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TheTalkingMule
Distributed Energy Enthusiast
Has anyone witnessed these "attacks" or documented verifiable damage? This looks to me like the Saudis setting a few barrels ablaze on deck each time Brent hits $60.
.... Saudi Arabia (IMO) blows up one of its own tankers, and a UAE tanker, in order to manipulate markets and drive the oil price up.
Despite this, Brent barely manages to hold above $60.
Yes. The Saudi government is on the verge of collapse. They've resorted to false flag attacks to push the oil price up, a tactic which won't work for long.
Rumor (which could be wrong) is that they murdered Kashoggi becuase he was going to reveal that they had less oil than they said. Which actually would bring the oil price up, but they don't want it to happen THAT way...
NOT coincidentally, they're going to host an Aramco "earnings call" soon because they're still desperately trying to unload part of Aramco before the whole thing becomes worthless. They will fail to do so; they've run out of time already. They're targeting 2021. They can't prop up the oil price for two years.
I therefore doubt they can keep up the pretense of their oil reserves that long -- the reserves number depends on the oil price.
They got an "external audit" by DeGolyer and MacNaughton to "confirm" their reserves estimates, but I don't believe DeGolyer and MacNaughton sent people out to personally redo all the data -- I believe they used data given them by the Saudis. The Saudis are quite capable of sending faked data, and DeGolyer and MacNaughton would not be expecting that or looking for it. And of course the estimates depend *directly* on the oil price.
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TheTalkingMule
Distributed Energy Enthusiast
If we had any journalists left in the world it wouldn't be tough to identify which ships these were and where they stood in age/value to their owners. I'd be willing to bet these, by pure coincidence, were in older and shittier quadrant of the fleet.
ZachF
Active Member
Saudi Arabia's last excursion into low prices in 2015/16 saw them spend $250 billion of their FOREX reserves as well as grow debt from essientially nothing to $150 billion last year.
I don't think Saudi Arabia could do that again... Another $250b drop in their FOREX would probably bring out speculators and capital flight, and force them to drop their dollar peg. This would also likely drastically reduce (perhaps to the point of elmination) their ability to borrow.
I don't know how well the Saudi economy could handle forced austerity. They really don't even have an economy outside of oil... They pay foreigners to all the actual work in the country! It's probably one of the most dysfunctional government/economic systems in the world. Reading the postmortem on the Saudi system is going to be interesting 10 to 20 years from now.
Mader Levap
Member
If what you say about SA economy is correct, then they won't handle it very well. At all. Whatsoever. Grim theocratic dicatorship will go full totalitarian in futile attempts to survive. I mean, it is already totalitarian absolute monarchy, but I am sure it can aways get worse.
So, guys. What are your predictions? How many years until some bloody uprising/revolution engulfs Saudi Arabia?
I'd also point out that at 1C $300/kWh capacity is also $0.30/W. So when the grid is pricing out options to manage power requirements batteries are really cheap. By comparison a gas peaker has a power capacity cost around $0.90/W for a facility that may be used less than 5% of the time. Moreover, peakers take about 10 minutes to respond to events while batteries can respond in a fraction of a second. The ability to deliver highly responsive power at low cost is what has made the big battery in South Australia so profitable, and it has altered market economics for all competitors.
So my point is that in the near term there are opportunities for batteries to offer low C options (high discharge rates relative to storage capacity) at very competitive prices. As the cost per kWh capacity comes over time, we will see this shift toward higher C applications. So it is not like the utility space must wait for this storage capacity price to come down before demand for grid batteries can grow significantly.
Also I would remind folks that battery pack costs are falling about 20% per year, and this shows no signs of slowing up any time soon.
The only serious problem I see for utility uptake of batteries is the constraint of battery supply and how EVs compete for this supply. The more aggressively EV demand grows, the more limited the supply and higher the price batteries will be for utilities and other consumers of stationary storage. Tesla may have tossed out some low margin batteries to seed demand in this space, but as the market heats up there is little need for producers to accept low margins, not while the battery market is substantially undersupplied. I've never really bought into the notion that grid batteries must be low margin products. They are cheap enough now if you can get them, and the market is nowhere close to being oversupplied. So the producer cost can keep falling 20% per year, but there is no need for the retail price (what the utilities pay fully installed) to fall by as much. This is a situation where producer margins expand.
TheTalkingMule
Distributed Energy Enthusiast
Trump threatening Iran if they close the strait it "won't be closed long". Amazing that an operation as archaic and transparent as the Saudi royal family could play our POTUS like a fiddle. Brent up $1.
Putin’s $40 Oil Lie | OilPrice.com
So this gives some insight into the games between Russia and Saudi Arabia. Russia thinks its regime can survive a lower oil price than the Saudi regime, so when it negotiates production cuts it might leverage Saudis into 40% larger cuts.
But make no mistake, both regimes are existentially dependent on the price of oil. At some point the only way for either to stay in power is force politically weaker producers to shut down production. In Africa and other developing areas, there are already proxy wars to curtail production. I fear the use of military and dark intelligence operations to snuff out production while likely increase as oil demand plateaus and drops off. The regimes that are most dependent of oil for their political power will stop at nothing to try to remain in power.
As someone who advocates for the end of oil, it disgust me that so many will be harmed in the process. But these regimes have been evil and oppressive for quite some time. In the larger scheme of things they must come to an end. But these regimes will not accept their fate without bringing ruin to many others, especially the most vulnerable of this world.
So this gives some insight into the games between Russia and Saudi Arabia. Russia thinks its regime can survive a lower oil price than the Saudi regime, so when it negotiates production cuts it might leverage Saudis into 40% larger cuts.
But make no mistake, both regimes are existentially dependent on the price of oil. At some point the only way for either to stay in power is force politically weaker producers to shut down production. In Africa and other developing areas, there are already proxy wars to curtail production. I fear the use of military and dark intelligence operations to snuff out production while likely increase as oil demand plateaus and drops off. The regimes that are most dependent of oil for their political power will stop at nothing to try to remain in power.
As someone who advocates for the end of oil, it disgust me that so many will be harmed in the process. But these regimes have been evil and oppressive for quite some time. In the larger scheme of things they must come to an end. But these regimes will not accept their fate without bringing ruin to many others, especially the most vulnerable of this world.
Libya’s NOC Warns Army Is Inside Key Crude Terminal | OilPrice.com
Here's an example of the kind of proxy conflicts that can be used to disrupt oil production.
Now, I don't know who is backing this insurgent LNA group. I don't know what their issues are. But some external interest very well could fund and help arm such a group. Doing so destabilizes the the country and puts oil infrastructure at risk. The NOC does not want to become a target however this plays out. For external oil interests to benefit, it is not necessary for the LNA to achieve any specific military objective. Simply destabilizing the situation in proximity to oil infrastructure increases the chance that oil supply might be disrupted. And this percieved hazard is enough to help support the global price of oil. Thus, there can be an economic payoff to any oil dependent regime for (covertly) supporting outfits like the LNA. It doesn't matter much who these groups are or what they want; they can be financed and armed by certain oil interests. And that's enough to prop up the price of oil.
Here's an example of the kind of proxy conflicts that can be used to disrupt oil production.
Now, I don't know who is backing this insurgent LNA group. I don't know what their issues are. But some external interest very well could fund and help arm such a group. Doing so destabilizes the the country and puts oil infrastructure at risk. The NOC does not want to become a target however this plays out. For external oil interests to benefit, it is not necessary for the LNA to achieve any specific military objective. Simply destabilizing the situation in proximity to oil infrastructure increases the chance that oil supply might be disrupted. And this percieved hazard is enough to help support the global price of oil. Thus, there can be an economic payoff to any oil dependent regime for (covertly) supporting outfits like the LNA. It doesn't matter much who these groups are or what they want; they can be financed and armed by certain oil interests. And that's enough to prop up the price of oil.
Mader Levap
Member
Example from media. Gallery of pictures is in middle of article. And someone would thought crew of those tankers would be "witnesses".
Let me google that for you. Incidentally, contrary to Neroden's claims, neither of tankers involved were owned by SA or UAE. One is Japanese, other is Norwegian. So SA wouldn't really be able to "set a few barrels ablaze on deck" anyway.
Those claiming "Iran is least likely one to do it" are hyperbolic to point of silliness. I can imagine literally hundred countries less likely than Iran. Context matters. Sanctions against Iran matter and give possible motive. Iran is also known for threats in reaction to escalating sanctions (though they historically do not act on them).
My stance? I don't trust anyone involved there.
TheTalkingMule
Distributed Energy Enthusiast
IEA ratcheted down their 2019 growth estimate again this week. 1.14M they're saying now, pretty much on track to keep lowering and lowering until they hit 800k by December 28th.
Subscribe to read | Financial Times
People can cite tariffs all they like, but in reality trade had likely ramped to get ahead of tariffs. What the hell is 2020 gonna look like, flat?
Expect more "attacks" on tankers and other "disruptions" until the bottom falls out in 9-24 months.
I always thought XOM was going to zero just as quickly as the Saudis. Wouldn't it be funny if all this chaos crumbled into multinationals like XOM along with Russia being the major suppliers during the long slide down? It's kinda possible if SA falling turns the entire ME into a fireball.
I guess if it gets that nuts we can still frack semi-profitably.
Really hard to tell. Zero to ten years?
At this point I literally think it could be any day. MBS has cracked down on unauthorized information, which is dumb. (This is also something Xi is doing in China, and it's also dumb.) The main effect of doing this is that the revolution happens much more suddenly and much more violently than it would if there were working, open forums for the airing of grievances.
Or it could be ten years. Since peak oil demand should be circa 2023-2025, I think there's no way the Saudi regime can survive through 2030.
Ah, clarification: they were KSA and UAE *contracted oil cargos*, that was my point. They don't own the tankers, but they sure did have means and opportunity. And motive, which Iran lacks.
So currently with Tesla's retail prices, that's $500/kWh capacity or $0.50/W
So the current batteries are half the price.
Well, let's look demand-side. With the new peaker market not yet filled by batteries, producer margins should expand, yes. Once the peaker market is supplied, the retail prices should drop to the $300/kWh capacity level to compete with the transmission market (cutting retail prices, not allowing producer margins to increase). Then further cost cuts should see producer margins increase, since the transmission market is very large and it will take a very long time to displace all of it. Price cuts in transmission may happen but probably not below $0.04/kwh delivered, so the retail battery prices won't go much below $200/kWh capacity for a long time even if production costs drop well below that.
Is it enough to prop up the price of oil?
Total oil production is 18% US, 12% Saudis, 11% Russia, 5% Canada, 5% China, 5% Iraq, 5% Iran, 4% UAE, 3% Brazil, 3% Kuwait, 30% Other.
How many disruptive proxy wars does it take to really keep the price of oil propped up? And for how long?
Having one in Venezuela and one in Libya doesn't seem to be holding the price up much. I guess the Iraqi invasion of Kuwait in the 1990s and the US invasion of Iraq in the 2000s, each of which shut down a meaningful percentage of oil production, managed to prop the price up. But those were both before peak oil demand.
Reduction in oil demand will be eating over 5% of oil demand per year by 2026, so even shutting off Iran's supply would do nothing at that point.
Let's be more specific. To counteract this year's *electric car adoption*, 0.3% of world oil supply needs to go offline. Bloomberg was estimating 3 times as much displacement by buses, so call it 1.2% reduction to balance the market. Next year, there will be an additional 1.7% to displace, and in 2021, an additional 2.5%.
Now, since the oil companes *still* haven't given up on exploratio nor increased production, let's assume steady or increasing supply everywhere else. Then if some idiot starts a war with Iran and shuts down all the Iranian oil wells (unlikely, some would still be produced), the market will rebalance at the end of 2021 at prices even lower than last year's.
Seems like the majority of traders are starting to understand this:
Bloomberg - Are you a robot?
Perhaps the only invasions which could *really* prop the price of oil up would be invasions of the US, Russia, or Saudi Arabia. An invasion or civil war where the oil supply from the US was cut off seems implausible to me, and the same for Russia; I think in any such situation both sides would keep the oil going.
US fracking could go away for financial reasons, though. It appears that the optimal thing for the Saudis is to get the frackers to stop.
Saudi Arabia's governmental collapse is IMO the second most likely cause of a major shove upward in the oil price, after the end of fracking. I still doubt that either side would deliberately stop oil production as happened in Iraq. I don't see any outsider willing to invade Saudi Arabia, so they'll just collapse on their own...
TheTalkingMule
Distributed Energy Enthusiast
For historical perspective, coal peaked in 2015/16 and all coal companies were dead before it even happened. I'm calling the first major uprising in SA for next spring. A nice 10 months of sub-$55 Brent should do it.
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