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Iran OK With $25 Oil As Iraq Pumps Crude At Record Pace
The precarious "game theory" equilibrium that worked for decades while OPEC was still a functioning cartel is unwinding before everyone's eyes. Just as Saudi Arabia accurately anticipated, the lower the price of crude goes, the more both OPEC members and their non-OPEC peers (especially shale companies funded by hundreds of billion in junk bonds) will have to produce in order to keep their budgeted revenues roughly in line (and keep creditors happy for the time being) in the process setting off an unprecedented wave of bankruptcies and production capacity declines, which take about 6-12 months after the price plunge to materialize. Case in point: the country formerly known as Iraq (and now better known as that region around the Tigris and the Euphrates that does not belong to ISIS) is pumping crude at a record pace and will continue to boost exports this year, its Oil Minister Adel Abdul Mahdi said.
Those who were rushing to buy Brent on its latest intraday Friday spike, and are wondering why it is back below $50, here is the reason: "The average for Iraqi crude output is 4 million barrels a day, which is a historical record,” Abdul Mahdi said at a news conference after meeting his Turkish counterpart, Taner Yildiz, in Baghdad. Exports from Iraq will rise to 3.3 million barrels a day this year, boosted by oil from the Kurdish region, Abdul Mahdi said.
Bloomberg reminds us that Iraq's central government reached an accord last month with the Kurds to allow increased oil exports through Turkey. Oil prices have fallen about 56 percent since June amid a supply surplus on global markets. That, and also unknown numbers of ISIS crude barrells being transported via illegal channels through Turkey and onward to unknown end-buyers, most of which operated shrouded in secrecy.
More from Bloomberg:
Iraq will ship 60 crude cargoes, equivalent to 3.3 million barrels a day, from the Basrah Oil Terminal in the Persian Gulf in February, according to a preliminary loading program obtained by Bloomberg News today. The whole country exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said Jan. 2.
Exports from northern Iraq through a pipeline to the Turkish port of Ceyhan will average 375,000 barrels a day in the coming months, rising to as much as 600,000 barrels a day by April, Abdul Mahdi said. About 500,000 to 600,000 barrels a day of Iraq’s production is consumed locally, he said.
An agreement in December resolved months of feuding between Iraq’s Kurdish region and in the central government in Baghdad over who had the right to export crude from the semi-autonomous area. The deal allowed for as much as 550,000 barrels a day of oil to be shipped through Turkey from northern Iraq, including 250,000 a day from the Kurdish region. Iraq’s central government had previously threatened legal action against any buyers of crude produced in the Kurdish area.
One wonders how little it cost the Saudis to override any Iraqi objection to this deal, considering that this merely accelerated the endgoal so sought by the Saudis - the collapse of crude prices.
And speaking of collapsing prices, how much further can they drop? For the answer we go to Reuters which reports that Iran's oil minister said on Monday that there are no plans to call an emergency OPEC meeting to discuss prices. Bijan Zanganeh, in remarks posted on the oil ministry's website SHANA, called for increased cooperation among OPEC members to balance the market to ensure a reasonable oil price for investors and producers.
The punchline:
Zanganeh said that Iran's budget should be based on oil at $72 per barrel, but Iran could withstand lower oil prices. "Even if the oil price goes down to $25 a barrel, the oil industry will not be threatened," the Fars news agency quoted him as saying.
And there is that magin "$25" number again. For those curious to read more, here is our report from a month ago, "Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers."
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Gold is bottoming. Buy a little every month, not as a short-term trade, but as a means to shuttle wealth through the coming shyte storm into the next system. If it goes lower, buy a bit more. They will suffer death by a thousand cuts. The BRICS - half the world - are doing the same. The current price is a farce, just like the interest rates. who in their right minds would buy a bond at negative interest rates when you're better of with holding cash - the gamblers in the derivative markets, that's who. F'em. The whole system is such a fraud, it's hard to grasp how deep the lies and deceptions go... But I disgress... Goot luck to all, we'll all need it.
Iran's Islamic Revolution Guards Corps (IRGC) confirms the killing of one of its generals in an Israeli airstrike on the occupied Golan Heights in Syria that also killed six members of the Lebanese resistance movement, Hezbollah.
source: http://www.presstv.ir/Detail/2015/01/19/393803/Iran-confirms-general-killed-in-Golan
Iranian general, son of ex-Hezbollah leader, killed in Israeli airstrike in Syria
source: http://rt.com/news/224059-iranian-general-killed-syria/
General Schmeery Al Fresco.
"Schmeery Al Fresco" Italian jew? Like Salvatore' Finkelstein?
Well, Israel has to defend ISIS, of course....
notably, Quneitra is in the Syrian Golan, in the DMZ, so this is another Israeli attack on Syrian soil to help ISIS and Al Nusra - both of which were happily burning down churches and killing Christians even as Senator McInsane visited with the "good" terrorists.
Counterpuke,
Change your weed source.
Israel should take out as many of both as possible.
The enemy of an enemy can be my enemy too.
If the Hezzies are going broke it must be from high funeral expenses.
Sometimes a friend is just an enemy, Sally.
Cookie?
The Golan Heights are claimed by Syria, but controlled by Israel. Its a buffer zone. Why the hell was the Iranian general toodling around the Golan with a bunch of Hezbollah fighters? Stupid, if you ask me ... unless, they're planning something we're not aware of.
Its not just a simple training mission, though I don't know what it is. They needed to see/experience the actual lay of the land, conditions, or check out their tunnels or something like that. They could have trained somewhere else, somewhere less dangerous, but chose to tempt fate in the Golan, which they know is well-monitored by Israel. Hmmm.
So there must be a big deal in the works. To send a general to train them, and that particular general -- one whose father had been killed in a previous terrorist incursion, makes no sense unless they're planning something big.
Good Israeli intelligence, no?
Hez fighters fighting ISIS are a target for Israel, on Syrian soil, why, exactly?
You can spare me any rhetoric about these guys preparing to attack Israel, please. ;0}
Oil at 1.20 usd per barrel, gold at twenty dollars for a troy ounce, silver at one dollar per ounce...
will solve many problems.
"will solve many problems" for the government.
There fixed it for ya.
I think your PM #'s are off by a factor of ~ 40. Re- (hyper) inflation will be a bitch, though.
I have been wondering why crude has dropped so far and there seem to be 3 main theories. If all three are the cause I can't find the common denominator. First is Russia. A drop in the price of crude (and natural gas) hurts their economy and comes at a time when the west is trying to pressure them over Ukraine with sanctions. It would make sense but the drop in price is across the board. I find it hard to believe all of our oil producing allies (and some that are not allies) would work together to hurt Russia. The second is the end of QE. Since 2008 the cash pumped into the economy to ignite some inflation (and battle deflation) reached record levels. Investment houses could speculate freely on oil which artificially pushed the price up beyond where it would be without QE. Now that the FRB has slowed it's asset purchases there's not as much cash for speculation and the price is normalizing. The third is more sinister. To kill oil shale production. Middle Eastern countries see the glut of oil and an increase in our domestic production as a threat. By allowing the price to drop below where it is economical for oil shale and oil sand extraction they kill off the competition and drive these producers into bankruptcy. Once they see domestic production drop they can drive the price of oil back up and we will once again be dependent on the Middle East. The problem with this theory is that it takes a coordinated effort and some oil producing nations (Venezuela) are being hurt badly during this downturn. I've also thought it might be a way to hurt ISIS economically. But does that make sense when the House of Saud is Sunni and they have supported them in the past? The only thing I can think of is that perhaps ISIS has grown into a monster that they didn't anticipate. Still, to hurt them by cutting the price of oil will produce a lot of collateral damage. While I can't find a common denominator for these three theories I suppose it is possible that they are just coincidental and not related. Of course, a fourth theory is possible too. It may simply be slowing demand because of the slowing world economy.
Don't forget 2 or 3 years with oil around 100 ..
ever heard of oil shocks and their effects on the economy ?
https://iiscn.files.wordpress.com/2013/07/bp-oil-price-2013.jpg
Gee, with the price of oil tanking, it's no wonder Russia can't buy any more US treasuries.
What's an Arab in a dress worth at 25 bucks a barrel.
Tesla anyone!!!
Ols news like we did know this week ago tied to Kurdish deal? Amazingingly poor analysis and just hype to fuel specualtion on down side.
I'm ready for the real deal. When I was a kid my dad filled up the gas tank in the car for eleven cents a gal. and got a free set of dishes as a bonus.
"Check the oil sir? Would you like me to wash your windows?" "No thanks Andy, doctor's making a house call, have to get back." Of course kids now days would likely not know the difference between the window wash fluid and the oil cap. That could be messy or worse.
10 gallons for 11 Silver dimes. You do the math.
All them Priuses and solar cells paying off? Maybe just a little? At the same time fracking makes oil cheap? OMG it's a perfect storm. Dang white of them Iranians to "be all right" with $25 oil. Of course it's the greens' worst nightmare, that carbon should be cheap, why isn't Obama proposing a stabilizing tax to something like $60/barrel? I guess he's not allowed (by many forces) to do it as an import tariff.
"Markets" don't usually correct this violently but on the other hand, even the current $50/barrel is just about the median since 1974, and if you look at oil *before* 1974 then $25 in current dollars is quite reasonable:
http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart.htm
But I thought the planet was running out, so we started all this hyper-expensive deep water drilling (with all the fun that's been), and oil sands and shale and fracking and green aviation fuel at $50/gallon and all sorts of fun. And Solyndra, that expected oil to be $200/barrel. Laughs hysterically.
Why does this whole thing seem to be a scheme to tell the Chinese "Listen we can't pay our debts but we can get you some really cheap oil through our puppet governments and cronies if you stop being so friendly with Russia."
See it for what it is QE4
Heard an expert from our local utility on talk radio. He was asked if the grid could handle electric cars. Referring to SE MI, he said if the residential average block had no more than 2 cars plugged in at the same time, the grid might hold, but more could cause local failures ie blackouts. What would it take to make the grid handle the load? A huge rebuild in power generation, and in the grid capacity which was configured to handle household/retail. Rewire the nation.
How many power plants needed to replace the billions of gallons of gasoline burned in cars? People are delusional about electric. There is no free lunch
In a deflationary spiral, the masses have no work, less money, and prices must drop. Now governments are printing paper, distributing through the top feeders - bankers and political friends, and the bottom feeders - welfare. In both cases this limits flow to the middle who are the great consumers.
The middle is using cheap oil to keep their heads above water. They are driving less, and using the difference to pay their huge debt load. If oil bounces back, the middle will be left hanging by their thumbs. I know these people. They are getting cornered and it will be bad.
Ummmmm, just because Iran SAYS it is okay with $25 oil, does not mean it IS okay with it. Iran is not a free society and the group-speak of a totalitarian regime means nothing.
The FACT is that they need $100 oil to break even. $25 would destroy them. Increasing supply to bring in revenue lost to lower prices just means the price will keep dropping and dropping, as everyone else will do the same.
Iran is in deep pooh. And I love it.
Does anyone know what the TRUE COST of a barrel of oil is to make?
For example, most sources in 2013 said gold is made for about $1200 per ounce, which indicates gold is near its production price and not worth mining now. Although gold has dropped below its historical cost to produce (it cost $350 to produce in the year 2000 when it sold for $300), buying at its production level cost has been a good time to get in, historically.
I do not know oil nearly as well and am curious if anyone knows what it really costs to make crude oil (not tar sands) and how the current market price compares?
mike maloney's once unthinkable scenario of $10 oil is getting more plausible by the day