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Re: The Etp Model, Q & A

Unread postPosted: Tue 10 Jan 2017, 20:22:03
by shortonoil
"As long as the USA produces eight to ten million Barrels per day and consumes twenty million barrels per day the price of oil traded in US dollars will be the benchmark."

It is this type of disingenuous comment that keeps the average person from understanding the petroleum situation. The US processes 18.5 mb/d, imports 6 and exports about 6. Except for refinery gains (about 7%) the US is essentially net neutral on the consumption side. The US imports oil to be able to export finished product.

It is true that much of US production is unsuitable for the production of finished fuels (about 15% of it). Most of that is diluent and feedstock material that goes to Canada, Venezuela and is used by the petro-chemical industry to produce other products. The reason that the US imports oil is because it is very profitable for the refining industry, which is the best in the world. As long as the US can buy crude; which is as long as it can find costumers, which is as long as someone can find US dollars to buy it with. The US will be a petroleum products exporter. It may outlast the internet by several years.

Re: The Etp Model, Q & A

Unread postPosted: Tue 10 Jan 2017, 21:23:34
by vtsnowedin
shortonoil wrote:"As long as the USA produces eight to ten million Barrels per day and consumes twenty million barrels per day the price of oil traded in US dollars will be the benchmark."

It is this type of disingenuous comment that keeps the average person from understanding the petroleum situation. The US processes 18.5 mb/d, imports 6 and exports about 6. Except for refinery gains (about 7%) the US is essentially net neutral on the consumption side. The US imports oil to be able to export finished product.

It is true that much of US production is unsuitable for the production of finished fuels (about 15% of it). Most of that is diluent and feedstock material that goes to Canada, Venezuela and is used by the petro-chemical industry to produce other products. The reason that the US imports oil is because it is very profitable for the refining industry, which is the best in the world. As long as the US can buy crude; which is as long as it can find costumers, which is as long as someone can find US dollars to buy it with. The US will be a petroleum products exporter. It may outlast the internet by several years.

Once again your numbers are bogus. Between crude and finished products the US imports 8.6 million barrels per day and exports 4.7 mbpd of crude and finished products with much of the exports being natural gas liquids such as propane. For reference check rabbits weekly supply reports and for exports check here.
https://www.eia.gov/dnav/pet/PET_MOVE_E ... BLPD_A.htm

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 08:34:22
by shortonoil
"Between crude and finished products the US imports 8.6 million barrels per day and exports 4.7 mbpd of crude and finished products"

The difference is what comes out of Canada. Like I said the US is essentially crude neutral, and the only reason it imports is to export. As long as it is an exporter of finished products the world will need dollars to buy those products.

The ME Petrodollar recycling process has been greatly over rated!

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 12:31:19
by tagio
Further to short's point that CB "money printing" is all that is keeping the economy from crashing now that we are cannibalizing the economy to maintain oil supply, see https://anthonybsanders.wordpress.com/2 ... -8-10-yoy/ , indicating that M1 money supply has been growing at 8% - 10% year-over-year since the 2008 crisis.

For those who want a more detailed understanding of CB operations, I recommend Steve Ludlum's blog, Economic Undertow. He makes it clear that CBs cannot simply print & inject money into the economy per se - they are asset constrained. CBs can inject money either by purchasing assets and then including the assets on CB balance sheets (never to see the light of day again - CBs becoming the equivalent of a "bad bank," or as one wag put it, "the greater fool of last resort" on whom worthless assets such as securitized housing securities can be unloaded at full value), OR CBs can loan money against collateral. In this way, CBs maintain systemic credibility in that all money is backed by something "real" and therefore remains sound. CBs cannot make unsecured loans, i.e., naked money printing, without undercutting this illusion or the soundness of the money supply, ushering in hyperinflation. Ludlum goes into this at length.

In any event, those who receive the Fed's money from their sales of compromised assets or as loans (banks, certain hedge funds) can then use the freshly created money to buy other financial assets, including making loans to oilcos or invest in oilcos because, you know, the oil price HAS to go back up to $70 or $100, so the investors will make a killing. The massive increase in money supply is relatively "sterilized" and does not lead to massive inflation in the general economy because those who receive the funds pour them into financial assets, art work, condos in London, other stuff rich people buy, creating inflation of asset values and a Potemkin Village illusion of uber-wealth, which exists only as long as people don't try to cash out en masse. This indirect method of propping up oilcos, however, will continue to work only so long as "investors" still believe that it is worthwhile to invest money in oilcos. Once the all the "greater fools" have been crushed or have reached their limit, it seems to me the only thing left will be for CBs to fund oilcos directly as loans against oilco "reserves" or by purchase of oilco assets.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 12:57:03
by donstewart
Debt vs. Equity
See this article on Bitcoin for a nice chart on total global assets courtesy of Charles Hugh Smith:
http://www.oftwominds.com/blogjan17/bitcoin10K1-17.html

This is in response to previous disputes about the size of bond markets vs. equity markets. Debts are bigger. Rising interest rates would play havoc with the value of bonds, but also real assets such as houses. Why might interest rates rise? If some savvy Wall Street people are on the road to Damascus, and see, instead of a blinding light, the awful graphs in the ETP model...and figure out that the debts are never going to be repaid, then we might be in Loan Shark territory.

Don Stewart

Don Stewart

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 15:40:31
by Yoshua
The ECB is buying gov and corp bonds, among corp they buy oil comp bonds.

One way to extend the life of the oil comp could be if the CB's where allowed to buy oil comp bonds with negative yield, debt that would just pay down it self and disappear from balance sheets.

The problem with ECB buying all kinds of bonds is that they press down the yield on everything which makes it impossible for banks to survive in zero yield environment.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 15:46:38
by vtsnowedin
shortonoil wrote:"Between crude and finished products the US imports 8.6 million barrels per day and exports 4.7 mbpd of crude and finished products"

The difference is what comes out of Canada. Like I said the US is essentially crude neutral, and the only reason it imports is to export. As long as it is an exporter of finished products the world will need dollars to buy those products.

The ME Petrodollar recycling process has been greatly over rated!

Apparently you are incapable of doing sixth grade math. 8.6-4.7=3.9 mbpd of imports purchased refined and consumed in the USA.
We are not crude neutral and have not been sense 1975.
If you would start playing with reality and real figures you might come around to making a lot more sense.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 15:57:48
by shortonoil
Another major oil exporter coming apart:

http://www.zerohedge.com/news/2017-01-1 ... g-about-it

The price of oil began its decline 2 ½ years ago. Venezuela, Saudi Arabia, Nigeria, and other parts of the ME have seen serious social unrest since then. Norway, Canada, and Russia have been under considerable financial stress since.

"This indirect method of propping up oilcos, however, will continue to work only so long as "investors" still believe that it is worthwhile to invest money in oilcos."

With the teaming masses almost to the point of burning fields, and blowing up pipe lines finding investors for oil projects is likely to become a little difficult! How long can the central banks continue to pore $2.7 trillion per year down a black hole, without completely destroying the remainder of the economy, and themselves?

The coming end of the oil age appears to be on schedule.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 16:07:12
by vtsnowedin
shortonoil wrote:Another major oil exporter coming apart:

http://www.zerohedge.com/news/2017-01-1 ... g-about-it

The price of oil began its decline 2 ½ years ago. Venezuela, Saudi Arabia, Nigeria, and other parts of the ME have seen serious social unrest since then. Norway, Canada, and Russia have been under considerable financial stress since.

"This indirect method of propping up oilcos, however, will continue to work only so long as "investors" still believe that it is worthwhile to invest money in oilcos."

With the teaming masses almost to the point of burning fields, and blowing up pipe lines finding investors for oil projects is likely to become a little difficult! How long can the central banks continue to pore $2.7 trillion per year down a black hole, without completely destroying the remainder of the economy, and themselves?

The coming end of the oil age appears to be on schedule.
Trying to change the subject? Can't answer my post?
Why am I not surprised?

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 16:28:20
by pstarr
vt, he's changing your subject. Not our subject.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 16:51:30
by Quinny
Thanks Tagio for your comments.

Not really driven by hope as much as trying to understand some possible outcomes.

You are placing a constraint on the ETP, that reflects to a certain extent my way of thinking.

It seems the maximum price curve must be dependent on dollar being pegged via petrodollar status. It also seems to me that local markets could provide a continued production a la stripper well ranch where the well just keeps on pumping.

It seems to me that there will be a collapse, but it's likely to be a collapse of the global financial system which although it will cause untold suffering, might not be comparable to an extinction level event.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 18:35:44
by shortonoil
"It seems the maximum price curve must be dependent on dollar being pegged via petrodollar status."

I agree, but as long as North America remains the large exporter of finished products that it is, I don't see how that can happen. The US buys oil in dollars, and sells oil in dollars. Until there is no oil to buy, or more likely, no one to buy it the dollar will remain a strong currency. The dollar is likely to remain strong at the expense of other currencies. That is were the real problems are gong to first appear. I said over a year ago if you want to watch the depletion process in progress, watch the FX markets. Turkish lira, Mexican pesos, etc. and etc. The examples are getting extensive.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 18:48:33
by tagio
short's views immediately above are strongly supported by Steve Ludlum's analysis of "dollar preference:"

Ludlum says:
Remember dollar preference? Don’t pick up that economics textbook, you won’t find it there! Just because Marshall or Keynes didn’t write about it doesn’t mean it isn’t real. Dollar preference is what it sounds like: given the choice between accepting a dollar as payment or one- or more foreign currencies; between holding the dollar or spending it for shit or between holding the dollar or non-cash assets, people will choose the dollar. At issue is what determines the dollar’s worth. Conventional Lucas/Friedman economics suggests ‘efficiencies’ going forward discount future money: this and time preference ‘discovers’ present monies’ worth. The conventional narrative supports the rate-setting role of central banks and centrality of monetary policy. Debtonomics insists dollars and other currencies are priced by their exchange on demand for petroleum, something that takes place millions of times every day at gas stations around the world. Question for Donald Trump: millions of motorists vs. a handful of central bankers and corrupt politicians, who wins? The worth of the dollar is the fuel price bargain each one represents relative to other currencies, also what future dollars will be worth in a fuel constrained world. In this narrative, dollars are a proxy for fuel as dollars and other currencies were proxies for gold was during the periods of the gold standard. As such the dollar is a hard currency now becoming harder, to be hoarded out of circulation for the value it represents.

Put another way, dollar preference is the convergence between the value of the oil capital and the dollars that are exchanged for it. Fuel by itself is worth more than the real-world enterprises that make use of it regardless of what means are used to ‘adjust’ the price. By this way of reasoning, fuel in the ground in North Dakota is worth more than fuel wasted in a car stuck in traffic on an LA Freeway. Business (wasting) enterprises earn nothing on their own and are essentially worthless. They exist solely to borrow, gaining- and making use of credit is their primary product: other goods and services are intended to justify credit issuance in ever-increasing amounts. Part of this stream becomes the property of well-positioned ‘entrepreneurs’: enormous unearned borrowed profits are what drives the system. When debt = wealth, there is an incentive to take on as much debt as possible, keep what you can for yourself and to shift the retirement- and servicing burdens onto others.

Our economy as nothing more than a vast cost-shifting regime, our ongoing crisis is the shortage of ‘others’ able to bear the burdens of rapidly increased surplus-related costs.



Figure 3: Emerging market currency ETF: carry trades have been unwinding since 2011 as the dollar becomes stronger. A dollar carry is a way to sell the dollar short; investors borrow in the US at low rates then ‘sell’ dollars for higher-yielding assets in another currency. Decline of dollar becomes profits to those holding the overseas assets. When the dollar strengthens as it is doing now, the deal is a bust. Any asset appreciation in an overseas currency is more than offset by foreign exchange losses. What this means is costs are more difficult to shift, that dollar debts held overseas cannot be retired. The export of dollars and the shifting of costs that have been the mainsprings of globalization; that and the petroleum trade. Resource depletion and dollar preference are undoing all three …


http://www.economic-undertow.com/2016/1 ... rrelevant/

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 19:57:59
by shortonoil
"Any asset appreciation in an overseas currency is more than offset by foreign exchange losses. What this means is costs are more difficult to shift, that dollar debts held overseas cannot be retired."

Chinese capital outflows are 13% of its GDP. China is bleeding to death, and its capital is coming here at the rate of $1 trillion per year. The dollar is getting stronger, at the expense of everyone else! Mexico's civil unrest is the result of the rising dollar and falling peso. That is the result of her fields being in high rate terminal decline. China's energy cost per dollar of export has made her uncompetitive. Unfortunately, China is built on an infinite growth model.

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 21:45:18
by donstewart
@short
'Mexico's fields being in high rate terminal decline'

Where do you see Britain and Europe?

Thanks...Don Stewart

Re: The Etp Model, Q & A

Unread postPosted: Wed 11 Jan 2017, 22:07:26
by donstewart
interesting reading
http://peakoil.com/generalideas/is-an-e ... the-corner

Some interesting statements about the ETP model. SRS Rocco making his points known.

Don Stewart

Re: The Etp Model, Q & A

Unread postPosted: Thu 12 Jan 2017, 02:50:58
by Quinny
Thanks Short and Tagio.

Your thinking reflects mine, but I think it might be an idea to explicitiy state it as an assumption otherwise ETP's max price could fail by default.

Dollar devaluation (although unlikely) could occur (not just from loss of petro-dollar status) and would have a similar result.

No-one believed Trump would be elected, but the idiot could reek havoc with the economy.

Re: The Etp Model, Q & A

Unread postPosted: Thu 12 Jan 2017, 07:59:56
by Yoshua
https://www.bloomberg.com/news/articles ... uts-needed

Aramco has now cut production to under 10 mbpd according to Saudi minister.

Re: The Etp Model, Q & A

Unread postPosted: Thu 12 Jan 2017, 09:49:21
by donstewart
'No-one believed Trump would be elected, but the idiot could reek havoc with the economy.'

I call to your attention Trump's statement that he could run the US government plus his private business without any strain. That tells you something about his notion of federal government...mostly getting out of the way. The heavy lifting in terms of law enforcement, education, roads and bridges, and so forth are the responsibility of the states and the federal government should not really fund it or regulate it. The remaining stuff like military and foreign relations is staffed by professionals who need guidance but not supervision. Trump would probably call it 'draining the swamp'. Ron Paul would call it 'getting back to the Constitution'.

Trump probably thinks that energy decisions should be left to the free market. Wind and solar and tight oil will rise or fall depending on the market success of each. I doubt he wants to subsidize coal, but he will end 'the war on coal'.

The point is simply that if you take the attitude that the Federal Government should do about what the founders wanted it to do when they adopted the Constitution, you have a much reduced set of responsibilities for the Federal Government. If you think that the free market is incapable of dealing with the challenges, but that some really smart set of politicians CAN deal with the challenges, then you will not like Trump at all. If you think that the free market and free people will deal with the challenges better than any top-down set of directives, then you may end up liking him.

Don Stewart

Re: The Etp Model, Q & A

Unread postPosted: Thu 12 Jan 2017, 10:41:34
by shortonoil
"while European government scientists show that the value of energy produced by oil has declined by half within the first 15 years of the 21st century.'

The Etp Modle shows that between 2000 and 2015 (16 years) the energy delivered to the general economy from a gallon of oil declined by 55%. So essentailly this statement is correct.

"Your thinking reflects mine, but I think it might be an idea to explicitiy state it as an assumption otherwise ETP's max price could fail by default."

The Maximum Price function could fail, but it would not be from a failure of the Etp Model. It would have to be the result of a failure in the monetary system. A failure in the Petro-Dollar will most likely result in the failure of the entire integrated global industrial system. Without an efficient system for purchasing and payment it would cease to exists. It is a very long, and involved chain of raw material and finished product acquisitions. At that point any semblance to modern civilization will be gone.

Because of the instantaneous nature of the redemption process, and the very short sighted perspective that the entire system has acquired as a result there will be no opportunity to resurrect it once it begins to unwind. The world has built an incredibly complex, and fragile system, with few redundancies. They would have been too expensive to install to be supported by a system rated by the performance of the last quarter!

"Aramco has now cut production to under 10 mbpd according to Saudi minister.'

Are they cutting in a futile attempt to raise prices, or are they cutting because their old, depleted out fields can not be pushed any further? We should have the answer to that question in the near future. If it is the later, their currency would implode, and they would come apart at the seams in short order.