240 comments on DrumBeat: August 21, 2008
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240 comments on DrumBeat: August 21, 2008
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I think Big Oil's weather service just found out that Fay's going into the GOM.
$119.68
Fay Model Output from LSU:
http://www.esl.lsu.edu/quicklinks/hurricanes/2008/FAY/images/Storm-06-Sp...
The cut-off of oil exports via Georgia is the main driver IMHO.
It is beginning to bite.
Alan
But that was, what, two weeks ago?
Do these people have to actually register the decrease on some
meter before they realize that no oil is moving thru Georgia?
I don't think so.
Not with the number of times I've seen trades of buy the rumor, sell the fact.
Which in the case of Georgia the past two weeks would be "sell the rumor, buy the fact".
But you're right.
Zero oil is moving thru Georgia now.
when it used to be 1 mbpd.
The capacity of the BTC pipeline is 1 mbpd, but at the time it went off-line it was pumping 800 kbpd.
But that's just the BTC.
Oil was also moving by rail thru Batumi and the Baku Supska pipeline.
1.2 mbpd was the figure I think.
The BTC will reopen next week.
http://uk.reuters.com/article/businessNews/idUKLK16589820080820?sp=true
The utter drivel written in the MSM is exemplified by this:
I think we are witnessing a technical rebound from an oversold position - volatility on an exponentially rising uptrend.
The BTC will reopen next week
If the Russians want it to.
Qatar and Iran talked about reducing world oil exports to support prices. The Russians did something about it !
The geo-political-economic calculus on this one is "above my pay grade".
Alan
Alan, the BTC was shut by Kurdish separatists in Turkey blowing it up. It has now been repaired and is undergoing pressure testing.
I am prepared to listen to conspiracy theories about the Russians being involved in the Turkey attack (Turkey is a member of NATO and the OECD) - but do you have any evidence?
I would also entertain the idea that Russia may be eyeing Caspian oil.
One European perspective might be that Russia is a much more reliable supplier of oil and gas than is the USA.
The Kurds blew up/shut down the pipeline two days before their invasion of Georgia.
The Kurds had never attacked the pipeline before (in general, infrastructure attacks are not, AFAIK, part of their standard operating procedure).
A Russian operative with some money and promises could have motivated the Kurds, and probably did IMHO (circumstantial evidence only).
The money from oil exports is the KEY to the Russian economy. Lower prices are NOT good ! Russia has a major infrastructure program that will cost many billions, and they simply need high oil prices.
Alan
Inspectors in Turkey are reporting that the BTC pipeline was not bombed.
BP Says Unclear When BTC Pipeline Will Be Repaired, Bloomberg, Aug. 15, 2008
I case you have not noticed, Russia has extraordinary leverage over BP (I was about to write that they have "their nuts in a vise").
"Truth is the first casualty of war".
Alan
Hello TODers,
I hate to say it, but reality seems to be taking more plot twists and turns than a Tom Clancy novel:
All kinds of conflicting reports on GoogleNews relating to whether a Russia-Syria alliance means the basing of an Iskandar missle system on Syrian soil. Purely for defensive purposes; same as the Patriot ABM Battery in Poland. Additionally:
http://www.iht.com/articles/ap/2008/08/21/europe/EU-NATO-Black-Sea.php
-----------------------------
BRUSSELS, Belgium: NATO warships entered the Black Sea on Thursday for what the alliance said were long-planned exercises and routine visits to ports in Romania and Bulgaria.
-------------------------------
http://macedoniaonline.eu/content/view/2940/53/
--------------------------
The Russian aircraft carrier “Admiral Kuznetsov” is ready to head from Murmansk towards the Mediterranean and the Syrian port of Tartus. The mission comes after Syrian President Bashar Assad said he is open for a Russian base in the area. The “Admiral Kuznetsov”, part of the Northern Fleet and Russia’s only aircraft carrier, will head a Navy mission to the area. The mission will also include the missile cruiser “Moskva” and several submarines, Newsru.com reports.
---------------------------
and dont forget the once again declining $.
So, does oil go up because the dollar is falling, or is the falling dollar a response to rising oil prices?
Somewhere in your question is one that I would love ask;
Is the drop in net FFs the reason the economy is tanking?
Soup: I say it's the other way around...most of this mess begins with money supply. The economy is tanking for mainly financial reasons, which then cuts into FF demand.
On the face of it correct ...
Except that FF prices have been rising for some time now, and oil in particular has been rising for 9 years, currently up ~1150% - to pay the required interest the banking system must have growth, which is powered in part by growing oil use.
Econ 101 says you get less consumption if prices rise ... so, if the prices rise for long enough and far enough (and 1150% is quite far!) at some point growth based on that oil consumption must stop! ... and indeed it did ... about 4 years ago!
By 2 years ago the financial system was trying any trick to keep the growth going, but eventually that had to fail if there is no growth in the energy powering the world economy.
The downslope of world consumption post peak-oil implies that the oil is getting ever more expensive year after year in the 'net importing' countries, since we will have no option but to use less and less of it.
Thanks Xeroid
I agree with you 100% and it would be nice if some main stream economists would put 2 and 2 together and speak truth.
Cheers
what's all this fuss about French Fries?
It's a question I've been asking but don't really have any way to analyze. My guess is the declining EROI and diminishing absolute returns on resources - eg limits is right at the heart.
cfm in Gray, ME
That's a good question, WT, and naturally it's not really a one-or-the-other matter, but I believe it's mainly the former.
Well, I guess we could say that a falling dollar is likely to lead to higher oil prices, and higher oil prices are likely to lead to a falling dollar.
An (overly) simple way to look at it is that when the dollar falls, the price of oil must go up, or else it will be devalued. Since it's a real and valuable thing, unlike a fiat currency, that wouldn't be right, and would confer an advantage to foreign buyers. I find it harder to argue that higher oil prices must lead to a lower dollar, however...that would be wagging the dog. Still, as a matter of trade balance, I grant that there is a bit of a chicken-and-egg story there.
The weasel, purchased at a local Wall Mart on a Visa credit card, was really a high tech, Japanese designed robot made in China. It was powered by a lithium battery that was being charged by a diesel generator made in France. The French diesel manufacturing plant was on a nuclear energy supplied grid...
Guess who the monkey is?
The falling $ is a response to a balooning trade deficit. The fact this has not happened much, much sooner needs to be viewed as anomalous.
If you run a current account deficit you're by definition running a capital account surplus. The money comes back as various kinds of foreign investment in companies and assets, loans etc. A current account deficit is not debt; nobody is owed something as a result of running a trade deficit. It can be transformed into debt(e.g. by lending this money to uncle Sam) but it doesn't have to be.
You could equally well say that America managed once again to attract more investment from foreigners than americans invested in foreign companies; the only way you'll be able to do this is if foreigners believe in the future profitability of american companies.
Bloomberg thinks oil is up because of yesterday's TWIP. This of course fails to explain why oil went down for several hours after the TWIP came out. I would be surprised if anyone was worried about Fay at this point. It isn't much of a storm. My 80-year-old mother was out driving in it yesterday.
I think oil is up because demand is up. Gasoline is back to ~$3.50/gal around here, and the roads are noticeably busier. US imports were up 1.3 million barrels/day last week. I suspect the
Chinese have started to buy again. Even if they're shut down for the Olympics, oil they buy today won't be there till the Olympics are about over, and their refiners will need time to process it.
I don't know if oil is ready to make it's next move up, but I think we're getting close to that point. If so, a lot of commentators who have been crowing about oil's recent decline are going to look rather silly.
I was wondering that myself. It's only three days until the olympics are over.
The driving and factory restrictions will extend into the paralympics, ending September 17 (from memory).
However, it takes several weeks from buying crude abroad to end user for transportation, refining and domestic transport to the end user.
Alan
Don't forget about the 2008 Beijing Paralympics from Sep 6 - 17. China may still cut their industrial output for these games. However, maybe not since they aren't popular and I don't think anyone will be watching them.
The China restrictions on emissions and the drop in crude have seemed to me to be too coincidental. Is it the only reason? Doubtful, but I'm sure it's part of the mix.
From 5/07 to 6/08, monthly oil prices went up at an average rate of 6% per month, with two monthly declines, August & December. Following the August decline, average monthly prices in September rebounded by about 10%.
"I suspect the Chinese have started to buy again"
It's not only oil but also look out for coal. I have heard from my Chinese contacts that a big cut-back has been in place for several weeks in order to clean up for the Olympics. When full demand is restored in a couple of weeks the coal stocks will soon start to run down. Following the ELM model increasing internal consumption will result in less coal exports with possible imports, i.e. more demand less supply in the world markets.
Anecdotally, the air has never been so clean in Korea.
Damned shame the Olympics are about over.
Cheers
ELM model has China swallowing world exports in 4 years.
http://www.financialsense.com/fsu/editorials/lalani/2008/0331.html
"Coal: This in my opinion is slightly more likely than oil to bring the system down. Here the effects of export-land model (courtesy Jeffery Brown) are even more pronounced. China consumes more than 2.5 billion short tons of coal per year. It recently turned a net importer (2008 projected). The world export market is tiny and is less than 12% of the world coal production. China's coal consumption is rising at a 12-15% compounded annual rate. China's coal production growth rate is slowing dramatically and will rise less than 5% this year. Putting these numbers together means that China will swallow all of the worlds exports in 2-4 years. Unless coal production can be ramped up dramatically elsewhere it is lights out everywhere."
It is not lights out everywhere. It is lights out in coal importing countries which depend on coal for most of their electricity generation.
And a lot of Middle Eastern oil exporters, e.g. Saudi Arabia, had been talking about importing coal, because of the shortfall in natural gas supplies, in order to free up more oil for export.
My estimates for Saudi Arabia for this year are as follows:
Total Liquids: 10.9 mbpd
Consumption: 2.5
Net Exports: 8.4
At their current rate of increase in consumption, in 10 years they would have to be producing 13.4 mbpd, a 2%/year rate of increase in production, to have 2018 net exports of 8.4 mbpd (their 2005 net export rate was 9.1 mbpd, EIA).
I am on the same page as FS here, although I didn't see their article until now. The first part of my latest piece on China and coal just went out last night...part two next week: Coal Stocks Set to Soar, Part 1: Get Ready for the "Olympics Bump"
Glad I bought ACI yesterday!
Plus now we're kicking in to the point where a number of system spec traders have gotten the signal to close out their short positions. The longer the price stayed in a narrow range, the lower that price signal got.
I think all of these explanations reek of "Narrative Fallacy"(yes, another Black Swan reference). Often, there is no discernible reason, or no single reason for these movements. Sometimes there really is no reason. People like "stories" so they think up reasons...the more plausible the better; the "story" is not the TRUTH, the same way that the map is not the territory.
None, some or all of the above reasons may be right.
My thoughts exactly. To my way of thinking, any price movement that doesn't go on for at least a week or more might as well be considered random.
ah, but stories is all we got!
I think the China factor is a bit overstated.
Note: Chinese "consumption" figures do not include stock change
Bloomberg also thinks that it's about "the signing yesterday of a missile-shield agreement between the U.S. and Poland," which I think is the dominant factor in today's move.
The Street has been really understimating the importance of the Georgia conflict, IMO, and now they're getting it...
From AP:
People didn't pay much attention to the remilitarization of the Rhineland at the time, either.
Germany suffered a humiliating surrender (and loss of territory) followed by economic collapse. Russia has gone through economic collapse followed by humiliation and loss of territory.
In "The Putin System" documentary, there is a scene where Putin re-establishes some military ceremonies and several of the senior generals are visibly weeping with emotion. I think that there is a real sense of loss and grievence in the Russian armed forces. There is probably a sizeable group of officers who would relish kicking the US out of the Middle East just as payback.
We know from history books that all the parties involved seriously underestimated the duration and savagery of WW1. Let's hope that nobody tries to "restore Georgia's freedom" thinking that it will be easy.
"In war, it doesn't matter who is right - only who is left"*
*(I forget where I stole this quote)
it's similar to the old saying 'the victor's write the history books.'
I think Poland might soon be looking to trade that missile-shield for a pipeline-valve-shield.
If you think the jump in WTI is big, look at Brent, Forties, and Ural increases (more than $8/bbl).
http://www.upstreamonline.com/market_data/?id=markets_crude