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27 February 2016

Press review 27-02-2016 - Shale oil at the edge of time

Volatility marked again petroleum markets this week, with prices varying over 5% in every session. Friday the Brent index flirted with 37 $/b, the highest value since the very beginning of the year, but went on to close just over 35 $/b. This volatility was greatly fuelled by a constant stream of news regarding the US industry, that seems on the brink of a watershed of defaults and bankruptcies.

This was also the week when news finally broke of companies halting petroleum extraction from the Bakken formation in North Dakota. It took over one year of depressed prices for these low EROEI resources to be abandoned. And this is just the beginning, as many other low quality resources around the world meet a similar fate. 2016 is setting to stage what may be the deepest fall in worldwide petroleum extraction since the beginning of the Iran-Iraq war.

20 February 2016

Press review 20-02-2016 - War prospects

This week was again market by a great deal of nervousness around petroleum prices, with the Brent index closing Friday pretty much where it opened on Monday. After much speculation, Saudi Arabia and Russia finally sat at the same table to discuss price support. There was an agreement of sorts, but on a freeze to January output levels, possibly the moment of Russia's all time high. These hollow promises did not crash the price as expected, but an initial cold reception to the agreement by Iran and Iraq produced more episodes of volatility.

And while the mainstream media reported Saudi and Russia at the same table over petroleum prices, the alternative media kept abuzz with rumours of imminent involvement by Saudi and Turkey in the war raging in Iraq and Syria. Spurious evidence of movements of troops, equipment and aircraft around Syria's border fuelled speculation of an impending start to the III World War. For a few days, it seemed like the mainstream and the alternative media were reporting on different worlds or perhaps on different time epochs.

By the end of the week the mainstream media conveyed direct messages from Turkish and Saudi diplomats confirming that an intervention is being considered. And remarkably, they clearly identify the Shiite coaliion - which includes Christians and Kurds and is backed by Russia - as their target. Hard to say where this will all end, but it is remarkable how the financial world appears completely dittached from these war prospects.

14 February 2016

The US Presidential race from the distance

To whomever likes politics, the Presidential election in the United States is always an interesting, and sometimes exciting, event. Not only because it is the largest economy in the world, but most especially for the unique political setting, that in essence forces the squeeze of a vast swath of candidates into just two parties. The indirect election system (with great electors per state), coupled with the party primary system produces a rather intricate process, divided in two phases that drag on for well over an year.

The election this year is no exception and is clearly falling into the exciting category. It can actually become an even more exciting race than that that gave the Presidency to Barack Obama in 2008. With the first primaries already in, most candidates already in firm ground and plenty of polling, one can already speculate on the outcome and its implications.

13 February 2016

Press review 13-02-2016 - Volatility

This week pretty much started of with an outspoken warning by the Bank of International Settlements regarding the pile of debt accumulated by the energy industry in recent years. As asserted multiple times in this space, there is more than enough enough doubtful debt to prompt another worldwide financial crisis. Petrobras' outstanding debt alone is about the size of Lehman Brothers' in 2008.

With this motto, financial markets plunged to a liquidity run, again hitting European banks particularly hard. The financial crisis is far from solved in these parts and legislation intended to punish investors is adding fuel to the fire.

Both a cause and a consequence, petroleum weathered the high seas, posting variations of over 10% in two sessions: Tuesday and Friday. This high volatility is a most toxic input to an already ailing industry. As highlighted in previous reviews, it threatens not only many companies, but entire countries.

07 February 2016

Press review 07-02-2016 - The hurt box

Throughout the past few days the economic media was swept by successive negative results from the largest petroleum companies in the world. Corporations that for years were regarded as safe investments, providing regular dividends, are now being downgraded by the almighty rating agencies. Beyond profits, the wave of job cuts seems set to continue, with the 300&nbsp000 figure of last year in risk of being surpassed.

And it is not only corporations, entire countries face the risk of default with present petroleum prices. Nigeria is the first to get financial aid from international institutions, and in all likelihood will not be the last.

Pundits and all sorts of important folk continue to maul the mantra that petroleum will be cheap forever or even become free. In the mid term, the volume of petroleum that can be economically brought on the market at 30 $/b is less that 40 Mb/d (and possibly closer to 30 Mb/d). There is only one way for this situation to last: a collapse of consumption.