Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Opecology Or The Art Of Saying Nothing

Commodities / Crude Oil Dec 06, 2014 - 03:15 PM GMT

By: Andrew_McKillop

Commodities

The Threat of $57 Oil
The recent head of the World Petroleum Council, Renato Bertani speaking from Houston in interview with Russia Today TV, December 1st,  was set an increasingly ridiculous set of questions by the energetic if dumb interviewer lady in the Moscow bureau. She asked him if Peak Oil was true and if ISIS or ISIL was pricing its stolen oil (she said $30 a barrel) at the “right price”? Would oil get really cheap before it disappeared (not cheap after it disappeared)? Is fracking sustainable and are US producers lying when they say $57 a barrel is a price they can live with? Will hydrogen-fueled cars wipe out world oil demand? Would global warming terrify us so much we woke up one day and totally renounced oil? How will OPEC stabilize and control the market and set the right oil price for everybody (she didn't suggest we ask Goldman Sachs how they do it). Time for a sucker's rally!


Mr Bertani hit back. He told viewers that world reserves of oil, according to his WPC now stand at 1740 billion barrels – quite a lot more than they stood at in 1974 (and in 2010) but producing it all would need prices to get back up to the Goldman Sachs and IEA nice price of 100-plus dollars a barrel. Over on Aljazeera TV (another TV channel owned by an oil exporter country) the same Opecolgy farce is also running several times a day, sometimes including in-studio comment from an old aquaintance of mine, Dr Mamdouh Saleh. Wearing a bow tie these days, he says the oil price crash is basically due to Saudi Arabia wanting to drive US shale oil producers out of business by applying Say's Law.

The same way the Saudis drove high cost North Sea oil producers out of business in 1986 and destroyed Iran's will to fight Iraq in the 1980-88 war? Or did the Saudis want to destroy the Red Army's will to fight Saudi-financed and CIA-armed Taliban and other jihadis in the Soviet Afghan war?   In any case the USSR lost their war and quit Kabul faster than the USA (9 years versus 13) and from the late-1980s neither Opec nor KSA nor Russia pushed oil prices back to previous highs very fast. They stayed sweet and low for around 15 years after their 67% crash in 6 months during 1986-1987

Opec and Energy Economics
During the RT interview of the WPC's Bertani time was found to ask him about the Sykes-Picot carve up of Turkish Ottoman oil rich colonies, not only in the Arabian peninsula, and how he feels about renewable energy and driverless cars – but not one single question was asked about the price of oil energy compared with any other major fuel!. US natural gas producers, as we know, scrape along on a diet of corporate debt and hope that prices, one day, might get as high as $25 for a barrel equivalent of gas energy. World coal prices are flat, and have been flat at around $30 for a barrel equivalent since 2010, and before 2010. US coal producers, in some cases, are selling thir coal at much less than $20 for a barrel equivalent of coal energy. Is oil overpriced?

Only an idiot answers no.

To be sure, on his state visit to Turkey, December 1st. Vladimir Putin said that from January 1, 2015 Gazprom's supplies to Turkey which will be ramped up from the present 27 billion cubic metres a year, to around 38 bcm a year in the short term, will be priced 6% lower and a similar price cut could follow quite shortly after that. Russian gas will be delivered at a barrel equivalent price below the EU28 average oil-equivalent price around $60, but Putin and Gazprom are shifting towards “price taker status” for gas (as well as oil), simply due to world gas reserves and supply increasing at a really impressive rate. Worldwide financial blowback from this Gas Bubble includes an increasing list of now financially risky and uncertain LNG (liquefied gas) projects in several major regions, including Russia. To be sure, Gazprom would have to cut its prices a long way to reach the effective and real price paid by the Kiev government of western Ukraine for the years of siphoned or unpaid gas it has taken, or stolen, but Gazprom pricing to paying customers by Spring 2015 may show a serious reappraisal by Russia of what constitutes a rational gas price in current and emerging resource, supply and market conditions. Under any hypothesis it will be lower.

As is well known to readers of my articles on the subject, the renewable energy finance driven boom-bust through about 2006-2012 leaves the world with massive solar PV and windmill manufacturing capacities relentlessly driving down unit prices – and a rapid growing world stock of part-used but financially obsolete equipment. Even in the event of a surprising and low-credibility bounce of world economic growth back to a long-term average close to 3.75% a year, this is unlikely to produce a major uptick in world energy demand -  one hopeful argument used by some Opecologists (and by Opec itself) to claim that oil prices will be back in triple digit dollar prices “within a year or two”.

The long-term drift downward of oil's share in world energy, now 30-year-long, ,cannot be divorced and separated from oil overpricing on th fantasy basis there is no relation between oil energy prices – and the price from any other source. For producers, and the whole value chain or pyramid supported by ,overpriced oil – including Goldman Sach's oil trading division, for example – it was nice while high priced oil was as normal and natural as dirt cheap gas and coal. It made market betting on higher oil prices so much easier, saving computer time and manpower! To be sure, we now hear the mantra that The Markets Will Decide to explain the oil price slump, the same way that market manipulators and price fixers kept the oil price ridiculously high, for years, using the exact same mantra. Why and how “oil will bounce back” remains to be explained – although the talking heads on TV cab give us the ISIL-scenario of these youth psychopaths taking over Saudi Arabia and jacking up prices, like Saudi Arabia did in 1973-74 with its so-called Arab oil shock. Keep dreaming!.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

Andrew McKillop Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in