As US Energy Secretary Expresses "Great Concern" Due To High Oil Price, OPEC Oil Shipments Decline

Tyler Durden's picture

With the market now only capable of kneejerk headline reactions which end up being immediately priced in, in the pursuit of the mythical Russell 36,000, it completely ignores the actually important news (whose interpretation has not been programmed into the algos trading the S&P) such as input costs and their derivatives, which will inevitably crush margins and lead to the same market reaction as that seen in the summer-fall 2008 transition. And since leverage on all cash flow producing assets will be at the same level as US banks circa 2008, the result will be an even worse wipe out. It has gotten so bad that US Energy Secretary Steven Chu was dragged out of his office to present his version of the "irrational exuberance" speech so pervasively ignored by the stock market until it was proven to be the only sensible thing ever uttered by the maestro. At a news conference on clean energy, Steven Chu said on Thursday high oil prices posed a threat to the global economy. "The oil producer countries and the oil consuming countries are concerned because it does have an impact on a very fragile economic recovery. There is great concern," Chu told a news conference while attending a clean energy conference. "There's ongoing discussions ... I'm not going to go into any of the details of the discussions. There is a concern about trying to stabilize prices. There is a concern about rising prices," he said." There may be a concern, but according to the president there isn't really much that can be done about said prices. The best people can do is learn to cope. Especially since there is no chance that the commodity complex will be declining any time soon: to many today's ECB decision was a potential catalyst. And instead the market took one look at the number, listen for 2 minutes to Trichet's rambling remarks and bid everything up.

From Reuters:

Oil prices vaulted to their highest level since September 2008 this week, stoking concern among analysts and economists that the higher cost of fuel will crimp consumers' spending.

OPEC ministers, however, have said the organization cannot do anything to stop the rally as the market is already well supplied.

OPEC is not due to meet to discuss output policy until June, although Saudi Arabia has increased its own production to help compensate for the loss of Libyan oil exports amid fighting between rebels and forces loyal to leader Muammar Gaddafi.

Chu said he was aware that the Libyan rebels had been able to sell a cargo of crude oil but he did not have any details on the transaction.

"We know it has occurred. The United States is supportive of that sale and is supportive of the Libyan transitional government for that sale," he said.

Chu was in Abu Dhabi for the second Clean Energy conference along with ministers approximately two dozen other countries. Chu said the ministers made progress on international cooperation for the development of smart electricity grids, home appliance efficiency and electric vehicle deployment.

What is concerning is that according to Oil Movements, OPEC was set to ship 1.6% less oil in the 4-week period. Well, since prices have only been going up, obviously OPEC is not chasing a drop in demand. Instead, OPEC may have well reached the proverbial peak in production. Sure enough this does include the offline capacity from Libya, although that conflict is far from over. What is troubling is ongoing preponderance of free money in margin accounts: with the market topping at the 1,330 level, the only asset classes that continue to push ever higher is the energy space and of course, precious metals.

Expect to see even more buying of oil as speculators keep their mouth shut for fear of breaking the trade and end customers keep their mouth shut for fear of upsetting the status quo.

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Urban Redneck's picture

The deal with the Devil, Chairsatan, Yamani and the US 5th fleet.

 

Looking around the oil ZH commentary, there seem to be two prevailing thought divides- the existence of a grand conspiracy, and the impact of Peak Oil.

 

I don’t look around the industry commentary (Oil or Finance) for anything beyond facts, because everyone has either a legal obligation or profit motive to talk there own book, and the people on the other end of my speed dial answer the phone, which is frankly quicker than digging through crap in search of truth.

 

Looking around this thread there are 2 posts that jump out at me 1) a reference to Yamani’s public description of the grand oil bargain, and 2) this quote” We'd be better off leaving the oil in the ground for now, and extracting in 10 or so years when we get used to a world with a lot less”

 

There are some faint echoes of other transient activity such as petro dollars chasing EUR instead of USD.

 

All are pieces to the oil puzzle.

 

Fuck the disclosures it’s original (if recycled) thinking time-

Urban Redneck's picture

The Deal with Yamani

 

There are actually three parts to the Saudi bargain, which is with Saudi Arabia, and by extension the GCC, it is not with OPEC.  Anyone who tells you that an OPEC Minister’s first loyalty is to an OPEC TPTB conspiracy, and not his home country, has never met an OPEC Minister.  OPEC is not like the US Congress, a more apt analogy would be NATO.  Even internationalist douchebag-extraordinaire Wes Clark would never lead the French Foreign Legion troops in a siege of the White House.  The deal with Saudi Arabia was straight forward, but actually has three terms- the US gets a dependable supply of oil from an undependable neighborhood, but it has to pay for it, and it has to keep the riff-raff out.  Hence, the Battle of Kuwait, since (for the benefit of those with HFT-scale memory) at the time no one was sure  if Saddam was going to do an end-zone dance in Kuwait or keep running until he hit the Saudi spectators with end-zone tickets.    

Urban Redneck's picture

Chairsatan

 

The Bernank is a master paper pimp.  Unfortunately, Chairsatan is also an academic, whose primary business community interaction is with the banking community- which coincidentally also specializing in pimping paper.  To save the bankster brigades, and perhaps the global economy, from the 2008 ponzi scheme collapse, Chairsatan ran the FED printing presses to create more paper to keep the ponzi scheme alive.  Armed with a fresh supply of paper, the bankster brigade went looking for new paper to trade, on which they could record a paper profit, in order to pay themselves paper bonuses.  To oversimplify things slightly- the bankster brigade could not find anyone interested in the old toxic paper anymore, and the margins on Turbo Tax Timmy’s paper aren’t as good when they must compete with Chairsatan for business with his other client, Turbo Tax Timmy (who is coincidentally also a trustee for Uncle Sam’s other paper ponzi schemes).  So the new paper that the bankster brigade found to trade, to book paper profits, and pay paper bonuses, was stock paper and commodity paper.  And now both stock paper and commodity paper are rising while US$ paper is falling because of Chairsatan’s can’t/won’t unplug the printing press.

 

If either the bankster brigade or Chairsatan had to take delivery of a Suezmax load of oil or a 40’ ISO container load of iPads they would have no idea what to do.  Chairsatan’s evil cohort might even try to eat the iPads.     

Urban Redneck's picture

The Devil (as usual, is in the details)

 

Oil is a business.  The oil business is about pulling raw material out of the ground, transporting the raw material to a factory, adding value to the raw material, and transporting the finished product to a distributor or retailer.  If this is done successfully, a profit is generated which is then either retained (saved), invested back into the business, or distributed to the shareholders.

 

Oil is a BIG business.  The business generates BIG profits and cash flows, even though the margins are relatively small.  The cash flow model for an OPEC nation trading with the US is relatively straightforward.  Paper is received in exchange for Oil.  Some of the paper is invested back into the business to allow for future oil to be pulled out of the ground later and exchanged for paper.  The bulk of the paper is often used to finance government operations, as the IRS does in the US (but when the IRS doesn’t collect enough paper, then the treasury must borrow paper, by selling paper bonds to cover government operations). 

 

The remainder of the paper is either saved for a rainy day and for future generations benefit or it is invested in assets outside of the oil industry.  In Venezuela, the remainder of the paper is often traded for Russian arms.  In Saudi Arabia, the paper has often been invested into new industries (steel, construction, agriculture) to reduce the Kingdom’s reliance on spending paper to import things.  In some countries, that will remain nameless, the paper goes to line the pockets of despots, much to the consternation of the masses there.   In the “good old days” much of the remainder of the paper went into Turbo Tax Timmy’s paper (Uncle Sam’s Bonds).  However, beginning with Alan Greenspan’s first ZRIP, Turbo Tax Timmy’s paper started to become an unattractive form of paper.  Coincidentally, ZRIPs in the US tend to coincide with birth and explosion of Sovereign Wealth Funds in oil producing nations (SWFs often play the bankster brigade’s game of trading for stock paper and commodity paper).

 

Stepping back from paper and oil for a moment, a (long) while ago someone came up with the brilliant insight that one day we might run out of oil.  And the theory of PEAK OIL was born.  Perhaps, but oil is not paper, and oil is not susceptible the flash crashes.  “When the barrel gets low, the spigot runs slow.”  Oil wells have lives measures in years and decades.  In the interim, the producers have ironically adopted Chairsatan Sr.’s (Alan Greenspan) mantra of productivity gains, the mentally challenged, albeit richly rewarded by the evil Nobel PTB, US regulators have adopted the tree-huggers’ efficiency mantra, and as usual the bankster brigade is practicing the “outbid the competition” free market mantra, with a fresh supply of Chairsatan’s finest paper.

 

All three of the responses to either peak oil or rising prices have a common strategic assumption: that the spigot is in the FLOW position.  By choice or by force, this can be changed.  There is currently a fear premium priced into oil.  Either because of domestic uprising among the MENA State, or action by Iran in the Straight of Hormuz, the spigot can be turned OFF.  What no one on the consumption or bankster side of the trade wants to write about is a change from the FLOW to OFF position by the choice of producers.  There is precedence for this in the 1970’s oil embargo.  However, the current threat is not one of political differences resulting in an embargo, it is one of financial differences resulting producer conservation.  There are two drivers for this choice.  Ironically, the first is actually conservation- the OPEC model is to get as much oil out of the ground as quickly as possible and convert it to paper, the “excess” of which will be passed on to future generations.  The drivers for this choice can be Naturalist, Paternalist, Bankster, or Machiavellian, even indolence.  Regardless, what was once only very discretely discussed is becoming more acceptable conversation.  The other, albeit related, driver is entirely financial, as developing OPEC economies diversify their revenue streams, and as the excess paper profit of the oil revenue stream increases, the issue of where to put it becomes problematic. 

 

The options for placing significant excess paper have significantly diminished since the 2008 credit freeze.  Turbo Tax Timmy’s paper was ugly enough with Chairsatan Sr.’s  9/11 ZIRP, throw on Chairsatan Jr.’s TARP, POMO, & QE∞ and she’s now a two bagger.  The bankster brigade’s toxic paper still hasn’t found its half life while the underlying physical property still hasn’t found the basement.  The public equity game is as crowded as a three-digit gang bang, and P/E ratio of the starlet is still measured in paper.  Commodity paper is literally a circle-jerk for a commodity producer.  Even the comparatively poorly endowed Oracle of Omaha publically complains about the lack of paper opportunities for the measly cash flow from his little insurance syndicate. 

 

The ultimate twisted irony of the credit crisis may well be that the evil bankster brigade brings bout a tree hugger’s wet dream, resulting in mutually assured destruction as they are both woefully unprepared for the ensuing reality.

Urban Redneck's picture

The US 5th Fleet & the Nutjob Curveball (Ahmadnutjob)

recycled & reprinted with my own permission.

 

After our first Muslim president managed to piss off the Custodian of the Two Holy Mosques with the Mubarak fiasco (thereby eliminating the possibility that the Custodian of the Two Holy Mosques would cover the US's ass in Libya by supplying arms or relocating the Saudi Air Force's current Bomb the Locals & Rock the Casbah Tour from Yemen.  King Abdullah now has a Shiite problem (thanks to Barry's schitzo MENA policy/comedy routine), so does Abdullah's little buddy, King Khalifa.  King Khalifa's Shiite problem is located on some prime waterfront real estate right off the Iranian Shiite coast.  In fact, the Iranian naval base on the disputed island of Abu Musa is close enough for an MJ/Larry Bird free throw contest sponsored by the McDonald’s at the 5th fleet’s PX.  It is also strategically located such that it allows the Iranians to literally and figuratively assemble a circular firing squad for tanker targeting practice.  Per the US domestic/energy policy clusterfuck AND tree-hugging-circle jerk, King Abdullah now has a de facto carte blanche to implement some "final solution" to the Shiite problem on the Arabian peninsula, perhaps someone at State should have written a memo?  Right now Mahmoud Ahmadnutjob is going to get a close up view of a Shiite smack down, and it’s giving him a headache.  In response, he wants give the world a headache.  For this month’s migraine he sent part of his toy navy to the European bathtub.  The piss storm begins if the “Save Gaza” rubber duckies and Iranian toys happen to float over to the Israeli sovereign territorial water side of the tub.  Since Ahmadnutjob has been so insistent on building excess reserves of radioactive crap (if he had just waited he could have picked up a lifetime supply on the cheap from TEPCO), on top of his already guaranteed supply for civilian power from the Russians, the Israelis have one of those existential quandary things.  It wouldn’t really matter who fires the opening volley, since the return volley is likely to come from the other bathtub- the Persian Gulf, where the US 5th fleet are hostages in the line of fire.  A US retreat beyond the Straight of Hormuz, or a Suezmax sinking there would double oil prices faster than you could get a backup Suezmax to the US to offload a cargo of Yamani’s boss Abdullah’s New Deal (see rich & spoiled US strategically screwed above for further info).

goldinpenguin's picture

these talking heads are lying thru their slimy green teeth when they say $4 gas won't impact the recovery - unless they mean there's no recovery anyway!

 

Or maybe their other hedhe "as long as it's not long lasting"...$4 gas won't be long lasting because it's sprinting to $5 gas, and with

 

and that will be the Fed hedge when inflation gets too big to ignore "unimaginable infltionary effects from political discord in the iddle east"all the food & commodities in it's wake