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How Oil Defeated The Nazis

How Oil Defeated The Nazis

Kraftstoff

General Erwin Rommel, “the Desert Fox,” was reputedly the best tactician in the entire German Army. For years, he led his panzers across multiple campaigns in North Africa.

But what was a German army doing zipping across the deserts of Libya?

Simple: Rommel was trying to capture the Suez Canal, and with it the route to the precious, untapped oil fields of the Middle East.

From the deserts of North Africa to the icy waters of the Atlantic Ocean, the jungles of the South Pacific and the skies above Romania, World War II was defined by a struggle over a single resource – petroleum.

Without oil, modern mechanized warfare was impossible. It fueled the war effort of each major power, and battles over access and control of petroleum resources marked the war’s most important episodes—from the Battle of Stalingrad to the attack on Pearl Harbor.

Hitler’s Dilemma

German fuhrer Adolf Hitler rose to power in the 1930s in the wake of the Great Depression – a cataclysmic economic crisis that affected the entire world, but which hit Germany especially hard. Amidst spiraling inflation and mass unemployment, Hitler preached a return to national greatness through conquest. Germany would dominate Europe, and in so doing capture all the resources it would need to become a self-sustaining, self-sufficient economic power.

Despite being one of the most powerful industrial nations on earth, Germany had no oil reserves. Furthermore, it lacked an empire – like the British – that would give it access to oil overseas.

In fact, in the 1930s oil production was dominated by a handful of countries—the United States, which accounted for 50% of global oil production, as well as the Soviet Union, Venezuela, Iran, Indonesia, and Romania.

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Iran Sanctions Could Backfire On U.S. Drillers

Iran Sanctions Could Backfire On U.S. Drillers

gas well

The United States is upping the ante in its effort to sanction Iran, and its efforts may further complicate its ongoing trade war with China and affect the flow of oil worldwide.

On August 16, the head of the new Iran Action Group, Brian Hook, announced that the U.S. would sanction any country that purchased oil from Iran after the November 4 deadline. China has shown no indication that it plans to cooperate with the U.S., and Hook did not rule out imposing secondary sanctions on China if it continues its purchases of Iranian oil.

While other importers of Iranian crude, including Japan and South Korea, had scaled back their purchases, China has actually increased its imports from Iran.

In August China announced a round of tariffs on U.S. goods, including some oil products, though it exempted U.S. crude from the list.

Nevertheless, Chinese imports of U.S. energy products has been on the decline. A ship-tracking report noted that not a single U.S. tanker has departed for China in August. Should the U.S.-Chinese trade war worsen, China may turn towards alternative sources of energy, including Russia or Iran. That would be a real blow to U.S. energy suppliers like Cheniere Energy Inc., which ships LNG to China.

China is the second-largest market for U.S. energy goods. In May it averaged 427,000 bpd of U.S. imports, surpassing Canada, which imported 289,000 bpd, according to the EIA.

Right now, Chinese importers like Unipec have adopted a “wait and see” attitude towards buying US crude, despite the fact that it was left off the Chinese government’s tariff list.

For China, the situation may involve choosing between Iran and the U.S. American energy products have been attractive for Chinese importers, but the geopolitical advantages of cozying up to Tehran may outweigh the economic benefits of sticking with U.S. crude.

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The Most Important Waterway In The Oil World

The Most Important Waterway In The Oil World

hormuz

Tensions between the United States and Iran continue to rise, with U.S. President Donald S. Trump issuing a threatening tweet against Iran’s President Hassan Rouhani amidst preparations to re-impose sanctions on Iran’s economy following the U.S. withdrawal from the 2015 nuclear deal.

The increasingly tense situation has given rise to fears of violence, perhaps even open warfare in the Persian Gulf, where one-third of the world’s oil is produced.

A key element of Iran’s strategy in such a conflict would be to close the Strait of Hormuz, the waterway through which most of the Gulf’s oil flows. Iranian officials have made several threats in this direction, in response to the escalating tensions with the U.S.

Iranian leaders frequently threaten to close the Strait, and commentators have warned that such an action is a real possibility. Iran’s military and conservative leadership, the most hardline members of its government, have rallied around President Rouhani’s threat.

Iran possesses the means to close the strait militarily, and keep it closed for several months, using a fleet of small craft, ballistic missiles and large numbers of ocean mines that would make the strait impassable.

Closing the Strait of Hormuz would send oil prices skyrocketing upwards. It would affect the members of the Gulf Cooperation Council (GCC), including Saudi Arabia, Kuwait and the United Arab Emirates (UAE). All three are major producers of oil and gas and depend on an open strait to access global markets.

But is Iran’s leadership really prepared to take such action? Despite the war of words erupting between Tehran and Washington, it is unlikely Iran’s government is prepared to take such a drastic step now or in the immediate future, even as President Trump appears to threaten Iran with military action. There are several reasons for this.

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How Vulnerable Are Oil Markets To Extreme Weather?

How Vulnerable Are Oil Markets To Extreme Weather?

Oil

Last week, Hurricane Harvey made landfall in the United States and for days disrupted the national energy industry.

Refineries were closed, pipelines shut down, tankers held out to sea. The price of fuel shot up as gas stations went dry across the country, while crude slumped with a third of the U.S. refinery capacity shut in.

A week later, a recovery is evident and most of the shuttered facilities in Corpus Christi and elsewhere are slowly coming back on line. But the impact of Harvey will likely be felt for weeks. Gas prices, according to EIA data, remain high in PADD 1 and PADD 3 (East Coast and Gulf Coast).

The massive Motiva refinery has resumed partial production, and Goldman Sachs estimates that half of affected capacity will be back-online. But that leaves 1.4 million bpd that could remain off-line through mid-September, depressing prices.

The actual damage to facilities, according to a report from the New Orleans-based Times Picayune, has been relatively minor. Operations are chiefly impeded by flood waters and the inability of staff to return to work. But there have been reports of chemical leaks and pollutant spillages, while clean-up and repair from Harvey to energy infrastructure could take months and cost billions.

The impact of Harvey has had some market watchers ponder the vulnerabilities of the U.S. energy infrastructure, the bulk of which is located in the Gulf region. And a second monster storm, Hurricane Irma, currently barreling towards Florida, has raised questions regarding the long-term security of the national oil and gas industry. Irma could have a major impact on demand as it slams into the U.S. East Coast, further depressing the price as consumption is curtailed.

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How Long Can U.S. Refineries Remain Offline?

How Long Can U.S. Refineries Remain Offline?

Refinery

When Hurricane Harvey blew into Texas last weekend, it dumped more than 30 inches of rain, flooding Houston and large areas of southeastern Texas, while leaving thousands homeless or without power. The worst storm to hit the U.S. since 2004 and by some estimates the largest rain-storm in U.S. history, Harvey has had a profound impact on the nation’s largest oil-producing and oil-refining region.

Refinery shutdowns, pipeline closures and other consequences of Harvey has sent the Gulf oil industry into a tailspin while throwing oil markets into disarray. The question facing industry analysts, investors and consumes is how long this chaos will last.

The storm forced several major Gulf refineries to shut their doors and limit operation. ExxonMobil and Total shut down facilities in the Port Arthur and Beaumont areas, while Valero, Marathon and Citgo were forced to reduce operations in refineries from Corpus Christi to Galveston Bay and Texas City.

Motiva, owned by Saudi Aramco, is the largest refinery in the U.S. with a total throughput of overly 600,000 bpd. It was forced to close at 5 a.m. on Wednesday August 30, having already reduced capacity by forty percent on Tuesday. Related: Can Mexico Capitalize On This Golden Oil Opportunity?

In total, some twenty percent of U.S. refinery capacity was affected by the storm. On Tuesday Platts reported that eighteen percent of capacity, or 3.36 million bpd, had been shut-down, while vessel traffic to coastal facilities in Corpus Christi had largely ceased. Another ten percent of capacity remains threatened as the storm moves East.

The shut-downs have sent gasoline prices soaring, offering lucrative opportunities to European refiners and depressed crude, which continues to struggle with over-supply and is now limited by the sudden loss of refinery capacity in the Gulf.

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Olduvai IV: Courage
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Olduvai II: Exodus
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