The world is in flames, with an Islamist terrorist group on the rampage across the Middle East, the White House weighing another fight in Iraq, Russia and Europe still trading sanctions and salvos, Yemen imploding, North Africa reeling from one mess to another, and, as if that weren’t enough, a deadly fever spreading exponentially in Africa. Yet oil prices keep falling and are now at their lowest levels in more than a year. __ FP (Keith Johnson)
Russia is toast unless oil & gas prices can be pushed upward at least 20% to 30% above current levels. And yet, whatever mischief Putin stirs up around the world, oil prices remain stubbornly below fiscal breakeven levels for his corrupt mafia state.
… oil producers have kept pumping. The United States has added more than 3 million barrels daily in the last three years, and the annual jump in U.S. oil production just set a record. OPEC producers have been running full tilt, even Libya, which doesn’t even have a functioning government, and Saudi Arabia, which used to act as the voice of reason to keep oil markets more or less balanced. Only in August did the Saudis start to dial back oil production, only partially offsetting surprising supply increases elsewhere.
The result: a glut of oil that has driven down benchmark crude prices to levels last seen at the beginning of 2013. Brent crude in London traded at about $97 a barrel Thursday, Sept. 11, while West Texas Intermediate, traded in New York, threatened to dip into the high $80s per barrel. __ FP
If Russia were to take 10% of its oil & gas production off the market, perhaps we would see price spikes — but would they last? How much more elasticity can be found in oil supplies? We have seen 3.5 mm bpd of elasticity in the last few years alone. Does Putin truly want to test the markets in that way — particularly when doing so would deplete his already shrinking cash reserves?
We should face the facts: If not for its nuclear arsenals and its bombastic nuclear threats, Russia’s small economy (less than the size of California’s) would not give the bear such global importance — despite its vast land mass. Russia’s core population of ethnic Russian people is shrinking steadily — via high death/low birth rates and via emigration patterns. The conventional military is degenerating — and coming to depend more and more upon a hostile muslim population and muslim militias of uncertain loyalty. Russia’s military-age and working age males are sotted with alcohol and drugs, sinking further into suicidal despair as Putin continues to destroy all reason for working, living, and growing families.
Even worse for exporting economies such as Russia’s, global markets show no sign of solid recovery. Demand for oil & gas is not rebounding in the way that market prognosticators have been predicting over the past 6 years, since the financial crisis.
The global economy can’t seem to find the recipe for consistent growth: Japan’s horrific 7 percent contraction in second-quarter GDP may be extreme, but other Asian economies are also standing on the brakes. China’s year-on-year demand for oil (and other raw materials) is essentially flat, sending prices for oil, iron, and other basic commodities plunging. Europe is no help, even without worries of what the Russian bear will do next. Next to all of them, the U.S. economy (and its need for oil) looks almost robust. But even U.S. oil demand is at or below the average of the last five years — a dismal half-decade, for sure.
“It’s a demand-led slowdown, and the extra supply is just adding to the bearishness,” said Amrita Sen, oil analyst at Energy Aspects consultancy in London. “It’s very hard to see how we come out of this anytime soon.”
Citing the sluggish economy, OPEC dialed back its expectations of global oil demand for this year and next in its latest monthly report. So did the International Energy Agency in its monthly oil report. “The recent slowdown in demand growth is nothing short of remarkable,” the IEA said Thursday.
And the U.S. Energy Information Administration (EIA) on Tuesday tweaked its outlook for oil prices to reflect the new market dynamics. In the reference case, the EIA now expects prices to stay below $100 a barrel until early in the next decade. Even when prices rebound, the EIA slashed its estimate for how high crude will go — to just $141 a barrel by 2040, rather than the $165 predicted just last year. If global economic growth remains sluggish, the EIA sees oil prices stuck below $75 a barrel for decades to come.
Price fluctuation concerns everyone who pumps or burns oil, especially states — such as those in the Middle East, Russia, and parts of Latin America — relying on steadily rising oil prices to keep their economies afloat and their people pacified.
“If we are going to be in a weaker price environment, that certainly hits at the revenue assumptions on which a number of countries are running their economies and running their political systems,” Yergin said. __ FP
These are basic, contrarian facts which Al Fin analysts have been repeating to readers for several years. But the skankstream has a louder voice and reaches more ears. Some people continue to believe in ever-rising demand and ever-rising oil prices leading to peak oil armageddon.
But remember: Although Putin’s global mischief has not succeeded in raising oil prices so far, expect the mafia boss to have a few trump cards up his sleeve for purposes of global disruption. That is his job, after all, as he sees it. To stir things up, to create chaos in hopes that he can enrich himself and his cronies.
If Putin is willing to detonate some nuclear weapons in Europe cities, for example, or use his cats paws in the Middle East to block global oil shipments, markets would react very strongly. That may be the crime boss’ next step, after he weighs his dwindling options. But let’s hope not.
HFTB. PFTW. It is never too late to have a dangerous childhood.
More: Russian paratroopers fighting in the open in Ukraine. Russia is sowing a bloody harvest. Putin is unlikely to be able to control what he has unleashed.
Breakeven for oil production in US shale is dropping toward $40 bbl over the next 5 years.
Fiscal breakeven for Russian state-produced oil is well above $120 bbl, although if the Russian government revealed its fiduciary hazard, Putin might have to cut back on his ambitious plans of neo-empire.
It’s all about cash flow. Putin has been over-extended for some time now. Opinion polls inside Russia are even more rigged than elections. Things can turn ugly in a heartbeat.