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Page added on August 13, 2016
If Oil Prices Don’t Rise, the Middle East Will Sink
he ongoing collapse in oil prices that began two years ago is setting the stage for a catastrophic situation in the Middle East if it continues. That catastrophe could come in three stages of war: civil war within the boundaries of each sovereign; war between sovereign states; and most broadly, for the intra-Islamic fight between the Sunnis and Shias to devolve into a war of finality between them, with one side vanquishing, conquering and perhaps even attempting to extinguish the other.
I first addressed the potential for oil prices to be caught in a secular decline and its implications shortly after the collapse in prices began in 2014 in the column, “Oil and the Limits to Growth.”
Although the process I laid out has largely occurred over the past two years, one part of that process has glaringly not occurred, and has enormous implications for what happens from this point forward.
That issue is that U.S. alternative oil producers have not been driven out of business to the extent I envisioned was probable; not even close.
As I discussed in the column, “The Biggest Current Threat to the Markets” last November, my expectation was that as the Saudis held oil prices down, the U.S. alternative producers would have to severely reduce production, loan defaults would spike, bankruptcies requiring the transfer of assets would follow, and the time it would take for all of this action to play out legally would preclude the ability of the U.S. alternative E&P industry from raising capital to restart production, even as the Saudis allowed oil prices to begin increasing again.
It would have been a temporary situation but would have provided an immediate reprieve of the fiscal issues facing all the OPEC countries, and in the process relieve the social tensions caused by the lack of economic activity in the region.
That hasn’t happened and economic activity throughout the Middle East has plunged as a result.
The most daunting aspect of this is that the Saudis are running the largest fiscal budget deficit of all the OPEC members, with the exception of Libya, and as a result must produce oil, regardless of OPEC-mandated limits, in order to meet fiscal budget requirements.
The fiscal spending is required to fund the social welfare programs the citizens have come to rely upon. The government is fearful that reducing these programs could lead to social unrest and even civil war.
However, this is causing the other countries to suffer economically and raising the possibility of social unrest and civil war in them.
I don’t know how the U.S. alternative oil sector has been able to achieve the financial efficiencies allowing companies not only to continue to produce for the past two years but with many of them experiencing big rebounds in their stock prices.
Year to date, Continental Resources (CLR) is up by 100%, EOG Resources (EOG) 30%, Hess (HES) 17%, Marathon Oil (MRO) 13% and Statoil ASA (STO) 17%.
The only one of this group that’s down is Whiting Petroleum (WLL) , by 19%, which is also by far the smallest of them.
I don’t know if it is possible for the alternative producers to continue operating with oil prices at these levels, but it is beginning to appear that they are the marginal producers of oil globally, which means they, not the Saudis, are the group with the capacity to determine the price of oil.
If that is the case, it is probable that oil prices will never again move above the fiscal break-even prices required to allow OPEC to continue to function or for the member countries to avoid fiscal, economic and social crises.
The research I’ve read pertaining to the viability of the alternative oil sector to continue operating falls in two basic categories. One group insists that technological and financial efficiencies achieved over just the past two years have allowed the industry to become the marginal producer, displacing Saudi Arabia permanently.
The other group insists that the efficiencies are illusionary, have been achieved by way of temporary reductions in capital investment, and will disappear as the industry is forced to make those investments or reduce production.
I don’t know which is right, perhaps there is a bit of truth in both.
The one thing that appears certain, however, is the Middle East is on a path toward social upheaval that will make the Arab Spring pale in comparison, if oil prices don’t at least start rising toward where they were before the collapse began two years ago.
17 Comments on "If Oil Prices Don’t Rise, the Middle East Will Sink"
theedrich on Sun, 14th Aug 2016 4:08 am
It’s bowel-movement time. The Mideast sewer, with its medieval religion, has long enjoyed prosperity only because it fortuitously sits on oil, discovered and developed by White civilization. The maniacs who populate the region have always viewed themselves as entitled by Allah to subject the planet to their own biological urges, which means universal enslavement, elimination of all freedoms, and a return to the subhuman conditions of the Arabian seventh century.
The Allahists intend for Sharia law to dominate the globe, starting with the genosuicidal West. However, neither they nor the White nihilist elites who control the Western mass mind and politics have reckoned with the laws of nature and of Tainterian overcomplexification. It is now time for the camel jockeys to pay the piper. For the next few years they will inundate the death-seeking West. But even the welcoming White Coombayists are doomed to meet their own limits to “compassion” as the global economy slows even while Wall Street booms.
The only question now left is how long the suicide of the West will take. With the forthcoming election of a queen in the U.S., the Mohammedan Sand Negroes will undoubtedly accelerate that downspiral. And not all the king’s technological horses and men will put Humpty together again.
Cloggie on Sun, 14th Aug 2016 5:25 am
European compassion with the brutal masses from the ME means destroying the future of the children of Europe:
http://www.bbc.com/news/uk-england-south-yorkshire-28939089
By 2050 Africa and Arabia will count 2.7 billion bipeds, half of them armed with Allah brain software. Their only goal in life will be to attempt to reach Europe… in order to plunder, rape and subjugate it accordance to the laws of the Sharia.
During Roman times Christians were thrown for the lions in the Colosseum. It now becomes obvious why that was. The nihilistic, life-denying, anti-Darwinian, conflict voiding other cheek religion, who thinks that the meek will inherit the earth… rather than brutal semi-canibals from the south, are an outright danger for the continuity of civilization.
Unfortunately we have run out of lions.
A famous Austrian political thinker once said: “every generation needs its own war”. The western snowflake generation is in for a rude awakening. This is not going to be fun, this is not going to be like Pokemon Go. Google search engine will not tell you what to do. Your next selfie could be one of your chopped-off head, held high in triumph by a grinning barbarian.
This siren call video represents best the total corruption that is Christianity:
https://youtu.be/uSv4vBcFyvo
Belief in God, Holy Trinity, heaven and what not is dead in Europe. But the European Christian value system of “compassion and love”, even with those who hate you and want to kill you, is more alive than ever.
The real compassion should be with your own DNA, formed over eons of endless suffering to finally come up with a being that is potentially able to set itself interplanetary tasks.
We don’t have much time any more to finally throw our inner Jesus in the well and the rest of these temple dwellers and money changers with him.
Highest manifestion of our DNA to date:
https://youtu.be/xbHPTPUpQ1I
Apneaman on Sun, 14th Aug 2016 6:32 am
Cloggie, would you care to explain how someone can be a “semi-canibal”?
Is that similar to politicians who don’t inhale when they smoke pot?
Cloggie on Sun, 14th Aug 2016 6:51 am
https://youtu.be/ouBzc6gNPf8
Your algebra inventors having a “hearty meal”.
Apneaman on Sun, 14th Aug 2016 7:51 am
So, semi cannibal, like you are semi retarded?
Here is an example of a white European cannibal, so by your retard logic all white people are cannibals.
‘I fried a piece of rump steak from his back and ate it with sprouts’: German cannibal who ate his gay lover ‘with his permission’ describes how he went about killing and eating him
Armin Meiwes killed and ate lover Bernd Brandes after the pair met online
Brandes posted an advert on cannibal site offering ‘the chance to eat me’
http://www.dailymail.co.uk/news/article-3439299/I-fried-piece-rump-steak-ate-sprouts-German-cannibal-ate-gay-lover-permission-describes-went-killing-eating-him.html
See this is why I don’t wants nufin to do wif no Euro trash.
Kenz300 on Sun, 14th Aug 2016 8:05 am
The ever growing population of the middle east has created millions of unemployed and poor young people with no future…………..
China made great progress in moving its people out of poverty…….one reason was slowing population growth…..
Too many people demand too many resources……yet the worlds population grows by 80 million every year…..
How many charities are dealing with the same problems they were dealing with 10 or 20 years ago with no end in sight. Every problem is made worse by the worlds growing population.
CLIMATE CHANGE, declining fish stocks, droughts, floods, air water and land pollution, poverty, water and food shortages, unemployment all stem from the worlds worst environmental problem……. OVER POPULATION.
Yet the world adds 80 million more mouths to feed, clothe, house and provide energy and water for every year… this is unsustainable… and is a big part of the Climate Change problem
shortonoil on Sun, 14th Aug 2016 8:20 am
“The one thing that appears certain, however, is the Middle East is on a path toward social upheaval that will make the Arab Spring pale in comparison, if oil prices don’t at least start rising toward where they were before the collapse began two years ago. “
In 2015 the world discovered a potential 2 Gb of new oil to add to its reserves. It consumed 34. The value of oil has fallen to the point that literally almost no one is looking for it. Companies across the board are slashing their E&D departments to the bone. The petroleum industry is flatly informing us that the age of oil is ending.
The Middle East will not be the only place that the collapse of the status quo will affect. The entire industrialize world is now scheduled to move into an era of economic ruin. An era of devastation unlike any witnessed for at least a 1000 years. Oil is losing its ability to power the machines that make our modern day way of life possible.
Every year a barrel of petroleum loses the ability to power the economy by $14.40. Every year the price of oil falls with it. Every year oil producers become more highly stressed. Every year is one day closer to the day when they will finally shut their doors.
The Middle East will collapse into a mayhem of starvation, and destitution. Millions will perish on its unforgiving burning sands. If the Western World is not to follow closely in its bloody foot steps it must fully embrace the realization that end of an era has almost arrived!
http://www.thehillsgroup.org/
Apneaman on Sun, 14th Aug 2016 8:31 am
Kenz, sure, China is the poster child of sustainability.
How many kids did your folks have Kenz?
Did you ever stop to think it does not matter how good of a job mommy and daddy have? It’s about resource depletion and biosphere destruction and there is no difference between 15 third world rugrats and one spoiled baby Kenz.
Cloggie on Sun, 14th Aug 2016 8:46 am
Apneaman, you can find these isolated cases of cannibal lunatics even in notoriously nice countries like Canada (look up Luka Magnotta).
The truth is that when Europeans arrived in Africa they noticed that cannibalism was normal practise. The upper half of Africa is Muslim and the practise of cannibalism is still far more widespread than is reported:
http://allnewspipeline.com/Islamic_Cannibalism_Hidden_From_American_Public.php
But there are several here who can’t let go of the vision of One World globalism, completely at odds with the reality of an overpopulated world gradually running out of resources as our guru Heinburg can confirm.
Regarding your aversion against “Euro trash”, there will soon come a moment when we in the West all have to make a fundamental personal decision about which world we want to be part of. And if I listen well to you, you won’t be part of the European world much longer.
Don’t take it from a rightwinger like me, take from our common hero James Howard Kunstler:
http://www.resilience.org/stories/2014-08-18/review-a-history-of-the-future-by-james-kunstler
“Thus, it’s a complete surprise when Daniel and Evan learn that America has fractured into three separate countries. The most colorful of these is a confederation of southern states called the Foxfire Republic, led by a former country singer named Loving Morrow. Described by Kunstler as a case of “Dolly Parton meets Hitler””
Apneaman on Sun, 14th Aug 2016 9:27 am
Cloggie, there is no “we” in the west and I question if there is even a west. What there is, is global corporate capitalism that created exactly what it wanted – billions of individual customers whose loyalty is first and foremost to a consumer lifestyle. Most lives revolve around their schedule and this includes what is left of the family unit. Even our traditions are corporate controlled. When do family get together? How about on corporate thanksgiving, corporate christmas, corporate 4th of July (July 1st is corporate canada day)and they give you one corporate day to appreciate your mom with by purchasing a corporate approved mothers day gift. Ever study 20th century military history? Whether it’s a coup or an invasion one of the very first things that is secured is the radio and TV stations and newspapers, because if you control the communications you control the people. Most media is corporate owned and controlled thus so are the people. They would be lost sheep without it. This was no accident.
rockman on Sun, 14th Aug 2016 12:28 pm
“…alternative producers…are the marginal producers of oil globally, which means they, not the Saudis, are the group with the capacity to determine the price of oil.” No, they don’t have the capacity to set oil prices…no oil producer, including the KSA, has that ability. The oil BUYERS set the price of oil based upon their projections of what consumers will pay for the refinery products. The only control producers have is over how much of their capacity they bring to the market place.
As far as OPEC “revenue shortages”: according to the EIA the CURRENT OPEC revenue (adjusted for inflation) is TWICE as large as it was for 20 years from 1982 to 2002. Of course their populations have grown. But again from the EIA: the per capita oil export revenue for OPEC is CURRENTLY at the same level it has been at more the great majority of the last 30 years.
https://www.eia.gov/beta/international/regions-topics.cfm?RegionTopicID=OPEC
So easy for such fools to put out this bullshit as long as the FACTS aren’t included. Yes: OPEC revenue is down from its ALL TIME HUGE RECORD HIGH. But it’s still generating as much revenue for each of its citizens as it has been for the last three decades.
shortonoil on Mon, 15th Aug 2016 9:03 am
“So easy for such fools to put out this bullshit as long as the FACTS aren’t included. “
That must be why Saudi Arabia is borrowing money to pay its bills, and Venezuelans are eating their dogs. $40 oil is apparently a real boom for the industry. No problem here; move on.
Boat on Mon, 15th Aug 2016 9:40 am
short,
So if you’re the Saudi and are making 10’s of billions instead of 100’s of billions oil is a problem?
Why not blame their fishing, construction or thousands of other business and corporations. They own assets around world. They own farm land in the US to grow feed to ship home for dairy cattle in air conditioned buildings. Maybe powdered milk would save a couple billion.
ghung on Mon, 15th Aug 2016 10:50 am
But,, but, Short, CNN is running a headline; Oil prices are on fire — up 10% in just 3 days!
It must be something else. Something besides oil prices. Obama’s fault maybe.
Boat on Mon, 15th Aug 2016 11:13 am
ghung,
Nigeria agreed to pay rebels oil. The market took a dive. Then the rebels hit another pipeline. The market climbed. A few days before in Libya, warring factions agreed to let some ports export, then several days later a faction leader promised to blow up any tanker in sight.
The ups and downs of geopolitics.
PracticalMaina on Mon, 15th Aug 2016 1:00 pm
Boat, in my eyes, evidence that big money has ties to important folks in the “rebel factions”
Cloggie, a European explorer made statements suggesting the culture he left was much superior to the one he found? That is so shocking I wont get over it until Columbus Day.
shortonoil on Mon, 15th Aug 2016 1:46 pm
“The world is adding some 20 million vehicles per year. For the sake of argument let’s say electric vehicles grow to 20 million per year around 2035 causing the last peak oil. “
“But,, but, Short, CNN is running a headline; Oil prices are on fire — up 10% in just 3 days!”
The oil markets aren’t buying it, and neither are we.
http://futures.tradingcharts.com/marketquotes/CL.html
If you look at the long end of this, out to 2019 and further, there is almost no activity. Even though the front end has seen a monster short squeeze recently (compliments of the EIA’s fairy godmother stance) that squeeze is likely to end in the very near future; like this week.
http://www.zerohedge.com/news/2016-08-15/morgan-stanley-says-oil-squeeze-will-end-august-17-heres-why
The market is so bad at present that oil companies are hardly even looking for new oil. In 2015 they found 2 Gb, and the world burned 34. They are pumping it 17 times faster than they are replacing it, and they don’t seem to be a bit concerned.
Maybe you can’t get your head wrapped around the Laws of Physics, mathematics, models and all of that, but when the oil companies themselves start broadcasting it over a mega phone one would have to be damn stupid not to understand.
Oil is becoming so worthless that even oil companies aren’t looking for it? That is called the coming end of the oil age!
http://www.thehillsgroup.org/