Friday, January 28, 2011

Egypt, Tunisia & Oil and Saudi Arabia

The commodity markets, especially Oil, were selling off HARD yesterday.  They have reversed HARD today.

The folks in the know in the Oil markets know this:

If Saudi Arabia's government is overthrown and "the people" seize power, those "people" might not be interested in Selling their Oil off as fast as possible.  They might prefer to sell half as much fro twice the price... in fact, you can count on that.

This is a situation that needs to be watched very, very closely.

25 comments:

Anonymous said...

I just realized the significance of this for Saudi Arabia as this revolt spreads to Yemen- on SA border.

The fat dictatorial Saudi royal family and it's several thousand princes have ruled with an iron hand with direct US backing since before the 60s. Meantime, the average Saudi has been faced with long-term declining incomes.

Who knows when the man in the street will decide that the autocrats MUST be disempowered at any cost? We may be there right now.

Lots more of this may be heading our way as US and Euro global influence wanes.

Best,
Marshall

kathy said...

So is this why I find myself humming "Eve of Destruction" all day?

PioneerPreppy said...

Albania is having mass protests as well.

Will this flame keep spreading?

Anonymous said...

Realpolitik is a nasty game. The US has been supporting ruthless despots that align themselves with US interests for longer than I've been alive. The rational is that the devil you know is probably better that the devil you don't know. This has proven to be true in quite a few cases, for the inhabitants of the country as well as for the US. But, I think that the world would be better if we stood more solidly for freedom and human rights than we've done.

GWB was a believer in this, and a lot of his folly into Iraq was to create a democratic model that the rest of the Arab world might follow. Condalezza Rice, during a speech in Egypt made the comment that for 70 years we have supported stability at the expense of human rights and now have neither. The Bush administration put a lot of effort into democratic reforms across the region. Too little, too late, I suppose.

Regards,

Coal Guy

Dextred1 said...
This comment has been removed by the author.
Dextred1 said...

Black swan events. This is what bur has missed the last 2 or 3 yrs on here. It is not that the stores at one moment are not full; it is just that a snap shot does not make a life. Things are changing and fast. I would like to hear west Texas talk about how much production we would lose from Saudi Arabia if they fail. Crazy people with no government are not very good at producing anything besides the most important commodity in the world, oil. Not that I have heard they are rioting there, don't know. It seems to be spreading though Lebanon, Tunisia, Egypt, etc. Seems like this stuff happens spreads quick from group to group and nation to nation. This looks like a peak awakening moment. We shall see.

BTW. Kathy I did not mean to come off rude a few weeks ago, sorry if I did.

bureaucrat said...

In 2003, I was giddy, just like today, with Egypt, at the thought of a corrupt, torturing govt. being overthrown in Iraq. Sadly, in 2005, our Republican administration ruined it all by trying to turn Iraq into just another money-making opportunity for themselves.

We'll see how the Egypt thing plays out.

Since the incompetent Iranians (who are SHIA Muslim) werent able to overthrow their crappy government, I suppose the people might have better luck overthrowing the SUNNI Muslim Saudi govt AND the SUNNI Muslim Egyptian govt.

Greg T. Jeffers said...

Dex:

They don't have to be crazy.... actually crazy people produce as much as possible and keep the price down... make ME the King of SA and watch...

kathy said...

It is so nice of you to mention it. If I (Massachusetts, liberal democrat who is fiscally a conservative but a social progressive-just try reconcilling that!)don't have pretty thick skin, I better stay of the internet and keep my mouth shut.

Dextred1 said...

This is different guys; this is the radical Islamic dynamic taking down dictators. This is much more like the Iran booting the U.S. puppet government out and replacing it with a creepy even more despotic Islamic government. This is a whole new Dynamic; Israel had a weird alliance with Egypt. Egypt would not let anyone cross into Israel through Egypt. The power base in the Middle East come from the Islamic radicals not from freedom fighters. Jeffers I was also pointing out that china will get a firm grip on the oil resources if there is a full Islamic revolution through the Middle East. They don’t like us. We were on the side of dictators and tyrants and now, well were not. They are all going away. The world is a changing. Not to mention this is coming close to making Iran the Power broker in the middle east, Saudi Arabia is getting weaker by the day.

Anonymous said...

Dex,

I wouldn't worry about China locking up oil production with bi-lateral agreements.

My mother was an accountant for a small coal mining company. The company had an exclusive agreement to sell 100% of its production at a fixed price. The trucks always pulled out of the driveway and turned left. When the market price of coal exceeded the price in the exclusive contract, lots of trucks started to turn right. Thus it will always be.

OPEC could never really control production, and unless China occupies its oil vending countries, their agreements will not be honored either. Contracts be damned, the market will prevail.

Regards,

Coal Guy

Greg T. Jeffers said...

Kathy:

They call that Libertarian (social progressive and fiscal conservative) where I come from... pro-life folks like me are not all social conservatives...

Kathy said...

Geez. I was afraid you were going to say that. My dear Kennedy loving, McGovern voting, Peace activist mother who hosted dinner for a defrocked gay priest and his partner way before it was cool to do so will be rolling over in her grave right about now. Or maybe she's giving me a thumbs up. She was always ahead of the curve. On her death bed, when she hadn't spoken in days, I asked her if she felt ready to go. I didn't expect an answer but I got one. She said she guessed she was but she did wish she could have lived long enough to see that little pissant Bush voted out of office. My mother NEVER used foul language. Pissant was very strong for her. I can't help but wonder how she would feel about the world right now. I do appreciate that she taught me to think for myself, question everybody, including her and look for what lay beneath the surface. So here I am.

bureaucrat said...

Guess which country is hell-bent to become a society of haves and have-nots (clue: it has the Super Bowl) ...

From MarketWatch ...

"There’s no shortage of entrenched strongmen running Arab nations. But all the popular uprisings ignited by the overthrow this month of Tunisian president Zine El Abidine Ben Ali have one thing in common: They are breaking out in nations of have-nots – Egypt, Yemen, Algeria, Jordan – whose citizens are provoked to action by the maddening concentration of wealth and power in the hands of the very few.

The Arab oil-exporting nations, with their vast wealth and tiny populations, have been able to paper over social friction with petro-dollars. But anger over the lopsided distribution of wealth doesn’t stop at the border. It can also breed resentment among impoverished neighbors.

At the end of the day, tensions between the haves and the have-nots infect the entire Arab world, which is why oil traders – not to mention various kings and sheiks – get jumpy when mob violence erupts in Cairo, the biggest Arab city of them all."

The U.S. is heading for a situation with the haves & have-nots itself. Icky.

Anonymous said...

Guess who controls the Suez Canal?

Bob

Stephen B. said...

The U.S. is heading for a situation with the haves & have-nots itself. Icky.

Lol, nicely underspoken!

Anonymous said...

The petro kingdoms all distributed money to the populace to buy support so their population exploded. However, their economies didn’t expand so their income is much less on a per capita basis and they are having trouble feeding the poor. Poor people don’t revolt hungry people do; hungry people lead by children of privilege. Of the petro states, KSA is the only one that has produced enough food to feed their populations since the 60’s, if not before; and even then it was costing over $1K US per acre to make the deserts bloom before KSA gave up their wheat program.

Egypt is not a part of that problem; they do not have oil and they have a fertile valley. However Egypt is prone to bouts of food inflation. In 2008 during the “bread crisis” they had their army baking bread to distribute to the poor; and the financial crisis wasn’t at the root of the problem, I recall reading about the problems building well before that. The financial crisis just pushed them over into a food crisis, along with a whole host of others .

However, Bureaucrat is probably still right. None of the clowns running our government know how to deal with an emergency or prioritize. I have a bad feeling we won’t realize the prudence of rebuilding grain stockpile until after something awful happens. Until then it looks like some good deals on beef are coming to the jewel in Chicago. It’ll be alright- until it isn’t

Best,
Dan

westexas said...

Here is a snapshot of key global net export numbers for 2005 to 2009, along with Chindia's net import numbers:

http://i1095.photobucket.com/albums/i475/westexas/Slide3-1.jpg

Saudi Arabia's net exports in 2009 were 7.1 mbpd (17% of total), and probably about 7.2 mbpd in 2010, versus 9.1 mbpd in 2005.

What we are seeing is a--so far--slow decline in global net exports, combined with a--so far--rapid rate of increase in Chindia's combined net imports.

The mathematical model and multiple case histories, e.g., Egypt, show that net export decline rates tend to accelerate with time.

Regarding Chindia, we shall have to see what happens, but at their current rate of increase in net imports, expressed as a percentage of global net exports, Chindia would consume 100% of global net exports around 2025.

westexas said...

The missing two billion barrels of oil that practically no one in the MSM is talking about

Following are the production, consumption and net export numbers for Saudi Arabia (BP) for 2005 to 2009, along with my estimate for 2010.

Production - Consumption = Net Exports (Total Petroleum Liquids, mbpd)

2005: 11.1 - 2.0 = 9.1
2006: 10.9 - 2.1 = 8.8
2007: 10.4 - 2.2 = 8.2
2008: 10.8 - 2.4 = 8.4
2009: 9.7 - 2.6 = 7.1
2010: 10.0 - 2.8 = 7.2*

*Estimated

Here are the production increases, by year, that Saudi Arabia would have had to show to match their 2005 annual net export rate of 9.1 mbpd:

2006: 0.3 mbpd
2007: 0.9
2008: 0.7
2009: 2.0
2010: 1.9

The sum of the foregoing production over the five year period (about 2.1 billion barrels of oil) is also the cumulative shortfall between what the Saudis would have net exported at their 2005 annual rate and what they actually net exported--even as oil prices have shown year over year annual increases for four of the past five years.

westexas said...

As we have discussed, developed countries like the US are being outbid for access to net oil exports:

Here is the data table for the four week running average of US net oil imports:

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=wttntus2&f=4

The data table shows net imports (four week running average) of 9.1 mbpd for the most recent week, versus 9.3 mbpd a year ago and 11.8 mbpd in January, 2005. The January, 2005 to January, 2011 data show a net import decline rate of about 4.3%/year.

Here is an interesting coincidence: If we extrapolate the rate of change in the 2005 to 2009 US consumption to production ratio, and if we extrapolate the 2005 to 2009 rate of increase in Chindia's combined net imports, as a percentage of global net exports, the US would cease (net) importing oil around 2023, while Chindia would be consuming 100% of global net exports around 2025.

bureaucrat said...

The oil is still roaring into this country, WesternTexas, by the EIA numbers I listed above. :)

westexas said...

Oil is "roaring" into this country in the same way that falling water in a waterfall makes a lot of noise. The four week running average of net oil imports into the US:

http://www.eia.gov/dnav/pet/hist_chart/WTTNTUS24.jpg

westexas said...

Bureaucrat,

Are you typical of government workers? Are most of you this out of touch with reality?

Stephen B. said...

I expected and continue to expect the developing world to outbid the developed world for oil.

I say this because it's easier for somebody in the developing world to pay more for a gallon of diesel or gas when one is only using a few gallons a week or month. Contrast that to a family in the US, already using 30 gallons a week or more of gasoline, never mind using oil in other ways. a dollar increase hits the user of 3 gallons of oil a week much less than the user of 30.

Looked at another way, the marginal utility and benefit of those first 3, 4, or 8 gallons of oil used is much greater than that of the 35th or 40th gallon a week. That is, there are diminishing returns to be had by consuming more oil when one is already consuming a lot, compared to the poor, developing world villager who just bought his first small car or motor scooter and is looking to drive it only for a few short, highly useful trips a week. This latter person can and will be willing to pay more for those few gallons a week. Then when one thinks of how many hundreds of millions, if not a billion times this story of slow, increasing affluence is being repeated all over the developing world, one can see that the developed world will be outbid for the remaining oil.

I think that this will hold true even if the developing world family has a lower income than the US/European family's.

Dextred1 said...

West texas,

Thank you very much. I will answer for Bur, Yes they are all that out of touch. Just read his posts. :)

Stephen,

I agree with you, law of diminishing returns at work.