Goldman Sachs executive Gary Cohn says we could see so much oil, there
would be no way to physically store it all, resulting in falling prices, at
least in certain locational areas.
Further destabilization across the globe could, logically, follow.
Cohn told Bloomberg News:
“I think the oil market is trying to figure out an equilibrium price. The
danger here, as we try and find an equilibrium price, at some point
we may end up in a situation where storage capacity gets very, very limited.
We may have too much physical oil for the available storage in certain
locations. And it may be a locational issue.”
“And you may just see lots of oil in certain locations around the world
where oil will have to price to such a cheap discount vis-a-vis the forward
price that you make second tier, and third tier and fourth tier storage
available.”
[...] “You could see the price fall relatively quickly to make that
storage work in the market.”
And though prices have recently rebounded a bit, that could well mean
prices below the $50 per barrel low point that has already shaken the
foundation of the geopolitical structure, sending the ruble and other
currencies into chaos while threatening new drilling operations and job bases
in the United States.
The big culprit in the oil crash has been an abundance of oil flooding the
market. A massive supply shock in the second half of last year accounted
for most of the decline. In December and January, slowing demand contributed
to the continued sell-off. Goldman was able to quantify these effects.
The big take-away: “[T]he decline in oil has been driven by an
oversupplied global oil market,” wrote Goldman economist Sven Jari Stehn.
As a result, “the new equilibrium price of oil will likely be much lower than
over the past decade.”
Here’s a chart to put it into pictures:
So much for peak oil, sold to the public since at least the 1970s to
justify tighter supply controls and soaring prices.
Today, it is revealed as something much closer to economic warfare between
competing producers, and market manipulation on the global market, in part to
provide the backbone for the American petrodollar.
Back in December 2014, the Wall Street Journal wrote in a piece titled, ‘Peak Oil’ Debunked, Again:
The latest reckoning with reality is the end of the obsession with
“peak oil,” which for years had serious people proclaiming that we were
entering an era of permanent fossil fuels scarcity. It didn’t work out that
way.
That’s a central lesson from this year’s dramatic fall in the
price of oil, which reached $69.49 a barrel of Brent crude on Thursday from a
June high of $112.12. As recently as early November, when oil
hovered at $80, OPEC officials warned they would intervene to hold the price
at $70. But Saudi officials conspicuously refused to support an output cut at
last week’s OPEC meeting, and Saudi oil minister Ali al-Naimi has made clear
that he’d be comfortable with lower prices.
The short-term Saudi calculation is to drive oil prices down to squeeze
their geopolitical adversaries and higher-cost producers. That goes
especially for their adversaries across the Persian Gulf in Iran, which
depends on oil exports for over 40% of its revenues, and where the regime had
designed its budget based on $100 oil.
The Saudis also hope to slow the explosive growth of U.S. production,
which, thanks to the tapping of domestic shale resources through the
combination of horizontal drilling and hydraulic fracturing, has risen to
some nine million barrels a day from five million in 2008. By some estimates,
the price of oil needs to be as high as $90 a barrel for oil extracted from
“tight” deposits such as shale, though oil market research firm IHS believes most tight oil wells have a
break-even cost of between $50 and $69 dollars a barrel.
Ahead of that story, SHTF warned back in December how falling oil
price were being used to ‘cripple’ Russia and push Putin into a posture for
war, possibly escalating WWIII.
The Cold War 2.0 is going hot, and while it may someday be fought with
planes, tanks, guns and bombs, the first front is being fought with oil and
shale gas.
The U.S. and European sanctions against Russia will become more severe and
crippling in the face of drastically falling oil prices – prices which are
falling drastically because of the unprecedented boom of shale gas fracking
both domestically in the U.S. and abroad in Ukraine and other locales. The
oil & gas giants like Chevron and Exxon Mobil have created revolutionary
conditions with now direct consequences on U.S. foreign policy and global war
for dominance. Via Bloomberg:
Oil’s decline is proving to be the worst since the collapse of the
financial system in 2008 and threatening to have the same global impact of
falling prices three decades ago that led to the Mexican debt crisis and the
end of the Soviet Union.
Russia, the world’s largest producer, can no longer rely on the same oil
revenues to rescue an economy suffering from European and U.S. sanctions.
Iran, also reeling from similar sanctions, will need to reduce subsidies that
have partly insulated its growing population. Nigeria, fighting an Islamic
insurgency, and Venezuela, crippled by failing political and economic
policies, also rank among the biggest losers from the decision by the
Organization of Petroleum Exporting Countries last week to let the force of
the market determine what some experts say will be the first free-fall in
decades.
“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in
Abuja,” said Daniel Yergin…
The destabilization in Ukraine and numerous spots in the Middle East –
including the ISIS-threatened Iraq and Syria – have been mere preludes to
what is coming.
How close are we today to that scenario?
