Friday, December 12, 2014

When Marxist Tyrants Feel the Squeeze: Oil

If so many people didn't suffer in the process, it'd be an absolute joy to watch the communist-inspired squirm as their policies implode.


The ingenuity, innovation and entrepreneurial spirit of America's "frackers" has redefined the energy sector.  There is no more oil that can't be reached.  The capitalists in America's energy private-sector have succeeded against incredible odds - both natural in the form of finding the right mix of horizontal drilling and high-pressure fracking, and artificial with Obama's Keystone Pipeline delays and his NKVD (EPA) thugs. 

In fact, Obama has exacerbated the current energy crisis with a 6-year global recession started here at home.

Demand is down.  Supply is up.  A barrel of oil today is selling for $58, down almost 50% since July.  (Graph and more at GP)

There are two ways this will play out - both with higher prices.
Commodities, like oil, are simple.  Every oil well has a magic number, and when the price of oil drops under that number, the well is no longer profitable and the driller stops the well.  This leads to less supply which leads to more stable (higher) prices. 

The other scenario is war.  Note the nations listed below that suffer the most in a drop in oil, then ask yourself if any of them a) are led by tyrants, b) are unstable enough to be pushed into war, and c) would benefit from a spike in oil prices brought on by war. 
Last, I speak for all consumers when I say "I am enjoying the $2.50/gal gas."  But this happiness is at the expense of others.  Who?

Putin and his Russia.  

The Ruble is down 50% to the dollar.  You don't have to be an economist to know that a 50% move in a currency is a bad sign.  Bloomberg 1-yr chart:

Putin has driven foreign investment away.  He invited Western energy companies into the country back in the 90's and early 2000's, then confiscated their investments and threw several Russian oilmen in jail.  It wasn't enough, so he extended the jail sentences to make his point.  The only difference from Stalin was these oil executives weren't asked to dig a canal or work a mine.

His policy has been constant: rely on Russia's massive natural resources.  Those resources are now going for half of what they were just a few months ago.  Russia has no diversity in their economy, so they have no power to project when oil trades at $58 a barrel.  Even Putin's attempts to stir-up the middle east in order to spike the price of oil has failed. 

Russia’s currency is on course for its worst year since the nation’s 1998 default after getting battered as sanctions over the conflict in Ukraine blocked companies from western debt markets and oil dropped into a bear market. Five interest-rate increases by the central bank failed to alter the ruble’s course, while choking economic growth as inflation accelerates to a three-year high.

Nicolas Maduro and his Venezuela.

The drop in oil is killing Venezuela too, as they also put all their barrels into one basket and doomed their dictatorship to failure.

Increasing numbers of low-income Venezuelans are souring on Maduro as they suffer a declining economy, the highest inflation [60%] in the Americas, chronic shortages of basic goods and one of the world's highest murder rates.

Swelling frustration in the tough slums dotting Caracas's rolling hills means Maduro is much more vulnerable, especially as oil prices fall to around five-year lows. 
. . . the implied probability of default to 93 percent, the highest in the world.

This year’s 38 percent plunge in oil prices has exacerbated concern that Venezuela is running out of dollars needed to pay debt, pushing bond prices to levels investors haven’t seen since the 1998 Russian financial crisis spurred a selloff in emerging markets. Foreign Minister Rafael Ramirez, also the country’s OPEC representative, said yesterday that the government is working constantly with other members of the energy cartel to raise oil prices to $100 a barrel. 
Good luck finding someone to pay $100, Comrade Maduro.

Mexico and Nigeria.

ZH posts graphs showing their currencies collapsing too.


Iran, also suffering high inflation, is mentioned in another ZH post.

Saudi Arabia.

The background for this massive drop in oil prices comes from the Saudis.  They are purposely flooding the market with supply in a war against America's "frackers."  The hope is the wells here in the States will become unprofitable.  Perhaps, assuming their move doesn't trigger a coup or a shooting war.

Stability will return to the oil market, or everything will blow up.

I'll be doing more travel to visit friends while fuel is cheap.

I will smoke a cigar for each country listed above after its default or collapse.  Plus one cigar for every Marxist who hangs.

UPDATED 12.13.14 Noon:

Thanks to Comrade Robert and Comrade Anon in the comments for adding substance to this post.  Anon linked to this ZH post, which has an interesting graphic.  I've updated the WSJ graphic with yesterday's closing price of $57.49:


Anonymous said...

The Ruble is down 50% to the dollar

This is puzzling Comrade!
My rubles have lost none of their value, but then again my 10 Ruble coins contain 0.249 ozt of Au
see -

Not that I have anything against good old USA bullion. My great granddad was a White Russian (formerly with His Majesty Nicholas II Life-Guards Cossack Regiment) who likely got paid in those things, so I bought a few of them.

Robert What? said...

Without even reading the details, like you, I knew that it was the Saudis trying to force the American frackers belly up. A right-thinking President might consider it an act of provocation.
How long can the Saudis themselves afford to keep this up? Maybe they have accumulated enough wealth that the answer is: indefinitely. Then again, even at $50 it is probably still profitable for them.

Anonymous said...


Suggest you look at this info from Zero Hedge

There's an interesting chart in there (sourced from WSJ) that covers break even costs for different oil producing nations.

The OPEC nations are a straightforward answer to the cui bono question, but this is kicking Iran and Russia's butts too so maybe there's some other manipulation going on here also

Anonymous said...

Beware of the man who arranges the blocks Comrades

(copied from comment on previous post regarding the Winter Palace in Russia)