Thursday, March 13, 2014

Ukraine (Crimea) was about Oil, and its ALWAYS About Oil

To put the U.S. Oil circumstance into its proper perspective please take a gander at the following graphs:    

    24 months of data starting January 2012 and ending December 2013



Data from the U.S. Department of Energy's EIA website pages Here and here.

I make no representation here as to whether these trends will hold, but as they say on Wall Street: "the trend is your friend". My money says they hold even if my mouth won't commit.

Total U.S. domestic production and imports remains at or under 14mm bpd for the past 2 years, and had been as high as 18mm bpd in 2005. The downtrend of the last 4 months in net petroleum imports has overwhelmed the increase in domestic production that had kept this metric static for the past 2 years. A peak to trough decline of 1.7 million bpd.

As I have asked before: Where is the Oil that did not show up in the U.S.? Did the exporters cut exports? Or did the other importers import more than they had been? Every data point I read tells me, in so many words, that the other importers did not increase their imports (though everything cite's another source that cite's another source, etc... which leaves me cold. Of course, the EIA leaves me cold, too, but that and the IEA are the only sources we have).

So what's this have to do with Russia/Ukraine/Crimea?

Putin made a remark in the press that he could ruin the financial system of the West with a wave of his hand (pen). At first, I thought he was talking about the US$ and Russia's customers in Asia. Maybe. Or maybe Russia agreed to cut exports to keep the price high enough so that the fracking boom does not fall on its face. The U.S. actually finds itself in the position of desiring high oil prices! If Oil is $70, still very expensive historically, the fracking fields in North Dakota and Texas go bust and billions of $$ in capital equipment rusts in the rain. Was Putin reminding the U.S. of some such deal? Such a deal would be in both parties' interests... but far more so for the U.S. in the short term.

I cannot see how it is to Putin/Russia's advantage to undue the U.S.$ trade settlement for Oil at this moment or in this fashion. I can see how increasing domestic Oil production could collapse West Texas Intermediate prices in Cushing, OK, due to their unique pipeline and storage issues if helped along by international prices. I could see that outcome very easily. That would not be in the U.S. OR Russia's interests - but it is Russia that holds, and deals, the cards in that game.

The U.S. economy has proven that it can handle $100 Oil, even if 40% of the population cannot. (Not a single f**k is given in the U.S. about those people, and some of that attitude is rightly so: that population is busy consuming heroin, meth, and tattoos; does it really matter if they don't have enough fuel to get back and forth to the tattoo parlor? Lest you think I am being elitist... I am a product of the lower portion of the working class. The way up and out of that is not drugs and tattoos - but that is another issue for another time.) What the U.S. economy cannot handle is a collapse in domestic production caused by low Oil prices.


19 comments:

tweell said...

Russia definitely has the ability to do that, but... the obvious counter is to sabotage one of their main oil fields. Of course, WWIII becomes much more likely then.

Greg T. Jeffers said...

Putin is likely worth several Billion $$ in various holdings throughout the world. He is 60 years old, hale and hearty, and by all appearances virile and athletic... my bet is that he would prefer to enjoy his wine, women, song, and position rather than unleash WWIII.

No, I think that if WWIII IS unleashed it would be the West, not Russia.

Greg T. Jeffers said...

Or is that what you meant in your comment?

That some Western party would sabotage a Russian field? Yes, that is exactly the kind of mistake a Russian adversary might make.

tweell said...

That is what I was thinking. Tom Clancy played it out in Red Storm Rising, I believe.

Given the arrogance of our government and their lawlessness, I view it as a distinct possibility.

Anonymous said...

"wine women and song?"
Have you ever seen a photo of him with a woman since he divorced his wife (who looked like she hadn't had sex in 20 years).
Why is he always going off on hunting vacations with other men?
Please...everyone knows he is nothing but a self hating homophobe.
http://www.dailymail.co.uk/news/article-477089/Gay-Russians-claim-bare-chested-Putin-own.html

tweell said...

Lots!
http://dailyentertainmentnews.com/breaking-news/alina-kabaeva-vladimir-putins-new-girlfriend/

Alas, Obama fits that frame of yours better than Putin does.

PioneerPreppy said...

I think there is more to this than just oil. Truly did anyone honestly ever think the Russians were going to just let their Crimean bases go NATO? The West has not really dealt honorably with Russia in some time now and have violated agreements more than a few times as well with barely a shrug. Putin took some of these acts personally and has even said as much in various speeches he has given.

I believe part of his manhandling of Medvedev (sp) and becoming President again had a lot to do with seeing such a weak American counterpart as Obummer as an opportunity for some payback otherwise he wouldn't have cared.

We will see but I doubt things go military just another nail in the overall financial coffin in my opinion.

Anonymous said...

Maybe its a lot of excitement over a relatively minor issue. The United states is a bigger energy producer than Russia. Putin is pretending to be a much bigger player on the world stage than he really is.
But if you hate America and idolize Putin feel free to move to Russia. You might be disappointed - there isn't much there except a few billionaire oligarchs and a lot of peasants dying of alcoholism. Russia has the highest rate of alcoholism in the world and a short lifespans due to poverty and lack of medical care

Anonymous said...

As far as the US dollar losing its status as the reserve currency, people have been saying that for years and it isn't happening. Even if it did happen it might not make any difference in the long run. The British pound was once the reserve currency, for hundreds of years, and even though it is no longer, the pound is still more highly valued than any other currency.

PioneerPreppy said...

Hey Anon. One I wouldn't leave the US for nothin right now I want to stay around just to see the look on idiot social engineering faces when this whole thing goes South.

Why should anyone leave? Not believing in the Constitution didn't make guys like you leave.

Two - No other country has ever had a so called reserve currency like the US. However some were close but none have never been close when it comes to spending and buying/importing foreign voters.

Any other country could swallow a financial crisis and not shatter. I don't think the US will be so lucky.

Anonymous said...

Its not really as much about oil as it is about politics and ethnic heritage and loyalty. Crimea was always part of Russia and for hundreds of years the Crimean people considered themselves part of Russia and not the Ukraine. They looked down on the Ukraines. When the Communist party annexed Ukraine to be part of the USSR they drew a line around Crimea and included it in with the package to make the Ukranian people feel more important. Now that the Ukraines want to be part of the EU, Putin is sending a message " go ahead and join Europe and good riddance. But we will take back what has always been our land to begin with"
And the Crimean people are demonstrating their loyalty to their ethnic Russian ancestry. While the Ukrainians go ahead and join the EU.
And Putin is saying to the rest of the world "This is my territory, F--ck you if you don't like it. Mind your own business."
Which is what the rest of the world should probably be doing, because who cares anyway?

Greg T. Jeffers said...

Anon:

Not sure why you are so openly hostile. Commenters here have proven to be reasonable, rational people capable of abstract thought and the ability to disagree without taking umbrage.

It is nice to be nice.

Publius said...

Greg,
I don't think Putin would choose to actively undermine the dollar and/or US oil production, unless he were forced to by our hostile actions.
If Russia is attacked economically, however, he has no reason to not pull the plug on the dollar and/or oil production.

I think the wild card that Putin has is China. There is absolutely no reason why he couldn't, and every reason why he should, embrace and grow trade with China as fast has humanly possible!
It would be irrational to not diversify. China and Russia could become adversaries, but there is far more benefit to their cooperation. Russia is population poor, somewhat industry poor. China is resource poor and population/industry rich.
A match made in heaven!

Russia should start selling its oil and gas to China, and build pipelines.
It will happen.
This will, however, be very detrimental to Europe. It might even give Russia leverage in prying the EU loose from the constant meddling of the US and its attempts to maintain hegemony, or pax Americana, or whatever.

I believe all of us who value libertarian ideals, peace, and prosperity should oppose foreign meddling by any power, and strive to increase un-coerced trade in ideas, innovation, art, and goods/services. But every nation should also strive to keep the ability to be sovereign, which means not becoming dependent.

The USA, due to the status of the US dollar, has destroyed much of its industrial base. This fact has led to the impoverishment of the working class.
Let's face it: not everyone can, should, or want to be a software engineer, financier, or hair-dresser. Real men (and women) need jobs such as factory worker, machine tool operator, cowboy, farm hand, carpenter, etc.
Our values have become effete and weak-minded. Nobody wants to do real work. If and when this fantasy world of limp-wristed consumption ends, what % will even be able to survive by doing the necessary grunt work? Who can even conceive of taking pride in a trade like carpenter, farmhand, cook, etc.?

James M Dakin said...

I'm glad to see you back and in better form than ever. You are still my go-to guy for energy and geopolitics.

Publius said...

Wow - I was right! It's happening already: Increased trade in energy and armaments between Russia and China.

tweell said...

Yep - http://www.zerohedge.com/news/2014-03-21/petrodollar-alert-isolated-west-putin-prepares-announce-holy-grail-gas-deal-china

"while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead... and quite a few steps east."

Anonymous said...

Russia and China already conduct a significant amount of trade between each other and their other trading partners. While Russia could inflict relatively minor damage on the the EU and the US, the US can and is inflicting substantial damage on Russia. Visa and Mastercard are American based businesses, both of which were temporarily blocked from conducting any transactions with certain Russian-based companies. Oil billionaire's assets have been frozen both in the US and several European countries. Sure, they probably have assets all over the world, but would you really want all your money in China or the bank of some Arab nation? There really is no such thing as anonymous banking anymore, there hasn't been since the Swiss banks got busted for hiding assets they stole during the Holocaust. If the rest of the world wants to find Putin's money they will.

Unfortunately, economic war usually ends as badly as combat war. Just about every journalist in the world has penned some article comparing the situation with the beginning of WW1 and WW2 whe there really is no valid comparison. There is no evidence that Putin is attempting a massive seizure of land on the European continent. Someone needed to make order out of chaos in Crimea, and who else was going to do it?

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