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Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis

Algeria Officially Launches Helicopter Money Amid Sliding Oil Revenue, Budget Crisis

One year ago, the imminent arrival of helicopter money among endless discussions of pervasive lowflation was all the rage within high-finance policy circles. Then, everything changed as if on a dime, and in recent months the dominant topic has been global coordinated tightening – and in some cases even revisions to central bank mandates and the lowering of inflation targets – perhaps as a result of central banks’ realization that monetizing debt by central banks leads to bad outcomes, not to mention global asset bubbles.

But not everywhere.

On Sunday, Algeria’s prime minister unveiled a plan to plug the country’s budget deficit as the the OPEC member state looks to offset lower oil revenue by directly borrowing from the central bank, while avoiding international debt markets. In other words, direct monetization of debt, which bypasses commercial banks as a monetary intermediate, and is better known as “helicopter money.”

According to Bloomberg, the five-year plan presented by Prime Minister Ahmed Ouyahia aims to balance the budget by 2022, and reverse a deficit that ballooned with the plunge in global crude prices, which also cut foreign reserves by nearly half.

If we turn to external debt, as the IMF suggests, we will need to borrow $20 billion a year to repay the deficit and within four years we will be unable to repay the debt,” Ouyahia said. “This is what made the government look at non-traditional financing.”

With domestic debt currently around 20 percent of gross domestic product, Algeria has room to take on additional borrowing, the IMF has said. Earlier this month, the cabinet authorized the central bank to lend money to the Treasury to narrow the deficit. Businesses and importers would stand to benefit from a cash injection from the regulator, but analysts say the plan has risks.

…click on the above link to read the rest of the article…

Is An Oil Price Spike Imminent?

Is An Oil Price Spike Imminent?

Corpus Christi

As the U.S. market begins its recovery from the double whammy served up by hurricanes Harvey and Irma, my earlier projections of where crude oil prices are headed have come true.

Just a little quicker than anticipated.

As I am writing this, WTI (West Texas Intermediate, the benchmark crude rate for futures contracts written in New York) has moved above $50 a barrel for the first time in over five weeks.

In fact, it’s up 6.1 percent in barely three days. Meanwhile, Brent (the equivalent and more globally used benchmark set daily in London) is approaching $56.

Two months ago, I said WTI would be at $52-$54 and Brent at $55-$57 by the end of September. Currently, WTI is within $2 a barrel of its predicted range and Brent has already reached it.

What’s interesting is the fact that this rise is taking place while much of the Gulf Coast refinery infrastructure either remains offline or is running at partial capacity.

After all, refiners form the bulk of crude end users. A reduction in refinery flow rates usually cuts into crude demand and, thereby, pushes prices down.

Despite that, oil prices are going up this morning. There are three reasons for this…

Ignore the News – Oil Demand is Rising

First, the crude oil balance we’ve talked about for some time has been coming in quicker than anticipated. That’s the case even with the rising U.S. production levels.

But remember, oil prices are set by global developments, not (primarily) by what happens in North America or Western Europe.

Both the International Energy Agency (IEA) in Paris and the U.S. Energy Information Administration (EIA) have recently reported that the balance between supply and demand should be realized in the first quarter of 2018. That is much earlier than previously forecasted.

 

…click on the above link to read the rest of the article…

Venezuela Begins Publishing Oil Basket Price In Yuan

Venezuela Begins Publishing Oil Basket Price In Yuan

Two days after the WSJ confirmed Maduro’s earlier threat that he would stop accepting US Dollars as payment for crude oil imports, Venezuela has done just that.

As a reminder, and as we reported previously, in an effort to circumvent U.S. sanctions, Venezuela told oil traders that it will no longer receive or send payments in dollars. As a result, oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

Furthermore, Venezuela’s state oil company Petróleos de Venezuela SA, or PdVSA (whose bankruptcy is fast approaching), told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner. The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.”

Fast forward to today, when according to a statement on the Venezuela oil ministry, the country’s weekly crude oil and petroleum basket “will be published in Chinese Yuan” – oddly, not in Euros as the WSJ hinted – going forward. We can only assume that Venezuela avoided the European currency on concerns that Brussels may follow in D.C.’s footsteps and impose financial sanctions on the Maduro regime next. Which meant that the only “safe” currency to transact in, was that of the country’s two big sources of vendor (and commodity) financing: China and Russia. For now Venezuela has picked the former.

The ministry also unveiled a price of 306.26 Yuan per barrel for the week of Sept. 11-15, up 1.8% from the 300.91 in the previous week, saying “the more favorable outlook on world oil demand and reports of lower global production contributed to the strengthening of crude oil prices this week.”

…click on the above link to read the rest of the article…

America’s Weapons: “The Dollar and the Drone”

America’s Weapons: “The Dollar and the Drone”

It was said that “the guinea and the gallows” were the true instruments of British imperial power.

The guinea represented the coined wealth of Great Britain.

The gallows represented its… constabulary zeal in policing restless natives.

This is the 21st century of course… a time of enlightenment.

Today’s instruments of imperial power are no longer the guinea and the gallows.

No. Today’s instruments of imperial power are “the dollar and the drone.”

The dollar and the drone are America’s weapons.

Like the 19th-century pound (which replaced the guinea), today’s dollar is the world’s reserve currency.

Like the 19th-century pound, the dollar finances some two-thirds of global trade.

And the gallows?

Britain hanged its foreign trouble. America explodes its own in drone attacks.

Here is civilization; here is progress.

The sun eventually sank on the British Empire… the gallows came down… and the pound lost its global reserve status.

The U.S. will have its drones. But is its other weapon, the dollar, close to losing global reserve status?

Recent developments may tell…

The global oil trade has centered on the dollar since 1974, when Saudi Arabia agreed to enthrone the dollar as currency of the oil market.

If it was oil you wanted… it was dollars you needed.

But now China — world’s top oil importer — is preparing to create an oil market that bypasses the dollar entirely.

The plan would let China buy oil from Russia and Iran with its own currency, the yuan.

But the yuan is not a major reserve currency like the dollar.

Under this plan, Russia and Iran would be able to swap yuan for an asset far more desirable than Chinese scraps of paper — gold itself.

Perhaps that explains why China’s been hoarding so much gold in recent years?

Jim Rickards says this system marks the beginning of the end for the petrodollar:

…click on the above link to read the rest of the article…

World Out Of Whack: Electricity YAY!

World Out Of Whack: Electricity YAY!

Britain to ban sale of all diesel and petrol cars and vans from 2040

So says the Guardian.

Which follows on from:

France to ban sales of petrol and diesel cars by 2040

This follows Norway, The Netherlands, Germany and now – the big Daddy…

China plans to ban sales of fossil fuel cars entirely

China is the world’s largest auto market, with 28.03 million vehicles sold last year, a boost in demand of 13.7 percent vs. 2015 sales numbers. The nation has already done a lot to incentivize manufacturers to develop and sell new EVs, including allowing foreign automakers to create a third joint venture with local automakers (a standard requirement for doing business in the country for auto OEMs) so long as it’s dedicated to the creation of EVs exclusively.

CO2 emissions from EVs are substantially lower than their fossil-fuel-guzzling cousins. And since most of us prefer swallowing our air without having to chew it first, the appeal is as easy to understand as Cameron Diaz in a bikini.

Here’s an excellent chart which you can go and play around with which shows vehicle emissions. The yellow are the EVs (click the chart):

http://carboncounter.com
Source: http://carboncounter.com

This news has tree-hugging beardies everywhere rejoicing because they will, once and for all, get rid of all those ghastly baby-seal-murdering bastard oil and gas executives.

Two Things Worth Thinking About Here

  1. If EVs take over the planet, prevent air pollution, cease the destruction of the short-eared owl’s habitat, and cure halitosis, surely more electricity will be required, no?
  2. And secondly, if the internal combustion engine is going to prop up landfills, then what exactly goes into making these EVs? Because being a simple guy I couldn’t help stop and do simple math. That is: if car (a) being satan’s transport (diesel, of course) is replaced with car (b) the unicorn rainbow (EV), surely there will be massive demand for all the stuff that makes up car (b).

…click on the above link to read the rest of the article…

De-Dollarization Spikes – Venezuela Stops Accepting Dollars For Oil Payments

De-Dollarization Spikes – Venezuela Stops Accepting Dollars For Oil Payments

Did the doomsday clock on the petrodollar (and implicitly US hegemony) just tick one more minute closer to midnight?

Source: The Burning Platform

Apparently confirming what President Maduro had warned following the recent US sanctions, The Wall Street Journal reports that Venezuela has officially stopped accepting US Dollars as payment for its crude oil exports.

As we previously noted, Venezuelan President Nicolas Maduro said last Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. According to Reuters,

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

 “If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

*  *  *

And today, as The Wall Street Journal reports, in an effort to circumvent U.S. sanctions, Venezuela is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy said.

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

…click on the above link to read the rest of the article…

IEA Forecasts Fastest Oil Demand Growth In Two Years

IEA Forecasts Fastest Oil Demand Growth In Two Years

The International Energy Agency, which advises most major economies on energy policy, forecast that global oil demand will climb this year by the most in two years amid stronger-than-expected consumption in Europe and the U.S. although it was unclear just how this will offset recently fading demand by the two biggest marginal consumers, China and India. The IEA reported that global oil demand grew very strongly in Y/Y in Q2 2017, by 2.3mmb/d, or 2.4%, and increased its estimate for demand growth in 2017 by 100,000 barrels a day to 1.6 million a day, or 1.7%. The IEA has now raised its 2017 oil-demand growth forecast for three months in a row.

The agency observed that the re-balancing of oversupplied world markets continues with OPEC supplies falling for the first time in five months as reported yesterday, and inventories of refined fuels in developed nations subsiding toward average levels. In August, global oil supply fell by 720 kb/d due to unplanned outages and scheduled maintenance, mainly in non-OPEC countries. OECD commercial stocks were unchanged in July at 3 016 mb, when they normally increase.

“Demand growth continues to be stronger than expected, particularly in Europe and the U.S.,” the Paris-based agency said in its monthly report.

The IEA also said that the impact of Hurricane Harvey on global oil markets is “likely to be relatively short-lived,” according to Bloomberg. Although the oil market “coped relatively well” with the disruption caused by this year’s storms, the damage to U.S. facilities will still be felt, according to the report. The country’s production was curbed by about 200,000 barrels a day in August and 300,000 a day in September.

Meanwhile local stockpiles were at “comfortable” levels before the storm hit, while releases from government reserves and plentiful imports from Europe allayed any shortage.

…click on the above link to read the rest of the article…

Refiners Boost Output, But Irma Could Dent Demand

Refiners Boost Output, But Irma Could Dent Demand

Refinery

Texas continues to recover from Hurricane Harvey, and many of the disrupted refineries are ramping up production once again. But the ripple effects from the outages are still being felt, and some Midwestern refineries are benefitting from surging margins stemming from the havoc.

Bakken Midwest refining margins more than doubled between August 23 and September 1, according to S&P Global Platts, jumping from $9 per barrel to temporarily over $20 per barrel, although they have since fallen back a bit.

The margins are inflated because of gasoline shortages in certain parts of the country, the unfortunate consequence of the massive refinery outages along the Gulf Coast after Hurricane Harvey. Refining margins were also helped along by the initial downward pressure that WTI exhibited as crude oil backed up without any place to go.

That means that refineries outside of the Gulf Coast could temporarily enjoy super profits. September is typically a time of the year when refineries undergo some maintenance and retool to prepare for winter fuel blends, but few are likely to take their plants offline in this market. “Nearly every refinery outside Louisiana and Texas is operating near full capacity,” Thomas Pugh, commodities economist at Capital Economics, told the Wall Street Journal.

“Refineries outside the affected area may delay maintenance to benefit from high processing margins,” Commerzbank oil analyst Carsten Fritsch said in late August. “Hence, the negative impact on crude oil demand and oil product supply might be less severe than feared.”

Indeed, refineries unaffected by Hurricane Harvey have been called into action, but the ramp up has its own consequences. As Midwestern refineries scramble to produce at max capacity, the demand for crude is pushing up benchmark prices in the region. Bakken crude started trading at a large premium relative to WTI as supplies tightened. From S&P Global Platts:

…click on the above link to read the rest of the article…

The Long-term Cycle of Monetary Crisis

QUESTION: Mr. Armstrong, I have been following you for all my adult life and that has exceeded 20 years by now and am shocked to say, I found your article on how things evolve GOLD-Oil-Dollar.  I must say this is a eye-opening evolution you are talking about. Has this always been the case with things changing coming into play and then vanishing?

ANSWER: Absolutely. I have written about how gold vanished from use with the Dark Age following the fall of Rome. Gold did not reappear in coinage for nearly 600 years. The first gold coin to reappear in Britain came during the 13th century issued by Henry III.

The Gold Cups of Mycenae

The same thing took place with the Dark Age in Greece. This is when the Mycenae ruled known as the Heroic Period of which Homer wrote. Scholars thought it was just fiction written by Homer until the ancient city of Troy was discovered. Troy VIIaappears to have been destroyed by war around 1184 BC. However, scholars did not believe the writings of Homer because Homer was born sometime between the 12th and 8th centuries BC. He remains famous for his work The Iliad and The Odyssey. So once again there is about 600 years separating the Heroic Age and the Hellenistic Age.

If we turn to Japan, here too we find that the emperor abused his power to issue money and once again we find money vanish for about 600 years. Each new emperor devalued all previously issued coinage to 10% of his new coinage. People simply refused to accept coins because they were devalued and were no a store of value.

Therefore, throughout economic history we always have long-term structural reform. Do not expect either gold or oil to always be a valuable component.

…click on the above link to read the rest of the article…

Norway’s Big Fish Story

Norway’s Big Fish Story

Decision Season

With Parliamentary elections looming, more Norwegians than usual are asking themselves the tough questions. It is now apparent that the slump in oil is not a temporary one. What will the country do now? Time for the lottery winner, after receiving the last annuity, to get a job before burning out the savings. Many are looking towards the sea, fishing and exploiting underwater natural resources. Others are looking to blast open the mountains to do the same.

However, commodity based economies, third-world in nature, are subject to mother nature’s whims, innovation, and ruthless competition.  Moreover, it creates complacency, catching the nation off guard when there is a shift in the supply curve (instead of hitting peak oil, the opposite happened). Hence, the decisions or lack thereof, made during the next four years will impact future generations. Two generations of Norwegians grew up on the delusion that their society, built on pre-socialist values and high oil prices, can endure any challenge.


The
Fund’s withdraws could accelerate amid a global financial crisis: politicians burning cash to shore up the economy and secure votes.

Burn Rate

Taking the sovereign wealth fund (The Fund) for granted, many fail to realize that the underlying investments are all pinned to the prevailing low-interest rate climate. If inflation gets out of control and rates must be pushed up to cut it off, the effect on stock and bond values could be substantial.


Norwegian GDP growth correlates to oil prices.

Currently, assuming constant tax revenues, budget and oil fund value, Norway is in great shape: able to fill the budget gap for the next 30 years. But then what?

…click on the above link to read the rest of the article…

 

China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

China Readies Yuan-Priced Crude Oil Benchmark Backed By Gold

Beijing

The world’s top oil importer, China, is preparing to launch a crude oil futures contract denominated in Chinese yuan and convertible into gold, potentially creating the most important Asian oil benchmark and allowing oil exporters to bypass U.S.-dollar denominated benchmarks by trading in yuan, Nikkei Asian Review reports.

The crude oil futures will be the first commodity contract in China open to foreign investment funds, trading houses, and oil firms. The circumvention of U.S. dollar trade could allow oil exporters such as Russia and Iran, for example, to bypass U.S. sanctions by trading in yuan, according to Nikkei Asian Review. To make the yuan-denominated contract more attractive, China plans the yuan to be fully convertible in gold on the Shanghai and Hong Kong exchanges.

Last month, the Shanghai Futures Exchange and its subsidiary Shanghai International Energy Exchange, INE, successfully completed four tests in production environment for the crude oil futures, and the exchange continues with preparatory works for the listing of crude oil futures, aiming for the launch by the end of this year. ?

“The rules of the global oil game may begin to change enormously,” Luke Gromen, founder of U.S.-based macroeconomic research company FFTT, told Nikkei Asia Review.

The yuan-denominated futures contract has been in the works for years, and after several delays, it looks like it may be launched this year. Some potential foreign traders have been worried that the contract would be priced in yuan.

But according to analysts who spoke to Nikkei Asian Review, backing the yuan-priced futures with gold would be appealing to oil exporters, especially to those that would rather avoid U.S. dollars in trade.

“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Alasdair Macleod, head of research at Goldmoney, told Nikkei.

Gasoline Spikes To 7-Month Highs After Harvey; Heating Oil, Crude Jump

Gasoline Spikes To 7-Month Highs After Harvey; Heating Oil, Crude Jump

The entire energy futures complex is notably higher at the open with RBOB Gasoline spiking over 4% to its highest since January amid the carnage of Hurricane Harvey.

Bloomberg reports that as a result of Harvey, which was the strongest storm to hit the U.S. since 2004, some 2.26MM b/d of crude, condensate refining capacity in Texas remain shut while nearly 300,000 Texas customers are without power as of 12:30pm CDT. Major terminals and pipelines that move crude and fuel into and out of Houston-area refineries were also shut, potentially stranding some crude in West Texas and starving New York Harbor of gasoline.

“Gasoline prices are going to continue to rise this week as we expect another three days of rain in the Houston area,” Andy Lipow, president of consultant Lipow Oil Associates LLC in Houston, said by telephone.

“With pipeline operators beginning to shut down their crude oil and refined product infrastructure, I expect to see further curtailment of refinery operations, resulting in less product being available. A spike in gasoline and diesel prices will drag up crude oil prices.”

 WTI is also higher as ~378.6k b/d of oil output from Gulf of Mexico is shut, pushing RBOB Gasoline and WTI higher.

And Oct RBOB at its highest since Jan 2017:

The Oct. Nymex RBOB-WTI crack spread has spiked to $19.94:

NatGas and Heating Oil are also up:

And just in case it wasn’t obvious, prices will likely rise “just because of worries, but the real impact might not be clear for a couple of days,” Michael Lynch, president of Strategic Energy & Economic Research told Bloomberg.

For now, the RBOB curve implies the system will be affected for at least 3 months…

What’s Next For Oil: Interview With Former DOE Chief Of Staff

What’s Next For Oil: Interview With Former DOE Chief Of Staff

In this week’s MacroVoices podcast, Erik Townsend and Joe McMonigle, former chief of staff at the US Department of Energy, discuss the state of the global energy market, and OPEC’s rapidly diminishing ability to control oil prices. McMonigle believes investors will be hearing more jawboning from the Saudis, OPEC’s de-facto leader, over the next two weeks as they try to marshal support for extending the cartel’s production-cut agreement past a March 2018 deadline.

Of course, anyone who’s been paying attention knows the cuts have done little to alleviate supply imbalances that have weighed on oil prices for years. In a report published by the International Energy Agency earlier this month, the organization notes that non-compliance among OPEC members, and non-members who also agreed to the cuts those non-members who also agreed to cut oil production, increased again in July. According to the IEA data, non-compliance among the cartel’s members rose to 25 percent in July, the highest level since the agreement was signed in January. Meanwhile, noncompliance for non-members rose to 33%.

Given that oil prices have fallen since OPEC members and non-members first agreed on the cuts last November, the Saudi’s might have difficulty convincing their peers that the cuts are having an impact, other than allowing US shale producers to flourish.

OPEC will meet Nov. 30 in Vienna.

Erik: Joining me now as this week’s featured interview guest is former US Department of Energy Chief of Staff Joe McMonigle, who now heads up the energy research team at Hedgeye. Joe, I think everybody understands that the key question in today’s oil market is whether the rebalancing that OPEC production cuts were supposed to achieve is really happening or if the supply glut is actually still continuing. So let’s start with your high-level view first. Is OPEC effectively managing supply or are they really just managing market sentiment?

…click on the above link to read the rest of the article…

Australia’s oil stock coverage on record low

Australia’s oil stock coverage on record low

In prime time evening news of the Australian public broadcaster ABC TV, on 21 June 2017, the business presenter Alan Kohler tried to explain a fall in oil prices by “record oil inventories around the world”

http://www.abc.net.au/news/business/kohler-report/

Well, let’s go around the world on a map and stay where we are, in Australia. In google, type in the search word “Australian Petroleum Statistics” and you get this website:

http://www.environment.gov.au/energy/petroleum-statistics

Click on the latest issue and then on the download PDF file, in this case April 2017

http://www.environment.gov.au/system/files/resources/8b150335-1e38-48a3-9f66-daed7ddbe4bf/files/australian-petroleum-statistics-april2017.pdf

Search for the word “stocks” and that brings you to tables 6 and 7

Table 7 End of month stocks of petroleum, consumption cover

In the last column “IEA days of net imports coverage it is 89.5 days for 2010/11 and 55.2 days for 2015/17. Go to the bottom of the column and it’s 50.5 days. The year-on-year decline is 3.1%. That doesn’t look like a record now. If anything, it’s a record low. Let’s put that into a graph:

Australia_IEA_days_coverage_2010-Apr2017Fig 1: Australia’s net imports coverage in days as defined by IEA

Australia is a member of the IEA (International Energy Agency)

Turnbull_Birol_Feb2017Fig 2: Australian Prime Minster shaking hands with IEA’s Fatih Birol, Feb 2017

We check the coverage on the IEA website and find 48 days for March

IEA_oil_stock_in_days_of_net_imports_Mar2017
Fig 3: Australia in comparison with other countries
https://www.iea.org/netimports/

But this number of 50 days is just a calculated average of all oils and fuels. In terms of consumption cover for crude oil and the most important fuels the numbers are much lower as shown in the following graphs.

…click on the above link to read the rest of the article…

The Looming Energy Shock

Carlos E. Santa Maria/Shutterstock

The Looming Energy Shock

The next oil crisis will arrive in 3 years or less
There will be an extremely painful oil supply shortfall sometime between 2018 and 2020. It will be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.

Due to a massive reduction in capital spending in the global oil business over 2014-2016 and continuing into 2017, the world will soon find less oil coming out of the ground beginning somewhere between 2018-2020.

Because oil is the lifeblood of today’s economy, if there’s less oil to go around, price shocks are inevitable. It’s very likely we’ll see prices climb back over $100 per barrel. Possibly well over.

The only way to avoid such a supply driven price-shock is if the world economy collapses first, dragging demand downwards.

Not exactly a great “solution” to hope for.

Pick Your Poison

This is why our view is that either

  1. the world economy outgrows available oil somewhere in the 2018 – 2020 timeframe, or
  2. the world economy collapses first, thus pushing off an oil price shock by a few years (or longer, given the severity of the collapse)

If (1) happens, the resulting oil price spike will kneecap a world economy already weighted down by the highest levels of debt ever recorded, currently totaling some 327% of GDP:

(Source)

Remember, in 2008, oil spiked to $147 a barrel. The rest is history — a massive credit crisis ensued.  While there was a mountain of dodgy debt centered around subprime loans in the US, what brought Greece to its knees wasn’t US housing debt, but its own unsustainable pile of debt coupled to a 100% dependence on imported oil —  which, figuratively and literally, broke the bank.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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