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We Live In A New World And The Saudis Are The First To Get It
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
There are many things I don’t understand these days, and some are undoubtedly due to the limits of my brain power. But at the same time some are not. I’m the kind of person who can no longer believe that anyone would get excited over a 5% American GDP growth number. Not even with any other details thrown in, just simply a print like that. It’s so completely out of left field and out of proportion that you would think by now at least a few more people understand what’s really going on.
And Tyler Durden breaks it down well enough in Here Is The Reason For The “Surge” In Q3 GDP (delayed health-care spending stats make up for 2/3 of the 5%), but still. I would have hoped that more Americans had clued in to the nonsense that has been behind such numbers for many years now. The US has been buying whatever growth politicians can squeeze out of the data and their manipulation, for many years. The entire world has.
The 5% stat is portrayed as being due to increased consumer spending. But most of that is health-care related. And economies don’t grow because people increase spending on not being sick and/or miserable. That’s just an accounting trick. The economy doesn’t get better if we all drive our cars into a tree, even if GDP numbers would say otherwise.
All the MSM headlines about consumer confidence and comfort and all that, it doesn’t square with the 43 million US citizens condemned to living on food stamps. I remember Halloween spending (I know, that’s Q4) was down an atrocious -11%, but the Q3 GDP print was +5%? Why would anyone volunteer to believe that? Do they all feel so bad any sliver of ‘good news’ helps? Are we really that desperate?
We already saw the other day that Texas is ramming its way right into a recession, and North Dakota is not far behind (training to be a driller is not great career choice going forward), and T. Boone Pickens of all people confirmed today at CNBC what we already knew: the number of oil rigs in the US is about to do a Wile E. cliff act. And oil prices fall because global demand is down, as much as because supply is up. A crucial point that few seem to grasp; the Saudis do though. Good for US GDP, you say?
What I see more than anything in the 5% print is a set-up for a Fed rate hike, through a variation on the completion backward principle, i.e. have the message fit the purpose, set up a narrative that makes it make total sense for Yellen to hike that rate. And Wall Street banks (that’s not just the American ones) will be ready to reap the rewards of the ensuing chaos.
And I also don’t understand why nobody seems to understand what Saudi Arabia and OPEC have consistently been saying for ever now. They’re not going to cut their oil production. Not going to happen. The Saudis, probably more than anyone, are the guys who know what demand is really like out there (they see it and track it on a daily basis), and that’s why they’ll let oil drop as far as it will go. There’s no other way out anymore, no use calling a bottom anywhere.
In the two largest markets, US demand is down through far less miles driven for a number of years now, while domestic supply is way up; at the same time, real Chinese demand is way below what anybody projects, and oil is just one of many industries that have set their – corporate – strategies to fit expected China growth numbers that never materialized. Just you watch what other – industrial – commodities fields are going to do and show in 2015. Or simply look at prices for iron ore, copper etc. today.
OPEC Leader Vows Not To Cut Oil Output Even If Price Hits $20
In an unusually frank interview, Ali al-Naimi, the Saudi oil minister, tore up OPEC’s traditional strategy of keeping prices high by limiting oil output and replaced it with a new policy of defending the cartel’s market share at all costs. “It is not in the interest of OPEC producers to cut their production, whatever the price is,” he told the Middle East Economic Survey. “Whether it goes down to $20, $40, $50, $60, it is irrelevant.” He said the world may never see $100 a barrel oil again.
The comments, from a man who is often described as the most influential figure in the energy industry, marked the first time that Mr Naimi has explained the strategy shift in detail. They represent a “fundamental change” in OPEC policy that is more far-reaching than any seen since the 1970s, said Jamie Webster, oil analyst at IHS Energy. “We have entered a scary time for the oil market and for the next several years we are going to be dealing with a lot of volatility,” he said. “Just about everything will be touched by this.”
Saudi Arabia is desperate alright, but not nearly as much as most other producers: they have seen this coming, they’ve been tracking it hour by hour, and then made their move. And they have some room to move yet. Many other producers don’t. Not inside OPEC, and certainly not outside of it. Russia should be relatively okay, they’re smart enough to see these things coming too, and adapt accordingly. Many other nations don’t and haven’t, perhaps simply because they have no room left. Anatole Kaletsky makes quite a bit of sense at Reuters:
The Reason Oil Could Drop As Low As $20 Per Barrel
… the global oil market will move toward normal competitive conditions in which prices are set by the marginal production costs, rather than Saudi or OPEC monopoly power. This may seem like a far-fetched scenario, but it is more or less how the oil market worked for two decades from 1986 to 2004.
Whichever outcome finally puts a floor under prices, we can be confident that the process will take a long time to unfold. It is inconceivable that just a few months of falling prices will be enough time for the Saudis to either break the Iranian-Russian axis or reverse the growth of shale oil production in the United States. It is equally inconceivable that the oil market could quickly transition from OPEC domination to a normal competitive one.
The many bullish oil investors who still expect prices to rebound quickly to their pre-slump trading range are likely to be disappointed. The best that oil bulls can hope for is that a new, and substantially lower, trading range may be established as the multi-year battles over Middle East dominance and oil-market share play out. The key question is whether the present price of around $55 will prove closer to the floor or the ceiling of this new range. [..]
… the demarcation line between the monopolistic and competitive regimes at a little below $50 a barrel seems a reasonable estimate of where one boundary of the new long-term trading range might end up. But will $50 be a floor or a ceiling for the oil price in the years ahead?
There are several reasons to expect a new trading range as low as $20 to $50, as in the period from 1986 to 2004. Technological and environmental pressures are reducing long-term oil demand and threatening to turn much of the high-cost oil outside the Middle East into a “stranded asset” similar to the earth’s vast unwanted coal reserves. [..]
The U.S. shale revolution is perhaps the strongest argument for a return to competitive pricing instead of the OPEC-dominated monopoly regimes of 1974-85 and 2005-14. Although shale oil is relatively costly, production can be turned on and off much more easily – and cheaply – than from conventional oilfields. This means that shale prospectors should now be the “swing producers” in global oil markets instead of the Saudis.
In a truly competitive market, the Saudis and other low-cost producers would always be pumping at maximum output, while shale shuts off when demand is weak and ramps up when demand is strong. This competitive logic suggests that marginal costs of U.S. shale oil, generally estimated at $40 to $50, should in the future be a ceiling for global oil prices, not a floor.
As Kaletsky also suggests, there is the option of a return to an OPEC monopoly and much higher prices, but I personally don’t see that. It would need to mean a return to prolific global economic growth numbers, and I simply can’t see where that would come from.
Meanwhile, there’s the issue of ‘anti-Putin’ sanctions hurting western companies, with an asset swap between Gazprom and German chemical giant BASF that went south, and a failed deal between Morgan Stanley and Rosneft as just two examples, and that leads me to think pressure to lift or ease these sanctions will rise considerably in 2015. Why Angela Merkel is so set on punishing her (former?) friend Putin, I don’t know, but I can’t see how she can ignore domestic corporate pressure to wind down much longer. Russia is part of the global economic system, and excluding it – on flimsy charges to boot – is damaging for Germany and the rest of Europe.
Finally, still on the topic of oil and gas, Wolf Richter provides another excellent analysis and breakdown of US shale.
First Oil, Now US Natural Gas Plunges off the Chart
It’s showing up everywhere. Take Samson Resources. As is typical in that space, there is a Wall Street angle to it. One of the largest closely-held exploration and production companies, Samson was acquired for $7.2 billion in 2011 by private-equity firms KKR, Itochu Corp., Crestview Partners, and NGP Energy Capital Management. They ponied up $4.1 billion. For the rest of the acquisition costs, they loaded up the company with $3.6 billion in new debt. In addition to the interest expense on this debt, Samson is paying “management fees” to these PE firms, starting at $20 million per year and increasing by 5% every year.
KKR is famous for leading the largest LBO in history in 2007 at the cusp of the Financial Crisis. The buyout of a Texas utility, now called Energy Future Holdings Corp., was a bet that NG prices would rise forevermore, thus giving the coal-focused utility a leg up. But NG prices soon collapsed. And in April 2014, the company filed for bankruptcy. Now KKR is stuck with Samson. Being focused on NG, the company is another bet that NG prices would rise forevermore. But in 2011, they went on to collapse further. In 2014 through September, the company lost $471 million, the Wall Street Journal reported, bringing the total loss since acquisition to over $3 billion. This is what happens when the cost of production exceeds the price of NG for years.
Samson has used up almost all of its available credit. In order to stay afloat a while longer, it is selling off a good part of its oil-and-gas fields in Oklahoma, North Dakota, Wyoming, and Colorado. It’s shedding workers. Production will decline with the asset sales – the reverse of what investors in its bonds had been promised. Samson’s junk bonds have been eviscerated. In early August, the $2.25 billion of 9.75% bonds due in 2020 still traded at 103.5 cents on the dollar. By December 1, they were down to 56 cents on the dollar. Now they trade for 43.5 cents on the dollar. They’d plunged 58% in four months.
The collapse of oil and gas prices hasn’t rubbed off on the enthusiasm that PE firms portray in order to attract new money from pension funds and the like. “We see this as a real opportunity,” explained KKR co-founder Henry Kravis at a conference in November. KKR, Apollo Global Management, Carlyle, Warburg Pincus, Blackstone and many other PE firms traipsed all over the oil patch, buying or investing in E&P companies, stripping out whatever equity was in them, and loading them up with piles of what was not long ago very cheap junk bonds and even more toxic leveraged loans.This is how Wall Street fired up the fracking boom.
PE firms gathered over $100 billion in their energy funds since 2011. The nine publicly traded E&P companies that represent the largest holdings have cost PE firms at least $12.7 billion, the Wall Street Journal figured. This doesn’t include their losses on the smaller holdings. Nor does it include losses from companies like Samson that are not publicly traded. And it doesn’t include losses pocketed by bondholders and leveraged loan holders or all the millions of stockholders out there.
Undeterred, Blackstone is raising its second energy-focused fund; it has a $4.5 billion target, Bloomberg reported. The plunge in oil and gas prices “has not created a lot of difficulties for us,” CEO Schwarzman explained at a conference on December 10. KKR’s Kravis said at the same conference that he welcomed the collapse as an opportunity. Carlyle co-CEO Rubenstein expected the next 5 to 10 years to be “one of the greatest times” to invest in the oil patch.
The problem? “If you have an asset you already own, it’s probably going to go down in value,” Rubenstein admitted. But if you’ve got money to invest, in Carlyle’s case about $7 billion, “it’s a great time to buy.” They all agree: opportunities will be bountiful for those folks who refused to believe the hype about fracking over the past few years and who haven’t sunk their money into energy companies. Or those who got out in time.
We live in a new world, and the Saudis are either the only or the first ones to understand that. Because they are so early to notice, and adapt, I would expect them to come out relatively well. But I would fear for many of the others. And that includes a real fear of pretty extreme reactions, and violence, in quite a few oil-producing nations that have kept a lid on their potential domestic unrest to date. It would also include a lot of ugliness in the US shale patch, with a great loss of jobs (something it will have in common with North Sea oil, among others), but perhaps even more with profound mayhem for many investors in US energy. And then we’re right back to your pension plans.
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NG has nothing like the energy density of oil, nor can anything much else be obtained from it, aside from fertilizers for instance, and certainly not distillate (deisel), lubricating oils and a vast array of plastics.
It is only because NG is cheap that it is worth using in cars, because it is less efficient than gasolene.
Only Zero Hedgers intuitively understand that paying a higher price (at the pump or elsewhere) is better than paying a lower price.
After all, wasn't that what the Industrial Revolution was all about? Efficiencies gained through time, effort, experience and mechanization drove prices UP, not DOWN. It's the demented Zero Hedge way.
God Bless each of you and your families during this holiday season.
Your last line I agree with and in the spirit of Christmas I want you to know that any adverse comment I have made about your comments is only by way of discourse and not against you as a human being.
Really....the Saudi's are so brilliant? That is a thesis I haven't heard before. I guess their spaceship rockets, and advanced high tech gear they invent are indicative of their high IQ's. Maybe all the brilliant chess players and Fields medal prize mathematicians they produce are indicative of their native brilliance. The high energy output of their people to win Olympic medals is a very stunning accomplishment.
The Saudi's are part of the Washington/Zionist/Banking elites. They do what they are told, or the U.S. military will run them over like popping a pimple. It's simple really, they like to Eat and they cannot eat oil. Saudi Arabia has lots of Sand, and Aramco and western guidance developed the country. If not for their oil they would still be riding Camels and having tribal war.
Oil must get to markets and it must be at a price that is sustainable. Long before the Wahabbi Saudi's there was Standard Oil cartelizing and holding prices high.
Oil also only goes to TRANSPORTATION sectors. Economies can adapt to trains that run on electricity, or cars that use electricity. Nuclear power plants can be developed to make ELECTRICITY.
Oil makes diesel and gas and other useful products like plastics and medicine. These sectors are affected by oil. There are more than one kind of energy and an economy can adapt.
Natural Gas is more and more useful for making surge power for ELECTRICITY. A baseband amount of power from Nuclear, and then surge from Natural Gas powered Jet Turbines allows for a complete grid.
Natural Gas needs pipelines, hence the pipeline war as part of WW3.
Just keeping it real. Sometimes the truth mailed home is painful. Let's stop delluding ourselves with fantasies please.
Thank you sir !!
Actually, understanding that I 'won the lottery' because I happen to sit on top of a resource that, more than 100 future years of the worlds fastest developing economies would be falling all over themselves to procure. And, negotiating a payment for that that would allow me & my next half dozen generation of offspring to have so much money that we could drink Dom, jet around the globe, own the biggest yachts, breed racehorses, & have Ukranian hookers snort lines of coke off our dicks ~ well, I guess that is a unique form of INTELLIGENCE in of itself.
Contrast that to Native Americans (when the dudes with guns came a knockin'). Fucking all they got was poorly distilled firewater and fences.
one story goes King Saud wanted no foreigners in Meccaland. reluctantly, he allowed some drillers in....to look for H20.
prob was they kept finding that damn undrinkable black stuff. another goes after Philby F&#ked his brethren and SOCAL
won the concesson, Chief Eng Steineke at Dammam No. 7 came up dry after three years...and was told to pack it up and return to SOCAL.
against orders he told his men to keep drilling and the rest is history. the point is the only things the
Saudi's know is their self interest. that interest lies w/ the good ole USofA. end of story
Arrest Prince Bandar, Dick Cheney and Donald Rumsfeld for treason. There is no NWO and their crimes deserve death by people that hold to justice for all.
So ignore the bankers...
Nothing in the article sounds unreasonable to me, though I make no claims of expertise. The statement I take some issue with is this: "What I see more than anything in the 5% print is a set-up for a Fed rate hike."
I keep seeing this statement or something similar, not just here but all around the web. And I just don't buy it. How can the Fed raise rates when doing so will result in nearly instantaneous inability of the US Government to make interest payments on its debt? Am I incorrect in this conclusion? If someone can explain why I'm wrong on this, I'd appreciate it.
No, you are right. If they have to borrow more $$ just to pay the vig, we are in deep shit.
I think it's 40 cents on the dollar borrowed now.
Thanks for this explanation, as well as your answer to my question about PMs, earlier in the middle class story.
Guys around me keep telling me to "expect the Fed to raise rates in 2015." All I could think was, "how will they service the debt if they do?"
But I'm far from knowledgable and so was afraid to say...
And that points out why this article never quite gets to the meat... Apparently the Saudis know something: the next great depression is about to hit apparently.. The guy above is the brave one for announcing the emperor has no clothes. The entire thing is misdirection, to where I don't know but smells like shit..
Squeezed OPEC nations should take out a hit on SA's Al Naimi.
Then follow it up with another on Merkel
cash is king
Another crap article. " a lot of ugliness in the US shale patch, with a great loss of jobs" those people will find other jobs or collect unemployment checks. They've done it before, many times. The ugliness is starting in and around the big cities and has nothing to do with oil.
Are you kidding me? You think these petrol engineers and wildcatters making big bucks are gonna replace those good paying jobs with what?
Working the graveyard shift a Denny's?
North Dakota and Montana have two of the lowest unemployment rates in the nation. The state coffers are flush. Now they will be going back to their usual thin gruel state budgets when they thought the good times will last forever
Obama's hubris on his morning in AMerica shuck and jive will be exposed as fraudulent when the energy jobs wither away and all he has to show for his two terms is shitty dead end McJobs where people will be further bankrupted by having to pay their Obamacare nut on top of it all
Obama the Inequality President
He is saying they are not going to riot and revolt.
So what happens to Uncle Warren's oil trains from the Dakotas?
I liked how that article started off with the humble disclaimer that:
"There are many things I don’t understand these days, and some are undoubtedly due to the limits of my brain power."
I may say something similar, before I nevertheless jump into the deep end of speculations about why these phenomena are manifesting.
All natural resources, including even petroleum, are secondary to those being controlled by the monetary systems, which are manifestations of ENFORCED FRAUDS, that are whipsawing more and more people, worse and worse, as we watch! The supply of oil does not jump up and down 50% during several years, rather, the supply of "money" may do that, because that "money" is based on the ability to back up lies with violence, within human society, so that "money" can be made out of nothing, and disappear back to nothing, as debts do.
An expert no less that T. Boone Pickens recently asserted that there was a basic decrease in demand for oil, which is the primary factor behind making it possible for people whose hands are on the levers of geopolitical strategies to pull them, in order to trigger events to happen, which were mostly made possible by much larger factors, acting over longer periods of time, similar to how an individual holding a gun can pull its trigger, but making that gun and its ammunition was taking way more time and effort to do!
http://www.zerohedge.com/news/2014-12-23/t-boone-pickens-rages-cnbc-i-am-expert-not-you-says-oil-down-due-weak-demand
T. Boone Pickens Rages On CNBC: "I Am The Expert, Not You", Says Oil Down Due To "Weak Demand"
Web sites like Our Finite World, Doomstead Diner, or Economic Undertow, have been talking about those deeper trends stated in the video embedded in the article linked above, in ways that were relatively consistent and clearly presented for at least a couple of years.
Due to the fundamental facts regarding the destruction of the demand for oil, because fewer people have enough "money" to pay for it, that situation has also enabled some geopolitical strategies at higher levels, which appear designed to harm Russia, etc., which strategies are being devised by the banksters and their buddies, who do not care how much longer term damage that may do to the marginal oil extraction industries in the USA, or elsewhere, nor care much about any longer term consequences following through from wildly manipulating the price of oil up and down, like a demented yo-yo.
The ability of private banks to make the public "money" supply out of nothing as debts, wherein that kind of "money" can also disappear back to nothing, seems OBJECTIVELY INSANE, because that system of ENFORCED FRAUDS was the result of the successful application of the methods of organized crime to the political processes, in order to result in systems of legalized lies, backed by legalized violence, whose BASIC ABSURDITIES are that they appear to get away with deliberately ignoring the laws of nature, since the ONLY CONNECTION between human laws and natural laws is the ability to back up lies with violence.
Therefore, the "money" supply seems to be made out of nothing and can disappear back to nothing, in ways which at first glance violate the most basic laws of nature, such as the conservation of matter and energy, and momentum, etc. ... Of course, that system of ENFORCED FRAUD does not actually violate the laws of nature, but only appears so, to the degree that those are ENFORCED FRAUDS. But nevertheless, those ENFORCED FRAUDS totally dominate our political economy, and therefore, should always be the central concerns during any analysis regarding the prices or costs of goods or services.
"Demand destruction" is likely to become wilder and wilder oscillations, which will eventually result in destruction of the lives of the majority of people. The so-called "financialization" of all economic activities, which is actually the result of triumphant frauds, makes its fundamentally fraudulent financial accounting systems warp everything, in ways which oscillate more wildly, which often appear to be PROFOUNDLY PARADOXICAL, because those oscillations are due to ways that civilization is controlled by systems of ENFORCED FRAUDS.
In that context, one can confidently count on society approaching times of PEAK INSANITIES. Controlling civilization through systems of ENFORCED FRAUDS, which tend to deliberately ignore and distort the basic laws of nature, because those systems ONLY CONNECT human laws to natural laws through the ability to back up lies with violence, drive the political economy to behave in ways which automatically become more criminally insane, faster ... In my view, it is vital to understand the profound degree to which that problem goes as deep as one can possible look down its "rabbit hole," where the lies are different at every level. Note only are the problems presented to the public in ways which tend to be backwards, the "solutions" tend to also be presented as backwards too.
An ouroboros of incorporated robbery, through ENFORCED FRAUDS, is quite paradoxical to follow through its twists and turns. There IS a real connection between natural laws and human laws, which IS the ability to back up lies with violence. However, there are no other functional connections, and therefore, understanding that situation is to encounter a hyper-complicated system of feedback loops, most of which are deliberately ignored by most people.
Ultimately, everything eats everything else. There are toroidal vortices nested inside of other toroidal vortices, and they are built by infinite loops through the environment. Human systems are entropic pumps of energy through the environment. However, the ways that those actually work are through systems of lies backed by violence, which is fundamentally the way that it must be, but which also includes the ways that the people doing that engage in the maximum possible deceits and frauds while doing that. Therefore, not only ARE human systems organized lies operating robberies, but they MUST BE! Hence, money is measurement backed by murder, while that situation is deliberately denied and ignored by people to the maximum degree possible. Those ENFORCED FRAUDS that made "money" out of nothing "paid" for strip-mining the Earth's natural resources. That was all done by people who were socially successful by being the best professional liars and immaculate hypocrites that they could possibly be. The system that they made and maintained can manipulate the prices of anything, including oil, to degrees that are ASTONISHING ABSURD, because the fundamentals are ENFORCED FRAUDS.
The situation we are looking at is that the debt controls were backed up by the death controls. The runaway debt slavery systems have generated numbers which have become debt insanities, which are manifesting as "demand destruction," which is headed towards provoking unprecedented levels of death insanities. The primary reasons for that are that the established systems are unable to face the facts about themselves, since those facts are that they are based on ENFORCED FRAUDS. Furthermore, the major secondary reason for that is that the controlled opposition groups who pretend to be against the established systems tend to also think inside the box of the same frame of reference of those ENFORCED FRAUDS.
When I listened to Pickens in that embedded video above, I heard him as saying that "Peak Oil" was an overall physically real phenomenon, while the mainstream media moronic talking head did not understand, because those kinds of talking heads do not want to understand, the more objectively real situations. Those more objectively real situations are how human civilization has operated as an entropic pump of energy within its environment, which developed its history to do that through the maximum possible deceits and frauds, because that was what was actually internally consistent with human civilization operating as an entropic energy pump.
The industrial revolutions have enabled the strip-mining of the planet's natural resources, through a fundamentally fraudulent financial accounting systems, which was never based on anything more that the series of short-term increments of being able to back up lies with violence, which were simultaneously able to deliberately ignore the longer term consequences from doing that, since the profits were being privatized, while the losses were been socialized.
There continues to be a growing grand canyon chasm between human beings understanding general energy systems better and better, while deliberately NOT applying that to them understanding themselves. The reasons are relatively obvious, that human realities were the dynamic equilibria of different systems of organized lies operating robberies, in which context, the most socially successful were the best professional liars and hypocrites, whose lies were best backed up with destruction done through deceits and treacheries.
It is theoretically possible for human beings to understand themselves in ways which could be better reconciled with understanding the energy flows through industrial and natural systems. However, in practice that would require addressing the ways that human laws ONLY CONNECTED to natural laws through the abilities to back up lies with violence, which is how and why we ended up with fundamentally fraudulent financial accounting systems, wherein "money" could appear out of nothing, and disappear back to nothing, in ways which completely contradicted the basic laws of nature, which enables rigged markets to drive the prices of things up and down, because the source of the money itself was systems of ENFORCED FRAUDS.
As we rush at an exponentially accelerating rate towards the limits of diminishing returns from being able to strip-mine the Earth's natural resources, the first places that shows up are inside of the financial systems based on those ENFORCED FRAUDS. The results of those wild oscillations in the relative social successes due to being able to back up lies with violence, in order to keep the "financialization" going, are manifesting as "demand destruction." However, those wild oscillations have only started ... one must expect much worse oscillations, getting much wilder, in the foreseeable future, because the basic trends are that those systems of ENFORCED FRAUDS are headed towards psychotic breakdowns, as we approach some times of PEAK INSANITIES, which will be the main manifestation of trends towards Peak Everything Else.
There is NOT going to be linear phenomena in the ways that the ouroboros of incorporated robberies work themselves through. Rather, we are looking at the hyper-complicated developments of the feedback loops of ENFORCED FRAUDS becoming more psychotically detached from the relatively objective physical, biological and social facts. Theoretically speaking, human beings ought to be understanding natural selection better, in order to improve their cultural systems of artificial selection. However, the main obstacles in the way of doing that are that when one understands human systems as manifestations of general energy systems, then one discovers how and why human civilization operates as fractal patterns of the development of the principles and methods of organized crime, in which context governments are the biggest form of organized crime, controlled by the best organized gangs of criminals, which includes all of the countries, corporations and churches which have any degree of social significance.
The basic realities are that human beings NECESSARILY are systems of organized lies operating robberies. Human beings have always operated as robbers in their environment. Progress in science and technology have enabled the industrial revolutions to develop those to become the current systems of globalized electronic monkey money, backed by the threat of force of apes with atomic bombs. Militarism was the supreme ideology, while economics was a subset of militarism. That manifested through the combined murder/money systems, operating as ENFORCED FRAUDS. It was not an accident that the philosophy of science ended up making some enormous errors, such as when an arbitrary minus sign was inserted into the entropy equations of thermodynamics and information theory.
The development of petroleum resources was matched by the development of thermodynamics, in order to understand how heat engines worked. As science progressed, it was discovered that power and information are literally on a continuum, and the same entropy equation regarding power from petroleum, etc., also works through the flow of information, as another form of energy. HOWEVER, that was all deliberately misunderstood in ways which were inverted and perverted, because of the ways that the biggest bullies' bullshit dominated all social enterprises, including the history of science.
The harnessing of the previously inanimate energy sources in petroleum enabled civilization to use orders of magnitude more energy than previously. However, that all continued to be primarily done through the development of systems of ENFORCED FRAUDS, or through systems of legalized lies, backed by legalized violence, which, of course, deliberately ignored and denied those basic facts about themselves. Therefore, wars for the control over oil resources were one of the main themes of the 20th Century, and relative success through those wars enabled the American Dollar to become the global reserve currency, as basically a system of ENFORCED FRAUDS. Saudi Arabia, as the country with the most cheap oil, ended up being most integrated into the American petrodollar system, with the most to gain or lose from the ways that their oil resources were transformed into investment through those systems. In order words, Saudi Arabia' government has a great vested interest in also maintaining the international banksters' systems of ENFORCED FRAUDS being able to continue to dominate the global economy.
I do NOT agree that "We live in a new world, and the Saudis are either the only or the first ones to understand that." Rather, the Saudis are continuing to decide to cooperate with the international banksters, whose modus operandi was summarized in this 10 minute audio rant: Energy & Banking Criminal Racketeering
(I point out that it is not unusual for the Saudis to simultaneously believe in old-fashioned religions, and have an agenda related to that, because the banksters also tend to believe in some of the most old-fashioned religions, and have their agenda also influenced by that too.)
Since the political economy is controlled by ENFORCED FRAUDS, whereby the production of destruction controls production, there can be wild oscillations in the public "money" supply, since that can be made out of nothing, and disappear back to nothing, while that hyper-complicated ouroboros of incorporated robberies has an abundance of counter-intuitive manifestations, since the ability to back up lies with violence never stops those lies from being false, but nevertheless, those lies can continue to be socially successful, despite that they are false.
That situation is behind the paradoxical ways that "demand destruction" manifests, which wild oscillations will tend to be misunderstood by mainstream morons, as well as reactionary revolutionaries, who do not face the fundamental facts that money is measurement backed by murder. That is the context in which the measurement of petroleum takes place, which is how and why those measurements are ENFORCED FRAUDS, which can swing so wildly, from one absurd extreme to the other, so that the price of oil can go up and down by 50% during the course of several years, while the overall supply of oil on barely decreased during the same time.
The basic world economy is based on ENFORCED FRAUDS, which have leveraged up and UP everything by orders of magnitude of MADNESS, due to them being based on MAD Money As Debt, backed by MAD Mutual Assured Destruction. Thereby, the grand canyon chasms are growing wider and wilder, between progress in physical sciences, without anything comparable to that taking place in political sciences. Overall, we have not seen anything yet, because running into the limits of diminish returns from strip-mining the planet is only barely beginning to become significant, while its paradoxical effects through the ouroboros of incorporated robberies is being leveraged up and UP by orders of magnitude, due to the political economy being based on systems of ENFORCED FRAUDS, which are inherently unstable. However, since almost nobody is able and willing to face the fundamental facts that money is measurement backed by murder, therefore, we can not imagine developing any better human understandings of themselves. Instead, the degree of social success based on ENFORCED FRAUDS is driving society towards those debt insanities provoking death insanities. Along the way, events like "demand destruction," can drive the price of oil through crazy loops, which end up making things much worse overall. The banksters and their buddies, which now include the ruling classes of countries like Saudi Arabia, have become criminally insane overall, but they still have the greatest means to do even more of what they believe is in their interests, in order to attempt to keep the globalized systems of ENFORCED FRAUDS going ...
The bottom line has always been that, after there is life, then the death controls are the central features of the evolutionary ecology of that life. Those central facts regarding natural selection pressures also have applied through the systems of artificial selection that human beings have developed. The history of oil continues to demonstrate that, with the banksters' systems of ENFORCED FRAUDS dominating the development of petroleum resources, in ways which were overall criminally insane, but which could not be prevented, since human civilizations were always operating as systems of lies backed by violence.
In order to apply a more scientific understanding through politics, one has to come to terms with the ways that the history of warfare developed to become most successful when based on deceits and treacheries, which then, in turn, was the foundation for the kind of political economy that operates through ENFORCED FRAUDS. However, such a deeper understanding can not continue use false fundamental dichotomies, which then proposes bogus "solutions" based on impossible ideals. Rather, the opposite is the case.
Only that which actually exists can actually evolve. What actually exists is an ouroboros of incorporated robberies which is the dynamic equilibria of different systems of organized lies operating robberies, the most important of which developed throughout the 19th and 20th Centuries, into the 21st Century, to be built on extracting petroleum resources. However, during that time, we also saw the basic concepts of heat engines operating through the principles of thermodynamics be extrapolated through development of the capacities of things like electronics and atomic energy.
Throughout that time, the basic errors in the concept of entropy kept on getting bigger and BIGGER in their social consequences, such as that we now have globalized systems of electronic monkey money, backed by apes with atomic bombs. That is the context in which people are fighting over what are, for the first time in human history, the relatively dwindling stock of petroleum resources. Paradoxically, due the quite crazy nature of the ENFORCED FRAUDS that the banksters built on top of oil, etc., those events are driving "demand destruction" for large numbers of people, which effects are being leveraged up and UP, by the nonlinear feedback loops in the established ouroboros of incorporated robberies!
I advocate intellectual scientific revolutions in our basic philosophy, which then apply to political science in general, and to the combined money/murder systems in particular. A reason I amuse myself posting my kind of comments on Zero Hedge is that there is a much higher proportion of the readers here that already know about the degree to which the monetary system is an ENFORCED FRAUD. In that context, I am endeavouring to provide a more consistent theoretical framework within which to better understand those important facts, that our public "money" supply is made out of nothing by privately controlled banks!
I REPEAT THE MOST IMPORTANT POINT:
ENFORCED FRAUDS totally dominate our political economy, and therefore, should always be the CENTRAL CONCERNS during any analysis regarding the prices or costs of goods or services, especially including how the supply and demand for petroleum can be manipulated!
So basically... "Markets are Rigged ~ Deal with it"
Indeed, Ahoy Polloi!
However, the rigging of markets has been getting worse, faster, at pretty well a perfect match to exponential growth curves. That is particularly clear when looking at the total debts in the USA, since 1971, when the last links of the American Dollar to the limits of the conservation of matter in the form of gold were severed, enabling pure fiat money made out of nothing as debts to become psychotically disconnected from the physical world, as that "money" became more and more electronic (where that could be speculated with in a sort of financial virtual world), while nevertheless, that "money" continued to be backed up by transforming into the petrodollar, in which the American Dollar was implicitly backed up by the American Military. That included how the CIA would overthrow any government that challenged that regime, where "money" made out of nothing as debts could control the oil extracted out of the ground. Basically, the three stages of the economic hit men at work, making money be measurement of oil backed by murder.
SINCE THE MARKETS WERE GETTING RIGGED MORE AND MORE, AT AN EXPONENTIALLY INCREASING RATE, TO "DEAL WITH IT" CONSTANTLY BECAME HARDER AND HARDER TO DO!
That has become more obvious since the financial crises of 2008, and so, more people have begun to notice, due to how blatant that is becoming ... There were always systems of legalized lies, backed by legalized violence, or ENFORCED FRAUDS! However, since there is a double whammy of that debt slavery system generating numbers which have become debt insanities, at the same time as we are running into real limits of diminishing returns from being able to strip-mine the planet's natural resources, our civilization is miserably FAILING to "Deal with it!"
TLDR!
Makes no sense for the Saudi's to crater price per bbl if Peak Oil is real, because they lose money.
If PO were real, and it clearly is not, then the KSA would elevate the price of oil to maximise revenue, as there won't BE any revenue in a few years, rather than market share, because the House of Saud and Wahabis need that income for many reasons.
So Peakers were wrong, no surprise.
This looks more like a global Depression with cratering demand for energy on a global scale.
Saudis are going for market share, this market will last for decades, they know the most secret number of all - how many years can they pump - and they are going for market share, not revenue, to keep their share of the business.
One would assume that there are thousands of terminally degree'd, Europe and UK educated, Saudis that are crunching these figures. The sums involved strongly suggest that they are acting in their own interests. No one has enough money to buy them out contrary to their own interests, even the USA, CiA or NSA.
So they Saudis have the foresight, do I understand the author correctly? They're the enlightened ones, are they?
Ok so, when the assorted nuclear powers that dislike them turn to hating them, and Mecca is turned into a glass parking lot, what will our brilliant ally's plan be, then?
Do tell.
I thought the automatic earth blog was simply oildrum rejects recycled. Now that peak oil proved to be wrong, spectaculary so by theoildrum.com closing down in abject failure, they are remaking themselves by making up new shit. Same stupid people that were wrong about peak oil pretending to know something others don't, why should we give them any credence now? They just seem angry because things didn't collapse as they expected and touted for years. Let's see this work out completely different than they think. One think I know, this stupid fuck has never been to a frac job or had shit to do with the E&P business, he is just a writer with an opinion that is no more useful than his asshole which just pours out shit.
Let's see.
wrs1 on the one hand.
Industry leaders and analysts on the other...
Hubbert's Peak oil Theory always said that improved technology or new discoveries would temporarily remove the designation "peak oil" after it had been applied, so if something is wrong it is you.
Hubbert called the peak for 1970, that is 44 years ago now, it's like the stupid xtians still waiting for jeebus after 2000 years when the book says he will come quickly in the first paragraph.....................
"Why Angela Merkel is so set on punishing her (former?) friend Putin, I don’t know"
I do. And I ain't no insider wonk. Germany is a vassal State of the State Department. Isn't that fairly obvious by now? The Wolfowitz Doctrine Is Germany's foreign policy.
We know that the NSA tapped her phone.
Perhaps they got some dildo talk and are threatening her with it.
What can she say? My outrageous remarks were illegally got?
yes, they guy writes so nicely. and he forgets, that Germany is occupied nation, with foreign armies on its territories, still paying the war costs, still delivering weapons for free to zionists.
this guy knows a lot, but he has no clue about EU, Europe and Germany.
Bottom line: the average US shale oil well is uneconomical even with hedging in place, since most hedging is around $90/bbl and the break-even is $99/bbl:
http://www.zerohedge.com/news/2014-12-24/dangerous-economics-shale-oil
Companies spent $1.30 for every dollar earned selling oil and gas in the third quarter, according to data compiled by Bloomberg on 56 of the U.S.-listed companies in the E&P index: http://www.bloomberg.com/news/print/2014-12-19/oil-crash-exposes-shale-d...
It's not so much a case of the Arabs pumping too much but a case of extra U.S. shale producing and moreover, cratering demand.
See graph: http://www.bloomberg.com/image/ia.tqzP1acJ0.jpg
OPEC doesn’t intend to cut its output “whatever the price is,” Al-Naimi said in an interview with the Middle East Economic Survey.
“Whether it goes down to $20, $40, $50, $60, it is irrelevant: http://www.bloomberg.com/news/print/2014-12-21/non-opec-producers-called...
Brent crude $60.24 and U.S. crude $55.84 A Barrel Now.
Can someone please provide the digest version please? TL;DR
A little bit of History :
The Man who made King Saud, original Wahhabist leader, into King of oil was St John Philby.
He and Lawrence of Arabia were opposed on how to carve up the post Ottoman Arabian peninsula. Lawrence supported Sherif Hussein, Hashemite lord of Mecca and Medina, St John supported more rabid moslem Ibn Saud.
St John and Saud won out in 1924 and occupied Mecca exiling Hussein. Later on, St John helped create Aramco with Standard oil of California and that led to FDR's historic handshake with Saud in 1945 on his return from Yalta.
Pax Americana had got its leg into the Oil patch thanks to St John Philby and had put a spanner in the wheel of BP/SHell running Rule Britannia's oil enclave in Iraq and Caspian Sea (Baku) and then in Kuwait/ Iran.
America was deep into the great ME oil game and never looked back, especially after Suez 1956 crisis, when they kicked out Britain (and France) from the geopolitics of the ME. Ghawar started to really perform in 1952...
"The winds of change" heralded the running down of the Union Jack all over the Mediterranean subsequently (Cyprus base) and in Kenya as well, as a result. The UK was hocked in debt and balance of trade deficits (but not the rest of Europe).
It is ironic to note that if St John Philby ( an Etonian old boy scion of Empire, a disillusioned man converted to Islam) spawned the hold of Pax Americana on Saudi oil he also spawned Kim Philby, Master spy working for the USSR, who took the CIA, Allen Dulles and James 'Eagle eyed' Angleton, for a long roller coaster ride into spooks and gooks fairy land!
Awesome how tipping moments of Pax Britannia's demise spawns these colourful characters.
http://en.wikipedia.org/wiki/St_John_Philby
Is it gonna be a repeat with Pax Americana ?
In the meantime Merry Xmas to all !
Thanks Falak, interesting read. Never heard of Philby before.
Is Pax Americana not a misnomer ?
I noticed you kind of misspelled Shell, lol
Pax Americana; like Pax Romana; like Pax Hispania; like Pax Britannia.
Basically a formula based on Manifest Destiny; aka might is right (until it isn't might anymore).
The point is...where is "the Pax" in the region ?
Maybe Arab spring sounds better than the crumbling of the American empire.
Does the spasm of violence in the ME not smack of American/Israeli/(Western) desperation ?
Pax is the Symbol of Empire : "we do this for Peace as we are civilization. So do not question why sometimes war is necessary as it is for "universal peace"..." -- So say all Empires.
And as always, they get it wrong.
We are now in the portion of US Empire where Potus is still singing "Pax" and getting it wrong; just like all the others.
History rhymes.
LOL. Oil forever. Hilarious.
Video below of Stiglitz questioning GDP. Makes some very good points.
https://www.youtube.com/watch?v=QUaJMNtW6GA
Thanks for Link. What Stiglitz is trying to say, but doesn't is the term "rents." Rents are costs above the real cost of production. If it costs 30c on the dollar in Japan for medical care, then the U.S. medical system must be taking about 70c on dollar 70% as rents. That then is heat and waste, mostly consumed by an army of bureacrats and inefficiencies. Rents manifest themselves as high prices and lost time, loss of living standards, etc.
National Income and Profit Statements are also counted in GDP. So, if housing goes up in a bubble asset, then the GDP looks better. Your house didn't actually physically get better. Or, capital gains show up as proifts, and are taxed less than labor. Is the person who does nothing in many cases for capital gains contributing more to GDP than the worker?
This is what special interest groups do, they will change the law, or change statistics in order to take rents. Rents as a term must be brought back into our language. It was normed out of our language by usury banking, as a form of propaganda. The people need an advocate to find rents and eliminate them from economy. That then changes the political structure, because both sides take rents, even including government.
If a word doesn't exist, then it is hard for the mind to comprehend a subject. So, ironically today's economists like Stiglitz are re-asserting rental theory, something the ancient French Physiocrats (first econmists) knew well.
Sad really in a way.
In a few months time. this article will be meaningless.
Geopolitics and not geology (i.e. cost of oil from various sources) will determine who wins.
It's xmas so i'll outline some positives:
#1......You won't have to worry about some big$, non-environmental friendly asshole putting a fracking well across the street from your house and have Fire shooting from you sink faucet.
#2....My propane bill should be much cheaper.
Probably what will happen is once Saudi bk's the others then they'll magically decrease production, prices will soar and then the whole process repeats itself. I suspect other 'big changes' will occur before that scenario ever takes place the way things are going.
Perhaps the Saudis keep pumping because the U.S. is threatening to release 28 pages of unredacted 9/11 report documents if they don't. http://www.pbs.org/newshour/bb/classified-pages-911-report-may-implicate...
Help us to screw Russia or we will screw you.
Meh, PBS?...McCain?.....sounds like more statist BS being thrown out there.
I don't know for sure why, but I have seen oil fall through the floor before and then rebound again. Oil has proven to be a boom and bust commodity. Just before this bust, producers had gone "all in" to recovery of expensive and marginal oil. Not matter what the hype, SHALE, was bloody expensive, AND had not yet proven long term viability. We know they fracked the absolute best geology first, and have been going towards the less good to keep production up. Nobody needs to tell you about Canada's stake in Tar Mining! They went "all in", with huge expansion plans on the books and moving forward. Saudi just drove astake through their heart. What it comes down to is this "Nobody would have fracked or mined tar IF they knew of a place to drill cheaper oil." So I accept the judgement of markets, CHEAP OIL is finished! That is one driver for future higher prices. Right now, the cheapest producer is KING! That is Saudi, pipming oil at 1/10th the cost of the best fracking wells. It is all down to how long cheap oil can floodthe markets, when it can't do that anymore, prices will rise.
Other nations have cheap oil, but not as cheap as Saudi. Iran's oil is cheap, Russia is more expensive, but much of it is alreay drilled and pipelines built, so it is pumping costs plus debt.
My gut tells me this will last only for awhile. War is coming in many plances, some production could go off line. Saudi hides behind the USA, this should make the army of neewly unemployed Americans and Canadians very unhappy! USA GDP is 8% energy! Russia is 16%. From that you can see for every hit to Russia, America will be hit 1/2 as hard! And shale is more vulnerable, being high cost, so UP that hit to say 3/4 of the economic hit to Russia. Our fake economy is going to be hammered! Because the only REAL Economy growth in the USA was ENERGY, about to see North Dakota clos up shop, and up north Alberta can bend over and kiss entire cities goodbye. TAR SANDS mines at 10 times the cost of Saudi oil. 10X !!!
The only thing thet the Saudis have figured out is that the US will install a new royal family in a heartbeat with a color revolution if they don;t follow whatever instructlions they are given. They don't really have the reserves to pull this off anymore but here they are doing it so it is definately not their idea, especially with their wells 85%-90% past peak.