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Cash-Strapped Iraq Drastically Devalues Dinar As Fears Of Nationwide Unrest Grow

Cash-Strapped Iraq Drastically Devalues Dinar As Fears Of Nationwide Unrest Grow

According to the latest IMF forecasts, Iraq’s GDP will contract 12% this year, more than that of any other OPEC member under a production quota.

A global pandemic-induced demand slump (among other domestic issues) has pushed Iraq – under its OPEC membership – to slash oil production by over 12% year-over-year (however, Iraq, along with other nations such as Nigeria, has pumped above its quota on several occasions since then).

In the most recent sign of Baghdad’s growing desperation for cash as its economy unravels, Iraq sought an upfront payment of about $2 billion in exchange for a long-term crude-supply contract as state coffers dwindle and school teachers go unpaid.

As Bloomberg reports, the letter from SOMO, the Iraqi state-owned agency in charge of petroleum exports, was first reported by the Iraq Oil Report.

“SOMO, on behalf of the Ministry of Oil, has the interest to propose a long-term crude-supply deal in exchange for prepayment for a fraction of the total allocated quantity,” according to the letter, which was marked strictly confidential.

The anxiety is rising as officials fear a repeat of the upheaval last year that brought down the government and saw hundreds of protesters killed.

All of which has led to the decision to devalue the Dinar… drastically.

As Bloomberg’s Khalid Al-Ansary reports, the central bank reduced the official rate to 1,450 dinar per dollar, the first devaluation since 2003, it said in a statement. That’s from about 1,190 previously. Dollars will be resold to local banks at 1,460 dinar apiece.

Inflation imminent? or hyperinflation?

The embattled nation’s central bank is taking the steps to avoid depleting its foreign-currency reserves…

Prime Minister Mustafa Al-Kadhimi, who came to power in May, has warned that the government will struggle to pay civil servants without raising more debt.

One Little Problem with the “All-Electric” Auto Fleet: What Do We Do with all the “Waste” Gasoline?

One Little Problem with the “All-Electric” Auto Fleet: What Do We Do with all the “Waste” Gasoline?

Regardless of what happens with vaccines and Covid-19, debt and energy–inextricably bound as debt funds consumption– will destabilize the global economy in a self-reinforcing feedback.

Back in the early days of the oil industry (1880s and 1890s), the product that the industry could sell at a profit was kerosene for lighting and heating. Since there was no automobile industry yet, gasoline was a waste product that was dumped into streams.

Why couldn’t the refiners produce only kerosene? Why did they end up with “worthless” gasoline?

The answer is a barrel of oil produces a variety of products. While there is some “wiggle room” to produce more diesel and less gasoline, etc., it isn’t possible to turn a barrel of oil into only one product.

John D. Rockefeller became very wealthy by cornering much of the oil market in the 19th century. But he didn’t become fabulously wealthy until the 20th century, when the rise of automobiles created a market for all the “waste” gasoline.

Rockefeller became super-wealthy when all the products of each barrel of oil could be sold at a premium rather than just a portion of the products.

This reality has been forgotten: the price that can be fetched for a barrel of oil depends on the demand for all the products, not just a few of the products.

Those demanding an all-electric auto-truck fleet as a “green” alternative will re-create the dilemma of what to do with the “waste” gasoline. The world will still want fuel for all those container ships bringing all the goodies of a consumerist society, all those cruise ships visiting ports of call, jet fuel for all those exotic vacations enabled by 550 mile-per-hour aircraft, and oil-based lubricants, plastics and petro-chemicals, and so oil will still be pumped and refined, and almost half of it will be gasoline.

We can either use it or throw it away but we can’t magically turn a barrel of oil into only one product.

This is a topic worthy of your understanding, so grab a vat of your favorite beverage and turn off all distractions.

Longtime readers know I’ve focused on energy-oil markets for 15 years. Despite ups and downs in price, the oil market has been remarkably stable.

This stability is about to transition to chronic instability: wild swings in price, shortages, and social chaos in both producing and consumer nations.

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

The Invisible oiliness of everything

The Invisible oiliness of everything

Preface.  Even a simple object like a pencil requires dozens of actions to make and dozens of objects that took energy to make.  This is why it is unlikely wind, solar, or any other contraption that make electricity, have a positive return of energy, or energy returned on energy invested.  If you look at all of the energy of the steps to create a wind turbine or solar panel, they don’t produce as much energy as it took to make them, and certainly not enough extra energy to replace themselves.  Besides, electricity is only about 15% of overall energy use, with fossils providing the rest transportation, manufacturing, heating, and the half a million products made from fossils as feedstock as well as energy source.

***

Just as fish swim in water, we swim in oil.  You can’t understand the predicament we’re in until you can see the oil that saturates every single aspect of our life.

What follows is a life cycle of a simple object, the pencil. I’ve cut back and reworded Leonard Read’s 1958 essay I Pencil, My Family Tree to show the fossil fuel energy inputs (OBJECTS made using energy, like the pencil, are in BOLD CAPITALS, ACTIONS are  BOLD ITALICIZED).

pencils“My family tree begins with … a Cedar tree from Oregon. Now contemplate the antecedents — all the people, numberless skills, and fabrication:

All the SAWS. TRUCKS, ROPE and OTHER GEAR to HARVEST and CART cedar logs to the RAILROAD siding. The MINING of ore, MAKING of STEEL, and its REFINEMENT into SAWSAXES, and MOTORS.

The growing of HEMP, LUBRICATED with OILDIRT REMOVEDCOMBEDCOMPRESSEDSPUN into yard, and BRAIDED into ROPE.

BUILDING of LOGGING CAMPS (BEDS, MESS HALLS). SHOP for, DELIVER, and COOK FOOD to feed the working men. Not to mention the untold thousands of persons who had a hand in every cup of COFFEE the loggers drank!

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

Oil and the Changing World Order

U.S. oil inventories have fallen every week for two months yet WTI has averaged less than $40 per barrel since the end of August. That is because oil has been re-priced and markets are unwilling to pay more for it.

Those who expect a return to 2019 price levels acknowledge that the oil-demand recovery has stalled. They believe that this is because of Covid-19 and that things will return to normal once there is a vaccine.

Perspective

“I don’t think the severity of this downturn has been well understood yet.”

Sophia Koropeckyj, Moody’s Analytics

What is happening to oil markets and to the global economy is not because of a virus. The virus greatly accelerated what was already happening. Things won’t go back to normal when the virus ends. I wrote that a month ago and nothing has happened since then to change my mind.

The world is in a debt cycle that began fifty years ago. World orders change when debt cycles approach their end. Ray Dalio has studied how and why world orders have changed over the last 1500 years. These are the requisites that changing world orders have in common:

  • High levels of indebtedness.
  • Low interest rates that limit the ability of central banks to stimulate the economy.
  • Large wealth gaps and political divisions that lead to social an political conflicts.
  • A rising world power that challenges the over-extended leading power.

These criteria have clear relevance to the present world order as China challenges U.S. hegemony. Discord created by debt, interest rates and income inequality have been aggravated by the Covid-19 pandemic but will not be resolved when the virus is controlled.

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

Forget Peak Oil Demand, Supply Crisis Could be Hitting First

Forget Peak Oil Demand, Supply Crisis Could be Hitting First

In today’s IEA’s annual World Energy Outlook 2020 report, the OECD energy watchdog states that it doesn’t see a peak oil demand before 2040, only a possible oil demand flattening. The energy agency repeats that oil demand is effected by COVID, but all scenarios show that oil demand has not peaked yet. The energy agency contradicts here the views currently being proponed by BP and others that oil demand has peaked already. The report bluntly states that after recovering from the “exceptional ferocity” of the COVID-19 crisis, world oil demand will rise from 97.9 million bpd in 2019 to 104.1 million bpd in 2040.

Even that the agency acknowledges that demand has been hit and is lagging behind 2019 levels, overall demand will increase, only the increase will be slightly slower than expected. The Paris-based agency, financed by the OECD governments, and lately known as a main proponent of energy transition and renewables, expects that a slower increase of oil demand the coming years will be caused by clean transport policies and surging renewable energy. At the same time the IEA also reiterates that demand for petrochemicals and global growth of long-distance transport will be leading to a net increase of oil demand until 2040.

It needs to be reiterated that several major factors are very unsure that could have a major impact on global oil demand growth. The current assessments are all taking into account a wide range of proposed and/or signed energy transition and net-zero emission government policies.

These will have an impact if fully implemented by all. Looking at the current situation, especially due to COVID-related economic issues, renewable and emission reduction policies could however become sidelined, delayed or put on ice. The need for a revamp of the global economies is clear, but choices will be made by respective constituencies without full focus on climate change and renewables.

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

Fossil Fuel Production Is Reaching Limits in a Strange Way

Fossil Fuel Production Is Reaching Limits in a Strange Way

Strangely enough, the limit we seem to be reaching with respect to fossil fuel extraction comes from low prices. At low prices, the extraction of oil, coal, and natural gas becomes unprofitable. Producers go bankrupt, or they voluntarily cut back production in an attempt to force prices higher. As the result of these forces, production tends to fall. This limit comes long before the limit that many people imagine: the amount of fossil fuels in the ground that seems to be available with current extraction techniques.

The last time there was a similar problem was back in 1913, when coal was the predominant fossil fuel used and the United Kingdom was the largest coal producer in the world. The cost of production was rising due to depletion, but coal prices would not rise sufficiently to cover the higher cost of production. As a result, the United Kingdom’s coal production reached its highest level in 1913, the year before World War I started, and began to fall in 1914.

Between 1913 and 1945, the world economy was very troubled. There were two world wars, the Spanish Flu pandemic and the Great Depression. My concern is that we are again headed into another very troubled period that could last for many years.

The way the energy problems of the period between 1913 and 1945 were resolved was through the rapid ramp-up of oil production. Oil was, as that time, inexpensive to produce and could be sold for a very large multiple of the cost of production. If population is to remain at the current level or possibly grow, we need a similar “energy savior.” Unfortunately, none of the alternatives we are looking at now yield a high enough return relative to the required investment.

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

Has oil peaked?

Last month, the world’s 4th largest oil company—BP—predicted that the world will never again consume as much petroleum as it did last year. So, have we finally hit peak oil? And if so, what does that mean for our economy and our world?

There was fierce controversy in the first decade of this century over claims by petroleum geologists and energy commentators that peak oil was imminent (I was a figure in that debate, writing several books on the topic). Most of those early claims were based on analysis of oil depletion and consequent supply constraints. BP, however, is talking about a peak in oil demand—which, according to its forecast, could fall by more than 10 percent this decade and as much as 50 percent over the next 20 years if the world takes strong action to limit climate change.

Source: PeakOilBarrel.com; production in thousands of barrels per day.

Numbers from the US Energy Information Administration’s Monthly Review tell us that world oil production (not counting biofuels and natural gas liquids) actually hit its zenith, so far at least, in November 2018, nearly reaching 84.5 million barrels per day. After that, production rates stalled, then plummeted in response to collapsing demand during the coronavirus pandemic. The current production level stands at about 76 mb/d.

Many early peak oil analysts predicted that the maximum rate of oil production would be achieved in the 2005-to-2010 timeframe, after which supplies would decline minimally at first, then more rapidly, causing prices to skyrocket and the economy to crash.

Those forecasters were partly right and partly wrong. Conventional oil production did plateau starting in 2005, and oil prices soared in 2007, helping trigger the Great Recession.

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

How much oil left in America? Not much

How much oil left in America? Not much

Preface. If you think we have no worries because we can get arctic oil, think again. We can’t because icebergs mow drilling platforms down in the ocean. On land, massive amounts of expensive new drilling rigs, roads, rail lines, platforms, buildings and other infrastructure need to be built, and maintained every year as permafrost soil bucks and heaves like a bronco trying to shake infrastructure off.

In the first two oil shocks in the 1970s, many intelligent people proposed we should buy oil from other nations to keep ours in the ground for when foreign oil declined. But hell no, Texas, Oklahoma, and other oil states said that we need jobs and CEO/shareholder profits more than national security. Over half of all remaining oil is in the Middle East, which China, Russia, and Europe are much closer to than the U.S.

What saved the U.S. and the world, from conventional peak oil and natural gas decline since 2005 is fracking. But fracking began to decline as early as 2020 according the first report below. The second article is about oil discoveries in the U.S. declining.

This just in: John Hess, CEO of Hess Corporation, told his audience that “key U.S. shale fields are starting to plateau” and will not the next Saudi Arabia. U.S. shale oil production has been a major driver in the growth of world oil supplies. Last year the United States accounted for 98% of global growth in oil production. Since 2008 the number is 73%. so a slowdown or decline in U.S. oil production growth would mean trouble for the whole world. With 81 percent of global oil production now in decline, even a plateau in U.S. production would likely result in a worldwide decline (Kobb 2020).

Peak Fracking in the news:

2020 U.S. Shale Oil Production – All That’s Left Is The Permian And That Won’t Last Forever Either.

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

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

The year of the pandemic put two commodities under the spotlight, but for different reasons. Gold prices hit an all-time high in August, while crude oil slipped into negative for a day in April, when demand crashed and inventories soared.

Both oil and gold have seen much volatility this year. Oil prices started 2020 at over $60 a barrel, dipped to the low teens in April – with front-month WTI Crude futures settling one day at a negative price – and rose to $40 in the summer, staying rangebound since then. The crash in demand pushed oil lower, while increased uncertainty over the economic and oil demand recovery, as well as the fears of a second COVID-19 wave, pushed investors to seek safe havens such as gold, driving the precious metal’s price to an all-time high of $2,075 an ounce last month.

The wild rides in the two commodities could represent buying opportunities, analysts argue, expecting oil and gold to rise in the medium term.

For oil, the uptrend may not come as soon as it could in gold, because of the heightened concern about the stalled demand recovery. Still, investment banks and analysts expect prices to increase from current levels over the next one to two years, especially if an effective vaccine hits the markets in 2021.

For gold, low or negative interest rates, continued economic stimulus, and the perception that gold is a hedge against uncertainty about the economy and the upcoming U.S. presidential election are expected to drive prices higher.

Alissa Corcoran, Director of Research at Kopernik Global Investors, told MarketWatch’s Myra P. Saefong that the short-term volatility in commodities could be an opportunity instead of risk.

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

The End of Oil is Near, or Maybe Not

The cover of the September/October 2020 issue of Sierra magazine states “The End of Oil is Near”.  The corresponding story “The End of Oil?” was paralleled with a recent segment on Democracy Now.  I think that is wishful thinking.  To the extent that oil demand goes down in the future, it will go down because people can’t afford oil distillates at the price producers need to produce the corresponding oil.

The “The End of Oil?” article describes weak oil demand in recent years although it should be stated that global oil consumption increased over 5 million barrels/day from 2015 to 2019.  A major factor for weak oil demand growth in recent years is the increasing level of inequality in the U.S. and world.  There is an increasing population that can’t afford to buy oil distillates, or the devices that use them.  Oil distillates offer the ability to avoid manual physical effort which people tend to select when they can afford to.

“The End of Oil?” article emphasized the increase in global oil production in recent years.  Most of that production increase was associated with unconventional oil resources such as shale oil in the U.S. and oil sands in Canada.  The problem with those unconventional oil resources is that they are considerably more expensive to produce compared to conventional oil.  Conventional oil production is declining over much of the globe which has forced oil companies to move to unconventional resources.

The author describes oil majors, like ExxonMobil and Chevron, as getting into the shale oil business in recent years.  That is not a wise business decision but due to the lack of new conventional resources to exploit.

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

 

Maddow’s “Blowout”, Russian peak oil, corruption, fake news

Maddow’s “Blowout”, Russian peak oil, corruption, fake news

Preface.  Since this blog focuses on peak resources, I drastically rearranged my notes from this book in the order I found most interesting. I’m also interested in corruption, Putin, fake news, and more, as you’ll see below.  Since the book is 405 pages, I’ve obviously left out quite a bit, so buy it if you want to know more and much better flow and continuity.

Although peak oil is often spoken of as a geological issue, it can also stop flowing from wars, financial crashes, and in Russia’s case, from corruption.

By the way, Russia isn’t communist any more. It is a mafia totalitarian state. The only 5 nations that are still “communist” are North Korea, China, Vietnam, and Laos.

***

Maddow, R. 2019. Blowout: Corrupted Democracy, Rogue State Russia, and the Richest, Most Destructive Industry on Earth. Crown.

Russia Peak Oil & Corruption

Putin had decided that Russia would be a petro-state—choosing an economic future for his country that best served his own needs. Oil and gas could be wielded as an international cudgel to force other countries to respect and deal with Russia no matter anything else Russia did. The industry also—bonus!—trailed enough easy cash to generate almost instant, almost limitless corruption wherever needed. And when you have those kinds of goals in mind for your one indispensable industry, and you run that industry like a Mafia chop shop with less omertà, eventually the actual business side of your dark little authoritarian scheme is going to suffer. Both financially and in its basic technical competence. And indeed, by 2014, the bright red star of Russian energy was dimming.

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

Oil consumption of containerships

Oil consumption of containerships

Preface.  Since 90% of international goods move by ships, I was curious about how much fuel they burned.  It’s a lot: The very large container ship CMA CGM Benjamin Franklin above, which can carry 18,000 20-foot containers, carries approximately 4.5 million gallons of fuel oil, which takes up 16,000 cubic meters (FW 2020).  As much fuel as 300,000 15-gallon tank cars.

But these ships can carry 200,000 tons of goods, so they end up being more energy efficient than 300,000 cars (Stopford 2010, UNCTAD 2012).

Pound for pound and mile for mile, today’s ships are the most energy-efficient way to move freight. Table 1 shows the energy efficiency of different modes of transport by kilojoules of energy used to carry one ton of cargo a kilometer (KJ/tkm). As you can see, water and rail are literally tons and tons—orders of magnitude—more energy efficient than trucks and air transportation.

Table 1 Energy efficiency of transportation in kilojoules/ton/kilometer (Smil 2013), Ashby 2015)

(A) ……………Transportation mode
50……………. Oil tankers and bulk cargo ships
100–150….. Smaller cargo ships
250–600….. Trains
360………….. Barge
2000–4000 Trucks
30,000…….. Air freight
55,000…….. Helicopter

(A) Kilojoules of energy used to carry one ton of cargo one kilometer Transportation mode

***

Further details

Fuel consumption by a container ship is mostly a function of ship size and cruising speed, which follows an exponential function above 14 knots. So an 8,000 TEU container ship consumes 225 tons of bunker fuel per day at 24 knots, but at 21 knots  consumption drops to 150 tons per day, a 33% decline. While shipping lines would prefer consuming the least amount of fuel by adopting lower speeds, this advantage must be mitigated with longer shipping times as well as assigning more ships on a pendulum service to maintain the same port call frequency. The main ship speed classes are (Notteboom 2009):

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

Is 2020 the End of a Energy Trend or the Beginning of a New Trend for Climate Change Advocates?

Is 2020 the End of a Energy Trend or the Beginning of a New Trend for Climate Change Advocates?

QUESTION: Marty; I see that Socrates’ forecast for oil in 2020 was a major turning point. All the reversals worked great. But my question is, do you think with this 2020 turning point that this climate change agenda of Bill Gates will fail if oil bottoms here in 2020?

GA

ANSWER: The array picked up 2020 nicely and it was also a Directional Change. But note that we also have a Directional Change in 2021 and the next turning point in 2023. So far all indications are that they will fail in eliminating fossil fuels. Socrates sold even the high just before the Crash. It appears as stated at the WEC,  this is the culmination of the trend, and this cycle into the peak of this 8.6-year wave should be a commodity boom but one based upon shortages and currency because we are headed into a Monetary Crisis Cycle for 2021-2022.

So just looking at crude by itself shows that this should be the culmination of a trend rather than the start of a trend as Gates and others would like to profess. That said, the excess in supply is real because they have shut down the global economy with lockdowns which have reduced driving and air travel while also shipping has been disrupted. So 2020 should be at the very least the lowest yearly close.

However, the consequences of a crash in commodity prices typically result in destruction also of the productive capacity. This will happen at the low in Gold or any commodity.

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

Oil Price War Puts Entire Kingdom Of Saudi Arabia At Risk

Oil Price War Puts Entire Kingdom Of Saudi Arabia At Risk

At no time since Ibn Saud first consolidated his Arabian conquests into the Kingdom of Saudi Arabia in 1932 has the ruling Saud dynasty faced such an existential threat to its continued rule over the country.

It is true that Saudi Arabia has been able to gain some temporary advantage in key Asian export markets, as its shipments to China more than doubled in April to 2.2 million barrels a day (bpd) and those to India, at 1.1 million bpd, were also the highest in at least three years. This, though, as much as any other factor that might endure, was a product of Saudi slashing its official selling prices (OSPs) for April crude sales to some of the lowest levels in decades, undercutting its rivals, and exactly the same happened again for May crude sales.

Even this very slight victory, though, has already been jeopardised by an indication that the scale of the trouble into which the House of Saud has placed Saudi Arabia is truly monumental. Just last week saw massive economic pressure force the Saudis into increasing the June delivery price for its Arab light crude oil to Asia by US$1.40 per barrel from May, albeit at a discount of US$5.90 to the Oman/Dubai benchmark average. Market expectations were that Saudi would continue to keep OSPs low to hold onto market gains.

Saudi Arabia did this because its finances are in an even worse state now than they were at the end of the Kingdom’s previous attempt to destroy the U.S. shale industry that ran disastrously from 2014 to 2016. Back then, Saudi had a much greater chance of success in destroying the U.S. shale industry than it did this year, for a wide variety of reasons, but even then the effort nearly destroyed the Saudi economy forever.

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

Has Demand For Oil Already Peaked?

Has Demand For Oil Already Peaked?

Oil prices continue to rise on the prospect of a rebound in fuel demand as economies begin to reopen.  But there is a large difference between oil demand rising from recent lows and actually growing relative to pre-COVID-19 trends. In other words, demand destruction on the order of nearly 30 million barrels per day (mb/d) may have been brief, but we are a long way from a 100-mb/d oil market. 

In fact, some are wondering whether the world will ever get back to 100 mb/d of oil demand. Even oil executives have their doubts. Royal Dutch Shell’s CEO Ben van Beurden recently suggested that a rebound is unlikely, even looking out beyond 2020. “We do not expect a recovery of oil prices or demand for our products in the medium term,” he said.

“We basically have a crisis of uncertainty. Uncertainty about demand, about prices,” van Beurden said in a video address when presenting first quarter results at the end of April. “Maybe even uncertainty about the viability of some of our assets given all of the logistical issues we have.”

BP’s CEO Bernard Looney largely admitted the same thing. The COVID-19 pandemic could entrench certain societal changes – more teleworking, less commuting, less flying – that could permanently erode a portion of consumption. “It’s not going to make oil more in demand. It’s gotten more likely [oil will] be less in demand,” Looney said in an interview with the FT

“I don’t think we know how this is going to play out. I certainly don’t know,” Looney said. “Could it be peak oil? Possibly. Possibly. I would not write that off.”

Not everyone agrees. ExxonMobil’s chief executive Darren Woods recently said that the long-term trends “have not changed.” 

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

Olduvai IV: Courage
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Olduvai II: Exodus
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