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  • Oil Majors Supporting A Price On Carbon? Really?  [View article]
    Basically, Big Oil is pretty much f...ed.

    On the upper bound, there is now an effective ceiling on the oil price not much above $65/bbl at which renewable energy, and more to the point demand reduction and substitution kicks in ie NegaBarrels.

    As cheap low cost oil is sucked out, the lower bound of E & P costs for new production is squeezing Big Oil inexorably. I had an interesting chat in Baku with the global head of exploration of a very big player active in the Caspian and he said they were about to change their business model in response to the above squeeze (which they subsequently have).

    There are only two responses to this continuing squeeze. The first is merger/consolidation, which only defers the evil day, and the second is transition to pure service provision, where the capital requirement is limited to operating/human capital.

    I think we've reached the end of a market era of energy-as-a-commodity dominated by middlemen and will see a transition to a new market paradigm of energy-as-a-service.

    Interesting times.
    Jun 4, 2015. 09:53 AM | Likes Like |Link to Comment
  • Is Oil Really In A Bear Market Rally?  [View article]
    Forward oil prices beyond months 2 and 3 have very little to do with expectations and everything to do with fears. Producers will hedge (through forward sales) as far out as they can: refiners do not tend to hedge far out at all. It has been the growth of 'inflation hedging' by passive financial hedgers which has populated the forward curve, and these investors are motivated by fear (of inflation) and not typically by expectation of profit.
    May 28, 2015. 10:54 AM | Likes Like |Link to Comment
  • Crude Economics Looks To The Back End  [View article]
    In my view it is the Saudis who are indirectly funding these stocks

    May 1, 2015. 10:27 AM | Likes Like |Link to Comment
  • Of Giants, Super-Giants, And Mega-Giants  [View article]
    US shale oil is not IMHO a cornucopia: it is a very high cost second tier US strategic oil reserve. But it is true that the coming of US shale oil is in itself a massively important geopolitical development because it means that the US can now rid itself of reliance upon the Saudis.

    As Yamani puts it, the Stone Age didn't end because we ran out of stones, and the Oil age won't end because we run out of oil. When oil prices reach levels at which this high cost US shale oil becomes viable without bankrupting investors (as opposed to enriching land-owners etc) other technologies kick in which reduce demand.

    The simple fact is that the more expensive carbon fuel becomes priced in dollars - and low cost carbon fuel is getting ever scarcer (why do you think Big Oil is slavering over Iran & Iraq?) - then the more dollars there are to be made by saving carbon fuel.

    The US saw to it that oil prices were inflated in 2009 and supported for five years at high levels, through directing cheap petrodollars into funding the shale bubble.

    Shale oil is useful in terms of US resilience, but is a financial chimera.
    May 1, 2015. 10:20 AM | 1 Like Like |Link to Comment
  • U.S. Government Plans To Bail Out Oil Industry, Consumers To Pay  [View article]
    There is physical demand for consumption and financial demand for storage, which may be above (or if opaquely sold by producers using prepay) below ground. Physical market supply & demand varies slowly. But as we have now seen for a decade, financial demand using ETFs/Index funds is capable of affecting the oil market price very rapidly indeed.

    If there is one thing I have learned from almost 30 years in and around commodity markets it is that if producers CAN support commodity prices with other peoples' money then they will. The Saudis are no different, but they have been taken in - as was the Shah of Iran in 1973/4 - because they did not understand the US motive in facilitating the inflation and maintenance of high oil prices.

    Obama's administration was pleased to pump in the necessary money for five years to inflate the price because this enabled the US to fund energy security through creating the shale oil industry.
    Mar 17, 2015. 03:23 PM | Likes Like |Link to Comment
  • U.S. Government Plans To Bail Out Oil Industry, Consumers To Pay  [View article]
    Actually, fhbecker, Obama IS responsible for it.

    We are at the end of the greatest market manipulation the world has ever seen, and probably ever will see.

    Obama's administration was in my analysis responsible from early 2009 onwards for a price support operation - using muppet inflation hedger fund money and opaque prepay contracts - which pegged oil between an $80/barrel collar, and a $3.50/4.00 /gallon gasoline cap for five years.

    I forecast in 2012 that the oil price would fall to $45/55/barrel when QE ended: but it took three more years before QE actually did end.

    Why would the US support prices at this level? As before in 1973, (when OPEC got blamed for quadrupling the price, when the Shah of Iran was following Kissinger's instructions ) the higher price has enabled the US to fund the necessary new production capacity to establish (high cost) energy security, this time probably permanently.

    The US can (and will) now give up the Saudis to the Chinese - and everything that goes with them (see Adam Curtis' documentary 'Bitter Lake') - in favour of Iran and Iraq (which comes with Iran) where there are enormous development profits to be made by Big Oil.
    Mar 15, 2015. 08:59 AM | 5 Likes Like |Link to Comment
  • Brent Crude Market Sends A Different Signal  [View article]
    In my view, the presence of market intermediaries ensures volatility, and the amplitude of that volatility depends upon the amount of leverage available in the market.

    I think that the current state of oversupply, and the fact that a significant (but opaque) amount of Chinese buying has been for reserves, rather than refining, means that the market may be softer for longer than investors expect once the current spike has dissipated.

    As for your point about sizeable managed short positions, in my analysis these represent the visible exchange-traded legs of the 'prepay' sale & repurchase agreements which have been instrumental in creating a two tier (false) physical market through a 'Dark Inventory' of oil which is not in the ownership of those the market presumes.
    Mar 2, 2015. 01:33 PM | 2 Likes Like |Link to Comment
  • Brent Crude Market Sends A Different Signal  [View article]
    It makes complete sense once you realise that the Brent Complex has been completely rigged for a dozen years or so. The result of this has been that the inflow of investor money enables those responsible to support the price in a similar manner to the way that Hamanaka was able to support the copper price on behalf of Sumitomo for a decade.

    For most of this period - interrupted by the trade credit freeze in 2008 and the collapse of the oil price to $35/bbl from $147/bbl - the capital inflow has been of 'passive' inflation hedging money using index funds and ETFs.

    This money has now finally understood that inflation ain't coming, and flowed out in search of yield, and the ending of QE - which provided necessary liquidity - coincided with the collapse of the bubble to $45 to $55 per barrel, as I predicted in early 2012 it would post QE (albeit I did not think that QE would be continued for as long as it was).

    The recent brief flat WTI Brent spread marked a finally de-financialised market. But what we have now seen is a flow of risk friendly speculative money which is actively seeking transaction profit rather than passively aiming to avoid loss.

    Further evidence of this financial physical oil buying by ETF investment bank counterparties - which involves investment banks buying spot physical Brent/BFOE & selling forward physical (ie 'borrowing' physical oil) - is that the March/April physical Brent/BFOE spread (not the futures market, where March expired mid-Feb) is in backwardation at a time of oversupply.

    The outcome of this influx of ETF quasi-equity is the lunatic WTI/Brent spread we now see.

    I recommended to the UK Parliament's Treasury Select Committee at a hearing in July 2008 that a transatlantic commission of inquiry between the US CFTC and UK FCA should investigate the Brent/BFOE market in the public interest.

    The operation of this market in the last decade has seen probably the greatest commodity market manipulation the world has seen, and probably ever will see.

    See also my recent article in 'The Conversation'
    Mar 1, 2015. 12:37 PM | 4 Likes Like |Link to Comment
  • If Oil Prices Are Surprising, Then That Can Only Mean Demand  [View article]
    Feb 20, 2015. 12:25 PM | Likes Like |Link to Comment
  • The Fiscal Theory Of Monetary Expansion  [View article]
    Interesting analysis, but I think there is a fundamental error in terms of the nature of the Treasury/Central Bank legal and financial relationship itself and the nature of modern money.

    Turning your thought experiment on its head, let's assume MicroBank is winding up its affairs.

    It has $1m in share capital and $1m in assets, which consists purely of modern money (aka cash) on demand deposit with the Central Bank aka an overdraft from MicroBank to the Fed, using your terminology.

    It also has one remaining term loan outstanding (account receivable) of $10m with Borrower X due tomorrow and on the other side of its balance sheet it has a $10m term deposit (account payable) by Depositor Y also due tomorrow.

    Tomorrow duly arrives, and Borrower X transfers $10m from his checking/current account with Bank A, to MicroBank's account with the Fed, and MicroBank duly dispatches that amount to Depositor Y's checking/current account with Bank B.

    The result is that the term loan from Borrower X to MicroBank and the term loan from Depositor Y to MicroBank are thereupon settled - BUT THE $10 MILLION IS NOT EXTINGUISHED AND REMAINS IN EXISTENCE having simply flowed from Bank A's account at the Fed to Bank B's account at the Fed via MicroBank's account with the Fed.

    MicroBank then distributes its $1m in capital to its shareholders by transferring its reserves out of the MicroBank account, which is thereupon closed, to the shareholders, checking/clearing accounts at other Banks. This $1m of modern money also remains in existence of course.

    So if modern money is not bank credit which is extinguished with the loan (as it was in the days of free banking) then whose credit is it?

    In my analysis you are - as does the Fed 'balance sheet' itself, which is like no other entity apart from that of other Central Banks - conflating as 'liabilities' of the Fed, two completely different obligations. These are firstly, undated credit instruments and secondly, 'for a term certain' dated debt instruments aka accounts receivable and payable.

    In my analysis, the Treasury is not and never has been an accounting counter-party of the Fed so that a Fed credit is reflected by a Treasury debit and vice versa. The Fed is often described as the 'fiscal agent' of the Treasury and in my view an agent - in legal terms - is precisely what the Fed is. ie the Fed creates and issues credit on behalf of its principal, the Treasury, so that a Fed credit is reflected by a Treasury credit and vice versa. This is self evident when you see that US 'Greenback' Treasury Dollar Notes spend exactly the same as the Federal Reserve Dollar Notes created by the Fed as the Treasury's fiscal agent.

    So when the Fed spends it creates virtual credit obligations - Treasury credits returnable in payment of taxation - as the agent of the Treasury and it registers title to these instruments (as would a warehouse with tangible goods or commodities) on a memorandum account exactly like any other agent on behalf of the recipients.

    I believe that the true Dark Heart of the current modern monetary system is the reality that when banks create credit/modern money and 'lend' it on what you term an overdraft to the Fed what they are in fact doing is creating not bank credit, but rather a 'look-alike' of Treasury credit which is indistinguishable from that created by the Fed.

    Commercial banks are not lending this money to the Fed, but are in fact depositing it, not for a (dated) term certain, but for an undated & indeterminate duration (on call or on demand). This is exactly as one would deposit any object with a custodian, and this demand deposit is recorded with a memorandum book-keeping entry akin to that recording (joint stock) share capital, not by an account receivable as with a term deposit.

    If we hark back to the accounting system pre-dating double entry book-keeping of split wooden tally sticks - with stock and counter-stock portions - there were two types of tally. There was the Memorandum Tally -which recorded a receipt for PAST value transfer (proof of payment/work cf Bitcoin) and then there was the Loan Tally, which recorded a promise of future value transfer. That fundamental qualitative difference between completely disparate types of obligation remains to this day but is obscured by smoke and mirrors.

    If I thought a Treasury (or Treasury Branches as in Alberta in the 30s and President Lincoln's Greenback dollar issuance) were necessary in an age of direct instantaneous connections, then I would suggest that Treasury Branches should create and issue whatever credit is necessary in the economy.

    They could do so under the management of service-providers-form... who would cover costs, with a performance based payment above that. The Fed would have a purely supervisory role as Monetary Authority (not dissimilar to Hong Kong, albeit the HKMA manages commercial bank credit issuance) setting parameters for the banking service providers.

    In this model, banks would no longer either create credit ex nihilo as now or take the risk of term loans on their balance sheet. The risk could be shared mutually as between trade buyers and sellers (unsecured credit) and lenders and depositors (secured credit) along precisely the same Protection and Indemnity (P & I) Club model which has for 140 years mutually insured global shipping risks which Lloyds of London would not assume.

    But the truth is that national Treasuries are no more necessary as risk intermediaries/credit institutions as banks themselves.
    Jan 6, 2015. 02:38 PM | Likes Like |Link to Comment
  • This Is What Will Really End OPEC  [View article]
    Why would Iraq produce any more oil than is necessary to keep the market supplied at the upper 'seller's market' boundary price where demand gets destroyed?

    Sure they might develop their capacity to produce: but actually pump the stuff...not so much.
    Dec 15, 2014. 08:47 AM | 2 Likes Like |Link to Comment
  • Will Oil Price Decline Be The Trigger For A Larger Global Economic Slowdown?  [View article]
    Oil price decline reduces the extraction of economic rent by oil producers from consumer nations.

    Temporarily removing this drain on the productive sector of the global economy can only be good for the global economy, but not so good for the essentially unproductive bauble and bling industry which serves the elites in control of oil resources.
    Dec 7, 2014. 09:18 AM | 2 Likes Like |Link to Comment
  • Consider Crude Oil Now  [View article]
    I do not recognise the global economy in which you live.

    In my view we will see $60/bbl before we see $110/bbl again.
    Oct 11, 2014. 09:28 AM | 1 Like Like |Link to Comment
  • Saudi Price War, But We Still Like Oil Here  [View article]
    If the Saudis were to have any effect on this market they would have cut production significantly two months ago. As it is, we're a lot more likely to see $60/bbl before we next see $110/bbl.
    Oct 6, 2014. 09:18 AM | 1 Like Like |Link to Comment
  • The People's Republic Of Scotland  [View article]
    Interesting article but I have a few quibbles.

    Firstly, the referendum questions and who qualified to vote were agreed by both governments, so please do not accuse a Machiavellian SNP!

    Many observers here believe that if Cameron had opted for a third 'Devo Max' question it would not only have been accepted by the SNP but would also have won by a landslide. IMHO Cameron is guilty of one of the greatest misjudgements in UK political history by taking the decision he did.

    Secondly, Jim Sillars and his 'Day of Reckoning' is as relevant to mainstream SNP thinking as (say) Bernie Sanders is to the Democrats. ie not at all, as the embarrassingly biased UK Press well know.

    My forecast is that Yes will win - and win handsomely - on Thursday because hundreds of thousands of long disillusioned Labour voters (who feel like I do that Labour left me, rather than vice versa) are parting company from the useless Westminster Labour hierarchy in search of better Scottish policies.

    In an age where the ideology of the Left died with the fall of Communism and the ideology of the Right died with the fall of Lehman Brothers there is now a policy vacuum opening up which Scotland is uniquely well-placed to fill. That's why I look forward to Friday morning with both hope and expectation: that is when the work begins to build a networked economy from the ground up in Scotland.

    And as a matter of interest, there are better ways to skin the currency cat than the SNP's out-dated bank-centric thinking.
    Sep 16, 2014. 09:51 AM | 2 Likes Like |Link to Comment