Making US Permian Basin Part of OPEC (Really)

♠ Posted by Emmanuel in Americana,Energy at 5/05/2024 04:56:00 PM

In a matter of days, ExxonMobil will complete its $60 billion acquisition of Pioneer Natural Resources, which is one of the concerns that have made drilling for shale in the Permian basin a highly lucrative endeavor for American energy. However, before you conclude that it's a tribute to American ingenuity, there's a twist here that may surprise you involving a host of foreign actors.

Pioneer's founder Scott Sheffield is being named by the US Federal Trade Commission in attempting to coordinate--that is, collude--with OPEC+ on the pricing of energy products. Aside from the company he wishes to keep being rather dodgy sorts including Russia's Putin, there are free market principles being violated here that are more pertinents to the FTC's mission. So, the FTC is advising ExxonMobil that its purchase of Pioneer will only push through if the combined entity does not have Sheffield as a board member or an adviser:

Scott Sheffield, founder and longtime CEO of a leading American oil producer, attempted to collude with OPEC and its allies to inflate prices, federal regulators alleged on Thursday. The Federal Trade Commission said Sheffield, then CEO of Pioneer Natural Resources, exchanged hundreds of text messages discussing pricing, production and oil market dynamics with officials at the Organization of the Petroleum Exporting Countries, or OPEC, the oil cartel led by Saudi Arabia.

Regulators say Sheffield used WhatsApp conversations, in-person meetings and public statements to try to “align oil production” in the Permian Basin in Texas with that of OPEC and OPEC+, the wider group that includes Russia. “Mr. Sheffield’s communications were designed to pad Pioneer’s bottom line — as well as those of oil companies in OPEC and OPEC+ member states — at the expense of US households and businesses,” the FTC complaint said.  

With no charges being made, Sheffield and the firms involves have decided not to contest the FTC's prohibition of his involvement. From a political angle, prosecuting a pillar of the US energy at a time of historically elevated oil prices doesn't seem to me like a winning election strategy. So, the FTC is just making a slap on the wrist for what would otherwise be a massive case of collusion. Also remember that the US is friendly with several unsavory regimes within OPEC.

Still, it would've been interesting if it'd have gone to trial to learn how this guy worked with the likes of Venezuela's Maduro and other characters to screw US consumers in the interests of greater (unwarranted) profits. 

Me? I try to use the least of the dastardly substance as possible to avoid enriching these kinds of folks.

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Joe Biden, Oil Trader of the Year 2022?

♠ Posted by Emmanuel in Energy at 12/20/2022 10:36:00 AM

Of all people, Joe's got the magic touch with petroleum?

The endless number of foiled speculators attests to the difficulty of realizing the old adage about how to make money--buy low, sell high. Let's face it: ever-changing markets often result in us doing quite the opposite, and not making money in the process. Now, whenever we are asked to think about who are the least savvy market participants, we often identify governments--or more specifically, government officials. Not being keen market watchers with limited skin in the game--it's taxpayer money they are officially dealing with, not theirs--this sentiment is understandable. 

Well lo and behold: Quartz is now touting President Joe Biden's timely release from the US Strategic Petroleum Reserve (SPR) as the "oil trade of the year." In retrospect, his release at the near-top of the oil market a few months ago helped ease oil prices. Now that oil prices have come down quite a bit, the SPR is now being refilled. Yes, Biden is buying low after selling high:

Instead, it appears the US government made the oil trade of the year: Releasing 180 million barrels of crude from the Strategic Petroleum Reserve between March and the end of this year in an effort to blunt the effect of rising prices, the US government appears to have made about $4 billion, as prices have fallen dramatically over the course of the year.

Selling when crude oil prices were high, the US captured billions in value. By one widely-used measure, the price of crude oil in Texas peaked at about $124 a barrel in March, and the average price during the SPR sales period was about $96; today that oil costs just $73 per barrel. 

These are paper profits, to be sure: The US is still aiming to refill the reserve, and prices may rise as it does so. On Dec. 16, the Department of Energy put out a request to purchase 3 million new barrels of crude, after releasing about 200 million barrels in 2022. There are currently about 382 million barrels still in reserve.

His genial manner has caused Joe Biden to be underestimated throughout his life. Can he now be called a market player as well in his eighth decade? T. Boone Pickens, eat your heart out.

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Bitcoin's Astounding Environmental Cost

♠ Posted by Emmanuel in Energy at 11/01/2021 03:58:00 PM

 

There's an interesting article in Fortune on the true environmental costs of using Bitcoin as a medium of exchange to replace cash, debit cards, credit cards, and other commonly-used payment methods. Given the enormous amounts of electricity needed for bitcoin mining, it is perhaps no surprise that estimates on the high end find it to be an unsustainable proposition. So much for using Bitcoin for everyday transactions?

The [MoneySuperMarket] report states that each Bitcoin transaction consumes 1,173 kilowatt hours of electricity. That's the volume of energy that could "power the typical American home for six weeks," the authors add. The Bitcoin mining that enables a purchase, sale or transfer, it posits, uses a slug of electricity that costs $176. That number is based on an average worldwide cost per kWh of 9.0 cents over the past 12 months.

What it we lower the estimated price per kilowatt hour to 5.0 cents? Some argue that figure is more in line with global energy costs. I am afraid that does little to make Bitcoin any more sensible as a means to transact given the costs of generating these coins still:

So let's reduce the MoneySuperMarket number from 9 cents per kWh to the 5 cents favored by de Vries. That would put the average cost of producing a coin at around $19,000, which looks reasonable (and underscores the industry's gigantic profitability as price hovers at over three times that level). At 5 cents, the electricity cost per transaction would fall from $176 to roughly $100.

For every transaction you make with Bitcoin, that's what you would be paying in electricity costs. When the likes of Visa and Mastercard can process these sorts of transactions for cents, it puts Bitcoin's true costs into sharp relief. The argument that ever-lower cost locations for mining these coins is a solution has its limits too, with these destinations now discouraging Bitcoin mining as power outages arise as a result.  The global movement of Bitcoin miners eventually becoming persona non grata is a very interesting story in itself, but I digress...

Bitcoin's drawback is that electricity is finite, and what Bitcoin uses, a family or a business can't use. In several nations, Bitcoin mining is imposing severe stress on the grid. Kazakhstan, one of world's leading crypto mining hubs and a top destination for producers displaced by the Chinese lockdown, is suffering blackouts caused by the industry's sudden explosion within its borders. Its government is limiting producers to a fraction of the electricity they're now deploying. Iran has also suffered severe shortages that's led to ejecting producers, and tiny Abkhazia is raiding mines––many of them illegal––to forestall an energy crisis.

The bottom line is that Bitcoin mining in its current form is unsustainable, and so is its use as a medium of exchange. 

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PRC Cities Go Dark Without Aussie Coal

♠ Posted by Emmanuel in China,Energy,Trade at 1/05/2021 04:42:00 AM

While the US-China trade war occupies most of the headlines for obvious reasons--it's the geopolitical rivalry that matters--don't assume there are any number of others going on. Arguably the most notable among these is the deterioration in almost all respects of Australia-China trade relations, which have been accelerated by the Morrison government wanting to investigate China's role in the spread of COVID-19 worldwide seemingly at the outgoing Trump administration's behest.

This not-so-genius move is precisely biting the hand that feeds in terms of Australia losing significant access to its largest export market:

Australia’s economy has been badly hit by escalating trade tensions with China — and it’s possible growth might “never return” to its pre-virus levels even when the pandemic is over, according to research firm Capital Economics.

China is by far Australia’s largest trading partner, accounting for 39.4% of goods exports and 17.6% of services exports between 2019 and 2020, the firm said. But Beijing has for months been targeting a growing list of imported products from Down Under — putting tariffs on wine and barley, and suspending beef imports.

Gross domestic product (GDP) in Australia could contract even more if Beijing continues to pile tariffs on more Australian imports, said its senior economist Marcel Thieliant in a note last week. Goods and services that are already “in the firing line” are worth almost a quarter of Australia’s exports to China — forming 1.8% of its economic output, the research firm said.

The list of affected traded goods grows longer all the time. Exemplifying the current fashion for lose-lose, though, the Chinese are not exactly finding what they need from other countries so easily. Consider coal. Absent affordable and plentiful supplies from Oz, many PRC cities are now reportedly having power outages:

Several major Chinese cities have reportedly gone dark as authorities limit power usage, citing a shortage of coal. Analysts said prices of the commodity in the country have shot up due to the reported crunch. The reports also follow rising trade tensions between Beijing and Canberra, leading some analysts to tie the coal shortages and blackouts to the unofficial ban on Australian coal.

Relations between the two nations soured last year after Australia supported an international inquiry into China’s handling of the coronavirus pandemic. Coal is just one in a growing list of Australian goods that China is targeting, as a result of their escalating row.

Last year, China told its power plants to limit the amount of coal imports from other countries to keep a lid on prices. Beijing reportedly lifted those restrictions later, but didn’t remove curbs on coal imports from Australia. China also reportedly gave state-owned utilities and steel mills verbal notice to stop importing Australian coal.

The case for trade was nevermore evident than it is here. Both governments have done their people a welfare-reducing disservice by engaging in a pointless spat over COVID-19 that neither has an obvious benefit from engaging in.

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Trump's Losing War on ESG Investing

♠ Posted by Emmanuel in CSR,Energy at 12/06/2020 03:32:00 PM

Funds like this one from BlackRock's iShares now list ESG no-nos. Trumpists couldn't care less.

The Trump administration is essentially a throwback to a time when white men ruled the world, burned fossil fuels with wild abandon, and were unapologetic about America's dodgy history concerning racism. So, it was perhaps inevitable that one of its last few efforts on the way out the door was to throw a middle finger to the very idea of environmental, social and governance [ESG] investing. You see, the US government manages any number of funds, including those of government employees for retirement. 

The Department of Labor manages one of these, and under the guise of maximizing returns and not entertaining misguided leftist ideas about being politically correct while investing, it has ruled out ESG criteria:

In a new Department of Labor (DOL) rule issued on October 30, the DOL essentially prohibits the use of widely used environmental, social and governance (ESG) factors in selecting investments for employee retirement plans...

For 30 years, however, the US Department of Labor has been considering whether recommending these kinds of investments in employee retirement accounts - that is, those factors which look at other than financial objectives - might be problematic. Their concern was that by focusing on the ESG needs, a manager using ESG products was not focusing attention on the client's financial goals - which is the basic fiduciary requirement under DOL rules.

Alike with many of these parting shots from the Trump administration, however, the mad rush to get them done make them vulnerable to rollbacks when Joe Biden becomes president.

Unlike many DOL rules, which typically take at least 18 months and often years to be passed, the ESG rule was pushed through at "warp speed," commented Bryan McGannon of US SIF, a sustainable business policy group. But it is considered likely that litigation under the Administrative Procedures Act may reverse the rule or that an incoming Biden administration may well act to reverse the rule. The Biden administration has been predicted to be far more sympathetic to ESG issues and is expected by some to begin reversing controversial Trump administration policies such as this.

In the end, the large and growing interest from investors in ESG investments as well as the likely hostility of the incoming administration to the new rule make it unlikely that the rule will stand. Moreover, the current research and performance history demonstrate that it probably shouldn't.

I think the economic rationale of ESG will ultimately prove irresistible anyway. Arms, energy and tobacco are your archetypal sunset industries, and stock valuations do bear this assertion out. The days of--shall we call it antisocial investing?--are numbered.

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COVID-19 Victim: Kuwait is Broke

♠ Posted by Emmanuel in Energy,Governance,Middle East at 8/19/2020 05:52:00 PM

Kuwait's energy-dependent economy is not coping well with the pandemic like its neighbors.

How the mighty have fallen together with the collapsing demand for hydrocarbons as tourism and travel have been grounded around the world due to the ongoing coronavirus pandemic. Kuwait is a famously rich--albeit geographically tiny--country whose invasion sparked the first Gulf War. Nevertheless, its geopolitical clout was such that then-US President George HW Bush gathered together American allies to summarily eject Saddam Hussein's invading forces.

Thirty years later, we see it confront perhaps a more invidious threat in the form of the spread of a pandemic. Kuwait's current plight reflects that of its neighbors--albeit in a more extreme way. You see, Kuwait is burning up its liquid reserves at a prodigious rate, so much so that it projects being unable to pay its civil servants after October. While it has a sterling credit rating (like most other Middle Eastern energy exporters, it must be said), its legislature's delays in authorizing further borrowing are causing it to unsustainably deplete its liquid reserves in the meantime:  

Kuwait has 2 billion dinars ($6.6 billion) worth of liquidity in its Treasury and not enough cash to cover state salaries beyond October, Finance Minister Barak Al-Sheetan warned parliament, as political wrangling again delayed efforts to return to international bond markets.

The government is withdrawing from its General Reserve Fund at a rate of 1.7 billion dinars a month, meaning liquidity will soon be depleted if oil prices don’t improve and if Kuwait can’t borrow from local and international markets, he said.

As energy-rich Gulf states see their finances hammered by the collapse in oil prices and the coronavirus pandemic, the remarks point to a dramatic reversal of fortunes for some of the world’s wealthiest nations. Managing the crisis has proven especially challenging for Kuwait, where all laws must be approved by lawmakers who accuse the government of mismanaging public money and are blocking legislation that would allow it to borrow abroad.

The General Reserve Fund is a separate pot of money from that which is invested by its sovereign wealth fund mostly in less liquid foreign assets. Overall, the Kuwait Investment Authority is the fourth-largest of its kind in the world. Yet, [GRF] funds can be used to pay for civil servants' salaries are dwindling. Note there is also a "good governance" complaint thrown in here as well as lawmakers point out that the country's leaders have not been [surprise!] exemplars of fiscal accountability and rectitude with regard to past petrodollar earnings. Imagine the Middle East being run by a jillion Jared Kushners and you wouldn't be far off.

The end result is that Kuwait, of all places, is facing a credit downgrade:

In March, Standard and Poors Global Ratings put Kuwait’s sovereign rating on negative watch, and Moody’s Investors Service followed. The IMF said that month that while Kuwait has large financial buffers and low debt, its “window of opportunity to tackle its challenges from the position of strength is narrowing.”

In June, Sheikh Sabah Al-Ahmed Al-Sabah, Kuwait’s ruler, issued a call to transform the economy to one less reliant on oil and urged rationalizing spending. More than 90% of the country’s revenue is generated from oil.

The reality is that Kuwait is an energy-reliant one-trick pony like its neighbors. Worse still, the bulk of its employment is in the public sector and predicated upon the fortunes of the aforementioned state-led energy exports. Even if it is able to cover its current fiscal shortfall by issuing debt, you have the feeling that the hydrocarbon age is nearing its end. What this future means for the fate of various authoritarian Middle Eastern regimes like Kuwait's is an interesting question.

Who knows? Perhaps Kuwait's fiscal reckoning--and its lawmakers' nascent questioning of the entire Middle Eastern petrostate model--foreshadow the region's political future

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Trump's Art of the Oil Deal [sic]

♠ Posted by Emmanuel in Americana,Energy at 4/17/2020 12:07:00 PM

Trump likes to portray himself as a dealmaker par excellence, but even this Wall Street Journal article he tweeted about was fairly condescending of his abilities in this respect, saying "Donald Trump’s legendary deal-making ability during his years as a real-estate mogul is more fantasy than reality, but the president outdid himself in this weekend’s high-stakes oil diplomacy." At any rate, how's the reality of this Savior of the American Oil Industry act playing out? In the aftermath of this so-called Trump-orchestrated deal, the benchmark US grade West Texas Intermediate (WTI) crude cratered from an abysmally low $20 to $18-something. The situation was really bad before the OPEC+ deal, but it got even worse:

US crude oil prices sank to around $18 a barrel on Friday [17 April], the lowest level since 2002, as energy markets struggled to absorb a record glut created by the coronavirus pandemic. Prices have dropped this week despite a landmark US-backed deal by the Opec+ group of producers to cut production by almost a tenth. But traders have judged that the collapse in demand is much greater — with up to a third of global consumption lost to measures to restrict the virus’s spread.

That has led to volatility, as traders bet oil storage will rapidly fill up, including at the US crude benchmark’s delivery hub of Cushing, Oklahoma. The front-month West Texas Intermediate contract for May delivery, which expires early next week, lost as much as 9 per cent to trade down to $18.03 a barrel, an 18-year low.

With "deals" like Trump's, who needs deals? The heart of the matter is that while OPEC+ (including Russia) agreed to an all-time high 10 million barrel per day production cut, global demand destruction due to COVID-19 is estimated to be between 25 and 35 million bpd. Not enough has been to reduce supply to account for losses in demand, so prices will have clear at a far, far lower price. Even if the United States completely halts oil production, that would only reduce the global glut by up to 12 million bpd. It's simple economics that escapes Trump's comprehension.

4.20 UPDATE: If you thought $18/bbl WTI crude was unbelievably low, how about $3 per barrel? With Trump "saving" the American oil industry, who needs COVID-19 to finish it off? 

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NOPEC: Will Saudis Deny USD Oil Payment?

♠ Posted by Emmanuel in Currencies,Energy,Middle East at 4/05/2019 04:03:00 PM

Here's some news important to the study of IPE that has been flying under the radar. American lawmakers have, since the turn of the millennium, been contemplating passage of a "NOPEC" law removing the immunity of nations from American antitrust laws. As the name implies, the main target is collusion on setting global oil prices by OPEC member countries. In response to the Trump administration's increasing browbeating about high oil prices and OPEC's role in causing them, Saudi Arabia has come up with a potentially consequential strategy. That is, the Saudis will begin pricing their oil in a currency other than US dollars:

Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said.

They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.

In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.

“The Saudis know they have the dollar as the nuclear option,” one of the sources familiar with the matter said.“The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart,” another source said. 

Despite being a dollar bear, I am unsure if the Saudis denominating oil sales in another currency would be the proximate cause of the dollar becoming an even less dominant currency worldwide. At any rate, here's a NOPEC description:

NOPEC, or the No Oil Producing and Exporting Cartels Act, was first introduced in 2000 and aims to remove sovereign immunity from U.S. antitrust law, paving the way for OPEC states to be sued for curbing output in a bid to raise oil prices.

While the bill has never made it into law despite numerous attempts, the legislation has gained momentum since U.S. President Donald Trump came to office. Trump said he backed NOPEC in a book published in 2011 before he was elected, though he not has not voiced support for NOPEC as president.

Trump has instead stressed the importance of U.S-Saudi relations, including sales of U.S. military equipment, even after the killing of journalist Jamal Khashoggi last year. A move by Saudi Arabia to ditch the dollar would resonate well with big non-OPEC oil producers such as Russia as well as major consumers China and the European Union, which have been calling for moves to diversify global trade away from the dollar to dilute U.S. influence over the world economy.

It could be potentially exciting, eh? The real question for me is what would cause such a dramatic rupture in US-Saudi relations that the Arabs would stop pricing oil in USD. Still, I do not think the economic consequences for the dollar would be catastrophic. If many others follow suit, though, then we may be on the cusp of a whole new international political economy (though I doubt it).

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Sinopec's Shame is Caving In to Trump on Iran

♠ Posted by Emmanuel in China,Energy,Middle East at 10/03/2018 08:36:00 PM

Hey Sinopec, maybe your new slogan should be "Trump Threatens, Cower in Fear."

I almost forgot about this one: Sometime ago, I lauded China for stating that it would not stop buying crude oil from Iran despite the Trump administration's re-imposition of sanctions. These come despite Iran living up to its commitments under the Obama-era agreement JCPOA (which Trump unilaterally pulled the United States out of). Apparently, I had spoken too soon. Fast-forward a couple of months and, lo and behold, China's state-owned energy giant Sinopec has cut back on its Iran purchases by half ahead of a forthcoming tightening of American sanctions:

China’s Sinopec Corp is halving loadings of crude oil from Iran this month, as the state refiner comes under intense pressure from Washington to comply with a U.S. ban on Iranian oil from November, said people with knowledge of the matter.

The sources did not specify volumes, but based on the prevailing supply contract between the top Chinese refiner and the National Iranian Oil Company (NIOC), its loadings would be reduced to about 130,000 barrels per day (bpd).

Where did I go wrong in thinking that Beijing would live up to its word by not constraining its state-owned firm from purchasing from Iran? As it turns out, while Sinopec certainly does not conduct much energy-related trade with the United States, its shares are traded as an American depositary receipt (ADR) Stateside. That is, if it does not want to curtail this US-based capital-raising source, then it has to comply with American laws:

This would be 20 percent of China’s average daily imports from Iran in 2017, dealing a blow to Tehran, which has counted its top oil client to maintain imports while European and other Asian buyers wind down purchases to avoid U.S. sanctions.

 The cut marks Sinopec’s deepest reduction in years as the Hong Kong and New York-listed state oil company faces direct pressure from a U.S administration determined to choke off the flow of petrodollars to the Islamic Republic.sin

It makes me wonder: If China's bluster about standing up to American bullying rings hollows on importing Iranian oil, will it also be the case with Trump imposing tariffs on more and more Chinese exports? Sinopec was rather lame; will Chinese leadership also be chicken out when threatened with ever-growing lists of goods hit with import taxes?

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PRC Tells Yanquis to Shove It On Iran Oil Imports

♠ Posted by Emmanuel in China,Energy,Middle East at 8/05/2018 04:11:00 PM

Truly *independent* countries--from American influence, at least--are free to buy Iranian oil.

It's odd that Trump campaigned on American isolationism--withdrawing from misadventures in Afghanistan, Iraq, Syria, et cetera--and then to see his actions on Iran. Being the archetypal Stuck in the 80s sort of guy, Trump seems to have an odd fixation on bashing Iran. Famously leaving the agreement struck on Iranian compliance on limiting enriched nuclear materials in exchange for lifting sanctions, the United States wants to get its way when none of the other signatories to the JCPOA agreement have left it.

The oddity here is that the United States wants everyone else to follow through with re-implementing sanctions on Iran. If this isn't a prime example of playing "globocop" and busybodying in world politics, then I don't know what is. Given the commercial ties of countries like Western European ones with the United States, it's certainly difficult for them to ignore American pressure to stop buying Iranian fuel. For instance, the Germans may chafe at the neophyte US ambassador telling them to stop buying Iranian fuel, but they ultimately will have to comply lest they face American economic sanctions.

Thankfully, though, there is someone bucking the trend. What's more, it's a JCPOA signatory, a permanent member of the UN Security Council, and now the largest buyer of Iranian oil. Yes, I am talking about China:

The U.S. has been unable to persuade China to cut Iranian oil imports, according to two officials familiar with the negotiations, dealing a blow to President Donald Trump’s efforts to isolate the Islamic Republic after his withdrawal from the 2015 nuclear accord...

Teams of U.S. officials have been visiting capitals around the world to try to choke off sales of Iranian oil by early November, when U.S. sanctions are due to snap back into effect. While the Trump administration has said it wants to cut Iranian oil exports to zero by Nov. 4, most analysts viewed that target as unlikely.

Francis Fannon, the assistant secretary of state for the Bureau of Energy Resources, was recently in China to discuss sanctions, according to a State Department spokesperson. Unfazed, the administration has warned that even allies would face sanctions if they didn’t show “significant” progress in reducing Iranian oil purchases by Nov. 4, ruling out broad exemptions or waivers.

Instead of putting the brakes on its Iranian oil purchases, China has hit the gas instead. Sanctions, if applied, would not be against PRC entities with significant American trade. So, Yanquis pressuring the Chinese has been less effective:

China -- the world’s top crude buyer and Iran’s No. 1 customer -- has said previously that it opposed unilateral sanctions and lifted monthly oil imports from the country by 26 percent in July. It accounted for 35 percent the Iranian exports last month, according to ship-tracking data compiled by Bloomberg.

You can hardly expect the Chinese to become even more compliant / subservient to the United States on this matter given their ongoing trade war fisticuffs. I am not particularly fond of the Iranian leadership's blowhard stances just as I am not of Trump's. However, I do think it unfair to punish Iran's government for living up to JCPOA's commitments. Obviously, the wealthiest country in the world bullying a developing country trying to play by the rules doesn't strike me as an exemplary event, even if Iran's leadership certainly has many foibles.

But then again, what can we say about American "leadership" that relishes separating refugee seekers' children from their parents and then throwing them into cages like cattle?

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Asininity is Believing the *EU* Will Buy More US LNG

♠ Posted by Emmanuel in Energy,Europe,Trade at 7/29/2018 05:00:00 PM

Actually, European countries are not among the most profitable destinations for American LNG.

Ho-hum, here we go again. After the supposedly triumphal meeting between Trump and EU Commission President Jean-Claude Juncker, The Orange One loudly exclaimed that Europeans would buy lots more natural gas in the form of liquefied natural gas (LNG). Recall that LNG is the product of, well, liquefying natural gas for the purposes of transporting it over long distances--usually overseas--when pipelines are physically or economically unfeasible to build.

That said, there are additional costs incurred by both sellers and buyers in handling gas-to-liquid and liquid-to-gas conversions, respectively. Therein lies the rub this time: given current efficiencies, it doesn't make much economic sense for Europeans to buy American LNG. Let's begin with the (sadly) expected Trumpian hyperbole:

President Donald Trump’s plan for “vast amounts” of U.S. liquefied natural gas (LNG) to be sold to the European Union after trade talks with its top representative faces a reality test...“European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!,” Trump wrote in a Tweet.

But alas, such is not the case. Given the greater distances involved, European destinations are not quite economically viable for trade in LNG. Locations near Western Europe cost lower given advantages of geographic proximity and a cheaper way of transporting natural gas--through pipelines that do not require conversion of gas into liquid form and back again; e.g., Trump's favorite Russian pipelines:

It appeared that a major LNG deal between the trading partners had been struck. 

In reality, three-quarters of Europe’s existing import facilities lie empty while demand for U.S. LNG on the continent remains limited. The most lucrative markets for U.S. LNG are in South and Central America, India and the Far East, with Europe near the bottom of the pile given its relatively low prices and ample supplies of gas via pipelines from Russia and Norway.

We come around to the same issue concerning the similar Trump-Juncker "agreement" with soybeans discussed in an earlier post. The last time I checked, the European Union was composed of 28 (soon 27) sovereign nations that don't take orders on where to buy energy from, least of all the European Commission. Short of EC subsidies, market access to American LNG is already as good as it gets since tariffs on LNG are essentially zero:

“Will U.S. LNG reach Europe? Yes, but only if there is an arbitrage opportunity that makes sense,” he said. Politicians have little sway over this. The EU applies zero tariffs on U.S. LNG imports, so cutting them is not an option to boost trade in any future U.S.-EU talks.

The EU-28 are not command economies like China where you can rely on an apparatchik to make state-owned firms buy US LNG if agreed to. So, even European gas projects in America may find it more economically feasible to sell to nearby markets given the aforementioned costs that increase with distance:

A number of European companies have already announced plans to buy LNG from a new wave of planned U.S. projects. Portugal’s Galp, Italy’s Edison, Britain’s BP and Royal Dutch Shell are all lining up to lift LNG from Venture Global’s planned Calcasieu Pass project in Louisiana. But supply from these and other projects will not be ready for years and even then there is no guarantee it will come to Europe in meaningful quantities if more lucrative markets, such as China, emerge.

There. Another day, another Trumpian verbal vomit cleaned up. 

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How OPEC Boosts US Oil Exports to Asia

♠ Posted by Emmanuel in Energy at 5/28/2018 08:56:00 PM

Us Asians don't need Trump to force us to buy American oil. Fancy that.

As it was in the beginning with cartels, so it shall be until their end. The trouble with these things is that they only work if compliance with production limits are observed by a clear majority of the producers. I must admit that while the recent OPEC/Russia effort has been quite impressive--if you told me oil prices would reach their current levels when they started, I'd have said you're mad--there are limits.

The clear "antagonist" to these would-be petroleum oligopolists are the Yanks. Namely, the shale oil producers who have taken advantage of new production techniques to extract more oil and gas than previously thought possible from the United States. They too have been helped by the lifting of an oil export ban at the end of 2015; exports resumed in January of the next year.

The type of crude oil exported by non-American sourced is called Brent, whereas that coming from the United States is West Texas Intermediate (WTI). OPEC/Russia have succeeded in limiting supplies of Brent which they produce more of, while American WTI has been less affected. So, the price "spread" (difference) between cartelized Brent and WTI has been widening lately. The question is, why would oil customers worldwide buy OPEC/Russia's pricier Brent instead of WTI? The answer has to do mainly with bottlenecks getting US shale out of the ground and delivered to world markets. After all, you don't expect a country forty years dormant in exporting oil, the USA, to develop the necessary infrastructure overnight:

The simple reason for this is that the shale oil boom has left crude sloshing around the U.S., resulting in a local oversupply. While Brent prices have risen some 14 percent over the past three months, WTI is up just 7.5 percent and Midland crude – the version of WTI priced in the booming Permian basin rather than the benchmark delivery point in Cushing, Oklahoma -- is down 4.8 percent.

The last time we saw these sorts of spreads, there were sound legal reasons for it. The U.S. had forbidden almost all exports of crude oil for four decades until the end of 2015, so for many years its soaring shale oil production was trapped by the ban and the capacity limits of U.S. refineries that were able to convert it into exportable products.

The growing spreads now suggest that supply is pushing up against a different sort of bottleneck: A shortage of pipeline capacity between Midland and Cushing, and then a further shortage of pipeline and port capacity to get U.S. crude onto a hungry global market.

What may happen is that if OPEC/Russia keep artificially limiting oil production to boost prices, it may become even more economically viable for American shale producers to develop the infrastructure to get their oil to customers in Asia and elsewhere. Already, shale and similar sources have increased their production to almost counterbalance OPEC supply reductions:

There’s a further factor to consider, though, and it relates to what’s happening on the plains of Texas and Oklahoma. The latest period of supply restraint from Opec and Russia has in essence seen them give up market share to onshore North America. The 1.8 million barrels a day that they’ve taken off the market is almost entirely compensated for by the 1.53 million barrels a day of additional unconventional crude production from the U.S., not to mention 640,000 of additional daily barrels that have come out of Canada.

At the moment, infrastructure bottlenecks are keeping the U.S. shale boom almost as quarantined from global markets as legal restrictions did in the pre-2016 era. But, as my colleague Liam Denning has written, those widening spreads between delivery locations are driving midstream operators to seek profit from new export channels, from pipelines to the nascent capacity to load larger tankers from Louisiana’s Loop terminal.

We are already seeing the Yanks eat the lunch of greedy OPEC/Russia in Asia:

In Asia, China - led by Sinopec, the region’s largest refiner - is the biggest lifter of U.S. crude. The company, after cutting Saudi imports, has bought a record 16 million barrels (533,000 bpd) of U.S. crude, to load in June, two sources with knowledge of the matter said. India and South Korea are the next biggest buyers in Asia, each lifting 6 million to 7 million barrels in June, sources tracking U.S. crude sales to Asia said. Indian Oil Corp bought 3 million barrels earlier this month via a tender, while Reliance Industries purchased up to 8 million barrels, the sources said, although it wasn’t clear if Reliance’s cargoes would all load in June.

South Korea’s purchases are driven by its top refiners SK Energy and GS Caltex. Taiwanese state refiner CPC Corp has also snapped up 7 million barrels to be lifted in June and July. U.S. exports to Thailand will increase to at least 2 million barrels. State oil company PTT PCL is 1 million barrels of WTI Midland, while Thai Oil and Esso Thailand bought at least 500,000 barrels of Bakken crude each, said traders with knowledge of the country’s crude deals.

It's rare to find American good guys in the age of Trump, but I suppose the shale producers' contributions to punishing OPEC/Russia for introducing price distortions hurting oil consumers like you and me counts.  

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Aramco IPO: Why Saudis Turned Oil Price Hawks

♠ Posted by Emmanuel in Energy,Middle East at 2/25/2018 11:32:00 AM

There's a neat story from the folks over at Oil Price about how the Saudis have done an about-face on the price of traded oil. For the longest time, they were considered as being among the least "activist" in the commodity cartel OPEC [Organization of Oil Producing and Exporting Countries]. That is, they did not push for boosting oil prices by crimping production of OPEC member countries. In recent years, though, that has changed as they've turned from "doves" content with a lower price of oil to "hawks" seeking to increase this price.

The proximate cause of this apparent change of heart is the imminent initial public offering [IPO] of Saudi Aramco, the state-owned energy behemoth. Many of the specifics of that listing are not yet known: where the listing is to be made and how much of the company is to be floated:

Saudi Arabia is undergoing a truly seismic shift in its economy, politics, and society, all thanks to the oil price crash of 2014. Crown Prince Mohammed bin Salman, commonly referred to as MBS, would likely not have had the opportunity to initiate the sweeping changes envisaged in Vision 2030 had it not been for the price collapse. Now, Riyadh needs oil prices to rise as high as possible for the plan to succeed — and is even ready to tip the market into a deficit to that end.

Saudi Arabia used to be OPEC’s most influential price dove, according to Bloomberg’s Grant Smith. Now, the kingdom has adopted a markedly different approach. Saudi Arabia is now focused on pushing prices as high as it can for a very simple reason: Aramco’s IPO.

The change is rather dramatic. Consider the changing stances of Saudi Arabia and its ideological arch-rival within OPEC, Iran:

When oil surged to almost $150 in 2008, attempts by Saudi Oil Minister Ali al-Naimi to cool the rally also faced opposition from other OPEC nations eager to enjoy soaring revenues. Prices slumped the following year during the Great Recession.

The dynamic is showing some signs of reversing. After Brent crude shot above $70 in late January, Oil Minister Bijan Namdar Zanganeh of Iran -- an OPEC producer that often used to agitate for higher prices -- said that $60 was sufficient.

Emboldened by the success of their strategy so far, the Saudis are now pursuing price levels that will ultimately lead to failure, said Eugen Weinberg, head of commodity market research at Commerzbank AG in Frankfurt.

If the listing of Saudi Aramco is the proximate cause, the longer-term one is rather more interesting and less obvious. Vision 2030 is mentioned and refers in no small part to the post-fossil fuel plan that Saudi Arabia has which obviously has the potential to upend its longstanding fuel-driven political economy. You see, proceeds from the IPO of Saudi Aramco are expected to fund the implementation of Vision 2030. If you are going to undertake fairly drastic economy- and society-wide changes, you would obviously be better of doing them under favorable economic conditions (read: high oil prices in the near future).

So, the inescapable implication here is that to successfully transition to a post-fossil fuel future, Saudi Arabia would benefit from higher energy revenues at the present time to fund Vision 2030. Strange but true:

Aramco’s IPO is crucial for Vision 2030, as the proceeds from the sale will be the fuel that this ambitious plan runs on. While analysts disagree strongly on exactly how much Aramco is worth, it’s clear that the higher oil prices are, the higher the valuation for this oil giant will be.

Pulling off Vision 2030's ambitious objectives is by no means guaranteed. Ironically, though, successfully weaning the kingdom off oil is more likely when oil prices are high rather than when they are low as Saudi Aramco is being listed as a "legacy" business--albeit a behemoth on the world energy stage.

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Norway's $1T SWF & 'Divesting' From Oil

♠ Posted by Emmanuel in Energy,Europe at 11/17/2017 05:23:00 PM

Make no mistake: Norway's gonna cover you in oil for the foreseeable future.

Financial markets are currently in a tizz over Norway's sovereign wealth fund (SWF) investigating the possibility of divesting entirely of its oil and gas stocks. We aren't talking small beer here since it is a $1 trillion fund amassed over the years largely from Norway's oil and gas royalties. Believed to hold an incredible 1.5% of the world's floating stock valuation, it is a relative giant in the business world. With the continuing drive among progressive (read: non-American) countries to move toward renewable energy sources, this announcement is being made out to be the death knell of fossil fuel production--at least in civilized parts of the world not run by reality TV stars and similar riffraff:

Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.

“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”

The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.

It's being portrayed as the canary in the coal mine...or the turtle in the offshore, if you prefer as environmentalists laud the move:

While the fund says the plan isn’t based on any particular view about the future of oil prices or the industry as a whole, it will likely add to pressure on producers already struggling with the growth of renewable energy supplies...

Built on the income that western Europe’s largest energy supplier has generated for more than 20 years, the fund’s investment decisions are guided by ethical rules encompassing human rights, some weapons production, the environment and tobacco. Norway’s fossil-fuel investments are coming under increasing scrutiny from a public that aims to be a climate leader without jeopardizing one of the world’s highest standards of living...

But environmental groups praised the plan. “The world is changing fast, and it’s very risky to put too many eggs in the same basket,” said Marius Holm, the leader of the Zero Emission Resource Organisation. Sony Kapoor, a former adviser to Norway’s government, said the plan is “a belated victory for common sense over the powerful oil and gas lobby in Norway,” calling on the fund to now boosts its “green” investments at least tenfold.  

The rub, though, is that Norway has little interest in shutting down the oil fields its government draws substantial revenues from. As mentioned, a fifth of all state revenues still come from oil and gas. As such, the explanation government officials provide for making this move is actually an honest one. Since the national purse is already exposed to oil prices in a big way, why should it not diversify away from the same industry with its SWF? A true rainy-day fund should not rain on your parade at the same time that economic downturns occur. While the SWF does claim to use ethical criteria in making investments, it would be hypocritical of the SWF to mention environmental reasons for its divestment when the government receives 20% of its revenues from oil and gas.

As such, I would be wary of those portending a Norwegian SWF portfolio readjustment as the "End of Big Oil" or the start of such stocks gradual demise a la Big Tobacco. While there are ethical and environmental reasons bringing us closer to such a point, this move by the Norwegians is probably just another milestone rather than the final nail in the coffin. 

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Can Singapore Land Saudi Aramco (Mother of All IPOs)?

♠ Posted by Emmanuel in Energy,Middle East,Southeast Asia at 2/08/2017 05:59:00 PM

Make it big: Singapore competes for Saudi Aramco's $100B IPO listing.

Us Southeast Asians have been closely following the possibility--however remote--of the Singapore Exchange [SGX] landing the biggest IPO of recent times. Saudi Aramco indicated a few months back that it intends to make a public listing. Aramco being the world's largest state-owned oil company, the sums involved will make your head spin with $$$ signs. Not one to pass up a once-in-a-generation opportunity, Singapore has been courting the Saudis assiduously:

The island nation is studying proposals including inviting one of its state investment companies to become a cornerstone investor in Aramco’s IPO, as well as potential Singapore cooperation with the Saudi government on future investments, the people said. Singapore Exchange Ltd. management including Chief Executive Officer Loh Boon Chye visited Saudi Arabia late last year to pitch a listing on the bourse, according to the people, who asked not to be identified as the information is private.

Singapore, the biggest oil trading center in Asia, is hoping a full package of government incentives will give it a better chance of winning a piece of the listing than a standalone proposal from the stock exchange, the people said. Aramco is yet to make a final decision on the venue for the IPO, and Singapore faces challenges from larger international exchanges, the people said.

That said, many others are also approaching the Saudis like fellow Asian financial powerhouse Hong Kong and Canada (of all places):

The country’s plan shows the extent to which Asian economies are vying for a share of the IPO, which is estimated to be about $100 billion in size. Aramco officials have also received pitches on a potential Hong Kong listing for the company, which could come with anchor investments from Chinese funds, people familiar with the matter said last year. Company executives have also mentioned the possibility of listing in London, New York, Tokyo or Toronto.

TMX Group Ltd., the owner of the Toronto Stock Exchange, sent officials to Saudi Arabia as part of efforts by a Canadian consortium that includes major local banks to seek a slice of the IPO, said TMX spokesman Shane Quinn.

Singapore is hardly a shoo-in. Compared to other exchanges, SGX is small fry trading volume-wise:

Singapore’s average daily stock trading was about $761 million last year, compared with $5.8 billion in Hong Kong and $7.4 billion in London, the data show.

Moreover, the international (read: non-Singapore-domiciled) IPOs Singapore has had in recent years are not uniformly impressive:

The chequered history of foreign listings in Singapore is another factor. While the 2006 float of Chang beer maker Thai Beverage Pcl has outperformed, Hutchison Port Holdings Trust's $5.45 billion debut in 2011 went the other way. Units never closed higher than their $1.01 offer price and are currently at $0.43. Plans to lure English soccer team Manchester United also came to naught, putting another nail in the coffin of Singapore's rather ambitious desire to become a global sporting hub.

My intuition is that the Singaporeans will give it as good a go as possible, but they ultimately will not be disappointed too much if the IPO is not made there since they're decidedly underdogs here. Though I may be wrong, I am fairly confident that the US and UK are out of the running: the latter is too Islamophobic with a President Trump, while the latter is undergoing the transitory pains associated with Brexit.

Stay tuned.

2/21 UPDATE: If news reports are to be believed, Singapore isn't even among the contenders for the Saudi Aramco listing, with authorities favoring the New York Stock Exchange [NYSE] and the London Stock Exchange [LSE]:

Saudi Arabia is favouring New York to list state oil giant Saudi Aramco IPO-ARMO.SE, while also considering London and Toronto for the prospect of floating the firm, the Wall Street Journal reported on Monday.

Saudi officials also talked to exchanges in Singapore, Hong Kong, Tokyo and Shanghai but are unlikely to pursue listing in those places, the newspaper said, citing people familiar with the matter.

I am somewhat at a loss as to why the Saudis would prefer Trump's America. After all, they provide next to no US jobs and would certainly qualify as "stealers" of them from Trump's perspective. Listing stateside would make Aramco more vulnerable to US protectionism. Don't forget Trump's Islamophobia either, which certainly would find a US-listed foreign oil major a big, juicy target to demagogue against. Meanwhile, the UK is about to leave the EU, reducing the pool of potential investors.

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Trump Makes America #1 Environmental Rogue Regime Again

♠ Posted by Emmanuel in Americana,Energy at 11/13/2016 05:32:00 PM

Welcome to the coalface, circa 2016 in TrumpWorld.

As a lover of conspiracy theories, Donald Trump famously said that climate change is a hoax perpetuated by the Chinese (nevermind that they're now the world's largest carbon emitters, but hey, what's logic gotta do with it?) What are the consequences of this belief? Initially, Trump may withdraw the United States' participation in the Paris Agreement. Oddly enough, the Chinese--once the most obstructive of countries on dealing with the issue--are now cautioning Trump on junking the agreement at the ongoing UNFCCC Conference of the Parties in Morocco:

In a sign of how far the world has shifted in recognising the need to tackle global warming, Beijing — once seen as an obstructive force in UN climate talks — is now leading the push for progress by responding to fears that Mr Trump would pull the US out of the landmark accord.

“It is global society’s will that all want to co-operate to combat climate change,” a senior Beijing negotiator said in Marrakesh on Friday, at the first round of UN talks since the Paris deal was sealed last December. The Chinese negotiators added that “any movement by the new US government” would not affect their transition towards becoming a greener economy.

At stake is a lot of funding for developing countries to deal with the problem. Namely, the Green Climate Fund (GCF) meant to provide $100 billion from developed to developing countries to deal with it:

Without extra money, they say they won't be able to do so much. Trump, who has called man-made climate change a hoax, wants to cancel the Paris Agreement and halt any U.S. taxpayer funds for U.N. global warming programs.

If he follows through, that will threaten a collective pledge by rich nations in Paris to raise climate finance from both public and private sources from a combined $100 billion a year promised for 2020.

Since Trump's win, nations from China to Saudi Arabia have reaffirmed their support for the Paris Agreement's goal of eliminating net greenhouse gas emissions sometime from 2050 to 2100.

But there is widespread unease about finance at the Nov. 7-18 talks on climate change among almost 200 nations being held in Marrakesh, Morocco.

It is arguably that the rest of the world has so little say in US elections when what happens there has such major consequences for everyone else--including the fate of the planet. It's back to the situation while Bush Jr. was in office: America is likely to become the world's worst environmental rogue regime again.

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Venezuelan Oiler PDVSA: Debt Swap or Bankrupt

♠ Posted by Emmanuel in China,Energy,Latin America at 10/19/2016 04:25:00 PM

"Delay when we need to pay you back...or we'll default on Oct. 28!" Investor relations, Venezuela-style.

When oil prices were at $100 or higher, Venezuela was flying high, using oil revenues to fund "socialist" PR stunts such as selling subsidized heating oil for poor Americans. As the price of oil tanked, however, the Venezuelan government has been less able to mount such extravagant displays of "generosity." After years and years of low oil prices, we instead have a situation in which state-owned oil company PDVSA is now threatening its creditors with default by next week if they do not accept the swap of bonds due in 2017 with new ones instead due in 2020:

Venezuela's government-run oil giant -- the country's largest source of cash -- is warning that it could default on its bonds as early as next week. Petroleos de Venezuela S.A., or PDVSA, failed to get investors to agree on a deal to push back debt payments by three years. The company said it is extending its deadline for a third time so investors can accept a deal by Friday night. This time, it warned that things could get messy. "If the exchange offers are not successful, it could be difficult for the company to make scheduled payments on its existing debt," PDVSA said in a statement Monday night.

PDVSA owes $1.6 billion in principal and interest on October 28 and another payment of $2.9 billion is due on November 2 for a separate bond. It's unclear if PDVSA may actually default or if it's trying to strong arm investors to take the deal. "I don't think they've prepared themselves for a default, I think it's mostly just a threat. The concern is that they're starting to talk about it," says Siobhan Morden, head of Latin America fixed income strategy at Nomura Holdings.

In total, Venezuela is asking investors to "swap" $5.3 billion of bonds due in 2017 with bonds due in 2020, essentially allowing the government to push back payments. But PDVSA hasn't been able to lure enough investors to accept the offering. It's led Standard & Poor's to cut its rating on PDVSA in mid-September to two notches above default.

What does PDVSA matter to Venezuela? Pretty much everything in terms of generating foreign exchange:

PDVSA represents much more than just an oil company. It is Venezuela's lifeline. Oil shipments make up over 95% of the country's export revenue -- that's cash the government badly needs to pay for imports of food and medicine, which are in short supply. Things have been so badly mismanaged that Venezuela's oil production hit a 13-year low over the summer after oil services provider such as Schlumberger (SLB) dramatically reduced operations earlier this year due to unpaid bills.

PDVSA has been used as a government piggy bank, but it's almost run out of funds. Also consider that the PRC, which has given Venezuela an estimated $60B, is no longer willing to give more:

After pouring billions into Venezuela over the last decade, China is cutting off new loans to the Latin American nation. It's a major reversal of relations between the two nations, experts say. It also comes at the worst time for Venezuela, which is spiraling into an economic and humanitarian crisis.

"China is not especially interested in loaning more money to Venezuela," says Margaret Myers, a director at Inter-American Dialogue, a Washington research group that tracks loans between China and Latin America.

But barter trade--China was being repaid in oil--doesn't quite work when PVDSA is so poorly run that its output has fallen to multi-year lows that there's not much left to barter:

Since 2007, China's state banks loaned Venezuela $60 billion, according to the Inter-American Dialogue. That's more that it loaned to any other Latin American country. China is considered Venezuela's most important creditor. Of that, Venezuela still owes China approximately $20 billion, experts say, and there's no sign that it can pay back the amount amid its crisis.

Venezuela pays back the vast majority of its loans to China with oil shipments. Last year, Venezuela's state-run oil company, PDVSA, shipped about 579,000 barrels of oil per day to China, according to the company's financial audit.

Without Chinese aid--and assuming oil prices don't spike back above $100 anytime soon--you can see the endgame in sight for PDVSA.

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Take Oil Inventory Data With a Grain of Salt

♠ Posted by Emmanuel in Energy at 7/27/2016 12:30:00 AM

US oil inventories are more or less known; those of others are a mystery.

There is an informative article over at Oilprice.com on the need for a critical eye when interpreting oil inventory reports. While this data can significantly affect spot prices for two crude oil benchmarks--West Texas Intermediate (WTI) and Brent--there are caveats. Essentially, there are concerns over the coverage and accuracy of these figures. Both these factors should make observers more vigilant.

Consider first that inventory data is largely US-based. Namely, the weekly series provided by US agency the Energy Information Administration (EIA). However, reports from others may indicate contradictory trends:

The EIA data releases are a tradition for the oil markets – the weekly publications spark movements in oil prices, whether up or down. But the tricky thing about international prices trading on these metrics is that they only encapsulate what is going on in the United States.

The markets know very little about what is going on in the rest of the world. As The Wall Street Journal notes in a July 24 article, countries such as China and Russia do not report data on their storage levels. In fact, there is very little transparency on market data in much of the world. “The data itself is so inconsistent,” Harish Sundaresh, portfolio manager and commodities strategist for Loomis, Sayles & Co., told the WSJ. “In countries like Nigeria, Brazil, Angola, it’s not trustable.”


There are a few other outlets that release data on oil trends. The IEA offers some data on stocks from the OECD, which encompasses North America, Europe, and other rich countries. The IEA data shows commercial stocks in the OECD rising by 13.5 million barrels from May to June, reaching a record high of 3,074 million barrels. So that data looks pretty depressing for oil prices.

Also, the Riyadh-based Joint Organisations Data Initiative (JODI), for example, compiles data from the IEA, OPEC and a few other agencies. Data from JODI shows that Saudi Arabia has recently begun reducing its inventories to meet both high levels of demand abroad and domestically. In another example, JODI data revealed a sharp drawdown in inventories in Nigeria, mostly due to the attacks from the Niger Delta Avengers on domestic production. Nigeria’s crude stocks declined by 78 percent between December and May, as outages forced the country to tap reserves in order to keep exports from falling. The JODI data provides some small semblance of bullishness.

Like a Humpty Dumpty of data, putting all of these sources together hardly produces a consistent or satisfactory picture of the world crude oil situation:

But with data from multiple sources, which often conflict with one another, is hard to put it all together. And as the WSJ notes, there isn’t data like this from Russia, China and other non-OPEC members. The lack of transparency makes it difficult to paint a clear picture of what is going on in the oil markets.

China, for example, is filling up its strategic petroleum reserve. When comparing imports to refining production, it appears that there is a surplus, meaning that China is stockpiling crude oil. But much of that is likely winding up in China’s SPR, not necessarily commercial storage. If the SPR fills up, and China dials down its imports, that could be bad news for global oil demand. But nobody knows because of the lack of data.

Bottom line: while more reliable US data is great, America is obviously not the world. Moreover, with different compilers of data using different methods of estimating reserves, you cannot assume that they use comparable measures to produce their data:

But the larger lesson is that oil price volatility is in part a symptom of a shortage of reliable data. The markets move up and down on incomplete and sometimes incorrect information. When the real trends ultimately emerge only months later, prices can react by moving quickly back in the other direction.

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Baku F1 Race: Global Media is ~169 Years Late

♠ Posted by Emmanuel in Energy,Sports at 6/21/2016 12:30:00 AM

To paraphrase Jenson Button, it's "Baku baby, yeah."

As a commentator on third world goings-on first and foremost, it behooves me that last Sunday's European Grand Prix on the streets of Baku, Azerbaijan has been portrayed as a coming out party for that particular country on the world scene. So Azerbaijan is seldom mentioned in the Western media outside of the context of human rights abuses--surprise, surprise--but its economic and strategic importance in geopolitics seems to be glossed over by these accounts. It is treated as some kind of Johnny-come-lately when its energy industry has been at the global forefront from the very start.

There are, in addition, squabbles remaining over historical grievances in this part of the world:

If it were only a matter of the outward beauty of the location and the circuit’s extraordinary features, the view before the race would be one of a major success in the making. But there is controversy, given Azerbaijan’s poor human rights record and the fact that its disputed territory of Nagorno-Karabakh — also claimed by Armenia — is a war zone.

Azerbaijan, a country of more than nine million at the crossroads of Europe and Asia that shares borders with Armenia, Georgia, Russia, Iran and a small sliver of Turkey, sees itself as a part of Europe. For that reason the country bid for the race, and requested the title of European Grand Prix — rather than Azerbaijan Grand Prix. The name had been free since the last race in Valencia, Spain, in 2012, according to Arif Rahimov, the chief executive of Baku City Circuit Operations Company, the promoter of the event.

Azerbaijan proudly linking itself with all things European runs into difficulty with the EU's current emphasis on human rights and such. For all that, do consider things in broad historical sweep: it has been synonymous with energy in the region for decades and decades. Well before the Americans drilled their oil well, the Azeris were already, ah, well into the game:

Azerbaijan has been linked with oil for centuries, even for millennia. Medieval travelers to the region remarked on its abundant supply of oil, noting that this resource was an integral part of daily life there. By the 19th century, Azerbaijan was by far the frontrunner in the world's oil and gas industry. In 1846 - more than a decade before the Americans made their famous discovery of oil in Pennsylvania - Azerbaijan drilled its first oil well in Bibi-Heybat. By the beginning of the 20th century, Azerbaijan was producing more than half of the world's supply of oil. 

Also consider:

The first stage started with the mechanical production of oil from the dug wells in 1847 and continued up to 1920. The years of 1847-1848 were characterized by the first production of industrial oil from the dug wells in Bibieybat and later Balakhany fields and the development of oil industry of Azerbaijan started from that moment.

The early 19th century was characterized by the first production of oil from the manual well dug at Bibieybat 30 meters away from the seashore. The first oil refinery was constructed in Baku in 1859. The kerosene plant was built by Djavad Melikov in Baku 1863 and fridges were used in the oil refining for the first time in the world. 15 oil refineries operated in 1867.

The development of well drilling technologies led to the discovery of a number of oil wells (Binegedi, Pirallahi, Surakhany and others), the increase in the production of oil, the development of oil infrastructure and oil refining and the creation of hundreds of companies engaged in oil production, refining and sales. The national bourgeoisie formed in Azerbaijan and Baku turned into one of the industrial centers of the world.

The industrial method of oil production was first used in the Balakhany-Sabunchun-Romany oil field in the Absheron peninsula in 1871. Two laws "On the excise tax on oil wells and oil products" and "Sales of oil lands held by leaseholders to individuals were adopted for the improvement of the relations in the oil industry in 1872. 15 regions of Balakhany and 2 regions in Bibiehbat were first to put on auction on December 31, 1872. 

In many way it's apt that a sport literally fueled by the stuff Azerbaijan is famous for is finally held there. In history, the country's prominence in oil production predates even that of the United States. 169 years later, Azerbaijan is finally receiving some global media attention. Fancy that.

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