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Lobwedgephil

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  1. Don't remember is this was posted yesterday or not. April 27, 2020 Posted by: art.berman Category: The Petroleum Truth Report 26 Comments It’s game-over for most of the U.S. oil industry. Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next. Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view. Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past. Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening. Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down. The old oil industry and the old economy are gone. The energy mix that underlies the economy will be different now. Oil production and price are unlikely to regain late 2018 levels. Renewable sources will fall behind along with efforts to mitigate climate change. It’s Really Bad 2020 global liquids demand may average 20 mmb/d less than in 2019 (Figure 1). This estimate is really a thought experiment because it is impossible to know what supply and demand are in the present much less in the next quarter or beyond. This is a time of unimaginable flux and uncertainty because no one knows how long economic activity will be depressed, how long it will take to recover or if it will recover. The estimate in Figure 1 differs from most forecasts in two important ways. First, I believe that supply will fall much faster than most other sources. That is because storage will soon be full and shutting in production will be the only option for many producers. Figure 1. 2020 global oil demand may average 20 million barrels per day lower than in 2019. Source: OPEC, IEA, Vitol, Trafigura, Goldman Sachs and Labyrinth Consulting Services, Inc. Second, I doubt that there will be a demand recovery in the third quarter despite the re-opening of businesses in the second. That is because we are in a global depression. Unemployment will remain high and consumers will be damaged from lack of income over the months of quarantine. The truth is that I doubt that demand will ever recover. Economies will re-start slowly. A useful analogy is being at a traffic light behind 25 stopped cars. The light will change from green to red before your car begins to move. It may take several light changes before you get to the other side of the intersection. U.S. consumption has fallen about 30% from 20 mmb/d in January to 14 mmb/d in April. Refinery intakes are already 25% lower than in the first quarter of the year and will fall further as consumption decreases. Refineries will close. Most U.S. refineries require intermediate and heavy crude oil that must be imported. Few U.S. grades of oil can be used to produce diesel without blending them with imported oil. That is because they are too light to contain the organic compounds need to make diesel. Redesigning refineries will not change this. The world’s natural resource extraction, shipping and distribution system relies on diesel. As refineries close and less diesel is produced, there will be lower levels of natural resource extraction, less manufacturing and less buying of goods. Diesel cannot be produced without first producing gasoline. The U.S. has had a gasoline surplus since late 2014 and the current surplus is the highest in 5 years (Figure 2). Figure 2. U.S. gasoline comparative inventory has increased 30 million barrels since March 20 to a record level of 28.4 million barrels more than the five-year average. Source: EIA and Labyrinth Consulting Services, Inc. Diesel demand is less elastic than gasoline demand because of its critical role in heavy transport. What will happen to the excess produced gasoline if storage is full? Will it be burned? Those who see an opportunity for renewable energy in the demise of oil need to think again. The manufacture of solar panels, wind turbines and electric cars depend on diesel all along the supply chain from extraction to distribution of finished products. A world in economic depression will default to the cheapest and most productive fuels. Oil will be cheap and abundant for a long time. There will be little money or appetite for the massive equipment changes that renewable sources require. Climate change will not be high in the consciousness of people struggling to survive. Figure 3 is another thought experiment in which I use tight oil rig count and output to estimate forward levels of U.S. production. The normal trajectory is an estimate of how production might decline as rigs are idled from lack of capital investment. It suggests that tight oil production might decrease by about 50% from 7 to 3.5 mmb/d by July 2021. Figure 3. Thought experiment based on rig count through April 2020 and 12-month lagged production. Source: Baker Hughes, EIA DPR, Drilling Info and Labyrinth Consulting Services, Inc. The shut-in trajectory suggests that tight oil production may fall below 3 mmb/d by June of this year. Since tight oil accounts for about 55% of U.S. output, total crude oil and condensate production could decline from 12 mmb/d to 5.5 mmb/d by the end of the first half of 2020. This estimate is much more aggressive than EIA forecasts because EIA hasn’t adequately modeled the speed of shut in production with full storage levels. Energy is the Economy Gross domestic product (GDP) is proportional to oil consumption (Figure 4). That’s because oil is the economy. Every aspect of production and use of goods and services requires burning fossil energy. There are approximately 4.5 years of human labor in a barrel of oil (N. J. Hagens, personal communication and The Oil Drum). No other energy source comes close to that level of energy density. Figure 4. Gross domestic product (GDP) is proportional to oil consumption Source: EIA, World Bank and Labyrinth Consulting Services, Inc. Those who believe that the world will function the same on lower energy density sources like wind and solar should review their old physics text books. You cannot fit 4.5 years of work from sunlight or wind into the 5.6 cubic feet space of a barrel of oil. Seventeen investment analysts recently estimated that U.S. GDP would contract an average of 30-35% in 2020 (Figure 5) within a range of 9-50%. The correlation shown in Figure 4 suggests it will decrease by about 20-25% based on estimated decrease in U.S. oil consumption. Any value within this spectrum is catastrophic. Figure 5. U.S. GDP to contract 30-35% in 2020 based on estimates by seventeen investment analysts Source: Charles Schwab and Labyrinth Consulting Services, Inc. Economist Lawrence Summers has warned that the U.S. financial system may collapse because of cascading defaults. Approximately 25% of U.S. renters did not pay their landlords and 23% of Americans did not make their mortgage payment in April. When people don’t pay their creditors, creditors in turn cannot pay their creditors. For comparison, a 28% mortgage default rate contributed to the 2008 financial collapse. Joseph Stiglitz recently explained that the current pandemic will affect the developing world more severely than it has developed countries. It might lead to mass migration problems that could dwarf the dislocations of the last six years out of Africa and the Middle East. Slouching Toward Bethlehem Many will probably find my analysis overly pessimistic. Crude oil markets do not. Negative WTI futures prices last week could not have sent a stronger signal for producers to cease and desist. Large segments of the U.S. oil industry will have to be nationalized before the year is over. The price of oil is too low to justify the cost of extraction even if storage were available. The value of a barrel of oil, however, is 4.5 man-years of work and that productivity multiplier will be essential if the U.S. economy is to avoid collapse or for it to recover if collapse is unavoidable. The United States has engaged in the foolish practice of draining America first since the beginning of tight oil production a decade ago. There was value up to the point that domestic oil substituted for imported light oil but exporting more was dumb. That is true especially now that someone else’s oil will be cheap to buy for years. There are few moments when we may truly say that things are different now. This is one of those moments. We do not know what awful form the future may take, what rough beast slouches toward Bethlehem to be born. The game is over for oil. We should place all of our attention on saving the economy. I hope that we learn to view what is happening as a chance to simplify and to learn to be satisfied with no more than what we need. It is unlikely that we will have much choice.
  2. Looks like Jimbo is going to keep the OOS mercenary train rolling.
  3. Looks like Jimbo is going to keep the OOS mercenary train rolling.
  4. Anyone have contact Information for a bank accepting new PPP loans? We got screwed round one from WF and would like to have it in asap. Quitting WF after all of this as well.
  5. He was never going to play again long before this.
  6. How do you figure 10%? Even the recent antibody studies that most don't believe are saying 2-5% have it. 10% just seems way high.
  7. COLLEGE STATION, Tex. (KBTX) - College Station police have arrested Vernon Jackson, 20, for assault family violence strangulation. According to online police records, Jackson went over to a woman’s home on March 4 to look for his wallet. While he was there, he demanded the woman give him the passcode to her phone. The police report says that the woman denied Jackson's request, and then Jackson repeatedly choked her and prevented her from breathing. He also allegedly slammed her head against the floor. The woman reportedly had bruises on her arms and throat. Jackson told police the argument never got physical. Jackson was recruited to play football for Texas A&M University in 2018. Texas A&M Athletics confirms Jackson is an enrolled student at A&M but hasn’t played football since his injury last year. Officials with the athletic department say protocol will be enacted following these allegations.
  8. Oh hey Vernon. COLLEGE STATION, Tex. (KBTX) - College Station police have arrested Vernon Jackson, 20, for assault family violence strangulation. According to online police records, Jackson went over to a woman’s home on March 4 to look for his wallet. While he was there, he demanded the woman give him the passcode to her phone. The police report says that the woman denied Jackson's request, and then Jackson repeatedly choked her and prevented her from breathing. He also allegedly slammed her head against the floor. The woman reportedly had bruises on her arms and throat. Jackson told police the argument never got physical. Jackson was recruited to play football for Texas A&M University in 2018. Texas A&M Athletics confirms Jackson is an enrolled student at A&M but hasn’t played football since his injury last year. Officials with the athletic department say protocol will be enacted following these allegations.
  9. Interesting thoughts on futures benchmark. https://www.reuters.com/article/us-oil-prices-kemp-column/column-price-plunge-casts-doubt-over-future-of-u-s-crude-futures-kemp-idUSKCN2232MK
  10. Oil: The Storm Before the Really Big Stormby Peter Zeihan on April 21, 2020West Texas Intermediate, the oil grade most associated with American production, plunged down to -$40 April 20. You read the right. For a while yesterday, sellers had to pay people forty bucks to take a barrel of crude.As with any product, the business of oil isn’t a once-and-done. It must be produced, shipped and processed, and then the refined product must be shipped and retailed. What happened April 20 is a bottleneck in that process. Production surged ahead of pipeline shipping capacity, leaving some producers with nowhere to put their crude.The real kicker is that this is not the “negative prices” outcome I predicted a couple weeks back. “All” the April 20 event was was a single facility in a single country running out of future leased storage capacity for the month of May. The April 20 price crash will happen again in the same place and it will be bigger: June WTI futures contracts are now spazzing, and America’s Cushing oil storage and transport nexus undoubtedly will be actually full by then. But even this is nothing but the warmup for the big show.That will happen when the world runs out of storage.Numbers are fuzzy in this corner of global oil markets. In part because everyone classifies and categories their oil storage capacity differently. In part because they should (gasoline storage is functionally different from raw oil storage). In part because some countries don’t share data because they’re lazy or secretive. But no one thinks there’s a whole lot of storage capacity left. Global oversupply of crude right now is over 20mpbd (with 30mbpd seeming to be the “average” guestimate). Most folks in the know are now musing that what storage remains will be filled up completely sometime in May or early-June.And filled up it will be, because that is the express goal of the world’s largest oil exporter, Saudi Arabia. The Saudi price war started out as a spat with the Russians over carrying the burden of a production cut. It has since expanded into the Saudis targeting the end markets of every single one of what the Saudis’ consider to be inefficient producers. The Saudis are directly targeting markets previously serviced not just by US shale and Russian, but those serviced by Kazakhstan and Azerbaijan and Libya and Iraq and Iran and Malaysia and Indonesia and Mexico and Norway and the United Kingdom and Nigeria and Chad and you get the idea.As of this morning, there are still at least 24 supertankers carrying at least 50 million barrels of Saudi crude en route to the U.S. Gulf Coast. Most will arrive in May, seeking to fill up as much of what remains of U.S. storage as possible. Similar volumes are in route to Europe and even bigger volumes to Northeast Asia. In most cases the destinations are the transshipment nodes that enable distribution of inland-produced oil to coastal locations: Rotterdam, Suez, Singapore, Korea.Assuming you’ve got deep pockets, and Saudi Arabia’s are some of the world’s deepest, it isn’t a stupid strategy. If the Saudis can push prices firmly negative, it will absolutely crush many of the world’s energy producers. My back-of-envelope math suggest some 20 million barrels per day of production capacity – one-fifth of global output – will go offline for years. And then Riyadh will have what it wants: the ability to raise prices as much as it wants and to reign supreme over the world of oil for at least several years. (There are still a veritable swarm of flies that will need to be dealt with in that particular ointment, but the Saudi plan seems sure of generating plenty of ointment nonetheless.) The WTI price crash on April 20 confirms that if the Saudis didn’t realize the potential for their strategy’s explosive success before, they certainly do now. They have no reason to back down.There are a few producers worthy of callouts. Canada’s Alberta province has the most to lose. Not only landlocked, it must sell all its oil into the American market that is already so saturated. Its production must be shut in for years. Venezuela was facing civilizational collapse due to mismanagement before oil prices tanked. As oil is the government’s only remaining income stream, this marks the end of Vene as a country. Its oil will not come back for at least a decade, and even then only if an outside power first physically invades the place to rebuild the country from scratch. America’s sanctions regime against Iran has been so successful the country isn’t an oil exporter any longer. Its output will absolutely collapse this summer, and the country lacks the funds to bring in foreigners to help restart it or the skills to do the work itself. Russian fields are in swamps and permafrost. Drilling is only possible during the winter. Any shut-ins means the wells freeze solid, necessitating completely new drilling. Last time this happened it took the Russians nearly 15 years to get production back. Azerbaijan and Kazakhstan are both dependent upon other countries (in some cases, Russia) to transit their crude to market. High production costs plus finicky neighbors equals long-haul shut-ins. Nigeria is a mess on a good day, and the supermajors who have made Nigerian output possible have steadily moved offshore to get away from the chaos and violence. Once they turn off their wells, they won’t even consider returning until global prices rise to the point that they are once again willing to subject their staff to frequent kidnapping. That’s several years off. Iraq has been in a state of near civil war for some 15 years. The country is now producing over 4mbpd, the income of which helps hold the place together. Negative prices will remove the “near” from the country’s political condition and (at best) make the place a ward of the Arab states of the Persian Gulf. It is also worth noting that the speed that this could all go from head-spinning to head-chopping is intensely short. Right now there’s still a fair amount of spare oil tankers to shuttle about the world. The Saudis have been leasing out every tanker they can find, so before long all the the world’s tankers will be full as well.Oil has been a panacea for all sorts of inefficient, compromised, and in some cases evil regimes for decades. Huge demand in the West and Northeast Asia allowed a raft of previously insignificant or morally reprehensible leaders and societal situations to effectively print dollars out of the ground and count the industrialized world as a hungry customer. Not anymore. Demand patterns have shifted, the United States is now an exporter of crude oil and products, and the petro-economy that has kept ayatollahs and ideologues afloat is crumbling. Before anyone cheers it’s worth remembering that things will get a lot uglier before they have any hope of improving.
  11. USO is about the last thing I would touch these days.
  12. Negative. https://www.theguardian.com/world/2020/apr/20/kim-yo-jong-the-sister-of-kim-jong-un-fast-becoming-his-alter-ego But anyone really believe he went under the knife during a global pandemic?
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