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Page added on January 21, 2015
Oil price drop is ‘economic warfare against US enemies’
The current oil price decline can be explained by heavy selling in US future markets which is part of an all-out economic war between the US and countries like Russia, Iran and Venezuela, says financial journalist, Willem Middelkoop.
RT: Falling oil prices are a serious problem for some producers. What hope is there that a solution can be found in Davos?
Willem Middelkoop: We as investors just started to buy oil, given the price decline by 50 percent in just three to four months. I agree oil price should be bottoming out because the market fundamentals do not support current prices. I looked at the latest predictions by the IEA [International Energy Agency] – they claim that total world demand will be around 92 million barrels per day and total world production will be a share of 93 million barrels per day. So there is a very small surplus in the oil market.
RT: If the market fundamentals don’t support those oil prices, some are suggesting that this is a result of energy warfare, targeting Russia, Venezuela, and Iran. Is that how you see it and how many participants at Davos see it as well?
WM: The current price can only partially be explained by technical factors like growing US oil production which increased by a million barrels per day in the last year. But I think it’s quite reasonable to expect that the price declines, which we’ve seen over the last few months, were also caused by heavy selling in the American future markets, and you could call that a form of economic warfare – it is an [all]-out economic war between the US and Russia now. If we see who has more problems [caused] by current oil – they are Russia, Iran, Venezuela – these countries can be seen as enemies of the US.
RT: The country which doesn’t have particular problems with the US and oil prices is Saudi Arabia. It says it could ride out low oil prices for nearly a decade. What impact could that have?
WM: The oil produced by Saudi Arabia and other OPEC countries have a very low cost base of around $10-20 per barrel. Of course Saudi Arabia can stand current prices but there have been signs and heavy comments from oil experts that the Saudis only support the US in bringing the oil prices down for the current time. Maybe there is a timeframe of another three to nine months that US can bring the oil prices down or keep oil prices down at this level. But there are many experts – T. Boone Pickens, an American oil billionaire, who said [that] the oil price will return to around $100 per barrel within 12-18 months – I think that he could be right.
RT: Davos has always had a reputation more of a glitzy get-together and a place to build business ties, than a place where problems are really solved. Will it be any different this year?
WM: I think Davos can be compared to Bilderberg meetings where insiders meet. I don’t expect any contracts to be signed there. So it’s more a coming together of insiders, industry experts, and business elite… and I think that is the best way we can see these meetings.
RT: There are plenty of other issues: The economic crisis in the Eurozone, youth unemployment, climate change etc. Will they be tackled at the Davos forum?
WM: I don’t expect them to be. Everybody, at least in my industry, is looking towards the decisions more by the ECB – the European Central Bank. The quantity of usage, how much support they would give to the market. Because as we have seen from the developments, especially since last week’s decision in Switzerland to cut the pack between the Swiss franc and euro, financial markets have been quite nervous and it’s important now that the ECB will calm the markets by announcing QE [quantitative easing] tomorrow… and I don’t expect that the developments in Davos will [make] a big difference.
24 Comments on "Oil price drop is ‘economic warfare against US enemies’"
Plantagenet on Wed, 21st Jan 2015 7:02 pm
If Russia is so powerful, why don’t they set the oil price? Its bizarre how Russia blames the US, KSA, the EU and who knows who else for the low oil prices, but refuses to acknowledge that Russia itself is producing flat out and selling every barrel it can at $46/bbl.
I don’t see Russia cutting production to help shore up oil prices.
redpill on Wed, 21st Jan 2015 7:37 pm
His angle on U.S. futures doesn’t jive. Selling them as a means to lower the price of oil only works if there are fundamental reasons for the commodity to decline.
Imagine how much capital you’d put at risk selling enough futures to materially lower the price of oil. If Russia thought that were the case AND that oil should truly be higher , they could cut production enough to pop oil prices and destroy whoever was short those contracts.
But then, this is the RT we’re talking about.
An aside, this guy being interviewed is a huge gold-bug. The description of his book on Amazon offers this:
“In a desperate attempt to maintain this dollar system, the United States has waged a secret war on gold since the 1960s. China and Russia have pierced through the American smokescreen around gold and the dollar and are no longer willing to continue lending to the United States. Both countries have been accumulating enormous amounts of gold, positioning themselves for the next phase of the global financial system.”
Makati1 on Wed, 21st Jan 2015 8:07 pm
That Russia appears to be buying gold with their oil dollars and foreign reserves, makes the future shaky for the US/West. The US is the one that is going to be hurting soon as the oil patch collapses, unemployment spikes, and the economy goes really negative. Enjoy your cheap gas now. It is NOT going to last.
BTW: Regular gasoline in the Ps is $3.10/gal this AM as I was on my way to the US Embassy to renew my passport for another 10 years. Down from $4.80 around Thanksgiving. That is a plus for a country where everyone spends their incomes on living expenses and necessities, not loans, and don’t have to worry about export oil prices being negative. They import ~400,000 bbls/day. No oil exports, unless you count coconut oil.
dissident on Wed, 21st Jan 2015 8:10 pm
Looks like chest thumping chauvinist losers in the west forgot basic economics. By artificially lowering the price of a product you create shortages. One way or another, reality will smack these idiots upside the head and hard.
GregT on Wed, 21st Jan 2015 10:13 pm
redpill,
What in the following paragraph do you find to be unrealistic?
“In a desperate attempt to maintain this dollar system, the United States has waged a secret war on gold since the 1960s. China and Russia have pierced through the American smokescreen around gold and the dollar and are no longer willing to continue lending to the United States. Both countries have been accumulating enormous amounts of gold, positioning themselves for the next phase of the global financial system.”
And also, RT has studios and bureaus in New York, Houston, Miami and Los Angeles. and employs many former US MSM employees.
redpill on Wed, 21st Jan 2015 11:14 pm
Well golly GregT, maybe the whole tinfoil-helmet aspect of it.
You in Russia should be far, far more worried about China than the U.S.
But hey, you have the freedom here to at least let your thoughts fly. Not so much in your homeland.
Not that we ever hear from you, but whoever runs this blog sucks.
Peace and adios.
GregT on Wed, 21st Jan 2015 11:55 pm
red,
Instead of shooting the messenger, why not try to honestly answer the question? I am not trying to be abrasive, I’m only interested in the truth.
There is plenty to read up on about the history of gold and it’s relationship with fiat currencies. It is no secret that the US has waged a war on gold since the late 60s. As a matter of fact, it started decades before with the gold confiscation of 1933, during the great depression.
Freedom is not something to be taken for granted, it is something that needs to be fought for, or it will be lost. In OUR homeland, our freedoms, our securities, and your constitution are slowing being eroded away. A democracy only works with a well informed, and concerned populous. Once the general population falls for the propaganda, the lies, and the deceit, their freedom will soon be lost.
It is attitudes such as yours, that are the greatest threat to our securities, and our freedoms. People like you deserve the governments that you vote for, I just wish that the rest of us wouldn’t have to be taken down with you.
Davy on Thu, 22nd Jan 2015 6:04 am
Article said “China and Russia have pierced through the American smokescreen around gold and the dollar and are no longer willing to continue lending to the United States. Both countries have been accumulating enormous amounts of gold, positioning themselves for the next phase of the global financial system.” Oh how wonderful that would be if either economy where not hollow and could decouple from the west. Russia is a gangster country in every way run by a mafia don with oligarch strong men. China is so far in overshoot and an economic debt spiral they are toast. China must maintain growth and there is no way this can last much longer.
Both China and Russia have no hope of decoupling with gold or any other economic rabbit in the hat. Their fate is sealed along with the US in a death spiral down. I laugh when people here boast about either the west or the bricks. The bricks are a joke as is being illustrated now with their current financial situation. The west is a joke in corruption, manipulation, and unstoppable decline.
The new reality will be the cumulative locals everywhere that have sustainability and resilience in a contraction to a much lower level of economic activity. This revolves around carrying capacity and food production abilities. It revolves around the quantity of hyper urbanization and environmental exposure to loss of complexity and energy intensity i.e. Las Vegas and Tokyo syndrome. BAU is over period we just can’t see the terminal illness immediately. When are you people going to realize all major economic powers are trapped gold or no gold?
pinkdotR on Thu, 22nd Jan 2015 6:17 am
@Plantagenet: I remember reading an explanation that Russia cannot reduce production significantly due to technical/climatic reasons. They cannot store oil either because they have no storage facilities. Another reason is that Russia has basically only one external market – Europe (including my country) with specific amounts contracted.
Their reduction decision could be a one-way ticket: no easy way to restore production and no easy way to restore sales once Europe manages to switch to other suppliers (like OPEC).
bobinget on Thu, 22nd Jan 2015 9:44 am
HRH, be patient, Russia will be doing as you dared,
soon enough.
EIA report unexpectedly delayed. now due 11:00
Eastern
http://www.eia.gov/petroleum/supply/weekly/
Watch for increased consumption (over 20 MB p/d)
The predictions are for 5.5 million barrels extra
being stored. (roughly 1/4th day’s consumption)
Should storage be in excess of six million and
consumption lower then 19.9 M p/d the report will be considered bearish.
Actually, today’s EIA report has less to do with WW
consumption then ever before.
bobinget on Thu, 22nd Jan 2015 10:06 am
Here’s the deal. Refineries are stocking up on cheap oil. Makes them a buy.
Consumption, last paragraph, speaks for itself
Summary of Weekly Petroleum Data for the Week Ending January 16, 2015
U.S. crude oil refinery inputs averaged 14.9 million barrels per day during the week ending January 16, 2015, 984,000 barrels per day less than the previous week’s average. Refineries operated at 85.5% of their operable capacity last week. Gasoline production increased last week, averaging over 9.2 million barrels per day. Distillate fuel production decreased last week, averaging about 4.8 million barrels per day.
U.S. crude oil imports averaged over 7.2 million barrels per day last week, down by 274,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged about 7.2 million barrels per day, 4.2% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 683,000 barrels per day. Distillate fuel imports averaged 268,000 barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.1 million barrels from the previous week. At 397.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 0.6 million barrels last week, and are well above the upper limit of the average range. Both Finished gasoline inventories and blending components inventories increased last week.
Distillate fuel inventories decreased by 3.3 million barrels last week and are in the lower half of the average range for this time of year. Propane/propylene inventories fell 3.6 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 2.4 million barrels last week.
Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 4.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.0 million barrels per day, up by 8.7% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the last four weeks, up by 12.5% from the same period last year. Jet fuel product supplied is up 7.6% compared to the same four-week period last year.
bobinget on Thu, 22nd Jan 2015 10:10 am
Distillate fuels; heating oil, diesel, up 12.5% is
a stunning reminder of a booming economy.
(and freezing assed cold weather)
GregT on Thu, 22nd Jan 2015 10:36 am
“Their reduction decision could be a one-way ticket:”
And when that ticket is used up, the only thing that will matter is who has cheap oil left. It is oil that fuels our economies, not paper money.
Speculawyer on Thu, 22nd Jan 2015 12:23 pm
RT spreading is paranoid conspiracy theory propaganda.
There is no grand conspiracy. Oil prices are down because the USA massively increased production by some 4+ million barrels a day over the past few years. Iraq has also increased production. Russia’s production has increased too. Meanwhile, China’s economy has slowed down thus slowing oil imports. Europe’s economy has very much slowed down thus slowing oil imports. And meanwhile, we are all getting much more efficient at using oil with much more fuel-efficient cars and planes.
No conspiracy theory needed. But people are not comfortable with the fact that the world is chaotic and rudderless. So instead people like to conjure up conspiracy theories.
Some Americans think the Saudis are trying to kill off the fracking biz. Venezuelans think that western imperialists are trying to destroy their socialist utopia. Russians think that the USA and Saudis are attacking them by reducing oil prices. Iranians blame their Sunni rivals the Saudis for lowering the oil prices to attack the Iranian economy.
That’s nothing but victim complex conspiracy mongering by all of those groups. It is nothing but the market being the market. Grow up, kids. This has happened many times in the oil biz, just ask Rockman.
rockman on Thu, 22nd Jan 2015 12:43 pm
Spec – Yep…the nightmare for the oil patch begins again. Had three sales reps in my office this morning looking for work. One had just been let go from a company we had just used. The lease broker husband of my land woman was laid off last week. As I’ve advised young folks before: if you can’t handle the instability of the oil patch they might want to reconsider their career path.
Northwest Resident on Thu, 22nd Jan 2015 1:13 pm
“…the nightmare for the oil patch begins again.”
Another bust. Except this time it is different. THIS time we are trillion$ in debt, we’ve already scraped the bottom of the barrel, and there isn’t any realistic prospect of another boom on the near or distant horizon, or ever.
It isn’t just another bust. It is the last bust. The BIG one.
And the pain is just beginning:
Oil Drillers ‘Going to Die’ in 2Q on Crude Price Swoon
“Oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow, according to Conway Mackenzie Inc., the largest U.S. restructuring firm. ”
http://finance.yahoo.com/news/oil-drillers-going-die-2q-163850403.html
Looks like the real pain begins in April 2015:
A Credit Line Reset Looms Over Cash-Strapped Oil Drillers
“That’s when their lenders will recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend, crimping the ability of U.S. drillers to keep production growing.
“This could start a downward spiral for some of these companies because liquidity will dry up,” said Thomas Watters, managing director of oil and gas research for Standard & Poor’s in New York. “I call it a liquidity spiral. They’ll start burning right through cash.”
More than 20 U.S. exploration and production companies have used at least 60 percent of their credit lines, according to Bloomberg Intelligence analyst Spencer Cutter. The energy industry is facing a cash squeeze after U.S. oil prices fell more than 55 percent since June. Drillers have already cut spending to conserve cash. If credit lines are cut, the most indebted producers will be left scrambling to raise money elsewhere. New loans will be expensive — if they’re available at all.
The credit lines, which typically are reset each spring and fall based on the value of borrowers’ petroleum reserves, operate like credit cards. To pay them off, companies have in the past sold off assets or issued bonds. The value of oil properties has declined at the same time that the borrowing environment for energy companies has gotten worse.”
http://www.bloomberg.com/news/2015-01-20/a-credit-line-reset-looms-over-oil-drillers.html
But the good news is, lower gas prices give people more cash to spend! Except, that is pure B.S.
Fact is, there is no “good” news. We are entering a world of hurt.
bobinget on Thu, 22nd Jan 2015 1:15 pm
Speaking of Russia and China:
http://www.newsweek.com/242-billion-high-speed-beijing-moscow-rail-link-approved-301302
excerpt:
“However, critics of the 1.5 trillion yuan ($242 billion) project fear that the investment will have to be shouldered mostly by China. Russian economy has floundered over the last few months due to the sanctions imposed by Europe and the U.S. over Russia’s role in the Ukrainian crisis. The severe drop in crude oil prices has also had a devestating effect on the strength of the ruble”.
Here’s where Newsweek missed the point.
Putin’s plan (to dominate the region and control oil exports) is falling into place as planned.
WE are in day two of the eight days that will change history. Stay tuned.
bobinget on Thu, 22nd Jan 2015 1:19 pm
NWR did you see today’s EIA report?
Total products supplied over the last four-week period averaged 19.7 million barrels per day, up by 4.9% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.0 million barrels per day, up by 8.7% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels per day over the last four weeks, up by 12.5% from the same period last year. Jet fuel product supplied is up 7.6% compared to the same four-week period last year.
http://ir.eia.gov/wpsr/wpsrsummary.pdf
Northwest Resident on Thu, 22nd Jan 2015 1:38 pm
bobinget — I had not seen that report. I guess we can expect to see a lot of oil-based product on the market as we hit Peak Oil. No surprise there. Let the good times roll. It isn’t going to last.
shortonoil on Thu, 22nd Jan 2015 6:47 pm
U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.
Wonder how the MSM is going to spin this as good news? Even though consumer prices are the lowest they have been in more than a decade, consumption has not increased enough to compensate for even a very small production increase. This will put every high production cost producer out there under. E&D will be slashed, and there just won’t be any new oil coming down the line. As the legacy fields die, so also will the oil age!
Perk Earl on Thu, 22nd Jan 2015 8:41 pm
“Even though consumer prices are the lowest they have been in more than a decade, consumption has not increased enough to compensate for even a very small production increase.”
Recent stats show the middle class are falling behind. So much depends on the middle class, and if they are just holding on, consumption isn’t going to rise much even if the top 1% are riding high.
That will really be the tale of the tape, i.e. if much lower fuel prices do not generate sufficient added consumption to drive oil prices back up.
Politicians have acted for decades like the middle class is the go to grab bag to force more taxes and utility rate increases on, presuming they would always be able to take just a tad more fiscal punishment. Wouldn’t it be great if this is the event that finally drives home the point the middle class are tapped out.
GregT on Thu, 22nd Jan 2015 10:14 pm
Since 1973, every time oil prices climbed above the goldilocks range of between 20 to 30 dollars per barrel, we experienced recession. Yet now when oil is almost twice the average goldilocks price, people believe that due to the recent pullback we should be expecting some kind of economic recovery? Oil prices are still in recession territory. Add to that the damage already done to our economies from oil costs reaching 500% of historical prices, plus all of the bubbles blown due to historically low interest rates, plus massive debt loads, equals a recipe for financial disaster.
Perk Earl on Fri, 23rd Jan 2015 2:15 am
Yeah, but the price at the pumps is pretty darn low by today’s value of the dollar standards. I put 16 gallons in my truck the other day for 34 bucks. That seemed like a steal. Remember inflation has ticked away at the dollar over the years.
Davy on Fri, 23rd Jan 2015 6:40 am
Perk, if the rest of the game could be a steal that would be hunky dory. My diagnostic visit to the doctor the other day cost me $500 smacks and who knows what they slammed the insurance co for. The trip to grocery store after the butt scope was $150 for a few items. Try getting the car fixed, plumber, electrician, and or HPAC guy to visit for under a few hundred dollars. I spend $1000/mnth on kid’s school. Try going out for a decent meal and not get stuck with a $50 bill. So sure we got it made with the gas tank adventure but that does not compensate for what happens after we make our journey from the Quick Trip gas station.