Wave bye-bye to those cheap gas prices — the why behind that

An OPEC+ oil production cut is coming right up, reports say.

This benefits two countries: Saudi Arabia, the leader of OPEC, and Russia, the +.

The Russian benefits are obvious: Increased pain on the West, along with, perhaps, letting China and a few other countries know they can't exploit its predicament too much. (Since Russia is also a net food exporter and Xi Jinping is blowing his top about Chinese food security, this has other angles, too.) Currently, Russian oil has been trading at as much as a 30 percent discount. So, tightening the market means the degree of discount will also drop.

The Saudis? Mohammad bin Salman, fresh off his international diplomatic immunity from being named prime minister, can keep Warmonger Joe Biden dancing like a fist-bumping yo-yo. This has added importance with the breakdown of a ceasefire in Yemen.

This is beyond the issue of simply addressing sagging gas prices.

The story above notes that purely domestic American issues had already brought a halt to declining gas prices in much of the country, though some stores here on the Red dropped a cent again in the last few days. It's ... interesting that Nevada (and I assume the story is overlooking Hawaii and Alaska) has the nation's most expensive gas outside of California.

And, although Inflationary Joe hasn't much reduced food inflation, even with the drop in gas prices, his chances of doing so decline even further with this. And, of course, Democratic Congressional political chances. (Hit the polls at right to offer your thoughts.) This will probably also further crimp the possibility of massive LNG exports to Europe this winter; my take on that is here.

Climate Change Joe, meanwhile, is talking about trying to limit American oil majors from exporting refined gasoline. Good luck with that one.

What about the Strategic Petroleum Reserve? Biden can still release more from it, but — and I did not know this before — due to various national and international legal obligations — it can't go below 250 million barrels. It's just short of 420 million now. 

In other words, at Gas Pump Joe's rate of 1 million barrels a day during past releases, he's got a bit under six months' cushion left. Vladimir Putin will still be rolling dice at that time.

And, the real issue is not just the SPR, but the psychology behind it. As Biden's margins get narrower, getting the SPR closer to its 250 million barrel flatline, the market-influencing power of releases wanes.

Will oil hit $100/bbl, as this story speculates? I doubt it, at least not hitting there and staying there, but trading in the $90-100 range? You bet.

Meanwhile, a final thought on the first story. So-called "NOPEC" legislation to sue OPEC for market manipulation? Even if it DID pass Congress, it's nugatory. How would the US enforce it? Especially since it has opted out of so many international institutions. And, if it tried to, Saudi investments in US defense kit would dry up and blow away to Beijing.

In similar veins of stupidity, first referenced by me a week ago, is the EU's attempt to put a price cap on oil that originated in Russia, as a backdoor sanction. Here is how stupid that is.

Is the Texas economy fixing to implode?

The so-called Texas Miracle, whether under Rick Perry's name or Greg Abbott's, has always been based on two things:

1. Robust oil profits;
2. Lots of cheap immigration.

Well, wingnuts of the Dan Patrick stripe, along with Trump federally, have gnawed away at the second.

And now, the first looks in trouble. (As does the smaller scale Permian-driven "New Mexico miracle"; see end of post for more.)

Non-coronavirus bad news for the Texas economy popped up Friday. Talks between Russia and Saudi Arabia for extending the OPEC+ expanded oil producers agreement broke down, and oil prices tanked along with it. WTI had been below $50/bbl before that, making the great majority of fracking wells in the Permian Basin unprofitable. We're now officially in Ponzi scheme territory, where the only reason companies will drill is fear of losing overvalued leases that cannibalize each other as is, as I've blogged about in recent weeks. Whether it will get as bad as what Aubrey McClendon inflicted on Chesapeake in the gas biz remains to be seen. It's not likely, but it's certainly possible.

And, at end of biz on Friday? West Texas Intermediate was at $42/bbl. And, it got worse over the weekend. The Saudis, after initial indications that they couldn't afford to fight the Russians, started doing so, first with a price splash. By last night, WTI was trading around $30 a barrel. There will be some bounce-back, to be sure. But, no way it gets back above $45 for some time.

And even that isn't likely any time close to soon. Goddam Sachs said oil could drop into the $20s, at least with spot dips, and its prediction is that WTI will remain in the $30s for the rest of the second and third quarters.

“The prognosis for the oil market is even more dire than in November 2014, when such a price war last started, as it comes to a head with the significant collapse in oil demand due to the coronavirus,” the firm added.

In addition, the Dallas Fed has already reported that hiring is flat out in the Permian. And, related to that, that rents have finally flattened.

Russia made clear, per that first link, that it wants this. Remember, the Saudis tried to force such a collapse a few years ago under MBS' pushing, but couldn't pull it off. Russia is less dependent on oil as a somewhat smaller sector of its economy and can take lower oil prices.

Update, Monday evening —

Oh, goodie! We get to read Texas Comptroller Glenn Hegar give us some PR spin a passel of lies about the state of the Texas economy:

“The fundamentals of the Texas economy remain strong. The agency is monitoring weakness in financial markets, including commodities and energy markets. We have been tracking revenues carefully since markets began to soften. 

 "Certainly, Texas has exposure if oil prices remain depressed for a sustained period of time, and slowdowns in economic activity related to the COVID-19 outbreak could also be a headwind. We are still only six months into the current budget cycle, however, and it is too early to tell with certainty how current fluctuations will impact long-term economic performance and state revenues."

Yeah, nice try, Glenn. With half the new oil in the Permian actually being halfway to condensate, and between that and increasing water cuts, half the new drilling in the Permian being underwater, this would be a lie even before last Friday. OilPrice.com is predicting a daily surplus of 3 million barrels by the end of the second quarter.

That said, the amount of trouble oil majors as well as oil minors already face over economically unviable fracking says that the Saudis three years or whatever ago actually pulled it off more than they knew. Don't think the Russians don't know that, as well.

There's also the geopolitical angle. As it looks to extend its reach in Syria in particular and the Middle East in general (Yemen, anybody?) Putin wouldn't mind weakening Saudi Aramco, and some of the government it supports, just as much as ExxonMobil. Or it wouldn't mind continuing to help the legitimate government of Venezuela.

The flip side is that nationally, Larry Kudlow has already made murmurings of selective business help in the country's economy as needed. This also, of course, shows that other than in libertarian wet dreams, and the public speaking out of them, that the Platonic idea of capitalism simply doesn't exist.

I guess a silver lining is that a slowdown in drilling, per that second link, will delay Peak Permian by a couple of months. That said, at the fringes of the Permian, reinforcing what I said about companies seeking out marginal drilling, Apache is withdrawing from the Balmorhea area after claiming it had the secret sauce to find deposits in the Alpine formation there.

Another silver lining? This is possibly the best refudiation yet of #TheResistance that claims Trump is and has been colluding with Russia.

Update, March 30: DeSmog Blog now notes that many refineries are likely to be shuttering in weeks ahead. The typical refinery can't cut production below about 65 percent without shutting down whole units. The problem is a complex one, and more complex than in previous hydrocarbon gluts. A number of these refineries are on the Texas Gulf Coast, including one in Baytown that Exxon has already announced it is shutting.

==

And, despite Joe Monahan's denialism, the problems (and rightful concern) are spreading to New Mexico. Update: The state has officially banned public gatherings of more than 100 people.

Quick hits on the Supreme Court travel ban decision

Wrapping up several things I've said about the ruling on Twitter.

First, Merrick Garland isn't on the Supreme Court. He could have been, had President Obama responded back to Mitch McConnell's obstinance with a recess appointment. But he did not.

Is there a "Biden rule" about SCOTUS nominations in an election year? Kind of sort of, but it really should be called the Thurmond rule.

Beyond that, we don't know how Merrick Garland would have voted.

Beyond THAT, I agree with Eric Levitz that naming Garland was bad Obama strategy.

It was, per my take on Dear Leader on other things, yet one more example of him compromising away a compromise in advance in public.

Update, June 27: Anthony Kennedy is no longer on the bench as of July 31, announcing his retirement after kicking centrism to the curb. If Kennedy was trying to cement something for future courts in his concurrence comments this term, he has surely failed. Ditto for whatever version of a legacy he might have thought he established a few years ago. Masterpiece Cakeshop, Janus and National Institutes of Family Life (California pro-life clinics) cases showed a turd-polishing level of hypocrisy, especially given that Kennedy had taken just the opposite stance in 1992 on Planned Parenthood vs Casey, requiring doctors to tell people about abortion alternatives, as Justice Breyer pointed out. SCOTUSBlog, among others, has more on Kennedy's career and legacy.

Update 2, June 27: I have expanded the paragraph above into a full blog post about Tony the Pony; go here.

Speaking of, I have a new "Oh, the SCOTUS" piece up for Hillbots, or Dems in general, thinking that will convince the likes of me to rejoin the duopoly.

===

Now, to matters at hand on the travel ban.

The ban isn't racist, because religions aren't races.

Nor is it anti-religious, even if Trump has called it a "Muslim ban." It of course doesn't apply to every Muslim-majority country. In fact, Sudan was removed from the original version of the ban last September, which #TheResistance ignores.

And, this ignores that Venezuela and North Korea aren't Muslim-majority, in any case.

Why? Because the ban is actually a petro-geopolitical ban, at heart.

Per that link above, Sudan was removed at the behest of Saudi Arabia and the United Arab Emirates, leaders of the Gulf Cooperation Council. Sudan's "help" in the war against alleged Iranian proxies in Yemen trumps all. The ban is oriented against Syria and Iran, ultimately.

As to Anthony Kennedy sending a message to Trump, yet concurring? Doing both are possible, and Kennedy faces constraints that a Jeff Flake or Bob Corker don't.

Also, this decision is nothing like the Korematsu case. Not all Muslims are being banned, and none of them that are being banned are American citizens.

On the idea that the travel ban should be judged by Trump's tweets, rather than its content? That's close to something analogous to two different First Amendment issues. One is speech vs acts; the other is prior restraint.

(If Ken White, aka Popehat, writes something on this from a quasi-First Amendment speech-vs-acts angle, I'll link it here. Until then, let's go with some Tweets of his:

/5 The rational basis test is the test your mother applies to determine whether you are a nice boy. Of course you are. The rational basis test asks only whether there is ANY plausible non-discriminatory basis whatsoever that could be articulated to support the law,

— ThisIsNotNormalHat (@Popehat) June 26, 2018

And then:

/6 Applied here, the majority finds that one could articulate legitimate non-discriminatory grounds for the law, so -- despite evidence of Trump's own words showing religious animus -- the law passes the rational basis test.

— ThisIsNotNormalHat (@Popehat) June 26, 2018

Followed by:

/8 But the upshot is this: the majority says that the President of the United states can revile Muslims and say he wants to ban them, but as long as his law is facially neutral and someone can make up a neutral argument for it, it survives. /end

— ThisIsNotNormalHat (@Popehat) June 26, 2018

I knew there was a good legal angle, and just couldn't think of the term.

Now, that said, North Korea and Venezuela may just be listed for show. But, with a better written ban than the Bannon-inked, more clearly Islamophobic first one, with both Trump and Bannon talking that way about it, the justices had a reasonable case to apply rational basis and so dodge the issue of trying to divine intent. And, in law, whether civil, criminal or constitutional, judges tend to shy away from divining intent if empirical evidence isn't highly corroborative.

Whether it truly is justifiable on national security issues? I say no. Venezuela is certainly not an exporter of terrorism, though both duopoly parties might try to have you believe otherwise. North Korea is, but Trump is undermining his own Nobel Peace Prize chances in this case. And, the court steered away from that issue.

“We express no view on the soundness of the policy,” Roberts wrote.

That's typical executive branch deference. Read into it what you will.

And, not only is it not sound, contra wingnuts, there are lies by omission as big as Mack trucks within it.

First, there are still terrorists in Saudi Arabia, even if no "training camps" exist. Second, as late as 2016, the government, the kingdom, still supported fomenters of radicalism.

I argue that Saudi Arabia has made considerable progress on counterterrorism in the last 15 years but still has a long way to go. 

In the end, policymakers would do well to remember that Saudi Arabia is a key partner but not a friend: the United States and Saudi Arabia share many common interests, but they do not share common values or a common worldview.

Though that link is 2016, the problems are still current.

Considerable problems remain. As former senior CIA official Bruce Riedel contends, “Saudi sources remain major funders of groups like the Afghan Taliban and Lashkar­e Taiba in Pakistan. Some accounts suggest Saudi money has gone to al­Qaida’s affiliate in Syria, the al­Nusra Front.” Although Riyadh opposes the Islamic State, it sees the Syrian regime, with its close ties to Iran, as a far greater danger and has focused its energies accordingly. Despite greater regime efforts to reduce the flow of fighters abroad, Saudis still have found it easy to travel and fight on behalf of the Islamic State – they are perhaps the largest source of foreign fighters for the group. ... 

Saudi Arabia considers Al Qaeda to be a mortal enemy, yet its military campaign in Yemen has indirectly assisted the group. 

There you go. Syria and Yemen.

But, the Saudis know how to massage both Trump's greed and Bibi Netanyahu.

Oh, that name.

Basically, this is what Bibi would have written.

(As for a G+ commenter telling me to "get with reality" because I didn't explicitly spell out Trump's Saudi business interests? I think that making clear the Riyadh-Tel Aviv axis speaks loudly enough. Besides, Trump didn't write this himself. It was written by neocons wanting another anti-Iran quiver in the arrow, and it wasn't primarily about Trump's business interests.)

And, if Al Jazeera spiked a video because of Qatari GCC member power, well, there you go.

At the same time, on geopolitics, though the travel ban is directed against Syria and Iran, Robert Fisk says on-the-ground signs indicate a US pullback of some sort, if not completely, in Syria. That leads to another question — whence the Islamic State, if Syria gets too hot? Would it really, per Daniel Bynum, slip back into Turkey? Try to regroup in Iraq?

Otherwise, I find the ruling against California's anti-abortion clinics' "script law" more problematic, especially since in Planned Parenthood v Casey, the Court majority, including Kennedy, voted that states COULD require doctors and PP-type clinics to provide information about alternatives.

Oh, and case it's not clear, this is one of those issues where my desire to be deliberately contrarian has easy fodder. The ban is ... ugly. But it's theoretically constitutional —

That said, if the Court had followed its own lead of a month ago in Masterpiece Cakeshop, it arguably would have rejected the travel ban based on the bias of Trump's Tweets.

Volokh thinks the court is justifying using religion as a screening element. I would disagree if that's true, but I think Volokh is misreading — badly. Plenary power may have been involved, but with caveats. It's also interesting that Volokh appears to consider this a "Muslim ban" when it's not (including Volokh ignoring the listing of Iran and North Korea) that Volokh ignored the Korematsu overturning entirely, and in general, cited relatively old case law.

Per my Kennedy retirement link, and Ken White aka Popehat, clearly and consciously blowing part of his analysis, it just shows that constitutional law lawyers are as capable of motivated reasoning as anybody else.

Marjorie Cohn at TruthOut thinks the ruling violates international law, specifically the International Covenant on Civil and Political Rights. Not even close. First, it is applicable to nations regarding people "within its territory and under its jurisdiction." In other words, it prohibits (theoretically) the US (and other countries) from other people inside its borders, whether citizens or resident aliens. It's not about immigration.

Second, Cohn makes the elementary mistake, committed much more often by Islamophobes than others, of considering Islam a race. Uhh, even given that race as currently understood is culturally defined, religious affiliation has never been understood to be a race or even a marker thereof.

==

Finally, the "Oh the SCOTUS" and Merrick Garland, with a full post about that coming up.

As for low turnout in 2014 leading to the GOP retaking the Senate? Well, that goes back to 2010. Sure, you can blame the ruling against Holder on the Voting Rights Act for 2014 stuff. But in 2010 as well as 2014, or even more so, Obama did a piss-poor job of campaigning for Senators, Congresscritters, and also governors and state legiscritters.

The Saudis have oil supply 100 percent backward

As various general news media and oil-watch outlets heat up over Saudi Arabia's attempt to get an oil production freeze from OPEC members and, it hopes, from Russia as well, looking back in hindsight, maybe Ali Al-Naimi should have gone back to old Saudi ways rather than venture into a brave new production world from which his successor, current Saudi oil minister Khalid al-Falih, is trying to pick up the pieces.

That said, it wasn't all his fault. His predecessor, Ali al-Naimi, recently noted that, in late 2014, as an oil oversupply already loomed, fellow OPEC members refused to tighten the taps. Al-Naimi started the decision to keep oil flowing without taking all the hits on cuts itself, and even pumping more.

Al-Naimi led the Saudi oil desk for 20 years, and in previous world, or OPEC, gluts, as the biggest producer, and for his whole time, the so called "swing producer" for the world, would tighten its own taps only. But, largely to smack down US shale oil, he said no.

I think he got it totally wrong.

He should not just have done previous Saudi-style cutting, but even more.

One of the elements of American shale oil is that its success is somewhat a will-o'-the-wisp and certainly short term. Yes, fracking shale formations will produce more oil than conventional drilling, and in tight formations will produce oil where it couldn't be gotten with a conventional process.

However, it doesn't produce that much more oil in wider shale formations, let alone in fracking to improve on non-shale drilling. It does produce some more, but not an incredible amount.

Rather, part of its dazzling effect is simply to increase the flow rate of oil in production. That's it.

If the Saudis had been smart, they would have whacked their production twice as much as in the past, let the price hit $100/bbl, and let many of America's newly-fracked oil wells pump themselves halfway dry in half a dozen years, if that long.

KSA then swoops in to pick up the pieces.

That's IF a "little" new shale oil find in the Permian doesn't totally upset oil production applecarts.

#EndlessWar is still about oil in the end

NPR graphic; numbers as of 2012.

President Obama, who's kept troops in Iraq, bombed Yemen, bombed and CIA-ed Libya, and other things to expand Bush's War on Terra, has proven that more than once.

The biggest proof just came down the pike today, though, with his threat to veto a bill that would let 9/11 victims and their families sue the government of Saudi Arabia.

Despite both the Bush and Obama White Houses doing all they could and can to stonewall looking into, and making public, Riyadh's connections to 9/11, it's clear that dots are out there waiting to be connected by legal action.

As for BushCo, Sen. Bob Graham has long claimed that Shrub shit-canned any attempt to bring the Saudi connection to light. He just reiterated that on Saturday.

Now, a couple of points.

First, both House and Senate passed the bill by voice vote. How many Congressional cockroaches will scurry for daylight when forced to stand on a record vote remains to be seen.

Second, what will the Saudis do if it becomes law? While the "shale revolution" has helped decrease the percentage of oil we import, we still import a lot. Just not all of it from the Saudis.

If the Saudis did try an embargo, it's likely both Iran and Iraq would do all they could to fill the gap. U.S. producers would step to the plate. And tar sands in Canada would ramp up. I can't see the U.S. having a major hurt, at least in the short term. And, after commodities futures markets got done with their rumor-mongering, I think the per-barrel price would settle at around $65.

#NeverForget ... all those preventable deaths besides 9/11, hyperpatriots

I actually did a newspaper op-ed column about this two years after Sept. 11, 2001. But, I know the basics of it still, and with flags being waved in plenty, let's roll. (sic)

First, I can call out American exceptionalism without saying anybody on 9/11 deserved it.

Second, I can call out our government for whitewashing the degree of Saudi involvement, like Jill Stein, without being a 9/11 truther.

OK, I've cleared the decks.

Let's roll.

The United States has millions of cases of preventable deaths every year. Some are of diminishing returns, as far as regulatory efforts, or self-control, or both.

Three are not, and two of them directly involve government regulation that's blocked by right-wingers.

Let's roll.

Tobacco, with 450,000 or more killings a year, kills more people every three days, than died in 9/11. Big Tobacco knew it was producing a killer even before the 1964 Surgeon General report. Rather than cooperate in any way, it spread its denialism to Big Oil, on climate change and other issues. We continue to pay the price.

Alcohol problems, from cirrhosis and cancer to DWIs and work accidents, kills as many people every 10 days as died in 9/11. This one is equal opportunity. Alcoholism, like illicit drugs, kills across all races, all socioeconomic statuses, and presumably all political stances.

But, let's go back to that first link.

Violent deaths in America kill as many people every three weeks as died in 9/11. And, in the U.S., unlike most developed nations, most the violent homicides and a high percentage of the suicides are from guns.

The guns that right-wing hyperpatriots don't want regulated.

So, guns kill as many people in America every six weeks as 9/11.

And, 9/11 happened just once.

EVERY three days, tobacco kills another 3,000.

EVERY 10 days, alcohol kills another 3,000.

EVERY six weeks, guns kill another 3,000.

Never forget?

Let's start by remembering that.

As for 9/11, the long history of U.S. coups in the Middle East and elsewhere has also killed more than 3,000 people. Again, this doesn't mean that "America deserved it."

But, just like hypocritically unhealthy living, it does mean America should look in the mirror.

#Oilprices: Searching for new lows?

Regular readers may take note of the quarterly poll on oil prices I've been running here the past couple of years. Having been at two places in the heart of the Permian Basin, one near the heart of the Barnett Shale (yes, primarily gas these days, but also oil), and one at the edge of the Barnett Shale, I know a little bit about oil.

That said, while oil prices have three weeks to rebound, my current poll doesn't have a vote for as low as they are now. Oil fell below $37 a barrel on Tuesday, for West Texas Intermediate, before ending at $37.51.

And, it could get worse, if you're not a driver, in the short term. How worse? Something like $32 a barrel ... or lower. Commodities futures speculators are about to have to eat their hats, it seems, as places for storing surplus oil are running out.

So, what's the longer-term outlook? (By that, I mean the next 2-3 years, not long-term.)

Tom Kloza of OPIS, one of the more rational people in oil commodities analysis, thinks a fair amount of rebound could start happening in the second half of next year, and we possibly get above $60 a barrel by early 2017, as his video at the second link shows.

Personally, color me skeptical. For one thing, other analysts and Wall Street banks disagree with him. And, Energy Secretary Ernest Moniz is among those saying that, so far at least, U.S. oil production's retrenchment has been slow and limited.

Beyond that, Kloza does mention in passing the possibility that something like Brazil devaluing its rial, its currency, as something that would drive oil prices into the $20s, but doesn't dive into that in great detail.

That said, speaking of devaluations? It seems to have helped Russia weather the storm somewhat. Meanwhile, the Saudis are also working on getting more into refining and its added value. More on both countries' situations here.

#Oilprices continue to tumble to $40; fallout for Texas and #txlege?

Seven weeks ago, when I created my latest quarterly poll on oil prices, as shown at right, I was definitely being more conservative than Wall Street bulls. But, I thought I had potential price ranges pegged about right.

Little did I know.

Oil prices have given up $15/bbl in that time period, falling to a low not seen since the Great Recession.

Neither the bulls nor I foresaw one thing: that China would officially admit its economy is struggling. That, in turn, sawed some floor from underneath the bulls and has become a bit of a self-fulfilling prophecy.

Nobody knew for sure about any Iran deal at that time, though I expected something to happen, and bulls certainly should have. But, maybe I should have made even more allowance for that.

ISIS turned out to be — so far — overstated as a threat to oil prices.

Other market fundamentals, such as Gulf states within OPEC, above all Saudi Arabia, seeking to control supply and pricing, remain unchanged. So, too, does current North American unwillingness to let that fact fully take root.

That said, I and other bears appear to be right overall.

Analysts are predicting supply will remain high and prices relatively flat not just for the rest of this year, but two-three years ahead. That's in part because, sometime in that period, but nobody is sure when, more Iranian oil will be coming in market. (Maybe this is why Texas Ag Commish Sid Miller supports "Muslim peace" with nukes; see here for more.) It's a more severe version of George Bush's idea 15 years ago on oil price control.)

Meanwhile, a sub-$40 floor for oil prices is being discussed by many people.

What's this mean locally?

1. Texas state-level elected officials need to pull their collective heads out of their asses. (But they probably won't for some time.)

2. This is more clear proof that Texas needs an every-year Texas Legislature. It's ridiculous that the only way to deal with this is via a special session, and that in Texas, only the governor can call one.

3. Banks and other lenders will be calling in more loans, which could have a domino effect.

4. Investors, per that link above, will remain skittish about oil because of volatility.

5. A recession in Texas is more likely unless No. 1 happens, and soon.

==

There's other talking points here.

1. Even if the US, or at least Texas, were a unified, state-controlled market, it's still not Saudi Arabia, despite puffery of the last couple of years.

2. Besides the Saudis as the biggest swing producer, China must now be viewed for the next 18-24 months as the "swing consumer" par excellence. The US economy is so big, and so oil-dependent, that a stutter won't affect demand too much. But, a true recession in China would probably ding world oil demand pretty good.

3. What's continued $40 oil mean in Russia? I certainly don't want to poke Vlad the Impaler Putin with a sharp stick, but it's a very serious issue.

Don't expect much more change in #oilprices

Yes, the oil market can be volatile at times, with commodities traders and their hoarding against future shifts adding to the mix.

But, OPEC's strategy, or more specifically, the strategy of Saudi Arabia and other Arab Gulf core members of OPEC, to play Whack-a-Mole with US shale production, seems to have worked, and the June 3 OPEC meeting is expected to say the course. That's even as OPEC members are currently pumping 1 million barrels a day above targets. And, as US oil production hit a 43-year high, indicating Whack-a-Mole may come back up, especially if it's true that many of the idled/capped wells were already in decline, which of course is a big issue with shale wells, the narrowness and steepness of their production curves.

Yes, the US has plenty of fracked-and-capped wells ready to restart production, but the forced cuts in shale production have had their effect. And, while Western oil companies may squeeze a little more efficiency out of future well drilling, more of that's likely to come in the pricier offshore exploration.

Through the rest of the summer, I'd venture West Texas Intermediate trades in a band of roughly $59-$66.

Indeed, once OPEC's lesson-making sinks back in again, oil prices might even fall.

How long before oil supply hits equilibrium?

That is, of course, a major question right now.

Besides particular wells in various "tight" oil formations, like the Eagle Ford in South Texas, the Wolfberry in the Permian Basin and the Bakken in North Dakota, that will continue to produce because they've already been drilled, the other big controlling factor is a place called Cushing, Oklahoma.

That's where a nexus of North American oil pipelines meet and empty their content, if it doesn't have a different immediate final destination, into a complex of storage facilities.

Storage facilities that are filling up rapidly because those already-developed oil wells continue to produce, and at a high initial rate, like most shale oil wells.

"With total crude stocks now about 425 million barrels and Cushing north of 46 million barrels, WTI is looking increasingly mispriced high above $52 per the April contract," said Jeffries Futures analysts in a note to traders.

Indeed, the note says that some commodities futures traders will probably bet on oil going higher with another drop in the rig count.

Folks, that means nothing, for the reasons just noted; we still have excess supply in current production, and that's probably not going to change for a few months. Meanwhile, producers in the US are scrambling for other storage facilities as Cushing nears being filled to the brim, currently at about 80 percent.

Unfortunately, people who write for websites like Slate, which should be hiring or retaining people that know better, someone like Daniel Gross, who puts himself out as a brainy business and investment consultant, is clueless about oil production, as shown here in Slate, believing (I guess, it's hard to tell for sure), that you just shut off a well, like a light switch, after it starts producing, ignoring the problems with capping and respudding, especially in shale oil, and also ignoring the problem with "lease-to-drill" issues. Admittedly, those are more punitive, or have been, with gas rather than oil, but can't be ignored in either sector.

The fact is that oil and gas, as vital commodities, are non-solids. One can stop digging at a coal mine (or an iron ore mine for steel) quite easily. One does not just "shut off" an oil or gas well.

Of course, many speculators are betting they can sit on this crude long enough to wait out the continued surplus, and then sell at higher prices.

Probably not. West Texas Intermediate, currently in the low $50s, won't rise more than $10/bbl for six months, maybe longer. And other storage facilities may also be full by then.

Gross then shows even less understanding of the oil patch with this:

What we’re seeing, I’d argue, is an example of yet another type of American business exceptionalism.

No, it’s nothing of the sort. That said, some oil companies are gambling that they can use this to force new market efficiencies in their production of tight oil, and thereby stay even with the Saudis.

I’d bet, just as much as futures speculators are betting on being able to round up adequate storage at Cushing or elsewhere, that both Daniel Gross and said oil companies would be wrong. As rain.

That said, I have little sympathy for oil futures speculators who may well be betting wrong, unless they get a very favorable, and long, lease contract.

I discussed some of this (with less detail, and with skepticism about President Obama's backbone) two months ago.

That said, per the graphic at left, right now, it's definitely unprofitable to mine for tar sands. And, contra former Texas Speaker of the House Tom Craddick, and perhaps contra claims that $45 is the break-even point here in Texas, as I previously blogged, right now, it's borderline unprofitable to be producing oil here in Texas, unless it's what's left in conventional plays.

That graphic comes from "the letter O" in an A-to-Z encyclopedia of the current oil situation from Canada's newsmagazine, Maclean's. The whole encyclopedia is well worth a read.

So, Daniel Gross? Even if US producers squeeze a full $10/bbl of "efficiencies" out of shale oil production, it will still cost them more than Mexican oil production. They could squeeze out $15/bbl and it would cost as much as Libyan oil production.

They could squeeze out $20/bbl in "efficiencies" (which no way is happening) and still cost more than the OPEC average, and still cost more than $10 a barrel more than the Saudis' average cost.

So, Daniel Gross, and others who think like him? Buy.A.Clue.

Meanwhile, the International Energy Agency expects crude prices to average $55/bbl for this year, and not to get above $70 for some time. Oh, and $100 oil? Not even on its current horizon.

The IEA story is worth a read right there. Going by Brent prices, which it expects to only get to the low-mid $70s by 2020 (yes!), this is not a one-year slump, it's potentially a multi-year readjustment.

And, the IEA is right to be concerned. Its U.S. counterpart, the Energy Information Agency, says current stockpiles are at an 80-year high for this time of year.

So, major new shale field work is likely just going to have to wait until current shale wells play out. That said, given predictions that both the Eagle Ford and Bakken might peak by the end of 2016 (which the current supply glut has probably pushed back a year or two) by 2020, things may pick up more and more. In the meanwhile, the US could be facing the biggest slump since the 1990s era after the end of the Iraq War.

Cheaper fracking sites may be profitable if $45 is indeed a break-even point, but newer exploration isn't going to happen in any great amount, if the IEA is right — because there will be no demand for it. US EPA gas mileage requirements will continue to rise. Older cars will come off the road in Europe and the US. Driving miles will remain flat in both countries. To the degree emerging economies buy cars, it will be inexpensive, economy ones with better fuel mileage than ever.

As for geopolitics? Russia as we know it can't live in $70 oil. Yes, it is still technically profitable at that point, but with the national budget highly dependent on oil revenues, that's not high enough, not if it's lasting 5 years. Either Putin finishes the move to full dictatorship, or he's thrown out of office well before 2020. More thoughts on this in a future post.

$45 oil — is that the US "breaking point"?

According to at least one Midland oilman, it is:

“At $45 a barrel, it shuts down nearly every project,” Steve J. McCoy, Latshaw Drilling’s director of business development, told Mr. Pruett and his guests. “The Saudis understand, and they are killing us.”

That said, it's interesting, or rather, it's "interesting," to see that what would be called "capitalism" when practiced in the US by American companies is called "conspiracy" when practiced by KSA and Saudi Aramco.

American exceptionalism hypocrisy strikes again!

As for the actuality of concerns? Per my previous blog post on this subject, talking about the possibility of $40 oil, right now, West Texas Intermediate is hovering right around that $45 mark. I'm sure my blog's "man of the year," Saudi oil minister Ali Al-Naimi, is taking note.

Meanwhile, per that $40 blog post of mine, noting that Texas Comptroller Glenn Hegar probably hadn't looked too closely at ripple effects when issuing his report about state of Texas revenue for the 2015-16 biennium, the Times link at top reminds us of these ripple effects:

A Mexican restaurant has started a Sunday brunch to expand its revenues beyond dinner. A Mercedes dealer, anticipating reduced demand, is prepared to emphasize repairs and sales of used cars. And some well-off oil company managers are cutting back at home, rethinking their vacation plans and cutting the hours of their housemaids and gardeners.

Of course, Greg Abbott will soon tell us this is all Obama's fault, even as he prepares to launch his first suit as governor of the great state of all hat, no cattle miracles, or, as I call it, the Pointy Abandoned Object State™,  surely getting ready to once again sue Barack Obama, aka Dear Leader. 

Now, per the Times, and per Midland Mayor Jerry Morales, this is almost surely not going to be anywhere near as bad as the late 1990s. But, it could be about as bad, and for about as long, as the bubble-bursting at the start of the Great Recession.

More here, on the possible duration, at least related to China's economy:

"Heavy industrial overcapacity remains severe, and will take years, not quarters, to resolve. Generally, there is a large supply overhang problem which lower input prices cannot solve," wrote Brian Jackson, IHS Global Insight's China economist on Tuesday. "Most importantly, debt levels and shares continued to rise in 2014 – IHS estimates that China's debt-to-GDP ratio rose over 20 percentage points in 2014 to reach 247 percent." 

The latest on that end? Baker Hughes just announced 7,000 layoffs. And, it expects the second quarter of the year to be worse than the first quarter. And, it may close some facilities.

And, there's also the issue of whether sagging stock prices couldn't force publicly traded companies into even further cuts.

Meanwhile, Texas Monthly is now weighing in, saying there's a fair possibility of a 1980s-style full oil bust.

Update, Jan. 27: The situation is of concern enough within the oil patch that pipeline companies are merging. And six-month business projections look weak.

Hedge funds, meanwhile, are betting on continuing price weakness.

$40 oil, or why Glenn Hegar could be even wronger than rain

I've already dissected how I think Texas Comptroller Glenn Hegar's biennial budget estimate is probably $2 billion too high, if not more. (See new poll on right to vote on where you think oil will be on March 31.)

That said, that was based on the possibility that oil would not get above the low $50s in the first half of this year, and not break the middle $60s before the end of the year.

Well, what if even THAT was too optimistic?

What if oil sits in the low-mid $40s for 4-6 months, and doesn't break a flat $60 on a regular basis until the end of the year? That's especially if market psychology (as well as general first-quarter lulls) says  "keep it there."

The EIA has also weighed in, expecting the average 2015 price to be about $55.

What if even THAT is too optimistic. What if, per new estimates by British Petroleum, oil stays below $60 for three years?

Oops in spades. And that's the starting point of this post and some speculative thinking.

Add in that even more flush U.S. shale oil operators may not have money to buy out the weakest, at least not right away. Add in that major banks, both Texas-based and even bigger national players, are likely to tighten lending wallets, especially on "market mentality."

Add in that it, per the first link, with more info here, could take 4-6 months to soak up most the current excess supply.

That's especially true when, per the first link, nobody in the US has actually started sopping up any excess yet:

Oil output, however, is still at a record level. In the week that ended on January 2, when the number of rigs also dropped, it reached 9.13 million barrels a day, more than ever before. Oil companies are only stopping production at their worst wells, which only produce a few barrels a day – at current prices, those wells aren't worth the lease payments on the equipment. Since nobody is cutting production, the price keeps going down; today, Brent was at $US47.43 per barrel and trends are still heading downward.

So, yeah, 4-6 months is probably the correct time frame, for, let's say, mid-40s prices. Well, the state of Texas, Glenn Hegar, and even more so, the one responsible adult running Texas government, Speaker Joe Straus, had better hope that 4-6 months — and not something worse — is the correct time frame.

Because we haven't tackled one last point. 

And, the biggest issue. Financial reserves, not monetary ones.

The petrostates of the Middle East, in general, are flush with cash and can afford to burn money for some time. And, Saudi Arabia can really afford that much burning. Plus, some of the Gulf states have lower per-barrel prices than it.

Russia is also a petrostate, but cannot afford such money-burning.

The US is not a "petrostate," even if it's producing as much or a bit more oil than Saudi Arabia.

Publicly traded companies have shareholders to whom to answer, and debt to service to third parties — those Texas and national banks. Privately traded companies still have debt to service.

Yes, both of them also have leases to keep active. But, smaller companies, per my note above, may have to take a hard look at their lack of financial reserves, and negotiate lease buyouts.

Or, like subprime home mortgage holders facing balloon notes, some of the smaller oil companies may have to swallow even harder and do the equivalent of tossing the front door keys on the kitchen counter or in the mail slot.

That's what could be afoot. And, if that's what's up?

Well, in that case, Hegar's biennial revenue estimate could be off by $3 billion, not $2 billion. Beyond a deepened loss of oil and gas revenue will be lost sales taxes from oilfield-related businesses. And, there will be new unemployment claims, as the layoffs are already starting. And less retail, dining and entertainment spending.

Meanwhile, a note to the American Petroleum Industry: now is not the time to be greedy on a wish list.

That said, I'll end this with one last thought. Older Texans remember the savings and loan debacle of the 1980s. I'm not saying that this will be anything like that. But, as compared to previous oil price slumps, because shale oil requires more investment, political leaders should not bank on any "rosy scenarios" offering easy relief. And, they should doubly not bet on frivolous tax cuts that are based on "rosy scenarios."

POSTSCRIPT: What if what I wrote above is itself still too optimistic? There are summer 2015 futures contracts out there, already, for $20/bbl oil.

Meanwhile, Boone Pickens, per this piece, either has a "trick oil knee," or onset of some age-related mental decline or something else, if he really thinks oil will get back to $100 within 18 months, let alone 12.

Pickens has probably also been trumped by the biggest drop in active rigs in six years. The fact is that this is different than 2009, where the Great Recession cratered economies. Yes, there seems to be new signs of slowing growth in both Europe and China. But, not THAT slow. This is still mainly due to an industry-created surplus that's been building for six months. It's going to take 3-4 months to cut the spigots back enough to where that surplus can be mopped up over another likely 6-8 months. So, that's 9-12 months out before we're back to June 2014.

And, Texas Monthly is now weighing in, saying there's a fair possibility of a 1980s-style full oil bust.

My 2014 person of the year is ....

A guy who's influencing economies around the world right now, including internationally in Russia and domestically in Texas, and in other ways, around the world.

Who is the gentleman in that picture? Whom I have deliberately not captioned?

I'll explain that in a minute, and from there, you'll understand why he gets, and easily wins, the nomination for this important award.

So, with that said, that bit of suspense, let's move into the heart of things.

Drumroll?



Glad you asked for one?

It's Saudi Arabia's Minister of Petroleum Ali Al-Naimi.



Information/credit for photo above: Saudi Oil Minister Ali al-Naimi speaks to journalists ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting on Nov. 27, 2014.

SAMUEL KUBANI / AFP/Getty Images

I deliberately looked for one with him in Western suit, to increase the suspense a bit, lest readers immediately guess, at a minimum, that "this guy has something to do with oil."

Well, Al-Naimi has plenty to do with oil, not just "something."

This is the man who is keeping Saudi Arabia in the oil driver's seat. Even if it means, per Business Insider, oil falling to $20/bbl. And, not cutting production even if surpluses grow. Period.

This is the man who could cause a recession in Texas. With more fighting over school funding and other things.

This is the man who could cause a Great Recession in Russia, and maybe already is, along with Western sanctions.

This is the man who could make it easier for Dear Leader to keep saying no to Keystone. (Unfortunately, it is the man who could also make climate change agreements, even relatively toothless ones, harder to achieve.)

This is the man who will help the Kingdom of Saudi Arabia expand its influence throughout the Middle East, above all by weakening Iran, calling more shots in the Syrian civil war and leaning more on Israel to deal better with the Palestinian Authority in 2015.

Given that the global oil surplus was becoming evident by midyear of 2014, and that Al-Naami surely was already planning strategy, and talking strategy with King Abdullah himself by then, he's the winner.

Per the $20/bbl comment and the "we're not cutting" comment, he had to have Abdullah's stamp of approval. And, that means he's a powerful man with carte blanche.

Maybe I could almost be calling him, in advance, the frontrunner for 2015 person of the year. Let's actually hope not.

Meanwhile, even with the budgetary challenges, Saudi Arabia itself is likely among the net winners, primarily for all these geo-petro-political reasons. 

David Brooks tells new lies about oil, ignores #PeakOil

I don't care that the International Energy Agency claims the US will pass Saudi Arabia in oil production by 2020, or that it will become energy independent in five years, according to Citigroup, as David Brooks breathlessly reports.

Both (all three, counting Brooks himself) are wrong.

The shale gas boom appears Ponzi-like. As blogged here before, Chesapeake is drilling for gas because lenders are forcing it to, based on previous reports.

Oil? Even with the fracking boom, we still import 40 percent of our oil needs. Bakken in North Dakota, and Eagle Ford in Texas, are not THAT big of plays. Neither are renewed finds in the Permian Basin. 

More Brooks:

Joel Kotkin identified America’s epicenters of economic dynamism in a study for the Manhattan Institute. It is like a giant arc of unfashionableness. You start at the Dakotas where unemployment rates are at microscopic levels. You drop straight down through the energy belts of the Great Plains until you hit Texas. Occasionally, you turn left to touch the spots where fertilizer output and other manufacturing plants are on the rebound, like the Third Coast areas in Louisiana, Mississippi and Northern Florida. 

In short, this is where Brooks wants to believe he'll find "heartland boboes." Rather, he'll find "Cancer Alley" on the Louisiana (and Texas) part of that Third Coast. He'll find well-paying, for blue collar, but grinding, drug-use-heavy oilfield jobs by people who have no use for his boboism.

Beyond that, Brooks lies about the IEA lies. Its full report says the Saudis will surpass the US again after a short US "triumph" of less than a decade.

Here's IEA details, per the top link:

The IEA said it saw US oil production rising to 10 million barrels per day (bpd) by 2015 and 11.1 million bpd in 2020 before slipping to 9.2 million bpd by 2035.

Saudi Arabian oil output would be 10.9 million bpd by 2015, the IEA said, 10.6 million bpd in 2020 but would rise to 12.3 million bpd by 2035.

That would see the world relying increasingly on OPEC after 2020 as, in addition to increases from Saudi Arabia, Iraq will account for 45 percent of the growth in global oil production to 2035 and become the second-largest exporter, overtaking Russia.

OPEC's share of world oil production will rise to 48 percent from 42 percent now.

Of course, Brooks thinks incestuous prognosticators like IEA, EIA and Daniel Yergin are just the starting point, anyway, I'm sure.(And I wrote that without reading all the way through his column to see if he had mentioned Yergin or not. He did, prominently.

Brooks also lies by omission by not mentioning the rising EPA fuel standards in years ahead as a factor.

Brooks on energy? A kinder, gentler Dick Cheney.

And Yergin's told his own oil-related lies over the years.

How much 'protection' is Bush giving Saudis?

That's the bottom-line thesis of Anthony Summers' great new book, "The Eleventh Hour." It's not as in depth as Lawrence Wright on what led up to 9/11, but it takes a good look at the 9/11 Commission, its report, and what it did and did not look at. That includes asking why the final chapter of the commission's report is almost totally censored.

From my Goodreads review:

The Eleventh Day: The Full Story of 9/11 and Osama bin Laden by Anthony Summers

My rating: 5 of 5 stars


Seeing Anthony Summers as co-author (along with his wife) made me both excited and a bit apprehensive about this new book overviewing 9/11. Summers has done great work on Nixon, but in his “The File on the Tsar” he gave credence to conspiracy ideas, claiming that at least Anastasia, if not other daughters of Nicholas II, escaped the cellar in Ekarterinberg.

Well, I was pleasantly relieved early on. Quite so.

Summers quickly dismisses conspiracy theories about the attacks, focusing above all on the Twin Towers. On the engineering side, he refers to the authoritative NIST report. On the common-sense side, he raises the rhetorical question of how could saboteurs plant thousands of pounds of C4 or whatever inside the Twin Towers and never be caught?

The middle 50 percent of the book gives an overview of how al Qaeda came to plot this. Not too much new here, primarily a good tying together of time line issue. But, he does note one thing in conjunction with the CIA’s quasi-criminal laxness on reporting would-be 9/11 hijackers to the FBI. (Plenty on that, a fair amount of the FBI’s bad-enough laxness.)

Reportedly, the CIA may have been trying to “turn” two of the eventual hijackers in an attempt to “penetrate” al Qaeda. Oops! Beyond that, some people claim that Saudi intelligence may have been using the same duo as a go-between, to try to “control” bin Laden.

Summers thinks that of little credence. But the general idea of how much Saudis, including royals, were connected to bin Laden, before, during and after 9/11? Different story.

The final quarter of the book uses as its starting point the fact that the whole final chapter of the 9/11 Commission’s report is still censored/redacted. Why?

Summers speculates, and has a few facts to offer. The censor is George W. Bush himself; he’s acting to protect those Saudi royals. And, there’s strands of evidence to indicate they were individually funneling money to bin Laden, and staying in some sort of contact with al Qaeda members, before 9/11, close to 9/11, and possibly even afterward.

I won’t give details of that; no need for too much spoiler alert. But … read!




View all my reviews

Saudis warn us on Palestine - they've done so before

I'm reading a great new book, The Oil Kings, about how the Shah of Iran and King Faisal (then his brothers, after his assassination) worked to leverage oil demand vis-a-vis both the U.S. as a nation and western petroleum companies.

It got me to thinking again about Prince Turki's op-ed in the NYT a week or so ago.

Saudi Prince Turki al-Faisal recently penned a mildly worded but strongly voiced op-ed in the New York Times saying the U.S. needs to support Palestinian statehood at the U.N. rather than "risk losing the little credibility it has in the Arab world."

If that's not a shot across the bow, this should be:

Moreover, Saudi Arabia would no longer be able to cooperate with America in the same way it historically has. With most of the Arab world in upheaval, the “special relationship” between Saudi Arabia and the United States would increasingly be seen as toxic by the vast majority of Arabs and Muslims, who demand justice for the Palestinian people. 

Saudi leaders would be forced by domestic and regional pressures to adopt a far more independent and assertive foreign policy. Like our recent military support for Bahrain’s monarchy, which America opposed, Saudi Arabia would pursue other policies at odds with those of the United States, including opposing the government of Prime Minister Nuri al-Maliki in Iraq and refusing to open an embassy there despite American pressure to do so.

 That's a big, big threat there. In Iraq, that would mean the Anbar Awakening would re-awaken; Shi'a-Sunni warfare would start over. That's especially true if "opposing Maliki" meant the Saudis (through appropriate third-party funneling) actually started providing money, arms or both to an Anbar Re-Awakening. The U.S. would either be hamstrung or else forced to keep more troops there. And, Iran would surely up its support for Moqtada al-Sadr, who would probably push Maliki to fight back harder, or else would himself disavow the Maliki government.

And, in an ongoing recession, if we do start to recover, any would-be Saudi help on oil supplies could go by the boards. Turki doesn't mention that, but ... does he have to?

And, Turki didn't write this column alone. This is the public expression, in some way, shape or form, of what Riyadh has privately told the Obama Administration through diplomatic channels in the past few weeks.

Beyond that, the Obama threat that negotiations are "the only way"? First, the Al-Jazeera Papers show the U.S. colluded with Israel in sabotaging negotiations. Second, the Palestinians know from that and other things that, as when facing Republicans, Obama has no balls facing Netanyahu.

So: Will Dear Leader listen to Prince Turki, or will he listen to Zionists and semi-Zionists in the U.S. instead?

If he has an ounce of brains, he'll listen to the Saudis. And that brings me back to The Oil Kings.

The Saudis have warned us before, on other Middle East events, and we didn't listen.

They warned us weeks before the Yom Kippur War -- a war in which their own troops fought! -- that it was coming down the pike. And we, especially Henry Kissinger, who comes off as not just devious but hugely incompetent in this book, didn't listen. They warned us about other, lesser events in the Middle East after that, and we usually didn't listen, at least not totally.

That said, with young Israelis of the middle class, especially the information class, self-propagandizing against Palestinians, it's going to be a long, long slog for statehood.

U.S., Palestinian statehood and Arab-world credibility

Saudi Prince Turki al-Faisal pens a mildly worded but strongly voiced op-ed in the New York Times saying the U.S. needs to support Palestinian statehood at the U.N. rather than "risk losing the little credibility it has in the Arab world."

If that's not a shot across the bow, this should be:

Moreover, Saudi Arabia would no longer be able to cooperate with America in the same way it historically has. With most of the Arab world in upheaval, the “special relationship” between Saudi Arabia and the United States would increasingly be seen as toxic by the vast majority of Arabs and Muslims, who demand justice for the Palestinian people. 

Saudi leaders would be forced by domestic and regional pressures to adopt a far more independent and assertive foreign policy. Like our recent military support for Bahrain’s monarchy, which America opposed, Saudi Arabia would pursue other policies at odds with those of the United States, including opposing the government of Prime Minister Nuri al-Maliki in Iraq and refusing to open an embassy there despite American pressure to do so.

 That's a big, big threat there. In Iraq, that would mean the Anbar Awakening would re-awaken; Shi'a-Sunni warfare would start over. That's especially true if "opposing Maliki" meant the Saudis (through appropriate third-party funneling) actually started providing money, arms or both to an Anbar Re-Awakening. The U.S. would either be hamstrung or else forced to keep more troops there. And, Iran would surely up its support for Moqtada al-Sadr, who would probably push Maliki to fight back harder, or else would himself disavow the Maliki government.

And, in an ongoing recession, if we do start to recover, any would-be Saudi help on oil supplies could go by the boards. Turki doesn't mention that, but ... does he have to?

Other than that, Turki is right: The only real losers from a Palestinian state, at least one with Hamas marginalized and the Palestinian Authority in charge, are Syria (and proxies in Lebanon) and Iran.

At the same time, as Israeli-Egyptian events of the past two weeks have shown, Tel Aviv is feeling isolated indeed. If the Saudis are leaning on us in public, they're leaning on the Netanyahu government through third channels, too.

And, Turki didn't write this column alone. This is the public expression, in some way, shape or form, of what Riyadh has privately told the Obama Administration through diplomatic channels in the past few weeks.

Will Dear Leader listen, or will he listen to Zionists and semi-Zionists in the U.S. instead?

More on the maybe not-so-dumb Obama-IEA oil dump

That joint agreement by the United States and the International Energy Agency to release crude oil from strategic petroleum reserves? The one that had everybody scratching their head over its timing?

Well, there's more to it. As in, this may have been the equivalent of a pool bank shot, primarily involving Washington, the EU, speaking through the International Energy Agency, ... and the Saudis.

As early as May 11, Mr Obama telephoned King Abdullah of Saudi Arabia to “discuss bilateral issues”, according to the Saudi press agency.

Boom ...

And, this wasn't a spur-of-the-moment thing:

For three months, dozens of senior oil officials from the US, South Korea, Germany and Japan worked secretly to execute what was one of the most daring moves by the International Energy Agency since its creation in 1974.

And, that's about the time we first started bombing Libya, on the usual delusional American belief that we'd topple Gaddhafi in a week or two.

There's one "interesting" part. In a story about how the Commodity Futures Trading Commission is investigating "suspicious" trades in oil just before the decision was announced, it notes the Saudis had already agreed to a production increase.

Maybe the White House thought it would take too long. Or that it would be of too low a quality compared to Libya's vaunted low-sulfur crude.

Or maybe all involved wanted to send a double-slapdown message to ... ohhh ... Iran and Venezuela?

Per the FT article linked at top:

In early May, Mr Obama dispatched a team of senior advisers to the region, including Michael Froman, White House deputy national security adviser, Daniel Poneman, deputy energy secretary, and Neal Wolin, deputy treasury secretary, for talks with Riyadh, Kuwait and Abu Dhabi.

Washington found the Saudis willing to ensure adequate supply.

The IEA nonetheless decided to send a clear message to the market that it was ready to act. On 19 May, at the conclusion of a regular meeting of its board of governors in Paris, the agency said: “We are prepared to consider using all tools that are at the disposal of IEA member countries.”

Venezuela and Iran, along with Algeria, were the three hardliners in the most recent OPEC meeting against raising production.

At the same time, Western nations didn't want to look like this was being done for too narrowly economic reasons, but, after the Saudis couldn't "carry" OPEC with them, decided to act. Japan, Britain and South Korea were other major "movers" on getting the IEA to act.

The primary beneficiary? Most of Libya's oil, of a very high quality, goes to Europe. So, even though the White House started the ball rolling, Europe had good reason to jump in, via the IEA.

The U.S.? Well, analysts as far away as Hong Kong are saying this will be the gateway for more "quantitative easing," but by different name and means. In fact, Forbes calls it QE2.5. If that's the case, and if it actually gets Obama himself, not just Fed Chairman Ben Bernanke, to do something more in the way of stimulus-like action, then that's good.

Peak Oil: Saudis to reopen original oil field

It can't be for symbolic reasons that Saudi Aramco is reopening the long-shut Dammam field, opened in 1938 and shut years ago.

And, if it was economically unfeasible in 2008, when oil prices were even higher than now, then why now? Are the Saudis losing more and more easy production? Are they expecting that much of a ramp-up in Chinese demand? A bit of both?

The not-so-good Gulf War

A good story on Salon notes that Bush 41 kind of set us up for Bush 43, even though he opposed trying to occupy Iraq.

1. His Hitlerization of Saddam Hussein.
2. His cut-and-run with the Kurds (mentioned) and the Shi'ites (not mentioned).

Those are just two biggies. There's many other bits and pieces of fallout, including how easy it made war look and more.

There's still two other big questions that overhang that war.

1. Just what did April Glaspie tell Hussein shortly before we invaded Kuwait? Short of her telling us either on her deathbed or posthumously, we may never know.
2. Why couldn't the Saudis et al defend themselves? In light of Osama bin Laden, I think our tentative answer is that most Arab Gulf states are afraid their own armed forces might start an Islamist civil war.