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OIL WEAKNESS

Competing Gas Pipelines Are Fueling The Syrian War & Migrant Crisis

Submitted by Tyler Durden on 09/10/2021 - 14:42

Don’t let anyone fool you: As we have detailed since 2013, sectarian strife in Syria has been engineered to provide cover for a war for access to oil and gas, and the power and money that come along with it.

The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

Submitted by Tyler Durden on 09/11/2021 - 20:05

"One-by-one, the oil-majors will start to participate, then others will follow. While it might take some time to establish itself due to choppy markets and regulatory hurdles as well as the fact that it would introduce a foreign exchange element to crude futures, it is overdue for a Chinese contract to established."

$20 Oil? Goldman Says It's Possible

Submitted by Tyler Durden on 09/11/2021 - 17:51

"While we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimate

The Decline Of Oil: Head-Fake Or New Normal?

Submitted by Tyler Durden on 09/09/2021 - 10:04

Once welfare spending and subsidies of Elites collapses, the social and political stability of oil exporters becomes extremely fragile. The leadership of oil exporters without a stash of USD to tide them over as oil prices crash would be wise to start building their bug-out island fortresses.

In Bed With The Despotic House Of Saud

Submitted by Tyler Durden on 09/07/2021 - 21:00

In hot spot after hot spot in the Middle East, U.S. and Saudi objectives and priorities diverge, even if in some loose sense they are considered to be on the same side. It ought to be astounding that a place this far removed from the liberal democratic values with which the United States likes to be associated, even without considering the aforementioned divergence of objectives elsewhere in the region, still is considered a close partner of the United States. The usual, and to a large degree valid, explanation is that, as Friedman puts it, “we’re addicted to their oil and addicts never tell the truth to their pushers.”

"They're Making Idiots Of Us!": Eastern Europe Furious At West For Doing Gas Deals With Russian Devils

Submitted by Tyler Durden on 09/11/2021 - 17:40

"You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation."

Petrobras "Century" Bond Prices Collapse As 'June Plan' Already "Obsolete"

Submitted by Tyler Durden on 09/11/2021 - 14:20

Remember June - when everything was (apparently) awesome in BRIC-land and somehow a large group of duration-seeking greater-fools used Other-People's-Money to buy Petrobras bonds that mature in 100 years! Well those bonds are now trading less than 70c on the dollar (with yields pushing 10%) as Brazil's state-run oil company Petrobras, which slashed its five-year spending plan by 40% in June, admits that plan is already obsolete (two company sources told Reuters on Thursday). Petrobras will likely cut back further as growing debt costs, falling oil prices and a weak currency are the perfect storm for the company.

Iran Cuts Crude 'Selling Price' To Asia To 3-Year Low

Submitted by Tyler Durden on 09/10/2021 - 18:17

In what appears to be a bid to lure Asian buyers to lock in longer-term supplies, Reuters reports that Iran has cut its quarterly selling price (for its flagship 'light' crude) to its lowest (relative to Saudi) since Q4 2012. According to recent tanker loading data, Iran's oil sales in September are set to hit a six-month low, and this price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since U.S. and European sanctions aimed at its nuclear program cut its crude oil exports by more than half.

09-12-15 SII
 
Submitted by Tyler Durden on 09/10/2021 - 14:42

Submitted by Mnar Muhawesh via MintPressNews.com,

Competing Gas Pipelines Are Fueling The Syrian War & Migrant Crisis

Note the purple line which traces the proposed Qatar-Turkey natural gas pipeline and note that all of the countries highlighted in red are part of a new coalition hastily put together after Turkey finally (in exchange for NATO?s acquiescence on Erdogan?s politically-motivated war with the PKK) agreed to allow the US to fly combat missions against ISIS targets from Incirlik. Now note which country along the purple line is not highlighted in red. That?s because Bashar al-Assad didn?t support the pipeline and now we?re seeing what happens when you?re a Mid-East strongman and you decide not to support something the US and Saudi Arabia want to get done.

Don’t let anyone fool you: As we have detailed since 2013sectarian strife in Syria has been engineered to provide cover for a war for access to oil and gas, and the power and money that come along with it.

Editor’s note: This article has been updated to reflect recent Wikileaks revelations of US State Departmentleaks that show plans to destabilize Syria and overthrow the Syrian government as early as 2006.  The leaks reveal that these plans were given to the US directly from the Israeli government and would be formalized through instigating civil strife and sectarianism through partnership with nations like Saudi Arabia, Turkey, Qatar and even Egypt to break down the power structue in Syria to essentially to weaken Iran and Hezbolla. The leaks also reveal Israeli plans to use this crisis to expand it’s occupation of the Golan Heights for additional oil exploration and military expansion.

* * *

Images of Aylan Kurdi, the three-year-old Syrian boy who washed up dead on Mediterranean shores in his family’s attempt to flee war-torn Syria, have grabbed the attention of people around the world, sparking outrage about the true costs of war.

The heart-wrenching refugee crisis unfolding across the Middle East and at European borders has ignited a much needed conversation on the ongoing strife and instability that’s driving people from their homes in countries like Syria, Libya and Iraq. It’s brought international attention to the inhumane treatment these refugees are receiving if — and it is a major “if” — they arrive at Europe’s door.

In Syria, for example, foreign powers have sunk the nation into a nightmare combination of civil war, foreign invasion and terrorism. Syrians are in the impossible position of having to choose between living in a warzone, being targeted by groups like ISIS and the Syrian government’s brutal crackdown, or faring dangerous waters with minimal safety equipment only to be denied food, water and safety by European governments if they reach shore.

Other Syrians fleeing the chaos at home have turned to neighboring Arab Muslim countries. Jordan alone has absorbed over half a million Syrian refugees; Lebanon has accepted nearly 1.5 million; and Iraq and Egypt have taken in several hundred thousand.

Although it’s not an Arab nation or even part of the Middle East, Iran sent 150 tons of humanitarian goods, including 3,000 tents and 10,000 blankets, to the Red Crescents of Jordan, Iraq and Lebanon via land routes to be distributed among the Syrian refugees residing in the three countries last year.

Turkey has taken in nearly 2 million refugees to date. Turkey’s Prime Minister Recep Erdogan made international headlines for opening his nation’s arms to migrants, positioning himself as a kind of savior in the process.

Meanwhile, Gulf Arab nations like Saudi Arabia, Qatar, Kuwait and the United Arab Emirates have provided refuge to zero Syrian refugees.

While there’s certainly a conversation taking place about refugees — who they are, where they’re going, who’s helping them, and who isn’t — what’s absent is a discussion on how to prevent these wars from starting in the first place. Media outlets and political talking heads have found many opportunities to point fingers in the blame game, but not one media organization has accurately broken down what’s driving the chaos: control over gas, oil and resources.

Indeed, it’s worth asking: How did demonstrations held by “hundreds” of protesters demanding economic change in Syria four years ago devolve into a deadly sectarian civil war, fanning the flames of extremism haunting the world today and creating the world’s second largest refugee crisis?

While the media points its finger to Syrian President Bashar Assad’s barrel bombs and political analysts call for more airstrikes against ISIS and harsher sanctions against Syria, we’re four years into the crisis and most people have no idea how this war even got started.

This “civil war” is not about religion

Citing a lack of access on the ground, the United Nations stopped regularly updating its numbers of casualties in the Syrian civil war in January 2014. Estimates put the death toll between 140,200 and 330,380, with as many as 6 million Syrians displaced, according to the U.N.

While there is no question that the Syrian government is responsible for many of the casualties resulting from its brutal crackdown, this is not just a Syrian problem.

Foreign meddling in Syria began several years before the Syrian revolt erupted.  Wikieaks released leaked USState Department cables from 2006 revealing US plans to overthrow the Syrian government through instigating civil strife, and receiving these very orders straight from Tel Aviv.  The leaks reveal the United State’s partnership with nations like Saudi Arabia, Turkey, Qatar and even Egypt to use sectarianism to divide Syria through the Sunni and Shiite divide to destabilize the nation to weaken Iran and Hezbolla.  Israel is also revealed to attempt to use this crisis to expand it’s occupation of the Golan Heights for additional oil exploration.

According to major media outlets like the BBC and the Associated Press, the demonstrations that supposedly swept Syria were comprised of only hundreds of people, but additional Wikileaks cables reveal CIA involvementon the ground in Syria to instigate these very demonstrations as early as March 2011.

Just a few months into the demonstrations which now consisted of hundreds of armed protesters with CIA ties, demonstrations grew larger, armed non-Syrian rebel groups swarmed into Syria, and a severe government crackdown swept through the country to deter this foreign meddling. It became evident that the United States, United Kingdom, France, Qatar, Saudi Arabia and Turkey would be jumping on the opportunity to organize, arm and finance rebels to form the Free Syrian Army as outlined in the State Department plans to destabilize Syria. (Just a few months ago, WikiLeaks confirmed this when it released Saudi intelligence that revealed Turkey, Qatar and Saudi Arabia had been working hand in hand to arm and finance rebels to overthrow the Syrian government since 2012.)

These foreign nations created a pact in 2012 called “The Group of Friends of the Syrian People,” a name that couldn’t be further from the truth. Their agenda was to divide and conquer in order to wreak havoc across Syria in view of overthrowing Syrian President Bashar Assad.

The true agenda to hijack Syria’s revolt quickly became evident, with talking heads inserting Syria’s alliance with Iran as a threat to the security and interests of the United States and its allies in the region. It’s no secret that Syria’s government is a major arms, oil and gas, and weapons ally of Iran and Lebanon’s resistance political group Hezbollah.

But it’s important to note the timing: This coalition and meddling in Syria came about immediately on the heels of discussions of an Iran-Iraq-Syria gas pipeline that was to be built between 2014 and 2016 from Iran’s giant South Pars field through Iraq and Syria. With a possible extension to Lebanon, it would eventually reach Europe, the target export market.

Perhaps the most accurate description of the current crisis over gas, oil and pipelines that is raging in Syria has been described by Dmitry Minin, writing for the Strategic Cultural Foundation in May 2013:

“A battle is raging over whether pipelines will go toward Europe from east to west, from Iran and Iraq to the Mediterranean coast of Syria, or take a more northbound route from Qatar and Saudi Arabia via Syria and Turkey. Having realized that the stalled Nabucco pipeline, and indeed the entire Southern Corridor, are backed up only by Azerbaijan’s reserves and can never equal Russian supplies to Europe or thwart the construction of the South Stream, the West is in a hurry to replace them with resources from the Persian Gulf. Syria ends up being a key link in this chain, and it leans in favor of Iran and Russia; thus it was decided in the Western capitals that its regime needs to change.

It’s the oil, gas and pipelines, stupid!

Indeed, tensions were building between Russia, the U.S. and the European Union amid concerns that the European gas market would be held hostage to Russian gas giant Gazprom. The proposed Iran-Iraq-Syria gas pipeline would be essential to diversifying Europe’s energy supplies away from Russia.

Turkey is Gazprom’s second-largest customer. The entire Turkish energy security structure relies on gas from Russia and Iran. Plus, Turkey was harboring Ottoman-like ambitions of becoming a strategic crossroads for the export of Russian, Caspian-Central Asian, Iraqi and Iranian oil and even gas to Europe.

The Guardian reported in August 2013:

“Assad refused to sign a proposed agreement with Qatar and Turkey that would run a pipeline from the latter’s North field, contiguous with Iran’s South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets – albeit crucially bypassing Russia. Assad’s rationale was ‘to protect the interests of [his] Russian ally, which is Europe’s top supplier of natural gas.’”

Note the purple line which traces the proposed Qatar-Turkey natural gas pipeline and note that all of the countries highlighted in red are part of a new coalition hastily put together after Turkey finally (in exchange for NATO?s acquiescence on Erdogan?s politically-motivated war with the PKK) agreed to allow the US to fly combat missions against ISIS targets from Incirlik. Now note which country along the purple line is not highlighted in red. That?s because Bashar al-Assad didn?t support the pipeline and now we?re seeing what happens when you?re a Mid-East strongman and you decide not to support something the US and Saudi Arabia want to get done.

Note the purple line which traces the proposed Qatar-Turkey natural gas pipeline and note that all of the
countries highlighted in red are part of a new coalition hastily put together after Turkey finally (in exchange for
NATO’s acquiescence on Erdogan’s politically-motivated war with the PKK) agreed to allow the US to fly combat
missions against ISIS targets from Incirlik. Now note which country along the purple line is not highlighted in red.
That’s because Bashar al-Assad didn’t support the pipeline and now we’re seeing what happens when you’re a
Mid-East strongman and you decide not to support something the US and Saudi Arabia want to get done.
(Map: ZeroHedge.com)

Knowing Syria was a critical piece in its energy strategy, Turkey attempted to persuade Syrian President Bashar Assad to reform this Iranian pipeline and to work with the proposed Qatar-Turkey pipeline, which would ultimately satisfy Turkey and the Gulf Arab nations’ quest for dominance over gas supplies. But after Assad refused Turkey’s proposal, Turkey and its allies became the major architects of Syria’s “civil war.”

Much of the strategy currently at play was described back in a 2008 U.S. Army-funded RAND report, “Unfolding the Future of the Long War”:

“The geographic area of proven oil reserves coincides with the power base of much of the Salafi-jihadist network. This creates a linkage between oil supplies and the long war that is not easily broken or simply characterized. … For the foreseeable future, world oil production growth and total output will be dominated by Persian Gulf resources. … The region will therefore remain a strategic priority, and this priority will interact strongly with that of prosecuting the long war.”

In this context, the report identifies the divide and conquer strategy while exploiting the Sunni-Shiite divide to protect Gulf oil and gas supplies while maintaining a Gulf Arab state dominance over oil markets.

“Divide and Rule focuses on exploiting fault lines between the various Salafi-jihadist groups to turn them against each other and dissipate their energy on internal conflicts. This strategy relies heavily on covert action, information operations (IO), unconventional warfare, and support to indigenous security forces. … the United States and its local allies could use the nationalist jihadists to launch proxy IO campaigns to discredit the transnational jihadists in the eyes of the local populace. … U.S. leaders could also choose to capitalize on the ‘Sustained Shia-Sunni Conflict’ trajectory by taking the side of the conservative Sunni regimes against Shiite empowerment movements in the Muslim world…. possibly supporting authoritative Sunni governments against a continuingly hostile Iran.”

The report notes that another option would be “to take sides in the conflict, possibly supporting authoritative Sunni governments against a continuingly hostile Iran.”

This framework crafted an interesting axis: Turkey, Qatar, Saudi Arabia, U.S., Britain and France vs. Syria, Iran and Russia.

Divide and conquer: A path to regime change

With the U.S., France, Britain, Qatar, Saudi Arabia and Turkey — aka, the new “Friends of Syria” coalition — publicly calling for the overthrow of Syrian President Bashar Assad between  2011 and 2012 after Assad’s refusal to sign onto the gas pipeline, the funds and arms flowing into Syria to feed the so-called “moderate” rebels were pushing Syria into a humanitarian crisis. Rebel groups were being organized left and right, many of which featured foreign fighters and many of which had allied with al-Qaida.

The Syrian government responded with a heavy hand, targeting rebel held areas and killing civilians in the process.

Since Syria is religiously diverse, the so-called “Friends of Syria” pushed sectarianism as their official “divide and conquer” strategy to oust Assad. Claiming that Alawites ruled over a majority Sunni nation, the call by the “moderate” U.S.-backed rebels became one about Sunni liberation.

Although the war is being sold to the public as a Sunni-Shiite conflict, so-called Sunni groups like ISIS,  the Syrian al-Qaida affiliate Jabhat al-Nusra (the Nusra Front) and even the “moderate” Free Syrian Army have indiscriminately targeted Syria’s Sunnis, Shiites, Christians and Jews. At the same time, these same foreign nations supported and even armed the Bahraini government, which claims to be Sunni, in its violent crackdown on the majority Shiite pro-democracy demonstrations that swept the nation.

The Syrian government army itself is over 80 percent Sunni, which indicates that the true agenda has been politically — not religiously — motivated.

In addition to this, the Assad family is Alawite, an Islamic sect that the media has clumped in with Shiites, though most Shiites would agree that the two are unrelated. Further, the Assad family is described as secular and running a secular nation. Counting Alawites as Shiites was simply another way to push a sectarian framework for the conflict: It allowed for the premise that the Syria-Iran alliance was based on religion, when, in fact, it was an economic relationship.

This framework carefully crafted the Syrian conflict as a Sunni revolution to liberate itself from Shiite influence that Iran was supposedly spreading to Iraq, Syria and Lebanon.

But the truth is, Syria’s Sunni community is divided, and many defected to join groups like the Free Syrian Army, ISIS and al-Qaida. And as mentioned earlier, over 80 percent of Assad’s military is Sunni.

As early as 2012, additional rebels armed and financed by Arab Gulf nations and Turkey like al-Qaida and the Muslim Brotherhood, declared all-out war against Shiites. They even threatened to attack Lebanon’s Hezbollah and Iraq’s government after they had overthrown the Assad government.

Soon after, the majority of the Muslim Brotherhood rebels became part of al-Qaida-affiliated groups. Together, they announced that they would destroy all shrines — not just those ones which hold particular importance to Shiites.

Hezbollah entered the scene in 2012 and allied itself with the Syrian government to fight al-Nusra and ISIS, which were officially being armed and financed by Qatar, Saudi Arabia and Turkey. And all the arms were actively being sold to these nations by the United States. Thus, US arms were falling into the hands of the same terror group the US claims to be fighting in its broader War on Terror.

According to reports, Hezbollah was and has been been active in preventing rebel penetration from Syria to Lebanon, being one of the most active forces in the Syrian civil war spillover in Lebanon. Despite this, the U.S. sanctioned both the Syrian government and Hezbollah in 2012.

Also that year, Russia and Iran sent military advisers to assist the Syrian government in quelling the terror groups, but Iranian troops were not on the ground fighting during this time.

What was once a secular, diverse and peaceful nation, was looking more like it was on its way to becoming the next Afghanistan; its people living under Taliban-style rule as jihadists took over more land and conquered more cities.

Effects of foreign meddling outweigh self-determination

If you think that was hard to follow, you’re certainly not alone.

Most sectarian civil wars are purposely crafted to pit sides against one another to allow for a “divide and conquer” approach that breaks larger concentrations of power into smaller factions that have more difficulty linking up. It’s a colonial doctrine that the British Empire famously used, and what we see taking place in Syria is no different.

So, let’s get one thing straight: This is not about religion. It might be convenient to say that Arabs or Muslims kill each other, and it’s easy to frame these conflicts as sectarian to paint the region and its people as barbaric. But this Orientalist, overly simplistic view of conflict in the Middle East dehumanizes the victims of these wars to justify direct and indirect military action.

If the truth was presented to the public from the perspective that these wars are about economic interests, most people would not support any covert funding and arming of rebels or direct intervention. In fact, the majority of the public would protest against war. But when something is presented to the public as a matter of good versus evil, we are naturally inclined to side with the “good” and justify war to fight off the supposed “evil.”

The political rhetoric has been carefully crafted to make lies sound truthful and murder respectable. Ultimately, no matter the agendas, the alliances or instability brought on by foreign meddling, the calls for freedom, democracy and equality that erupted in 2011 were real then and they’re real today. And let’s not forget that the lack of freedom, democracy and equality have been brought on more by foreign meddling to prop up brutal dictators and arm terror groups than by self-determination.

The people in the Middle East once stood united and strong together against foreign meddling, exploitation and colonialism no matter their religious or cultural background. But today, the Middle East is being torn to shreds by manipulative plans to gain oil and gas access by pitting people against one another based on religion. The ensuing chaos provides ample cover to install a new regime that’s more amenable to opening up oil pipelines and ensuring favorable routes for the highest bidders.

And in this push for energy, it’s the people who suffer most. In Syria, they are fleeing en masse. They’re waking up, putting sneakers on their little boys and girls, and hopping on boats without life jackets, hoping just to make it to another shore. They’re risking their lives, knowing full well that they may never reach that other shore, because the hope of somewhere else is better than the reality at home.

OIL WEAKNESS

End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought

Submitted by Tyler Durden on 09/04/2021 - 13:18

The characteristic feeling of the post-2008 world has been one of anxiety.Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters. The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out...

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump

Submitted by Tyler Durden on 09/04/2021 - 13:34

Early last month, we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has been complicated by the Fed's ZIRP, was set to opportunistically tap the debt market in an effort to offset a painful petrodollar reserve burn. As Bloomberg reports, Qatar is now doing the same, "raising money from local banks as the slump in oil prices buffets the finances of the Middle East’s largest oil and gas exporters."

09-05-15 SII

 

 

Submitted by Tyler Durden on 09/04/2021 15:08

Saudi King Arrives In DC??

Over the past month or so, we’ve spent quite a bit of time detailing the effect the death of the petrodollar has had on Saudi Arabia’s financial position. Recapping briefly, Riyadh’s move to Plaxico itself in an effort to bankrupt the US shale space late last year has forced the kingdom to draw down its petrodollar reserves to ensure that ordinary Saudis aren’t affected by plunging crude. Add in a proxy war (or two) and you get a budget deficit of 20% to go along with the first current account deficit in ages. The cost of maintaining the riyal’s peg to the dollar doesn’t help either. 

The situation described above has caused the Saudis to tap the debt market to help fill the gap and indeed, some estimates show the country’s currently negligible debt-to-GDP ratio climbing by a factor of 10 by the end of next year. 

But make no mistake, all of the above should not be mistaken as a suggestion that the Saudis aren’t rich - very rich, and if you had any doubts about that, consider the following description from Politico of King Salman's arrival in Washington for his first meeting with President Obama:

In anticipation of King Salman bin Abdulaziz of Saudi Arabia’s stay, the Four Seasons hotel in Georgetown has done some redecorating — literally rolling out red carpets in order to accommodate the royal’s luxurious taste.

Eyewitnesses at the property have seen crates of gilded furniture and accessories being wheeled into the posh hotel over the past several days, culminating in a home-away-from-home fit for the billionaire Saudi monarch, who is in Washington for his first White House meeting with President Barack Obama tomorrow.

“Everything is gold,” says one Four Seasons regular, who spied the deliveries arriving at the hotel. “Gold mirrors, gold end tables, gold lamps, even gold hat racks.” Red carpets have been laid down in hallways and even in the lower parking garage, so the king and his family never have to touch asphalt when departing their custom Mercedes caravan.

The guests staying at the 222-room hotel for the next couple of days are all part of the 79-year-old king’s entourage of Saudi diplomats, family members and assistants, one source said; a full buyout of the entire property was reserved for the visit. Guests who had booked to stay at the Four Seasons during the royal visit have apparently been moved to other luxury hotels in town. A call to the Four Seasons confirmed the hotel is sold out Thursday, Friday and Saturday nights.

King Salman, who ascended the throne in January, has a habit of displacing commoners for his own comforts; this summer, during a sojourn to the French Riviera, his eight-day stay forced the closure of a popular beach, enraging locals. Salman rolls deep, with a reported 1,000-person delegation joining him for his seaside August vacation.

Wall St. Journal reporter Carol Lee snapped this photograph of Salman's entourage arriving at Andrews Air Force Base on Thursday:

The king will reportedly discuss a number of rather pressing issues with the Obama administration including:

  • Riyadh's involvement in Yemen, where, as we detailed on Thursday, a former US counterterrorism "success story" is now on the verge of splitting into two separate countries.
  • Of course the Iran nuclear deal will also come up, especially in light of the fact that, as The New York Times noted earlier this week, "Republicans are considering legislative options to counter the deal, including the possible reimposition of sanctions the agreement is supposed to lift," now that the President has secured the support he needs to sustain a veto of a GOP challenge.
  • Perhaps more importantly, the two leaders will also discuss Syria and oil prices, with the latter issue now having a rather outsized impact on America's shale producers as well as on US majors' capex plans. Needless to say, the real question from a geopolitical perspective is whether Obama and King Salman come to any closed-door agreements on Syria where, as Al Jazeera delicately puts it, the US and Saudi Arabia are set to orchestrate a "managed political transition."

 

OIL WEAKNESS

08-29-15 SII
Submitted by Tyler Durden on 08/21/2015

WTI Crude Breaks Below Historic $40 Level, Energy Credit Spikes To Record Highs After Rig Count Rise

Well, we have a winner - Oil broke to a 3 handle before 10Y rates hit a 1 handle (just - 10Y at 2.04%) following the 5th weekly rise in rig count (+2 to 674). Energy credit risk is soaring to record highs as investors realize 'there will be blood' in all those highly-levered loans.  This is the first time the front-month crude contract traded below $40 since March 3rd 2009... just before QE was unleashed in all its asset-inflating, malinvestment-driving, zombifying glory.

This didn't help:

  • *SAUDI LIKELY TO KEEP OUTPUT NEAR 10M B/D THROUGH 2016: BARCLA

And then the rig count data hit.

  • *U.S. TOTAL RIG COUNT 885 , BAKER HUGHES SAYS
  • *U.S. OIL RIG COUNT UP 2 TO 674, BAKER HUGHES SAY

WTI Crude breaks below $40....

and Energy credit risk is exploding..

Trade accordingly...

Charts: Bloomberg

 

Low Oil Prices Could Break The "Fragile Five" Producing Nations

Persistently low oil prices have already inflicted economic pain on oil-producing countries. But with crude sticking near six-year lows, the risk of political turmoil is starting to rise.

There are several countries in which the risks are the greatest – Algeria, Iraq, Libya, Nigeria, and Venezuela – and RBC Capital Markets has labeled them the “Fragile Five.”

Iraq, facing instability from the ongoing fight with ISIS, has seen its problems compounded by the fall in oil prices, causing its budget to shrink significantly. The government is moving to tap the bond markets for the first time in years, looking to issue $6 billion in new debt.

Revenues have been bolstered somewhat by continued gains in production. Iraq’s oil output hit a record high in July at 4.18 million barrels per day, up sharply from an average of 3.42 million barrels per day in the first quarter of this year. But with Brent crude now dropping well below $50 per barrel, Iraq’s finances are worsening. According to Fitch Ratings, Iraq may post a fiscal deficit in excess of 10 percent this year, and all the savings accrued during the years of high oil prices have been depleted.

Other political problems loom for Iraq. The central government and the semiautonomous region of Kurdistan have been unable to resolve a dispute over oil sales. With revenues running low for the central government, it has failed to transfer adequate funds to the Kurdish Regional Government (KRG). That led to the breakdown of a tenuous deal between the two sides that saw Kurdish oil sold under the purview of the Iraqi government. The KRG is selling oil on its own now in an effort to obtain much needed revenue in order to pay private oil companies operating in its territory.

Meanwhile, in southern Iraq, which produces the bulk of the country’s oil and has been far from the violence associated with ISIS, protests have threatened oil operations there. Protests at the West Qurna-2 oilfield operated by Russian firm Lukoil have raised concerns within both the company and the Iraqi central government about disruptions. The Prime Minister even traveled to the site to reassure Lukoil about the stability of its operations.

“Recent pressure from villagers and nearby residents making demands could force us to consider halting operations if they keep extorting us,” a Lukoil official reportedly said. Disruptions don’t appear to be imminent, but any cutback in production would be a huge blow to Baghdad and would plunge Iraq deeper into financial despair.

Low oil prices could also push Venezuela into a deeper crisis. The cost of insuring Venezuelan government bonds has hit its highest level in 12 years, indicating the growing probability of default. Critical parliamentary elections loom in December, but the government has already cracked down on opposition candidates and will likely prevent a fair election from taking place, even while President Maduro’s popularity sinks. The economy is already in crisis, but it is teetering on the brink of something more acute. Bloomberg’s editors openly wonder whether Venezuela’s neighbors are prepared for its collapse.

For Libya, already torn apart by civil war and the growing presence of ISIS militants, low oil prices are the last thing the country needs. ISIS violently crushed a civilian rebellion last week in the coastal city of Sirte, according to Al-Jazeera. Libya’s internationally-recognized government has called upon Arab states for help in fighting ISIS, something that the Arab League has endorsed. Meanwhile, the country’s oil sector – the backbone of the economy – is producing less than 400,000 barrels per day, well below the 1.6 million barrels per day Libya produced during the Gaddafi era. In other words, Libya is selling far less oil than it used to, and at prices far below what they were as recently as last year. Citing IMF data, Bloomberg says that oil is selling for almost $160 per barrel less than what Libya would need it to be for its budget to breakeven.

Saudi Arabia does not belong in the same category of troubled countries, but it is also not immune to oil prices at multiyear lows, despite its vast reserves of foreign exchange. Saudi Arabia could run a fiscal deficit that is equivalent to about 20 percent of GDP. To finance public spending, Saudi Arabia has returned to the bond markets for the first time in eight years, issuing 15 billion riyals ($4 billion) in July, only to be followed up by an additional bond offering of 20 billion riyals ($5.33 billion) in August. The government plans on taking on more debt in the coming months as well.

Still, Saudi Arabia has a market share strategy that it is pursuing, and there are no signs that it will reconsider. That could spell trouble for much more fragile oil-producing countries around the world.

OIL WEAKNESS

08-22-15 SII

ubmitted by Tyler Durden on 08/21/2015 17:25

ZERO HEDGE:

"the most recent plunge has been entirely a function of what now appears to be a global economic recession"

One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10 Year have imagined.

Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.

Here is BofA:

Retreating global equities, bond yields and DM breakevens confirm that EM has company. Much as in late 2014, global markets are going through a significant global growth scare. To illustrate this, we update our oil price decomposition exercise, breaking down changes in crude prices into supply and demand drivers (The disinflation red-herring).

Chart 6 shows that, in early July, the drop in oil prices seems to have reflected primarily abundant supply (related, for example, to the Iran deal). Over the past month, however, falling oil prices have all but reflected weak demand.

BofA's conclusion:

The global outlook has indeed worsened. Our economists have recently trimmed GDP forecasts in Japan, Brazil, Mexico, Colombia and South Africa, while noting greater downside risks in Turkey due to political uncertainty. Asian exports continue to underwhelm, and capital outflows are adding to regional woes. Looking ahead, we still expect the largest DM economies to keep expanding at above-trend pace but global headwinds have intensified.

And yet, BofA's crack economist Ethan Harris still expects a September Fed rate hike. Perhaps the price of oil should turn negative (yes, just like NIRP, negative commodity prices are very possible) for the Fed to realize just how cornered it truly is.

 

Submitted by Tyler Durden on 08/19/2015 13:14

WTI Collapses To A $40 Handle & What That Means For Earnings

Moments ago, following the DOE report of an unexpected jump in oil inventories which caught all algos by surprise, oil collapsed to a $40 handle...

...a price not seen since 2009.

So what does this mean for S&P 500 earnings in general, and energy earnings in particular?

Nothing short of much more pain, if not a complete wipeout, as the following chart - showing energy EPS with a 4 month lag vs oil prices - from Citigroup reveals.

Which, as we also reported two days ago, means forward energy multiples are about to explode to record highs and, as we also commented, if and when the realization arrives that forward multiples in the 25-30x range are just a "tad high" and multiples mean revert, watch out for a 50% crash in energy stock prices...

... which after a year of hopium courtesy of central banks, will finally metastasize to the rest of the S&P 500.

 

 

08-15-15

SII

ENERGY

 

 

 

Recall crude oil’s dramatic 2008 price collapse. The high that year was in July at $147.50 a barrel. By December, the price had plummeted to $30.28

This chart shows how Elliott Wave Theorist subscribers were warned ahead of time.
 
 
 
It was a few weeks before the top when the Theorist said, “Crude Oil: One of the greatest commodity tops of all time is due very soon.”
 
Eventually oil did climb back above $100 a barrel. But it took two-plus years, and even then prices remained far below the July 2008 high.
 
Crude traded roughly sideways through June 2014. Then came another nosedive, and about nine months later crude was trading below $44 a barrel.
 
Once again, subscribers were warned weeks ahead of time. Here’s what the May 2014 Theorist said:
 
“The multi-year outlook is for much lower prices.”
 
After oil’s relentless multi-month decline, the January 2015 Theorist said that “now that bearish conviction has crystallized, oil is likely to rally.”
 
By May 5, oil’s price climbed to just above $60 a barrel. Yet as our long-term analysis suggested, the bounce was relatively short-lived:
 
“US oil settles at a six-year low of $43.08 a barrel” (CNBC, Aug. 11).
 
Where are oil prices headed?
 
Well, one prominent financial observer has been consistent with his outlook for oil.
 
“Gary Shilling thinks the price of oil is going way lower. The economist and financial analyst wrote an op-ed for Bloomberg View discussing the various reasons why he thinks the price could get down to $10-20 per barrel” (Business Insider, Feb. 17).
 
Shilling is a deflationist. In an Aug. 3 tweet he reiterated his oil forecast: “Prices will drop even further.”
 
As always, there are voices saying the glass is half full: The founder of a financial firm recently told CNBC that “Oil does not have much more of a downside left.”
 
Time will tell which of these forecasts is correct.
 
Consider the bigger picture – namely the downtrend in other commodities (like copper). Think about the economic weakness in Europe and now China. Consider the record levels of global debt. Reflect on the ineffective stimulus efforts of central banks around the world. And finally, consider this excerpt from the July Theorist:
 
People who are afraid that deflation will lead to economic contraction are correct. That’s why the subtitle of Conquer the Crash includes both words: Deflationary Depression. But the trip to the finish line is a zigzag path. Results don’t show up overnight. What’s happening now is nothing compared to what’s coming.
 
"Peak Oil" -- And Other Ways Crude Oil Fooled Almost Everyone
Remember "Peak Oil"? About ten years ago, it was a hugely popular theory "explaining" why oil prices would only go higher. They didn't. These excerpts from Robert Prechter's Elliott Wave Theorist highlight the flaws in the conventional approach to forecasting oil prices and show you a better method -- a method that has done a remarkable job forecasting the future path of oil prices.

 

 

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