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13 February 2016

Press review 13-02-2016 - Volatility

This week pretty much started of with an outspoken warning by the Bank of International Settlements regarding the pile of debt accumulated by the energy industry in recent years. As asserted multiple times in this space, there is more than enough enough doubtful debt to prompt another worldwide financial crisis. Petrobras' outstanding debt alone is about the size of Lehman Brothers' in 2008.

With this motto, financial markets plunged to a liquidity run, again hitting European banks particularly hard. The financial crisis is far from solved in these parts and legislation intended to punish investors is adding fuel to the fire.

Both a cause and a consequence, petroleum weathered the high seas, posting variations of over 10% in two sessions: Tuesday and Friday. This high volatility is a most toxic input to an already ailing industry. As highlighted in previous reviews, it threatens not only many companies, but entire countries.

07 February 2016

Press review 07-02-2016 - The hurt box

Throughout the past few days the economic media was swept by successive negative results from the largest petroleum companies in the world. Corporations that for years were regarded as safe investments, providing regular dividends, are now being downgraded by the almighty rating agencies. Beyond profits, the wave of job cuts seems set to continue, with the 300&nbsp000 figure of last year in risk of being surpassed.

And it is not only corporations, entire countries face the risk of default with present petroleum prices. Nigeria is the first to get financial aid from international institutions, and in all likelihood will not be the last.

Pundits and all sorts of important folk continue to maul the mantra that petroleum will be cheap forever or even become free. In the mid term, the volume of petroleum that can be economically brought on the market at 30 $/b is less that 40 Mb/d (and possibly closer to 30 Mb/d). There is only one way for this situation to last: a collapse of consumption.

30 January 2016

Press review 30-01-2016 - Budgetary difficulties

This week ended up being an anti-climax to all those pundits trying to bury the petroleum market at Davos. The Brent index rallied substantially, finishing the week with a 10% gain. This is likely not a definitive pull away from the depressed market, but shows well the utter volatility engulfing petroleum trading.

Exporting nations with little exception show publicly their discomfort with these petroleum prices. For many of them a second year of budget cuts is going to be an hard pill to swallow, that in some cases could spell serious social and political challenges.

24 January 2016

Press review 24-01-2016 - Soundbites

This week was marked by the annual gathering of rich folk at Davos, an event much lauded by the mainstream media. An host of journalists comes to Switzerland, prowling for soundbites and arranging live broadcasts to TV channels all over around the world. Petroleum prices remaining one of the biggest economy stories of the day, the Davos gathering produced an unusual amount of eminent opinions. In all, this made for the most depressive week I can recall for the petroleum market. The collective thinking of the pundits at Davos seems to indicate that petroleum is soon to become dirt cheap and the industry about to disappear.

If the energy soundbites coming out of Davos mirror the thinking of rich folk, then being or becoming rich has little to do with intelligence. Petroleum will not flow to the marketplace if there is not an able industry extracting and marketing it. And this industry (being it private or national) can not fare at this day and age with 30 $/b. The greatest mistake of mainstream thinking is expecting the market to always find some sort of stability.

16 January 2016

Press review 16-01-2016 - The bottomless well

Five weeks ago I titled the review "Under 40 hangover", and here we are now at 29 $/b. Since the beginning of this year petroleum prices fell 25%, a fourth in just two weeks. The petroleum market resembles a bottomless well, the black stuff keeps flowing and prices seem to have lost all support. The press ignites with all kinds of dire forecasts, prices are going under 20 $/b, under 10 $/b, even negative prices are now possible. No one has yet predicted Brent to become an imaginary number, but it should happen soon.

As usual, one has to pierce through the barrage of sound-bites produced by the media to get a better sense of what is going on. Even though there are already some signs of declining petroleum extraction in North America, in general, the financial system keeps supporting the petroleum industry. Banks and investment funds fear more a sudden collapse of the energy tied bond market than the losses of selling petroleum below cost. The question is if by delaying the reckoning day, the financial industry is not creating an even worse problem?

09 January 2016

Press review 09-01-2016 - Europe readies to occupy Libya

Happy new year then. I have been living in Zürich for a week and things are slowly settling down; the press review thus resumes.

This past few weeks we saw once again rising tensions among major petroleum exporting countries on the backdrop of sliding prices. Brent is back to prices of 2005, prompting ridiculous petrol and diesel prices at forecourts. The open rattling between Shiites and Sunnis has occupied much space in the media, but markets remained unmoved beyond the prospects of escalation.

Beyond this Saudi-Iran spat, Daesh took again the new year to launch a major offensive, this time targeting Libya. Suicide bombs, attacks on petroleum infrastructure, Daesh wants Libya and wants it bad. Earlier this week a few tabloid media in the UK reported the imminent deployment of an expeditionary force to Libya, 6&nbsp000 soldiers leaded by Italy and including sizeable contingents from the France and the UK. Recall here this post from last April, when I postulated such military operation as inevitable. The tab is up for payment.

26 December 2015

Press review 26-12-2015 - The year petroleum peaked?

The EIA published this week their petroleum extraction figures for September, presenting a world wide reduction of 0.5 Mb/d from August. This inversion into decline during the summer is now present in all publicly available datasets; the cries of "Peak Oil" grow louder. As usual I prefer a cautious tone, Iran, Iraq and Libya sum together several Mb/d of unrealised potential at this point; eventually it may invert the extraction profile once again. However, regarding where prices and stocks are presently, one can not possibly rule out 2015 as the terminal year for petroleum.

In spite of these data, in my view the Sunni-Shiite war in Iraq and Syria remained the major story of 2015. With dozens of countries involved in one way or another, this war is building into a focus of tension unprecedented since the Iranian revolution. The past few years I have tried in this reviewed to answer a simple question: is Europe on the right side in this war? But is it even clear on which side are we? The article that opens this last review of 2015 dives deep into this war, showing that things are not at all straightforward and that perhaps Europe is really wrong footed, embroiled into a trap of its own making.

An hiatus to the press review is likely to follow; details are at the end of this note.