answers, yet it does seem odd that less oil still drops the price from $80 to $51 in one month, and the logic is gone at my end of the table, yet I also know that oil prices are a little more complex, so I took this moment to learn a little. Gaurav Sharma gives us: “oil price is not just a story of supply; it is also a story of demand“. That part makes sense, yet this part only gives rise to changes if demand dampens and dampens by a whole lot. We see that with: “It cannot be ignored that Eurozone growth continues to disappoint, global trade is decelerating and China’s slowdown is a visible fact, and not just a forecast. We haven’t even mentioned the words “trade wars” and a prospect of further U.S. interest rate hikes“. Yes, so far I am on board, yet does that dampen the need for oil to THAT degree? This is precisely the setting when we consider: “If anything OPEC’s move provides U.S. drillers with a further incentive to pump more, and they already are, having made America the world’s largest producer of crude oil.” This implies that the need is changing; America needs less as they become self-reliant more. This explains the setting in the short term, yet it also gives rise to other dilemmas. As the US is using its own stock to keep cheap oil, we also see the change in the dynamics. Less money in the treasury through cheap oil, more costs (and optionally more jobs mind you), yet the budget and shortages of America (like $21 trillion debt) now has another not so nice tail. The interest on 21 trillion can no longer be fuelled with fuel. With a downwards economy, the debt will rise a little faster and there will not be anything left for infrastructure. Now, in this case none of this is the fault of the US Administration, or the current administration to be a little more precise. There is a lot wrong as the Clinton administration left the nation with surplus. I am not ignoring that 9/11 changed the game, yet the Obama administration had a clear directive to do something and that was not done. We can argue whether they had the options or not, we know that the war on terror has had a long-lasting impact. And the downward fuel price does not help. Yet cheap fuel is good for all the non-petrochemical industries and the people requiring cheap oil for heating.

The writer also gives us: “As things stand, a sustainable $70 oil price doesn’t look certain at all for 2019“. OK, I can only support that for as long as the US can keep up with the reductions that OPEC and Russia implement, when that stops working prices will go up, just how fast is unknown. It depends on the current storage and demand and I am not certain that this will not bite in 2019. I cannot academically argue with Gaurav Sharma and his 20 years of experience. His point might be valid, yet the Economic Times gives us: “WTI is forming Doji candlestick pattern and also near its long term Fibonacci retracement. Both are positive signs for crude oil prices“, If this happens within the next two weeks, my predicted increase of 15% comes true. Yet how is that chance? Focussing on merely my point of view tends to be delusional, which is why I liked the view by Gaurav Sharma. He gave me something to think about. It is Mike Terwilliger, portfolio manager, at Resource Liquid Alternatives, in New York who gave us (last week): “It’s a stunning market backdrop where everything from the adjectives used by the Fed chairman to whom is appointed head of trade negotiations can roil the markets. While the macro backdrop remains firm, with strong earnings and historically low unemployment, sentiment is unquestionably vulnerable. That would, in my view, fit the definition of an opportunity – a disconnect between the underlying and perception.” (at https://economictimes.indiatimes.com/markets/stocks/news/us-wall-st-tumbles-growth-trade-unnerve-investors/articleshow/66946928.cms)

I have always considered and known about ‘the underlying‘ and or versus ‘perception‘, no mystery there, yet are there factors we see to forget about? Part we get from the Guardian (May 2018) when we were given: “Demand is expected to average 99.2mb/d this year.” I am adding the part where that demand is not going to diminish over at least part of 2019. Even as we see more and more drive towards sustainable energy, most players are still all about presenting and not completely in the realm of achieving, hence oil demand remains stable (as far as stable tends to be), in addition we need to look at the oil futures. S&P global (at https://www.spglobal.com/platts/en/market-insights/latest-news/oil/121018-crude-oil-futures-stable-to-higher-on-opec-production-cuts) gives us: “risk sentiment remained heightened after US Trade Representative Robert Lighthize Sunday said that he considers March 1 to be a hard deadline for a trade deal to be reached with China and that tariffs will be imposed otherwise“. So basically the futures are rolling towards the up side making me correct, yet as long as the US can keep up with demand and as long as we see this continue, oil will remain stable and not push beyond $60 per barrel in the short term. MatketWatch is actually more optimistic towards the consumers of fuel. With: “Oil futures fell Monday to settle at their lowest in about a week on growing concerns surrounding a slowdown in energy demand“.

Why do we care?

We care because the drop in demand as projected and given by several sources is also the economic indicator that not all is well. This is seen in several sources. Goldman Sachs, via CNBC gives us: “We expect the U.S. to slow down to less than 2 percent by the end of next year and as a result of that you could see the market getting quite scared“, yet would be an overly optimistic view. We saw last week that the US Economy gained 43,000 jobs less than last year giving us a much less optimistic view on that part of the equation. Apple is falling down, tension on the Economy (specifically the US economy) is on the rise, some might say sharply on the rise. In addition, the Financial Post gives us: “Wall Street ignored trouble signs for months. Now it sees risks everywhere Markets face stomach-churning swings as economic uncertainty grows“. Even when we stick to the headlines, it was nothing really breathtaking. The US trade deal with China, the growth fears in the EU, they all link into a negative setting of the economy. Not recession, yet a negative impact due to no growth (too little growth is more accurate) and the events in France do not help either. In addition, there is now a realistic chance that Italy is entering recession territory. Even as it is possible to avert it, it will means that the Italian economy will end at a standstill (which is not a recession), yet in all this, with the Two large EU economies at 0 (France and Italy), it falls to Germany to bring home the bacon and sausages, implying that they are all eager and desperate to sink any notion of Brexit as soon as possible. As we see the jesters giving us that the UK can exit Brexit, that whilst they are seemingly unable to get a handle on the ECB and their everlasting lack of transparency, so whilst we see (at https://www.euractiv.com/section/politics/news/ecb-chief-rejects-chance-to-adopt-eus-transparency-register/) the unsettling part “The European Central Bank’s President Mario Draghi has rejected calls from European lawmakers to have financiers who give advice and feedback to the ECB register as lobbyists, saying they merely provide “information”.” I merely see an extended reason to pursue Brexit stronger. I actually am in a state of mind to demand the right for targeted killing these so called ‘informers’, which is a massive overreaction, yet the need to get these information givers listed next to the lobbyists is becoming more and more essential. If any nepotism, or if any under the table deal is found within the EU, their exposure is essential. I believe that this will flush greed out into the open rather fast, but then I am merely one voice in all this.

It connects

You see, the QE is supposed to come to an end this Thursday, or at least the formal announcement to end it at the end of this month. However, when we consider Reuters: “the economy weakening, trade tensions darkening the outlook and headwinds still on the horizon in the shape of Italy and Brexit, financial markets are looking ahead to next year and just how the ECB will protect the bloc from a severe downturn“, not only does the rejection to officially end QE have an impact, it also means that suddenly demand for things like oil will suddenly spike, that means that reserves go down, oil prices go up and there the cost of living will impact harshly on Europe in winter and as such on American soil the need for a price hike will not really be one that people will cherish, and when we add to that the part that Germany also has a depressed economy to look forward to, we see the three great economic players all in a diminished form, implying that the economy will tank on the low side not merely in this year, it will have a depressed form of growth in 2019 as well. There will be all kinds of lessened good news, whilst the good news is not that great to begin with. It gives rise to the point that I might be wrong on the oil price as I expected it to grow by 15%, it might still go up yet not that much and it will come at a really high cost this time around.

Right or Wrong?

It does not matter in this case; the issues seen are openly visible and heralded throughout the net, magazines and newspapers. The issue of ‘the underlying‘ and or versus ‘perception‘ is at the heart of the matter. Even as energy and oil prices show certain paths in all of this, it does not make it a correct view (which is neither right not wrong), what we perceive in opposition to the underlying elements connected, that is the bigger picture of impact. It is also a new stage. As the politicians are fighting over the carcasses of opportunity and bonus structures, we see that Germany has a few other elements in play. It is not merely the manufacturing part of it all, it is infrastructure as well and that is where we get my earlier statement, a statement I gave 3 days ago in ‘Behind the facade‘ (at https://lawlordtobe.com/2018/12/08/behind-the-facade/), if Huawei (minus one arrested exec) shows their value in Germany with the given quote, which came well over a day after my article (at https://foreignpolicy.com/2018/12/09/germany-is-soft-on-chinese-spying/), where we see: “In the terms of reference published last week by the German Federal Network Agency for its 5G auction, security was not even included in the conditions for awarding the contract. In October, the government announced: “A concrete legal basis for the complete or partial exclusion of particular suppliers of 5G infrastructure in Germany does not exist and is not planned.”“, as well as “For Deutsche Telekom and other network operators, the situation is clear: Huawei offers innovative and reliable products at highly competitive prices. Legally, Deutsche Telekom does not bear any liability for the security risks associated with Huawei technology. And the company does not care about the fact that Huawei’s price advantage is the result of a highly skewed playing field in China. In the world’s largest market, domestic providers control 75 percent of the market, giving them unbeatable economies of scale“, we see the hidden trap that some people related to Mr S. Tupid are now in hot waters (optionally with the exception of Alex Younger). Not only have they not given any evidence regarding the security risk that Huawei is supposed to be. Foreign Policy also gives us: “Given the massive cybersecurity and national security risks, the only responsible decision is for Berlin to follow the Australian, New Zealand, and U.S. lead and ban Chinese providers from the German 5G network“, yet there is no evidence, that was always the problem and so far there is more and more indicators (especially in Australia) that the claim “In none of these three countries will domestic suppliers be the primary beneficiaries“, which I regard to be false, on paper it does not impact ‘primary beneficiaries’, but it does harshly (in Australia at least) negatively impacts the competitors of Telstra, which amounts to the same thing (TPG, Vodafone, Vodafail et al). And when we go back to my writing in ‘Behind the facade‘, where I give the reader: “You see, Huawei can afford to wait to some degree, as we see the perpetuated non truths of devices being pushed forward, the replacements better do a whole lot better and they are unlikely to do so. When we see another failure in 5G start and we see transgressions and those screaming that ‘Huawei’ was a danger, the moment they cannot prove it and their ‘friends’ give us a device that is malicious, the blowback will be enormous. There is already cause for concern if we go by CNBC. They give us a few points that show the additional fear that America has on Huawei“, when the intrusions are not proven and Huawei shows to be a strength for consumers and businesses, heads will roll, there will be a demand for blood by the people, which means that politicians will suddenly hide and become ‘on the principle of the matter‘ and transform their perspectives into in all kinds of lethargic versions of denial.

That too is impacting the economy, because those on track to start pushing out new innovations on 5G will have a clear advantage over the other players and that pushes for success even more, will it come to pass? I cannot tell as there are too many elements in motion and the policies now in place are off course under optional revised in the future as Annegret Kramp-Karrenbauer will replace Angela Merkel if her party is re-elected as the biggest one.

We are seeing a few versions in the assumption of right, and we need to realise that the assumption of right and speculative version of what will happen overlaps one another, but they are not the same thing. States of delusion tends to be an impacting factor. Am I delusional to think that big business gives away greed? Am I delusional to consider that Huawei is not a danger? If we go by ‘the underlying‘ and or versus ‘perception‘ I am correct. You see, would China endanger the true power of economy where Huawei would become the biggest brand on internet and 5G requirement, using it for espionage when there are dozens of other methods to get that data (including Facebook policies implemented by Mr S. Tupid and Mrs M. Oronic). As this sifting of data exists on many levels in several ways, not in the least that the overly abundance of TCP/IP layer 8 transgressions happening on a daily basis and at least twice on Sunday), when we realise that, why would any Chinese governmental (namely Chen Wenqing) endanger a Chinese technological powerhouse? The logic is absent in all this. This gives us the light of Alex Younger opposing the others. He gave a policy setting of national need, whilst the others merely voiced all this ‘national security‘ banter on risks that do not even exist yet. Especially when we saw the Australian version of: ”5G will carry communications we “rely on every day, from our health systems … to self-driving cars and through to the operation of our power and water supply.”” Perhaps anyone can tell me how many self-driving cars there are at present or within the next 10 years?

And none of these клоуны (or is that Sarmenti scurrae) considered the step to start with Huawei 5G and replace them at the earliest convenience whilst you work out the bugs of your currently incomplete 5G solutions, the few that are out there for now, a simple business decision that is at the heart of any daily event, including military ones. A nice example there is the ugliest dinghy in US history (aka the Zumwalt class) where we see: “Zumwalt-class destroyers are armed with 80 missiles in vertical-launch tubes and two 155-caliber long-range guns“, which is an awesome replacement from the previous version that was regarded as a Ammo less Gun edition, in the face of continuing budget shortfalls, personnel problems and of course the fact that the previous edition was $1 million per shell, for its smart (GPS) capability. The mere elements that some sources gave out that shooting straight was an ability it naturally acquired as well as the fact that a $440 million ship was not given the budget to get its unique, 155-millimeter-diameter cannon that can shoot GPS-guided shells as far as 60 miles the 600 rounds of ammo at a total cost of $600,000,000. And that is apart from the $10 billion the Navy spent on research and development for the class. So perhaps people still have questions why I considered this monstrosity to be regarded as a ‘sink on the spot‘ project. The fact that The Drive gave us a year ago: “the Navy has steadily hacked away at various requirements, stripping planned systems from the design, in no small part to try and control any further cost overruns and delays. Close-in protection, ballistic and air defense capabilities, and various other associated systems are no longer part of the base design, something The War Zone’s own Tyler Rogoway explained in detail in a past feature, leaving it with limited utility despite its size and cost” (and apart from some minor issue regarding stability and stealthablity which we shall ignore for now) in that light the entire 5G redeployment after the fact and the ability are acquired, tested and evaluated, at that point re-engineering away the advantage that Huawei had built, did that not make sense within 10 seconds?

It is common business practice in IT, and has been for over 2 decades, that is why ASUS and not IBM rules the lay of the desktop land nowadays. so getting even would not have been the dumbest idea either, but no, we see all kinds of unfounded accusations and that is where those people are most likely to lose and out in the sunlight, when they cannot prove that claim, that is when we see on how some elements will soon be disregarded. In this Huawei has a nice advantage in Germany and Saudi Arabia. When they prove the elements there, we will see a large driven technology shift and those making the claims at recent days better have their stories straight.

Yet again, I might be wrong, my assumption of right might get sunk on false premise and nepotism, I do recognise that this has happened before and will happen again.

The assumption of right is at times hindered on delusional thoughts, as well as the need that the other players are straight shooter, and that definitely applies to all politicians, does it not?

The math is off

That was the very first thought I had when I looked at an article in the New York times by Clifford Krauss from September 1st 2015 (at http://www.nytimes.com/interactive/2015/business/energy-environment/oil-prices.html). You see, the article is quite good and very descriptive, so why is it wrong? Is it his math? Are they the facts? First when we look at the title ‘Oil Prices: What’s Behind the Plunge? Simple Economics‘, now I am all for simple economics, I have wielded that bat myself on more than one occasion, still something is off (not just the smell of oil), so let’s take a walk in the proverbial path of black gold.

Oil is finite. Oil does not regenerate and when it is gone, it is gone forever. In addition, most elements that come from oil have a very short lifespan. Add a match and the stuff just instantly burns away, it burns away leaving you burnt if you stand too close. For a long time our usage grew exponentially, at this point the amount of crude oil used would fill a cube sized at 20 miles by 20 miles by 20 miles, so that is one massive cube! Still, when you consider the oil fields and the size of them, those fields tend to be a lot larger, yet overall they might remain largely below a few hundred metres (which still makes for one massive oilfield).
The quote “United States domestic production has nearly doubled over the last six years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices” is an issue for me. For this we need to look at two additional quotes from the BBC. the first one is “US crude oil was trading at more than $90 a barrel a year ago, but now costs around $45. The UK’s Brent crude has also halved in price from a year ago and is currently trading at about $48 a barrel” as well as “US oil production has increased to a record high in recent years as high prices made investment worthwhile” which was given earlier in that same story (at http://www.bbc.com/news/business-34219144), which is only a few hours old. Now consider one more quote that is only loosely related (one would think). The quote is “Techniques such as fracking have helped US producers offset the falling oil price by lowering investment and production costs“. Now let’s go over the motions (or is that emotions?).

When an investment is made, there is a tax write-off, that part has already happened! So those costs are ‘gone’ after that it is the return on investment which takes care of the costs and after that profit comes. This is simple economics. I get an income, I pay for the costs and I pay taxation.
Now what happens when I work at a loss? This happens. Let’s take the example. I have product X, it makes me a £1000. To get this I need to pay for equipment, which is bought and for the time of the loan this will cost me 300, in addition I need people (you know a non-mechanical labour force). Another 300 gone, leaving me with 400. The evil villain Taxman takes his share and the rest is mine. So let’s say I get to live of the remaining 360. So far it all remains simple. Now we learn that everybody has this setup, so now suddenly people are only willing to pay 500, which is an issue. People get payed, yet I have to share with the loan so I lose out largely, the bank loses out some and Taxman ‘you evil villain!’ you lose out completely (so it’s not all a loss).
This is how it should be. Now consider the equipment. Either the loan owner (or the investor) takes a dive (for now) as the timeline shifts, so there should not be a massive impact. Not to the degree we see. When you see all these oil articles have you noticed how we see these Jack pumps? We see the iconic devise in nearly every oil mention, so why the pump jack? If that was all it is, a 1925 invention would not be the cause of so much costings.
This is where the first crumb is left. Those connected state that it is no longer ‘profitable’ to get their money’s worth, which is part of the issue. I personally believe that the players have been engaged in an accountancy game for a very long time. In some cases there are of course long term loans, and yes any device needs maintenance and needs upgrades, yet the Pump Jack could run for almost a decade not getting any attention and the oil flows on. Now, we can agree that oil tends to be found in deeper regions, so the pump jack might not be enough. But the press never shows us that picture do they? Now when it comes to pumps, they need maintenance, sometimes not that much, sometimes the need for mechanics is a lot more pressing. Yet these people are not expensive, so even at $45 a barrel, 20 of them buys an engineer for a day and these places are doing a million barrels a day at times, so the money should remain ‘stellar’.

What if this is not just about the price? We know there are much more players in the field, but we all tend to forget that oil was always a finite commodity. It is like living on an island like Crete. Prices there fluctuate (I always loved Crete), but overall living there remains close to the same, even better, selling new houses remain at a reasonable high price. If you wonder how correct (or how wrong I am). Take for example the Bermuda’s an island near you. When you look over a longer timeframe, you will see that these places fluctuate like most places, but never to the extent the average price seem to fluctuate on main land. Take Hawaii, everyone is trying to own something there making prices spike. Now consider the fluctuations and how massive they are for oil. Here my first doubt grew. Yes, we all know that cars are more efficient, we know that spending is down, we know all that yet the overwhelming majority of the people need to get to work by car, by bus or by train. All of them require fuel, even the electricity made comes from power plants and not all of them are nuclear or coal based. Which gets us to bullet point point c.
other uses. For this we need to look at the Washington post (at http://www.washingtonpost.com/graphics/national/power-plants/), where we see that there is still a massive group of power plants fuelled by oil. Now, the fact that these are phasing out, because of pollution is a good thing, a great thing even, but for now many are not. In case of Hawaii, where 71% of electricity comes from oil run power plants, the statement from UHERO struck another issue. The Economic Research Organisation at the University of Hawaii stated at (http://www.uhero.hawaii.edu/news/view/273) “Electricity prices can be roughly boiled down to the price of oil, which is used to generate most of our electricity, plus price we pay for fixed costs like power plants, the grid and its management. These costs are fixed in the sense that they don’t vary with the amount of electricity generated and consumed. We have record high electricity prices because oil prices remain high“. Even though the page is from 2014, the collapse of the oil price should have been seen on many levels in Hawaii, but it is not (as far as I can tell), so why are prices pushed upwards and is the collapsed oil price is seen as an ‘evil’?
In my view this is all about the way the books have been kept from the very beginning. Whether I rely on some knowledge I gained from Schlumberger when I worked there in the past. Whether I go from some news article and some academic papers, my view remains largely the same, the numbers do not add up, they never did but until the oil price collapsed no one had a clue how far they were out of touch.

And now we get the final part in this. Another article by the New York Times. This one is also from Clifford Krauss and it was given light on August 19th 2015. The title ‘Oil Companies Sit on Hands at Auction for Leases‘ is part of what I think is only one facet in the entire debacle. The leases are worth gold and if the numbers as stated go on, than the leases are not kept. So is this to frighten the actual owners of the land to sell cheap? How many leases are up for renewal in the next 2 -3 years? More important, what if the owners state that non-renewal opts for other requirements? The quote “the fortunes of oil companies are skidding so fast that they now need to cut back on plans for production well into the future“, Now we add one more fact from Europe. Scottish energy news reported (actual date unknown) “After nearly 40 years of production, the Brent oilfield – which gave its name to the North Sea benchmark – is now mostly empty“. It is not the only one, not the first and most certainly not the last. We can state that no matter how ‘complex’ the decommissioning is, that this is one of the smaller fields (globally speaking). Even as it was only 10% of the UK oil production, an island with a mere 68 million consumers, the field is dry. So what about the other fields? Is this truly just about leases and demand dropping, or is this to maximise accountancy?

I prefer and I am largely wrong here in this instance, but consider the elements I mentioned up to now. I feel that I am correct ‘the numbers do not add up’, I just do not know why, because it is not simple economics. If that were try then the investments would have been paid off, the maintenance of rigs would remain, but the investment dollars would have been a massive ROI many years ago. So as we consider the image of ‘Oil pumping jacks and drilling pads at the Kern River Oil Field in Bakersfield, Calif‘ from the second Krauss article, we must wonder what the article (at http://www.nytimes.com/2015/08/20/business/oil-drillers-sit-on-hands-at-auction-for-leases.html) the quote “The continuing drop in oil prices and low natural gas prices obviously affect industry’s short-term investment decisions, but the gulf’s long-term value to the nation remains high“. Is that so, in my view, thee quote that directly follows “Offshore drilling, particularly in deep waters, is some of the most expensive exploration done by oil companies around the world. Nevertheless, since the 2010 BP Deepwater Horizon disaster that left 11 workers dead and soiled hundreds of miles of beaches, and the one-year drilling moratorium that followed, production in the gulf has flourished“. So even with the dangers to the environment, the mistakes made and the fact that there is such a surplus to it all deep water drilling, the fact that the investment is massively higher from other options, that part continues?

Is that not the big weird?

If there is so much space to work, why set up your fashion store in a nuclear reactor? Because it amounts to the same thing. You go where you can make your fortune in as comfortable a setting, with the lowest risk and the best returns. That part is a given, has been for decades. Only the accountants have a different view where the taxed benefit of having to buy radiation suits overrules the need for clean profit.

The numbers have not been adding up and only recently with the unusual drop in prices do we seem to wonder why.

The final quote to look at is “That surge will partly offset an expected decline in onshore production because oil companies have reduced their rig count on land by more than 60 percent since last year“. Why? if it is running, as the oil is coming up, it is just going on nodding like a horse’s head, filling up barrel by barrel as the mechanic sleeps until one stops working. You only decrease to this amount when the returns, the actual amount pumped starts to lower by too much.

Make the looks for yourself, try to do the math, it does not add up. In my view whatever formula you get given from anyone you must question (even those from me). The article gives a surplus of two million barrels a day from Iraq and Saudi Arabia, yet the processed goods keep on rising in price. What are we not being told? What are we not seeing?

I’ll let you decide on that part.