A "Flood" of new oil..........

[don]

Re: A "Flood" of new oil..........

Russia, Turkey pivot across Eurasia


The latest, spectacular "Exit South Stream, Enter Turk Stream" Pipelinistan gambit will be sending big geopolitical shockwaves all across Eurasia for quite some time. This is what the New Great Game in Eurasia is all about.

In a nutshell, a few years ago Russia devised North Stream - fully operational - and South Stream - still a project - to bypass unreliable Ukraine as a gas transit nation. Now Russia devises a new sweet deal with Turkey to bypass the "non-constructive" (Putin’s words) approach of the European Commission (EC) concerning the European "Third Energy Package", which prohibits one company from controlling the full cycle of extraction, transportation and sale of energy resources.

Background is essential to understand the current game. Already five years ago I was following in detail Pipelineistan’s ultimate opera - the war between rival pipelines South Stream and Nabucco. Nabucco eventually became road kill. South Stream may eventually be resurrected, but only if the EC comes to its senses (don’t bet on it.)

The 3,600 kilometer South Stream should be in place by 2016, branching out to Austria and the Balkans/Italy. Gazprom owns it with a 50% stake - along with Italy’s ENI (20%), French EDF (15%) and German Wintershall, a subsidiary of BASF (15%). As it stands, these European energy majors are not exactly beaming - to say the least. For months, Gazprom and the EC were haggling about a solution, but in the end Brussels predictably succumbed to its own mediocrity - and relentless US pressure over weak-link and European Union member Bulgaria.

Russia still gets to build a pipeline under the Black Sea, but one now redirected to Turkey and, crucially, pumping the same amount of gas South Stream would. Not to mention Russia gets to build a new LNG (liquefied natural gas) central hub in the Mediterranean. Thus Gazprom has not spent US$5 billion in vain (finance, engineering costs). The redirection makes total business sense. Turkey is Gazprom’s second-biggest customer after Germany; much bigger than Bulgaria, Hungary and Austria combined.

Russia also advances a unified gas distribution network capable of delivering natural gas from anywhere in Russia to any hub alongside Russia’s borders.

And as if it was needed, Russia gets yet another graphic proof that its real growth market in the future is Asia, especially China - not a fearful, stagnated, austerity-devastated, politically paralyzed EU. The evolving Russia-China strategic partnership implies Russia as complementary to China, excelling in major infrastructure projects from building of dams to laying out pipelines. This is trans-Eurasia business with a sharp geopolitical reach and not subjected to ideology-drenched politics.

Russian "defeat"? Really?
Turkey also made a killing. It’s not only the deal with Gazprom; Moscow will build no less than Turkey’s entire nuclear industry, and there will be increased soft power interaction (more trade and tourism). Most of all, Turkey is now increasingly on the verge of becoming a full member of the Shanghai Cooperation Organization (SCO); Moscow is actively lobbying for it.

This means Turkey acceding to a privileged position as a major hub simultaneously in the Eurasian Economic Belt and of course the Chinese New Silk Road(s). The EU blocks Turkey? Turkey looks East. That’s Eurasian integration on the move.

Asia Times Online has been reporting for years how Turkey’s key strategic imperative is to configure itself as the indispensable energy crossroads from East to West - transiting everything from Iraqi oil to Caspian Sea gas. Oil from Azerbaijan already transits Turkey via the Bill Clinton/Zbig Brzezinski-propelled BTC (Baku-Tblisi-Ceyhan) pipeline. Turkey would also be the crossroads if a Trans-Caspian pipeline is ever built (slim chances as it stands), pumping natural gas from Turkmenistan to Azerbaijan, then transported to Turkey and finally Europe.

The EC brilliant "strategy" revolves around the EU’s Third Energy Package, which requires that pipelines and the natural gas flowing inside them must be owned by separate companies. The target of this package has always been Gazprom - which owns pipelines in many Central and Eastern European nations. The target within the target has always been South Stream.

Now it’s up to Bulgaria and Hungary, which have always fought the EC "strategy", to explain the fiasco to their own populations, and to keep pressing Brussels; after all they are bound to lose a fortune, not to mention get no gas, with South Stream out of the picture. Bulgaria alone reportedly has lost more than 6,000 new jobs and over $3 billion of investment due to the loss of South Stream.

So here’s the bottom line; Russia sells even more gas - to Turkey; Turkey gets much-needed gas with a cool discount; and the EU is reduced to dance, dance, dance like a bunch of headless chickens in dark Brussels corridors wondering what hit them. And while the Atlanticists are back to default mode - cooking up yet more sanctions - Russia is set to keep buying more and more gold.

This is not the endgame - far from it. In the near future, many variables will intersect.

Ankara’s game may change - but that’s far from a given. President Recep Erdogan - the Sultan of Constantinople - has certainly identified a rival, Caliph Ibrahim of ISIS/ISIL/Daesh fame, trying to steal his mojo. Thus the sultan may flirt with mollifying his neo-Ottoman dreams and contemplate steering Turkey back to its previously ditched "zero problems with our neighbors" foreign policy doctrine.

Not so fast. Erdogan’s game so far was the same as that of the House of Saud and Qatar's House of Thani; get rid of Syrian President Bashar al-Assad to allow an oil pipeline from Saudi Arabia and a gas pipeline from the South Pars/North Dome mega-field in Qatar. This pipeline would be Qatar-Iraq-Syria-Turkey, rivaling the already proposed, $10 billion Iran-Iraq-Syria pipeline. Final customers: the EU, of course, desperate in its "escape from Gazprom" offensive.

So what now? Will Erdogan abandon his "Assad must go" obsession? It’s too early to tell. The Turkish Foreign Ministry is spinning to the media that Washington and Ankara are about to agree on a no-fly zone along the Turkish-Syria border - even as the White House, earlier this week, insisted the idea had been scrapped.

The House of Saud is like a camel lost in the Arctic. The House of Saud’s lethal game in Syria always boiled down to regime change so that the Saudi-sponsored oil pipeline from Syria to Turkey might be built. Now the Saudis see Russia about to supply all of Turkey’s energy needs - and still be positioned to sell more gas to the EU in the near future. And Assad still won’t go.

But it is US neo-cons who are sharpening their poisonous spears with gusto. As soon as early 2015 there may be a Ukrainian Freedom Act in the US House of Representatives. Translation: Ukraine being dubbed a "major US non-NATO ally", which means, in practice, a virtual NATO annexation. Next step: more turbo-charged neo-con provocation of Russia.

A possible scenario is vassal/puppies such as Romania or Bulgaria, pressed by Washington, deciding to allow full access of NATO vessels into the Black Sea. Who cares that this would violate current Black Sea agreements that affect both Russia and Turkey?

And then there’s a dangerous Rumsfeldian "known unknown": how the fragile Balkans will feel subordinated to the whims of Ankara. As much as Brussels keeps Greece, Bulgaria and Serbia in a strait jacket, in energy terms they will start depending on Turkey’s goodwill.

Putin hits Delhi next weekend. Expect another geopolitical bombshell.

Pepe Escobar

[ST]

Re: A "Flood" of new oil..........

US Inventories - compare this year with last year- tighter relatively than one might think:

12-08-2014 US Oil Inventories.PNG

Specs in 2014, compare the magnitude to 2008:

12-08-2014 NYMEX Specs.PNG

[vinoveri]

Re: A "Flood" of new oil..........

thanks touchring.
Reminds me of a street scene from "Omega Man"

[touchring]

Re: A "Flood" of new oil..........

Is this a prediction? Are we on the cusp of a global recovery?
All the doomers seem to be amplifying their rhetoric at this point, and even some of the mainstream folks are pointing to a global slow down. Capitulation of the optimists?

I believe it depends on the sector and region.

In many countries with construction booms, China especially, the real estate sector has reached the point of no return.

The following photos are all from the empty and almost fully completed new CBD of Tianjin city, modeled after Manhattan - http://en.wikipedia.org/wiki/Yujiapu_Financial_District

[vinoveri]

Re: A "Flood" of new oil..........

Logically, if the boyz on Wall Street can spike the price of oil off a negative supply/demand imbalance from $91 to $140 during the first six months of the worst global recession 80 years why can't they jam the oil price down off a positive supply/demand imbalance from $80 to $60 just before the global economy takes off?

Is this a prediction? Are we on the cusp of a global recovery?
All the doomers seem to be amplifying their rhetoric at this point, and even some of the mainstream folks are pointing to a global slow down. Capitulation of the optimists?

[don]

Re: Fighting to the Last Bonar

I believe the 5GW meme is deluding the US interventionists into believing they can continue to exercise hegemonic control without paying the costs of former conventional type operations.

Iran Hits ISIS With Airstrikes in Iraq, Flexing Its Muscles Once Again

By TIM ARANGO and THOMAS ERDBRINK


BAGHDAD — When Iranian fighter jets struck extremist targets this week in Iraq, enforcing a self-declared buffer zone along the border, it was only the latest display of Tehran’s new willingness to conduct military operations openly on foreign battlefields rather than covertly and through proxies.

The shift stems in part from Iran’s deepening military role in Iraq in the war against the Sunni extremists of the Islamic State. But it also reflects a profound shift in Iran’s strategy, a new effort to exert Shiite influence around the region and counter Sunni powers such as Saudi Arabia.

Analysts also say it follows a calculation that what Iran’s rulers see as a less-engaged United States will tolerate or even encourage their overt military activities.

While there is no direct coordination with the United States military in the region, there is what might be characterized as a de facto nonaggression pact, where the two sides stay out of each other’s way, as the Syrian government and the Americans do in managing airstrikes in Syria.

looks conventional to me . . .

[GRG55]

Re: A "Flood" of new oil..........

...Here's my argument: The rise from $58 to $100 was due to supply/demand economics and from $100 to $140 was due to speculation in the paper oil markets. Similarly, the recent decline from $106 to $80 was due to supply/demand economics but the decline from ~$80 to, what, $65? $60? will turn out to have been due to speculation in the paper oil markets.

Logically, if the boyz on Wall Street can spike the price of oil off a negative supply/demand imbalance from $91 to $140 during the first six months of the worst global recession 80 years why can't they jam the oil price down off a positive supply/demand imbalance from $80 to $60 just before the global economy takes off?

The conversation about the oil price drop has largely been confined to an over-supply story (excess U.S. production and Saudi production) or a under-demand ("hidden" or impending global recession) story.

I think that when this is all over we will find that the truth was more nuanced, that the oil price trend started off as over-supply and the boyz, being good at what they do, have ridden that to the nth degree. Then they'll ride it back up again...

The WTI mini-avalanche off $80, which was roughly the bottom of the trading range since late 2010, is typical oil price behavior. It is this fairly predictable outcome that caused me to estimate "$60" in the wager with my brother last year.

An abbreviation from a post on this thread dated 03-29-14:

...Second, I wagered "touch $60". If the oil price declines, but does it by way of a gentle drift down to perhaps $80ish, I'll lose the bet with my brother. Possible, but not a typical commodity (oil) price decline. Usually once the oil price cracks the speculators exit their long dated futures en masse creating a selling avalanche and oil overshoots to the downside. All that is needed is a single intraday trade settled at $60. If that happens I would expect a pretty healthy bounce in the oil price immediately after...but I will nevertheless be placing an order with my brother for an expensive bottle of Margaux.

I have no education in finance, nor do I play the futures markets. But I have been around the oil game long enough to have learned one or two things.

Wholesale gasoline prices in the USA started falling in June. Refinery margins are squeezed. That inevitably has to be resolved with either a rise in product price or a fall in crude oil price. The initial decline in crude price this year is all about supply, not a decrease in demand (EJ has also noted that demand shows no indication of any material decline).

The WTI oil futures market remained in backwardation for years until the near month price threatened to break decisively below $80 earlier this year, at which point anybody long crude oil reserves (read: all those debt laden shale oil drillers) started hedging aggressively and voila...about mid-October the combination of supply driven sinking spot price and longer dated hedging inverted the curve, which now remains in contango for as far as the eye can see.

And therein lies the present danger. Today the entire curve shifted down, with the spot and near months falling more than the long dated contracts. One of two things is going to happen. Either the steepening contango is going to, once again, make it profitable to buy oil on the spot market, forward sell and take physical delivery (this is the economic growth, no recession outcome - tankers full of cheap oil at anchor waiting to fuel the growing economy at higher future prices) or, alternatively, this oil price decline is not over...a continuing falling spot price (as we saw today) will cause traders with forward contracts in contango to close them. In the worst oil price declines in these situations, the resulting avalanche of supply drives the curve to backwardation - which is the scenario I was expecting last year to take it to $60 before year-end 2014.

[touchring]

Re: A "Flood" of new oil..........

SU will be a good buy if there is a really emotional flush out..but it is at present a more risky bet than some others imo due to its high exposure to oil sands. In a PCO world it will be a core holding with its long reserve life. But timing is everything, and the time to buy will be when there is blood in the streets...and we seem to have all the right precursors for the probability of that outcome to be elevated now.

Thanks for the heads up on SU's oil sands explosure. After a couple years of observation, I noticed that major oil stocks are influenced more by the general direction of the stock market than oil price alone.

For example, the recent plunge merely erased gains made in 2nd and 3rd quarter of 2014.

OTOH, gas companies such as CHK appear to be even more badly hit, down by 30% or more. Perhaps because they are smaller caps - small cap oil stocks are also very badly hit.

From my understanding, some (but I don't know how much) of the natural gas produced are a byproduct of shale drilling, so can I say that if shale exploration falls, natural gas supply will follow?

I'm also looking at natural gas, but I find it even riskier than oil. Wilbur Ross who made a lot of money from Bank of Ireland, first bought XCO at around $20, and keeps on buying, averaging down, and now it's $2.63!

http://www.gurufocus.com/gurutrades.php?symbol=XCO&p=1

The general well being of the overall stock market is another risk. We can't discount the possibility of ISIS succeeding in launching an attack in some financial capital and send the stock market reeling.

[GRG55]

Re: A "Flood" of new oil..........

Does all of this complexity support the "random walk hypothesis" that this really, at the end of the day, is not predictable?

What will happen is almost entirely predictable. When it will happen is magnitudes more difficult to pin down well in advance.

[touchring]

Re: A "Flood" of new oil..........

http://www.cnbc.com/id/102233663

T Boone Pickens' take on the oil plunge. He believes that the plunge is due to sluggish oil demand growth.

[astonas]

Re: A "Flood" of new oil..........

Perhaps the result of creativity so encouraged combined with analytical rigor produces a satisfactory result and the grammatical lapses are tolerable to the grammatically fortunate.

More than satisfactory!

I'm normally a stickler for grammar. But language is, as it must be, first and foremost about communication.

While I'll admit to pointing out a correction or two in your work over the years, such errors have never contributed to any confusion about the ideas you were expressing.

Writing in public in near-real time is hard enough that perfection can't reasonably be demanded.

Thank you for continuing to do so, in whatever words you choose.

[EJ]

Re: A "Flood" of new oil..........

Kudos to Bernanke for not lying. After all, he didn't say that "asset prices and financial conditions" equals the economy. And kudos to Goldfarb for using the proper and accurate word "effect" instead of the massively overused and incorrect "impact." For hundreds of years the word impact has meant an impulsive force, and definitely not an effect spread out over a period of time.

Bernanke may be a well intentioned academic who was used to fulfill a specific mission for The System -- a greatly expanded mission from the one framed in 1913, I might add -- but I do think he is honest. Here he is trying to explain to a TV journalist that asset price inflation was the whole point of QE as a means of leading a recovery, but is not in and of itself the recovery. The mental acrobatics it takes to be a central banker these days. In the old days when we started here in 1998 all you had to do was say you were against inflation and financial system instability.

I occasionally resort to using the word "impact" vs "effect" when I am too tired to mechanically check that I am correctly using the word effect vs affect.

This may seem silly to anyone with innate grammar skills but in my childhood at the time when I should have been learning these creativity was emphasized by my pot smoking teachers.

Perhaps the result of creativity so encouraged combined with analytical rigor produces a satisfactory result and the grammatical lapses are tolerable to the grammatically fortunate.

[photon555]

Re: A "Flood" of new oil..........

I must question the received wisdom that speculators are needed for the liquidity they provide. This liquidity supply came at a high price of greatly increased systemic risk, and led to a almost total loss of liquidity leading to the AFC. The effects of greatly reduced speculation would be a good tradeoff against the danger of another financial disaster.

[photon555]

Re: A "Flood" of new oil..........

Kudos to Bernanke for not lying. After all, he didn't say that "asset prices and financial conditions" equals the economy. And kudos to Goldfarb for using the proper and accurate word "effect" instead of the massively overused and incorrect "impact." For hundreds of years the word impact has meant an impulsive force, and definitely not an effect spread out over a period of time.

[vinoveri]

Re: A "Flood" of new oil..........

As we warned about here in December 2007 with a forecast of a massive recession and 40% decline in the stock market in 2008, the Fed's attempt to manage inflation and economic growth collapsed the home mortgage credit bubble, crashed the markets, and produced the American Financial Crisis and resulting global recession. The oil price rise did cause gasoline prices to rise, but this only cut consumer spending by around $60B per 50 cents increase, not enough to push the economy into recession

.

And where did this consumer money go? Consistent with your correct assumptions highlighted below, into the hands of financial speculators and market manipulators who have access to Fed or primary broker lending and (as we now know), are backstopped by the Fed as well. This is why we need reform; speculators are needed for the liquidity they provide, but when true price based on supply and demand is obscured via practices of leverage enabled skimming and market manipulation, then the market and consumers in general are ill served.

It is a now generally accepted fact even in the mainstream business media that the run-up in the oil price from 2007 to mid 2008 was primarily driven by Wall Street speculation in the paper oil market.

...
Here's my argument: The rise from $58 to $100 was due to supply/demand economics and from $100 to $140 was due to speculation in the paper oil markets. Similarly, the recent decline from $106 to $80 was due to supply/demand economics but the decline from ~$80 to, what, $65? $60? will turn out to have been due to speculation in the paper oil markets.

Logically, if the boyz on Wall Street can spike the price of oil off a negative supply/demand imbalance from $91 to $140 during the first six months of the worst global recession 80 years why can't they jam the oil price down off a positive supply/demand imbalance from $80 to $60 just before the global economy takes off?

...

I think that when this is all over we will find that the truth was more nuanced, that the oil price trend started off as over-supply and the boyz, being good at what they do, have ridden that to the nth degree. Then they'll ride it back up again.

See Unraveling the Mess at CFTC for details.

Am glad to see iTulip acknowledge the unfortunate role of destabilizing speculation in the commodity and financial markets.
This is the essence of the a point I made five years ago on this forum - that supply and demand alone did not set the price of oil; a drop from $147 to $35 per barrel in a span of 5 months reflects speculation, not supply and demand. Experts here insisted that it is the marginal price on that "last barrel" that sets the price. Of course with all the news over the last several years of collusion in the markets (e.g, Libor, aluminum, etc), we all have been enlightened to the rigging of the markets and toleration of same by regulators.

The Boyz couldn't operate w/o Fed backstops and failure of regulatory enforcement.